Great Foundations: A 360-Degree Guide to Building Resilient and Effective Not-for-Profit Organisations

A 360â•›° guide to building resilient and effective not-for-profit organisations Great not-for-profit organisations are built on a solid foundation of knowledge, creativity, experience, and agreed values and purpose. Great Foundations is a practical guide for people working in not-forprofit organisations, especially aspiring Board members and CEOs and people for whom this is new territory. It is for people who want to make the most effective contribution they can to their chosen not-for-profit organisation. It is about the importance of giving attention to all parts of a not-for-profit organisation—and understanding why the back office should really be front of mind at least some of the time; why a slick marketing message is not enough without solid program delivery; why you need to know what is under the bonnet of your not-for-profit’s engine from a legal perspective; and why thoughtful planning and active networks are critical to your not-for-profit’s survival.

Great Foundations

Great FOUNDATIONS

Great FOUNDATIONS A 360â•›° guide to building resilient and effective not-for-profit organisations

After many years working as a Board member, lawyer, CEO and adviser within and to not-for-profit organisations, Catherine Brown has written Great Foundations to share her knowledge about notfor-profit organisations. It will also give you ideas about how your experience in other sectors can add real value to a not-for-profit Board or organisation. Great Foundations will give you the information to ask the right questions—when they need to be asked.

ISBN 978-0-86431-886-2

9 780864 318862

Catherine J. Brown

Catherine J. Brown has spent more than 20 years contributing to the not-for-profit sector as a lawyer, consultant, CEO and Board director. She is passionate about enhancing not-for-profit organisations through supporting Boards and CEOs to find solutions to the challenges that they face. Catherine has also worked in commercial and government roles and is keen to increase the two-way exchange of knowledge and skills between all three sectors. More information about her consultancy can be found at www.catherinebrown.com.au

Catherine J. Brown Australian Council for Educational Research

Great FOUNDATIONS A 360â•›° guide to building resilient and effective not-for-profit organisations

Catherine J. Brown

ACER Press

First published 2010 by ACER Press, an imprint of Australian Council for Educational Research Ltd 19 Prospect Hill Road, Camberwell Victoria, 3124, Australia www.acerpress.com.au [email protected] Text copyright © Catherine J. Brown 2010 Design and typography copyright © ACER Press 2010 This book is copyright. All rights reserved. Except under the conditions described in the Copyright Act 1968 of Australia and subsequent amendments, and any exceptions permitted under the current statutory licence scheme administered by Copyright Agency Limited (www.copyright.com.au), no part of this publication may be reproduced, stored in a retrieval system, transmitted, broadcast or communicated in any form or by any means, optical, digital, electronic, mechanical, photocopying, recording or otherwise, without the written permission of the publisher. Copying of the blackline master pages The purchasing institution and its staff are permitted to make copies of the pages marked as blackline master pages, beyond their rights under the Act, provided that: 1. The number of copies does not exceed the number reasonably required by the institution to satisfy its own purposes; 2. Copies are made only by reprographic means (photocopying), not by electronic/digital means, and not stored or transmitted; 3. Copies are not sold or lent; 4. Every copy made clearly shows the footnote (e.g. ‘© Catherine J. Brown 2010’). For those pages not marked as blackline masters pages the normal copying limits in the Act, as described above, apply. Edited by Maureen O’Keefe Cover and text design by ACER Project Publishing Cover image copyright Nikola Spasenoski, 2010. Used under licence from Shutterstock.com Typeset by ACER Project Publishing Printed in Australia by BPA Print Group National Library of Australia Cataloguing-in-Publication data: Author: Brown, Catherine J. Title: Great foundations : a 360 degree guide to building resilient and effective not-for-profit organisations / Catherine J. Brown. ISBN: 9780864318862 (pbk.) Nonprofit organizations--Administration. Subjects: Nonprofit organizations--Australia. Dewey Number: 658.048 DISCLAIMER This book has been produced to support the self-education of Boards and CEOs in the Australian not-forprofit sector and provides advice of a general nature. Readers should seek independent legal or financial advice about particular issues and specific circumstances. The tax law relating to not-for-profits is especially subject to change as government policy changes. While there are practical tips about financial reporting to the Board, the author is not a qualified accountant and does not seek to give financial advice. All legislative material herein is reproduced by permission but does not purport to be the official or authorised version. It is subject to Commonwealth of Australia copyright.

Why bees on the cover of a book about not-for-profit organisations? Because: Bees are the most altruistic of all insects. Bees work as a cohesive team for a main goal and a long-term future. Bees are surprising, and that element of surprise and innovation is one of the strengths of the not-for-profit sector. Bees are the epitome of cross-pollination. Bees care for the queen bee for the benefit of future generations.

… for so work the honey-bees, Creatures that by a rule in nature teach The act of order to a peopled kingdom. Henry V, Act I, Scene 2, lines 187–189 William Shakespeare (1564–1616)

This book is dedicated to all the fantastic people that I have worked with in so many parts of the not-for-profit sector, from Hobart to Darwin and everywhere in between. They are all helping to build an equitable and sustainable Australia. It is also dedicated to my sons William and Fraser and to my grandmother, Mary Aotea Penfold (nee Campbell), who worked at the Australian Council for Educational Research for five years in the 1930s, after completing an Arts degree at the University of Melbourne.

