The general understanding among the public (I assume anywhere in the world) is that the standards of governance and accountability in the nonprofit sector is not in par with that of the private and public sectors. Ideally, given that nonprofit organisations depend on donations, public and/or government funding, it is imperative to maintain g a higher degree of accountability.
In the process of understanding what is good governance for nonprofit sector means, it might be good to list out what is poor governance look like…Through my experience and understanding I would like to list out the following as instances of poor governance: when we do not see an independent chair or board members who are not independent or no CEO performance indicators, Board meetings that spend more time on operations than on strategic thinking or when there is hardly any agreement between the board and the management, organisation extinction is regularly discussed and eternal complaint about lack of funds and issues regarding the deliverable.
How can we avoid such situations of poor governance and bring effectiveness to nonprofit governance? As we see most of these practices are linked to Board of Directors, lets first try to come up with a solution to make them more effective. In that regard, it is imperative to look at three main dimensions: Board structure, the competencies of its members and their behaviour. Board of Directors should be guided by proper policies, processes and procedures. Prior to providing the strategic direction to the organisation, Board needs to put themselves in order. Secondly, when thinking about members of the Board, they need to be a set of individuals who have knowledge, skills, abilities and a good network that will benefit the organisation in numerous ways. Finally, the board behaviours: their values, ethics, management relations etc.
It might be a good idea for the Board of Directors of nonprofit organisations also to introduce an annual performance assessment for themselves. I have come to understand that formal board reflection exercises have been increasingly used by many boards already in the sector. This actually seem to be both a norm and a practice in Australia. These evaluations will inevitably bring benefits for the organisation in a positive manner. They may actually reveal how effective is the working style of your board, how competent your directors have been and to think more and more about this, it looks critical if boards are to function at a high level to give strategic direction to an organisation. Most importantly, board evaluations allow the board to set the ‘tone from the top’ by sending a strong message to stakeholders that the board values a performance culture. If properly conducted, these evaluations will also help establish the individual and collective responsibilities of directors and identify where the board and individual directors need to enhance their performance.
These evaluations then will inevitably put the board on track to perform the role that is expected from them: strategic direction, CEO selection, monitoring and performance evaluation, monitoring the management of the organisation, risk management, compliance, policy framework, networking, stakeholder communication, decision making that leads to effective governance. Having established these processes and procedures from top to bottom, nonprofit organisations can provide incremental governance initiatives leading to good governance.