The Role of Directors and the Board in Charity and Not-For-Profit Organisations
The key purpose of a board of directors is to ensure an organisation’s prosperity by collectively directing the organisation’s affairs while meeting the appropriate interests of its shareholders and other relevant stakeholders, and complying with all necessary legislation and regulation. High standards of governance, transparency and accountability are expected of all organisations, with charity and not-for-profit organisations being no exception.
Even though a board may serve on a voluntary basis, the directors, officers or trustees of charitable and not-for-profit organisations are obliged to make themselves aware of the organisation’s obligations and to ensure that it operates effectively and efficiently and that they behave with integrity. Legislation does not distinguish between those directors who are volunteers and those who are remunerated, with the same duties and responsibilities applying in terms of compliance with corporate governance requirements and legislation, such as the Companies Act 2014 and Charities Act 2009.
A key aim of the Charities Regulatory Authority (CRA), which was established in October 2014, is to increase public trust and confidence in the management and administration of charitable trusts and charitable organisations, and to promote compliance by charity trustees with their duties in the control and management of organisations.
Boards of charitable and not-for-profit organisations also have a role to play in contributing to the wider re-building of trust in Ireland’s not-for-profit sector by employing and practicing the highest standards of corporate governance, relevant to the size of their organisation. Good governance practices will not only increase transparency by informing the public and funders about how the organisation is being run, but will also contribute to managing risks to the organisation, achieving goals and optimising the use of all resources.
This document outlines a number of key considerations for directors and boards of charity and not-for-profit organisations in Ireland.
The changing environment - the demand for more transparency in the not-for-profit sector
- Ireland’s not-for-profit organisations must respond to the greater public expectation for transparency by ensuring that easily accessible information is available publically on how the organisation is governed, including publishing its annual report, and listing names of board members
- Not-for-profit organisations need to be able to justify the value they create in terms of outputs, versus the inputs of salaries and administration costs. Organisations also have a key role to play in aiding public understanding of the costs associated with fundraising and administration
- Any person who consents to act as a director or officer of an organisation must be aware that they undertake onerous duties and responsibilities, and that legislation does not distinguish between directors and officers who are volunteers and those who are remunerated – the same duties and responsibilities apply
- It is the organisation’s responsibility to ensure that it identifies and complies with all relevant legal and regulatory requirements e.g. the Companies Act 2014, the Charities Act 2009
Getting the board right - composition, skills, diversity & rotation
- Boards should be structured so that they provide a balance, not only in terms of skills and experience but also with respect to age, gender, ethnicity, background and physical abilities. The constitution of an organisation should be regularly reviewed to ensure that there are provisions in place to encourage diversity of board membership
- There should be an open and transparent process of appointment for new board members and board members should fully understand their duties and responsibilities and have a clear expectation of the time commitment that will be required, before accepting the role
- Boards should regularly examine the procedure for the rotation of various positions to allow for the introduction of new board members. There should be an established ethos within the organisation of board renewal
- Identify any weaknesses on your board, for instance, a skills gap or lack of expertise with regard to corporate governance. Such weaknesses, once identified, can be easily addressed through appointing directors who possess the required skills and through the provision of suitable training for board members, in line with the size and complexity of the organisation
Getting the most from your board
- The role of the board will vary depending on the size of the not-for-profit organisation, however certain matters must be addressed by the board, regardless of size:
- Defining the mission statement, ethos and constitution of the organisation
- Developing a high ethical standard within the organisation and ensuring that everyone involved acts with integrity at all times
- Encouraging a culture of openness, responsiveness and accountability
- Developing a strategic plan
- Safeguarding the organisations’ assets
- Monitoring the efficient use of resources
- Financial planning, including liaising with fund providers and identifying new sources of funding
- Encouraging the best possible service provision in line with the constitution of the organisation
- Ensuring compliance and keeping up-to-date with changes
- Setting the risk appetite for the organisation
- Communicating with stakeholders and the public – and being open and accountable
- It is essential that all board members demonstrate active commitment and participate fully at board meetings. Board members must also have a clear understanding of the role and the responsibilities, demonstrate leadership qualities and the ability to constructively challenge other board members and the CEO
Maximising board effectiveness - training, education & evaluation
- Basic induction training should be provided to all board members and depending on the size of the organisation, further specific training may be relevant for the chairperson and those holding sub-committee roles
- All boards of not-for-profit organisations, regardless of size, should:
- Clearly define the role of board members – including distinguishing between the role and responsibilities of the chief executive and the role of the chairperson
- Ensure that key positions such as chairperson, vice-chairperson and treasurer are always filled
- Design an induction programme for each key position and for the board as a whole
- Document the duties, responsibilities and tasks undertaken by each key position holder
- Adequately plan for succession and ensure handovers take place
- Keep an attendance sheet for each board meeting
- Circulate board papers, including the agenda, minutes of the previous meeting and management accounts in good time before meetings
- Consult with specialists, as appropriate
- A board should regularly review and assess its performance, and that of its sub-committees, where relevant, and utilise the results to instigate positive change and innovation
- More complex organisations should consider undertaking an external board performance evaluation, by an independent assessor
Keeping the board focused – strategy and risk
- The board should develop a strategic plan for the organisation and monitor and evaluate this plan annually with the CEO. The performance of the organisation should also be assessed and monitored against the strategic plan. KPI’s should be developed for the achievement of the plan and for evaluating management’s performance
- Sustainability is the greatest risk facing most not-for-profit organisations. Organisations need to balance managing operations effectively and efficiently while also ensuring compliance with legislation and corporate governance requirements so that sustainability is not jeopardised
- Effective risk management is integral to good organisational management and all organisations should undertake a risk assessment which is aligned to the strategy of the organisation, on a proportionate basis
Key questions all boards should be asking:
- Where does organisational funding come from and what are the factors which would cause it to decrease?
- What are the essential resources needed to continue to operate?
- What are the reputational risks to the organisation?
- What legislation should the organisation be complying with and what procedures are in place to ensure compliance?
- What plans are in place for board rotation and succession?
- What would cause a decrease in volunteer numbers?
- Are the demands for the service increasing and what plans are in place to meet these demands?
- What controls are in place to ensure that all expenditure is approved and valid?
- Larger organisations should undertake more detailed risk assessment procedures, focusing on the four key areas of strategy, operations, reporting and compliance
- Organisations in receipt of HSE funding must ensure compliance with the HSE Code of Governance and registered charities will need to ensure compliance with the Charities Act 2009. Organisations involved in fundraising should ensure compliance with the Statement of Guiding Principles for Fundraising
- Risks reviews and risk registers should be updated annually
Restoring credibility - top governance priorities for the not-for-profit sector
- Where relevant, organisations should ensure that they have completed their entry on the CRA’s Register of Charities and submitted their Annual Report
- Organisations themselves can contribute to restoring credibility by encouraging and improving on best practice operations including:
- Reviewing current governance practices and identifying areas for improvement
- Increasing transparency by informing the public about how the organisation is run
- Adopting the Governance Code for Community and Voluntary Organisations, if not already in place
- Ensuring that the board selection process is formalised, with adequate regard for skills requirements, training and board rotation
- Training – ensuring that all board members are fully aware of the responsibilities associated with their role and receive adequate induction and training opportunities
- Identifying major risks to the organisation and determining ways of managing those risks
*Note that this information is not intended to be to be exhaustive in terms of board responsibilities for not-for-profit organisations. Information provided in this document been sourced from the publication, ‘A Guide for the Officers & Directors of Not-For-Profit Organisations’ which was produced by the Institute of Directors in Ireland, in association with Deloitte.