Foreword

Many Australian people are enhanced by working in the not-for-profit sector. Catherine Brown is one of them and she has been generous with her time and skills in the pursuit of better governance. Her role in the community foundation movement where we first met has been significant as she has nurtured and supported foundations Australia-wide, including the Sydney Community Foundation. Great Foundations brings together her experience, insights and professional skills. It is my hope that it will encourage and inspire more people to become engaged in the not-for-profit sector. The not-for-profit sector is a sector of passions and legacies, both personal and professional. When I reflect on my life I realise I have been engaged and active in this sector for more than four decades. How I do business there constantly informs much of my concurrent professional life. However, I learned on the job and having access to a book like this could have saved some pain and many mistakes. My first experiences were like being in a documentary without a script. There was no reference point and the narratives were of heroic or defeated warriors who almost inevitably suffered burnout. There is a better way and this book takes us there. Great Foundations is a timely book. Recognition of the capacity and growth of the not-for-profit sector has never been greater. Many young people want to work there and many mature people are looking at the sector and wondering if this may be the best way to give more back to the community. I hope that they decide this is the preferred pathway. Being part of governance within this v

Foreword sector is complex and challenging yet it will be some of the most rewarding work you can do. As one who has navigated this sector, let me urge that you read Great Foundations before you begin your professional not-for-profit director career. Your opportunity to make a difference will be assisted by the insights offered. For example, keeping true to purpose sounds easy but as the community around changes it can be very difficult for organisations to agree on what the real purpose might be, and whether the cost of change and adaptation might be too high. Great Foundations is an inclusive book, written for both executives and nonexecutives who share the leadership of the not-for-profit sector. The chapter checklists are invaluable and will help directors stay on track. The language is clear and friendly and my Masters students will get as much from it as the community person taking on her/his first corporate role. Let me not give the impression that Great Foundations is without the romance, passion and sense of a sector where so many people feel they are working for the common good. It is written from a strong and disciplined base of practice and experience, yet still manages to capture the satisfaction of doing valued work in the community and being part of a common humanity.

Wendy McCarthy AO Company director, social commentator, mentor McCarthy Mentoring

vi

Contents

Foreword

v

About the author

ix

Introduction

1

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7

Why is the not-for-profit sector different? The big picture

3

Why are we here? The purpose angle

6

How do we know where we are going? Strategic direction

11

What sort of not-for-profit is this anyway? The legal perspective

23

What should our Board be doing? The Board perspective

33

Who makes things happen? The human resources angle

51

Do we understand and manage risk? A risk perspective

61 vii

Contents Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15

How do we get money in the door? The fundraising angle

68

Why is grantmaking not easy? The grantmaker perspective

84

How do we manage internal and external change? Changing perspectives

97

Do our partner organisations help us achieve our mission? The partnership view

103

Do the right people know about us and what we do? The marketing perspective

108

Do we spend enough time navel gazing? The planning and evaluation angle

113

Do we have a robust back office? Below the radar!

121

Future proofing your organisation Gazing into a crystal ball

126

Conclusion

133

Appendix: Board effectiveness review

134

viii

About the author

Catherine J. Brown is an experienced lawyer, management consultant and Board director with particular expertise in governance, organisational development and the not-for-profit sector. Catherine is Chair of the Queen Victoria Women’s Centre Trust, Chair of the Greater Metropolitan Cemeteries Trust, a director of Australian Community Philanthropy Ltd and was Deputy Chair of the Royal Victorian Eye and Ear Hospital for nine years. Catherine Brown & Associates Pty Ltd was established in 1999. Prior to becoming a consultant, Catherine worked in commercial law for several years before spending 11 years as a solicitor and senior executive within non-government human service organisations, including three years as CEO of the Brain Foundation and senior roles with Wesley Mission and the MS Society of Victoria. Catherine has consulted in philanthropy, not-for-profit governance and organisational development to a range of organisations including the Myer Foundation, the United Nations University, Deakin University, the Ian Potter Foundation, the North Australian Indigenous Land and Sea Management Alliance, the Australian Council for Educational Research and ANZ Trustees. She is the author of The Community Foundation Kit: Building stronger Australian communities and co-author of Conversations about Possibilities: Themes and reflections from the International Philanthropy Collaboration. She presented at the first Global Community Foundation Symposium held in Berlin during 2004 and at the international WINGS Conference in Bangkok during 2006. In 2008 she appeared before the Senate Inquiry into Disclosure Regimes for ix

About the author Charities and Not for Profits to advocate for a simpler structure for community foundations and other charities. In 2009 she met with the Productivity Commission during the consultation phase for the Contribution of the Not-forProfit Sector report. Catherine has two sons, two chocolate Labradors and a keen interest in design, gardening and playing tennis.

x

Introduction

Why read this book? If you have any sort of leadership role in a not-for-profit organisation, this book is for you. It will be particularly helpful if you have come from another sector or if you want to make more of a difference with your time, talent or treasure. This is a practical book aimed at accelerating your contribution to or€induction into the not-for-profit sector. It can also be used as a refresher tool or to help you think through a particular issue. A checklist of key points is provided at the end of each chapter. This book has been written for CEOs and Board members who take on a role in a not-for-profit organisation but find that things are not as simple as they might appear from outside the not-for-profit sector. While it is rewarding, management can be tough in the not-for-profit sector. Being an effective Board member can be even tougher! Engaging in good works might be fashionable, due to the interest in corporate social responsibility and in professional volunteering, but this does not mean that it’s easy. Transferring the skills you have gained from business, government or a profession to the not-for-profit sector is a good idea – but you are embarking on a journey in a different country and it pays to understand some of the unwritten rules of any new culture. You do not want to waste your time. If you are moving up into a CEO position, you don’t have any time to waste. This book will give you an overview of areas in which you may not 1

Great Foundations have previous experience – the not-for-profit sector is full of brilliant allied health practitioners, teachers, accountants or fundraisers who became CEOs overnight. It is also useful to reflect on why you are doing what you are doing in the notfor-profit sector. The most effective not-for-profit organisations are usually led by people that think carefully about the impact of what they do and plan for the future. This book aims to deal with the key issues in most aspects of a not-for-profit organisation. By reading through each chapter and thinking about its checklist, you should save yourself time, money and even heartache. Having spent more than 20 years in varied legal, senior management, consulting and Board roles in the not-for-profit sector, I have a good idea where the curveballs might come from. Learning how to prevent unforeseen developments from damaging your not-for-profit organisation and, just as importantly, diverting you from making the sort of difference you want to make, is essential. There are case studies scattered through this book. They are drawn from my own experiences within the not-for-profit sector and are sometimes an amalgam of several experiences. All the case studies are simply my own reflections and are designed to help explain a point being made – they are not official statements or views. They have been included to give a touch of reality to a particular aspect of governing or managing a not-for-profit. Here’s wishing your not-for-profit organisation an excellent future!

2

Why is the not-for-profit sector different? The big picture

1

Imagine that you are being transferred within your current company from the Australian office to the new European office. You pack your bags and, full of enthusiasm, fly from Melbourne to Munich. You get off the plane, find somewhere to live, unpack your bags and head to the office. (Yes, it’s that easy!) Do you expect the operating environment to be different from the environment in Australia? Do you expect the tax laws to be different? Do you expect insurance to be different? Do you expect that the people you work with will speak a different language? The answer is yes. Imagine you are starting a new job or have taken on a new Board role in the not-for-profit sector for the first time. The questions are the same – and so are the answers. You will be working in a different operating environment, with different sources of funding and different stakeholders. You will be operating in a different tax regime. Different insurance covers will apply – such as volunteer accident insurance. The people you work with will definitely speak a different language. And it is not just the language of the heart based on a social conscience. They will speak different dialects based on the jargon of aged care, health, education, disability services, the arts, the environment, women’s issues or the many other areas of community concern tackled by the not-for-profit sector. Before long, your initial enthusiasm might begin to wane. You might feel frustrated. Hang in there. Things will improve quickly if you approach your move 3

Great Foundations into the not-for-profit sector with the same background research and logic with which you approach your other roles. The not-for-profit sector is complex for many reasons. You need to understand the overall operating environment. It’s not just about mega fundraising machines and celebrity donors. The complexity of the not-for-profit sector is what makes it interesting. Here are some of the common reasons for its complexity: 1. Income sources are usually diverse and all require active management. Reporting and accountability requirements vary and the lack of an integrated federal/state approach adds to this complexity. 2. Different parts of the Income Tax Assessment Act apply to the not-forprofit sector compared with individuals or businesses. 3. Tackling social, educational, cultural, health and environmental problems is difficult work and often involves many stakeholders, including consumers and government. 4. Salaries are usually below other sectors so staff expect other nonfinancial rewards for their work. Volunteers also look for ‘feel good’ rewards. 5. Board members are often not paid for their time or, if they are, it’s usually a modest amount. Board and staff roles can easily become blurred in challenging times, causing conflict. 6. There is pressure from funders on not-for-profits for innovation or at least continual improvement. 7. The public policy environment changes each time there is change in state or federal government, and sometimes even if there is just a change of minister! 8. A not-for-profit is established to achieve certain objectives. This has an impact on tax status, especially as objectives might change over time and the organisation’s tax endorsements reflect its purposes and€activities. So let’s get to the bottom of all this. Each chapter tackles different aspects of a not-for-profit organisation. At the end of each chapter there is a checklist of questions for the CEO and/or for the Board. If the CEO or Board of your not-for-profit spends at least some time reviewing these questions each year, your organisation – and your contribution – will be more effective. You will identify which areas of your organisation need to be worked on to increase its ability to grow or withstand difficult times. Taking a bird’s-eye view, these are the things you need to know: • Why was the organisation established? You need to know its history – who holds the corporate memory? Why are things done in certain ways? Should they change? 4

Why is the not-for-profit sector different? • Just what sort of legal entity are you dealing with? Is the notfor-profit a charity? Is it a trust, a company, an association? Is it incorporated? Does it own other entities? Is it owned by another organisation, perhaps one based overseas? • What is the organisation’s financial base? Does it receive recurrent government funding? Is it able to receive tax deductible donations? Does it have any partnerships with business, or could it? Does it have any reserves? If so, how are they invested? • Who actually makes things happen? Are there lots of staff, or one staff member, or a team of volunteers who do the organisation’s work? • Who sets the organisation’s strategic direction and checks it is on track? Do the Board, Council or Management Committee members have the skills and knowledge that they need? • Does the organisation keep up-to-date with its policy environment? Does it have useful links with government – local, state or federal? Does it contribute to the development of policy? • How does the organisation respond to change as it moves forward? Is it a ‘can do’ sort of organisation or more bureaucratic? Does this matter? • Has the organisation started anything new in the last few years? Is this encouraged? • Who does the organisation work with? Are these actually useful collaborations? Are they partnerships of habit? Who should the organisation partner with? • What is the organisation’s image? Does it back up its image with actual achievements? Who needs to know about it? • Does the organisation or its staff reflect on what you all do? Are you able to learn from successes and so-called failures? How does everyone know when the organisation has done a great job? In this book, ‘not-for-profit organisation’ means the organisation is not run for the profit of its members or shareholders. Not-for-profits have objects that usually aim to either provide services to members (e.g. a professional association or sporting club), or address an environmental, social, health, educational or other community issue. Of course, a ‘not-for-profit’ organisation should still aim to make a net surplus from its activities each year so that it can continue to fund these activities and achieve its mission. The key is that any net surplus goes back into the organisation to advance its purposes and is not paid as a dividend or other payment to its members or shareholders. There are other terms such as ‘social profit’ emerging but ‘not-for-profit’ is used in this book because it is currently well understood within the Australian community. 5

Why are we here? The purpose angle

2

❚❚ Why was the organisation established? ❚❚ Why are things done in certain ways? ❚❚ Should they change?

Are we really needed? There is not much point in putting your time and talent towards a cause that is no longer needed or is already being addressed by 10 other organisations across Australia. The CEO (or School Principal) and the Board of a not-for-profit need to put emotions aside and ask themselves if their organisation is needed. The time to ask this question is when an organisation is about to be set up and then regularly throughout its life – not necessarily every year but definitely every five years. During its start up strategic planning work, the Founder and first Board should consider information about the world out there, also known as the ‘external operating environment’. What other organisations are already in existence doing the same or related work? Do they cover the same geographic area? Would it be worthwhile to operate as a division of an existing organisation or is a new organisation necessary? It is important that the Founder puts their ego in their back pocket at this stage and thinks about solving the issue they are tackling, whether it is water conservation, training young musicians, preventing a rare form of cancer, teaching children with special needs or exceptional abilities, or another issue from the myriad of possible concerns. If the organisation is not going to deal with a new issue in a new way, funders will find it difficult to support and donors might be hard to engage. Collaborating or co-locating can be a good outcome in some situations. Creating alliances with related organisations can also be very effective. Three great 6

Why are we here? examples of this are The Nerve Centre in Ringwood, Victoria; The Queen Victoria Women’s Centre in Lonsdale Street, Melbourne; and The Green Building in Carlton. At The Nerve Centre, established by the Multiple Sclerosis Society, a library, offices and café are shared by a range of other organisations committed to supporting people with neurological conditions or brain injury. At The Green Building, all sorts of environmental organisations are co-located in a sustainable refurbished warehouse. The Queen Victoria Women’s Centre houses 10 women’s organisations and space for women to meet and run events. These physical locations provide opportunities for collaboration and informal information sharing around common causes. Once an organisation is established and busily operating, it can be difficult for the CEO and Board to lift their gaze from the day-to-day tasks to look outside the organisation and find out what other organisations are doing. It can be very useful to join a peak body in your area of interest or take part in policy advisory committees at various levels of government so that you gain an understanding of how the whole service system or network of organisations works. There have been times when organisations have decided to merge with another like-minded organisation to increase their reach. One example was the merger in 2004 of the Royal Blind Society with Royal Victorian Institute for the Blind, Vision Australia Foundation and the National Information Library Services, to form Vision Australia.

The role of a Founder Not-for-profit organisations are usually set up by people with a passion to provide a response to a particular community, cultural, educational, social, health or environmental challenge or opportunity. Founders of not-for-profits are usually dynamic, compelling people who are able to build a groundswell of support and then an organisation that reflects their vision. These people are the perfect leaders to get things started. They are not always the perfect leaders for the long haul. While the Founder may be a visionary who knows what the problem is, he or she may not have any experience in organisational development, fundraising or administration. The Founder must bring in other people to help establish the organisation as effectively as possible. Otherwise, the Founder and his or her supporters (usually the first Board of the organisation) can spend a lot of time and effort reinventing the wheel – and burning out.

Keeping to purpose The issue that motivated the Founder to make things happen will vary but the issue itself will have a profound effect on the tax status of the organisation. 7

Great Foundations A€change in the purpose over time can affect the organisation’s tax status. For example, if a Public Benevolent Institution stops delivering direct services to people in need, it may no longer be eligible to continue receiving tax deductible donations. When establishing a not-for-profit, everyone must be clear about the organisation’s purpose. This should be in the constitution or trust deed and it must guide the organisation’s activities. If the purpose changes, the constitution and tax status will need to be revisited. No one is happy if the Australian Tax Office unexpectedly decides that an organisation is no longer entitled to receive tax deductible donations because its purpose and activities have changed. It is particularly important that marketing and fundraising staff understand that what they write in donor appeal letters, in newsletters and on the website does matter. The organisation is not just selling cereal. It may have special tax benefits which must be protected.

Great planning led to great results Many not-for-profits start up because someone has a great idea and other people get involved. If there is strong leadership and some experience in getting a new not-forprofit organisation started, things can go well. I had the wonderful opportunity a few years ago to work with a group that took a very calm and methodical approach to the planning and start up of their new not-for-profit organisation, the Inner North Community Foundation. They have since achieved good results as a foundation that makes grants within its local community and also undertakes community building projects. Why did their start up work so well? One reason was the Founder had been a director of not-for-profit organisations previously and had assisted the growth of an employment services organisation from a small start-up into a larger group of not-for-profit companies, with a significant operating profit and some investments. This knowledge was invaluable. The Founder had also brought in great people to help him with this first venture – and some of these same people joined him in the second venture. They had a combination of business and social planning backgrounds, which added a lot of value to the foundation’s start up phase. The steering group knew that they would benefit from following a tried and true path, and sought experienced mentoring and facilitation. The group did not know about philanthropic foundations and decided not to reinvent the wheel. One of the original members arranged for a small local government grant to help educate them about philanthropic organisations and the steps they would need to follow to create their own foundation.

8

Why are we here?

The steering group learnt as much as they could about other similar foundations: what worked, what didn’t work, what the organisation’s values and mission could be, and what legal structure they would use. The group was open to learning from others – and have continued this approach as they have developed the organisation further. The economic and social planner realised the importance of understanding the local community if the foundation was to make an impact. The steering group looked at information from local government, from the Australian Bureau of Statistics and from universities, and gained a good understanding of how the foundation would fit within the local community and where they could make the most difference. The group gained a good understanding of the different models of philanthropic foundations and the values that underpinned them. They decided that they were interested in supporting innovative solutions. They also decided the priority areas where they would accept grant applications from eligible local community organisations. The group spent a lot of time thinking about fundraising. They had an initial gift from the founding organisation, Apprenticeships Plus (Inner Northern Group Training), but they wanted to leverage this to raise more – in fact, much more in the long term. The steering group recruited a fundraising professional (who worked in a different sector) to join the Board. They ensured they had a solid administrative and marketing base and were ready to respond to a government funding opportunity when it was announced. The group also obtained legal advice about their structure, tax status and governance. They undertook training in these areas and still continue to develop their knowledge through Board development workshops. Once the original group was satisfied with the initial plan, they began to think about broadening their base as a Board. They used a Board Skills Matrix to assess their skills, networks and experience, and what they might still need. They advertised for new Board members in the local newspaper and received a great response. By the time the group was ready to launch, firm foundations were in place.

9

Great Foundations

CHECKLIST FOR THE CEO 1

Do I know the organisation’s purpose as stated in the constitution?

2

Is this correctly reflected in promotional material?

3

Has the purpose changed? Does the constitution or tax status need revisiting?

4

Do I know all the other organisations operating in my area of interest – in my community, in my city, in my state and in Australia?

5

Do I need to build links or collaborate?

CHECKLIST FOR THE BOARD 1

Do we know the organisation’s purpose as stated in the constitution?

2

Does this still reflect reality?

3

Do we need legal advice?

4

Does the Board have a good understanding of the operating environment (i.e. who else is doing similar things)?

5

Is the organisation still needed? There is nothing wrong with saying after five, 10 or 50 years that the job is done!

10

How do we know where we are going? Strategic direction

3

❚❚ Who sets the organisation’s strategic direction and checks it is on track? ❚❚ Does the Board have the skills and knowledge that they need to make strategic decisions?

When you might need this chapter There are times in the life of a not-for-profit organisation when things move forward like a well-oiled machine. The Board is clear about the organisation’s mission and strategic objectives. The CEO is clear about how to build a Business Plan to achieve the organisational strategy. Staff workplans are linked to activities and projects that help make the organisation move steadily towards its objectives. If this is the case for your organisation, you probably don’t need to read this chapter right now! However, if you feel that things have become a bit hazy within your organisation and that conflict is bubbling beneath the surface at Board meetings and staff meetings because people are not clear about where they are going, then read on.

Knowing what you want to achieve A loss of strategic direction is a common risk for any organisation. In the notfor-profit sector, this can be even more common because: • Staff often work on short-term contracts, depending upon the security of funding that is available for projects, or they sometimes burn out. 11

Great Foundations • Time spent on strategic planning can be seen as time away from the core objectives such as delivering services to people in need, developing exciting curricula or on-ground work restoring the environment. • Board members are sometimes less focused on the big picture and get absorbed in operational matters, especially when a not-for-profit is new or small. • The policy and funding environment can change quickly due to a state or federal election and an existing strategy may suddenly become obsolete. Taking time to review the organisation’s achievements and the barriers to success, and then re-imagining how the organisation’s objectives can be achieved, will help focus the use of the organisation’s (often limited) resources. There is a risk in thinking: ‘If it’s not broke, don’t fix it’. It is more useful to think: ‘If it’s not broke, can we make it even better?’

The role of the Board Setting the strategic direction is one of the key tasks of the Board of Directors (or Council if your organisation is a school or University, or Committee of Management if your organisation is an association). The other key tasks, apart from compliance, relate to the actual implementation of strategy – policy setting, monitoring performance (against budgets and Business Plans), risk management and stakeholder management. In thinking about strategy, it is essential to understand the history of the organisation: why was it originally established, what has been achieved to date, and what have been the barriers to success? Then it is necessary to understand where the organisation is now – often described as a Situation Analysis or SWOT Analysis (where you consider strengths, weaknesses, opportunities and threats). The Board and CEO needs to look outside your organisation to see who else is a player in your area of interest and what policies are being pursued by government. Then you need to look to the future and imagine the organisation as you would like it to become. Sometimes this might be about maintaining an existing approach which has proved successful, or sometimes it will be a complete rethink of how things are done. It is especially important to understand the potential ramifications of making major changes. For example, as mentioned earlier in Chapter 1, changing your objectives might change your tax status.

12

How do we know where we are going?

What is strategic planning? Strategic planning is the process by which a Board and CEO gathers and analyses information with the goal of setting the longer-term vision for the organisation and its short- and long-term strategic direction. These become the organisation’s Strategic Plan. The Board should take the leadership role in strategic planning. Senior management contributes to the process and will ultimately implement the Strategic Plan and prepare the operational Business Plan. A Business Plan is the annual plan of activities for the organisation. The actions in the Business Plan should aim to advance the organisation’s strategic directions and be realistically achievable within the budget approved by the€Board. The Strategic Plan should set out the strategies to be used to achieve your organisation’s mission and move towards your vision. Your organisation’s mission or purpose should reflect the original purposes in the constitution. It is about what you do. Your organisation’s vision is about your aspirations and how you see the future. The actual strategic planning process can take different forms, depending on the organisation’s culture, area of work and resources. It will always include a strategic planning meeting but there are a number of possible paths before and after this meeting. Developing a good strategy depends on: • Having a good understanding of the environment in which the organisation is operating • Having reliable information about future needs and service demand • Having a clear understanding of where the organisation is now – its strengths and weaknesses, its organisational capacity • Lifting your eyes above the detail and thinking creatively about what could be possible in the future.

Looking outwards This means that the strategic planning process should include a stage where the organisation looks outwards and considers where it sits within its part of the not-for-profit sector and what other key stakeholders think of the organisation and its work. In a larger, well-resourced not-for-profit this might include commissioning market research to survey clients, donors, partner organisations and/or funders. In a smaller or more volunteer-based organisation, this might mean interviewing a few key stakeholders or holding a focus group to find out how the organisation is perceived. This stage can reveal some surprises, especially if there is a relatively new CEO or an independent consultant is assisting the process and respondents feel they can talk freely. 13

Great Foundations It is very important that the CEO and Board actively listen to this feedback and identify any issues or weaknesses that should be discussed in the strategic planning meeting. The information obtained during this stage, which can be described as a situation analysis, must be provided to the participants before or at the strategic planning meeting. It should not sit in the bottom drawer of a consultant or CEO’s desk because some of the information is too confronting. The Board will need to analyse whether there are grains of truth in any unpalatable information. They also need to know if the current strategy is working well. In addition, the feedback may provide insights about new opportunities or potential threats to the organisation or its funding base.

Reliable data Having reliable data about the services or programs that are being delivered and the likely increases or decreases in demand for certain services or programs is critical to good strategic planning. Without this sort of information, the Board and CEO are flying blind. Running a not-for-profit service is not gambling, and it cannot just be based on a hunch. To be credible, the organisation must be able to demonstrate to its funders (whether they are government, philanthropic foundations, individual or corporate donors) that its services or programs are needed and meet a demand in the community. Occasionally a major donor will fund a friend’s pet project but this should be seen as a lucky break, not as the basis for a long-term strategic plan. Every not-for-profit organisation, large or small, in education, the environment, community services, health or the arts, must maintain records about the work it does. As mentioned later in this book, purchasing good software that can collect, report and analyse this information is probably the best long-term investment that a not-for-profit organisation can make. Without this information, the organisation depends on personal connections and the memory of each key person who works in the organisation – which may not survive a change of government, a financial crisis or a change in Board membership or CEO.

Looking inwards Considering the internal operations and capacity of an organisation is also critical to good strategic planning. This aspect of planning can take the form of a very complex, expensive review of each aspect of the organisation. It can also be a discussion during the strategic planning meeting. Or it can be something in between, perhaps using an existing tool to measure organisational capacity. This part of strategic planning is important because, at the end of the process, 14

How do we know where we are going? the Board must marry the new strategy to available financial and human resources – at least for the initial stages. If there are underlying weaknesses in the capacity of the organisation, these need to be allowed for in the strategic plan. For example, there is no point in setting a key strategic direction of growing a large capital fund if there is no fundraising or fund development experience within the Board or staff. There is no point bidding for large government grants which require sophisticated project management if the basic financial management of the not-for-profit is not functioning well. Sometimes it is important to be more measured in your approach and move steadily towards a longer-term strategy. It is better to achieve your objective in three years, if that is the length of time needed, rather than overreach the organisation’s capacity and jeopardise the organisation itself. Successful strategic planning is a balance between informed risk taking and patience. This part of the process is sometimes known as a SWOT analysis: Strengths, Weaknesses, Opportunities and Threats. In a SWOT analysis the organisation will consider its internal capacity and external environment. As stated previously, this may take place within the strategic planning meeting itself. The facilitator of the meeting must challenge participants to be honest in their assessments as well as creative in identifying opportunities. Because everyone thinks in different ways, the facilitator needs to create an environment where there are opportunities for different thinking styles to be heard or to be expressed. For example, some people do not like speaking in a larger group but are happy to write their thoughts on sticky notes and put them on wall charts. Other people like to ramble aloud as they think! During the strategic planning meeting, the Board and CEO must think about the ways the organisation adds value. Is there anything special about it? How can it differentiate itself from other organisations? Is it duplicating services or too heavy in its management structure? The meeting provides an opportunity for the organisation to take a fresh look at itself. Where should it go next? There are some good rules of brainstorming to apply: • There’s no such thing as a bad idea. All ideas are welcome. • Respect everyone’s ideas and views. • Just because it’s different, it doesn’t mean it’s bad or can’t be done. • Everyone’s experience and knowledge matters: the meeting is a knowledge bank of ideas.

Keeping the Strategic Plan fresh Strategic planning is not something that you do once and then put away in a filing cabinet. If the organisation is to move forward effectively, reviewing progress against the Strategic Plan, and then revisiting the Strategic Plan, 15

Great Foundations needs to be something that is scheduled into the organisation’s usual way of doing business. A strategic planning session is usually best facilitated by an independent person who can challenge everyone to think outside the box. However, the facilitator needs to do enough background work to understand the organisation well. The Strategic Plan should then be linked to the Business Plan and to staff work plans. The Board should review progress against the Strategic Plan regularly every three to six months, depending on the size and complexity of the organisation. It might not be necessary to do a full strategic planning process every year, but the organisation does need to take stock and review the current Strategic Plan each year. A Strategic Plan usually covers a period of three to five years. It is important not to think that the Strategic Plan is set in stone. It should be a living document and things may need to be tweaked from year to year as opportunities arise and new challenges emerge. Sometimes the Strategic Plan will need a complete overhaul because of internal and external changes.

Refining the strategy Once the Board and CEO have exhausted their ideas and thrashed things out at the strategic planning meeting, there are still several more steps to go. At the end of the meeting, the Board should filter the identified key strategies through two ‘sieves’: firstly, a risk review, and secondly, a resource or capacity review. While it is usually the role of management to prepare the risk management plan and the Business Plan, the Board should help identify high-level issues and provide guidance on what level of risk is acceptable and what level of additional resourcing may be possible. Detailed work on risk and resourcing takes place after the strategic planning meeting by management and often the relevant Board Committee (i.e. Risk and/or Finance Committee). The draft Strategic Plan (and the Business Plan) that returns to the Board meeting for final consideration, and hopefully approval, will have considered these matters carefully. It is perfectly normal for a Board to decide (with or without the support of the CEO) that one of the strategies that seemed so compelling at the strategic planning meeting just doesn’t stack up, because of the level of risk or resourcing. It may ultimately take too much time and attention away from other core strategies or just be too risky. Sometimes the Board may decide to take more time thinking over a strategy or delete it from the Strategic Plan altogether. After all, managing risk and monitoring performance and resources are key Board roles. A good Board will have the confidence to say no, even to its own great but overambitious idea!

16

How do we know where we are going? In tough times the Board must make sure the organisation has an achievable but still inspiring Strategic Plan. The Board needs to monitor the achievement of the Strategic Plan regularly and be wary of losing sight of the key strategies. The CEO’s report to the Board should respond to the Key Performance Indicators in the Business Plan, which should align with the Strategic Plan. Each strategy within the plan should have one or more key performance indicators. This will help management and the Board track performance on a regular basis. Below are some key questions to think about when developing a strategic plan:

Having a good understanding of the environment in which the organisation operates • Who else is out there? • What are they doing? • Where do we fit? • What is happening at a state and federal level in terms of policy and funding?

Having good information about future needs and service demand • Do we know where demand is going to grow? How? • What services do we need to expand? • What services are not so relevant now? • Do we need more information? Where could we find some evidence of needs or demand?

Lifting your eyes above the detail and thinking creatively about what could be • Look interstate and overseas for ideas. • Bring experts together to brainstorm. • Think about whether you could achieve the organisation’s purposes in a different or varied way? • Know that it is OK to do things differently.

Thinking about risks • Have we identified the risks associated with the Strategic Plan? • Have we considered the level of risk, and the potential benefits and adverse outcomes?

➢

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Great Foundations

• Can we put in place an action plan to manage or reduce the potential risks? • Are there key internal or external stakeholders that we should consult with? • How will we monitor risk?

Resourcing • Can we afford to implement the strategies? • Do we need to prioritise, pilot or postpone any aspect of the Strategic Plan?

Research and Training Centre on Traditional Knowledge Another good example of strategic planning was demonstrated in the approach of the United Nations University – Institute of Advanced Studies to its Traditional Knowledge Initiative. This was a wonderful project which resulted in the Traditional Knowledge Institute being established at Charles Darwin University, assisted by funding from the Christensen Fund. While the Institute will no doubt grow over time, it is based on solid planning. The United Nations University commissioned various pieces of work in the planning stages of the project (including a paper on Australian funding, which I prepared). The project team took time to consider the best approach and location for the Centre. It held a planning meeting in Brisbane with many key people in Australian organisations, and from the University and related entities, such as UNESCO. The care and depth of reflection demonstrated during that meeting would be good practice for many not-forprofit organisations engaging in program planning.

Finding out what the community really needs Many community and philanthropic organisations aim to provide a service or a grant program that responds specifically to the needs of a local community. In a best case scenario, determining what services or grant program will be provided is the result of a thoughtful process of consultation and research. At worst, it is directed by the whim of one or two major donors or Board members who insist they know the community better than the community knows itself.

18

How do we know where we are going?

In my work over the last 10 years supporting the development of community foundations across Australia, I have been very impressed by the time taken by the Boards of many community foundations to get to know the local community’s needs, before developing a strategic plan and embarking on a local grant program. Even as early as the feasibility study stage, when a community steering committee is trying to gauge whether a community foundation will be successful in a particular area, a great deal of work is often done around identifying the most pressing needs of a community. (When establishing a community foundation, the steering committee is also thinking about a fund development plan.) Useful sources of information about the groups or issues within a community that require support include local government reports such as Social Plans and Environmental Plans. These often provide detailed information about problems such as homelessness, unemployment and poverty. Local government reports can also be confirmed or expanded on by consulting reports from the Australian Bureau of Statistics, which provide data by statistical division. An enormous amount of information is available for free and explains types of households, cultural background, and employment and education levels. Mapping this data over several census periods can give a sense of trends and how the community is changing. In areas where there is a lot of inward migration due to the arrival of refugees or retirees, or in areas where there is a lot of outward migration because of young people leaving for educational and employment reasons, the changes in relatively short periods can be profound. This makes planning very important. A community foundation that understands its changing community is seen as more relevant than a€foundation that makes grants to the same well-known causes year after year. In addition to government sources, there are a range of reports available from health and environmental academic organisations, such as The Climate Institute or the Australian Institute of Health and Welfare. Many universities have centres in regional areas and may be keen to work with local organisations to find out more about their community. A not-for-profit community service organisation or foundation should never assume that it knows what is going on in its community without undertaking research. In addition, talking to local experts and other service providers about gaps in service or unfunded projects is very important. If a community organisation or foundation uses its knowledge and funds sensitively and wisely, it can be the glue that helps hold a community together. In one part of Australia where there was an influx of retirees but fragmented palliative care and respite services, a project mapping the available palliative care services and gaps in services was incredibly useful. In another area, where youth unemployment is an issue, finding ways to fund youth enterprises to create employment has ➢

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Great Foundations

filled a gap. In other places, tackling degradation of a waterway may have many other environmental and social benefits. No two communities are the same and community organisations and foundations need to keep alert to sense the winds of change in policy, funding or community needs.

The life cycle of organisations It is often useful to step back and consider where you are in the life cycle of your organisation as part of the planning process. All organisations, like people, grow and change and eventually pass on. Organisations can have a loopy life experience where they repeat several stages before they are finally wound up (come to an end) – hopefully having achieved their initial objective. One helpful approach can be found in The five life stages of nonprofit organizations.1 In this model, the life stages are described as follows: • Stage one: Imagine and inspire • Stage two: Found and frame • Stage three: Ground and grow • Stage four: Produce and sustain • Stage five: Review and renew2 It is possible for the organisation to return to an earlier stage of life and then move forward again. It is also possible to wind the organisation up at any stage, if it’s not achieving its objectives or is not financially viable. Knowing where you are in the organisation’s life cycle can help you plan to bring in new skills or experience to help the organisation move forward. Of course, change can be scary but it is often necessary for survival.

Building organisational capacity Organisational capacity is the ability of an organisation to achieve its objectives. In many ways, this book is about increasing not-for-profit organisational capacity. The fundamental question is: Do we have the skills and resources (people, funding and networks) to be able to carry out the Strategic Plan?

1 Sharken Simon, J. S., & Donovan, J. T. (2001). The five life stages of nonprofit organizations. Saint Paul, MN: Amherst H. Wilder Foundation. 2 Sharken Simon, J. S., & Donovan, J. T. (2001). The five life stages of nonprofit organizations, (p. 5). Saint Paul, MN: Amherst H. Wilder Foundation.

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How do we know where we are going? Once the Strategic Plan is in place, you need to think about whether your organisation has the people and systems to actually implement the plan. There are several models of capacity building assessment. One excellent model is the Organizational Capacity Assessment Tool which was developed for the not-for-profit sector by the Marguerite Casey Foundation.3 It is based on the McKinsey Capacity Assessment Grid, which was developed for private sector organisations.

CHECKLIST FOR THE BOARD 1

Do we have a current Strategic Plan for the organisation?

2

If yes, how long is it since we gave it a really thorough review? (If no, start planning a Strategic Planning meeting now.)

3

Is the Board monitoring the organisation’s performance against the Strategic Plan?

4

What will the Board do if the performance against the Plan is not what we hoped? Can we obtain more information or more funding to help us do better?

5

Is the CEO clear about the organisation’s strategic direction? Do we as a Board spend too much time pushing the CEO along or, on the other hand, pulling him or her back?

6

Do staff understand how their jobs fit within the organisation’s overall strategy? If not, can we do something to improve communication between staff and the Board?

3 Marguerite Casey Foundation Organizational Capacity Assessment Tool, A Funders Guide to Organizational Assessment (2005). Saint Paul, MN: Fieldstone Alliance.

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Great Foundations

CHECKLIST FOR THE CEO 1

Am I clear about the strategic directions of the organisation?

2

Is the Business Plan in line with the Strategic Plan?

3

Do staff work plans support the achievement of the Strategic Plan?

4

Will I know when opportunities present themselves that support the strategic directions?

5

Will I know how to deal with any barriers encountered?

6

Am I able to talk with the Board about barriers and opportunities in a timely and frank way? If not, how could this be arranged?

22

What sort of not-for-profit is this anyway? The legal perspective

4

❚❚ Just what sort of legal entity are you dealing with? Is the not-for-profit a charity? Is it a trust, a company, an association, or some other sort of incorporated body? ❚❚ Does it own other entities? Is it owned by another organisation, even ❚ one overseas?

Not-for-profits are not all the same It is important to know the type of not-for-profit organisation that you are involved with from a legal perspective. Not knowing this is a bit like buying a car without knowing what the engine can do. I know that law may seem dull to many people but the CEO and the Board need to know the potential of the organisation as well as its limitations. Failure to understand these areas can lead to failure of the organisation and your cause.

Joining a not-for-profit organisation When a director is thinking about joining the Board of a not-for-profit, or a CEO is thinking about taking on a new role in the not-for-profit sector, he or she needs to gather good quality information in order to make a decision about whether or not this organisation is for them. While there may be lots of ‘warm and fuzzy’ reasons for joining the Board or management team of a not-for-profit, the same due diligence should be carried out as if you were joining a commercial organisation. This is because, in many cases, the legal frameworks and potential liability are the same or similar. The focus of Chapter 5 is Boards but this chapter is about understanding the type of organisation that you are considering joining from a legal point of€view. 23

Great Foundations The organisation’s legal and tax status will have a major bearing on how the not-for-profit operates. The legal structure is the base from which things become possible – or impossible. Sometimes there are financial consequences for getting things wrong in this area. A CEO moving from one not-for-profit organisation to another might face some surprises in this area. Let’s go back to the idea of the organisation being a car. Many cars look alike from the outside and it’s only when you look under the bonnet that you can really tell what you are dealing with. Sometimes the engine hasn’t been serviced for a long time and there may have been changes in charity or not-for-profit law that have bypassed previous CEOs or Boards. Sometimes the car might be traveling along a path leading away from its original objects – and is at risk of losing its preferential tax status as it travels. If you are to manage your not-for-profit like a well-oiled racing machine, you need to understand the legal engine properly. This is particularly important in the education and community services sector, where a Principal, CEO or Board member might be dealing with one entity from a possible choice of three or four, all with different tax statuses.

Thinking about changing the organisation’s focus or activities Every now and then a not-for-profit organisation shifts a gear. Maybe because a new CEO has arrived or some new Board members with different ideas join the Board. These can be exciting times. However, the Board and CEO need to understand the risks inherent in changing the organisation’s objectives or activities. Preferred tax status, such as being able to receive tax deductible donations, can be lost if the organisation’s objects and activities move out of the Deductible Gift Recipient category for which they were approved. ‘The what?’ I hear some of you ask. I am going to try and explain in simple terms Australia’s slightly archaic law surrounding charities and other not-for-profits. Some of it dates back to 1601!

The legal entity A not-for-profit organisation in Australia will usually have one of the following types of legal structure, described in the numbered points below. Every CEO and Board member in the not-for-profit sector should know the legal structure of their not-for-profit organisation. They should know which legislation applies to their organisation and what is required in terms of public and financial reporting, meeting procedures, duties of the Board and so on. You would not buy a car without knowing its make and model. The same should apply to your involvement in the not-for-profit sector. 24

What sort of not-for-profit is this anyway? There has been a recommendation by a Senate Inquiry4 that a new legal form is required for not-for-profit organisations. This may occur but will require a transition period. Readers may like to check with their peak body to find out about any developments. In the meantime, the following legal structures are amongst the most common within the not-for-profit sector.

1

An unincorporated association

This is the least formal arrangement and is essentially a group of people with a common interest or concern that have decided to operate as a group to get things done. An unincorporated association is not a legal entity. Each person involved in the group is potentially personally liable if things go awry.

2

An incorporated association

Members of an association that is incorporated have taken the steps required to establish a legal entity under state or territory Associations Incorporation legislation. The incorporated association is a legal entity and can own property, employ staff, and even sue and be sued. This area can be confusing as each state and territory has its own legislation, known as the Associations Incorporation Act or similar, and there are subtle differences. One day, I hope that this will be consistent across Australia. The Board of an incorporated association is often called a Committee of Management. The relevant Act sets out the duties of committee members and many other key aspects of governing an incorporated association. Every committee member should be given a copy of the constitution (also known as Rules) when they become a member of a Committee of Management and should become very familiar with the required meeting procedures. Many of these organisations are clubs and people sometimes do not realise that there are legal requirements to be met.

3

A company

Many national or larger not-for-profits, including non-government schools, are formed as a company limited by guarantee. This is a form of company which does not have shares but is limited by members’ guarantee. On the winding up (ending) of the company, each member may have to contribute the guarantee amount (usually $50 or $100) if there are debts which cannot be paid from the company’s reserves. The company is public and must meet the reporting, audit and meeting requirements of the Corporations Act. The company requires a company secretary who can maintain the company 4 Australia, Senate, Standing Committee on Economics. (2008). Disclosure regime for charities and not-forprofit organisations. Canberra: Commonwealth of Australia.

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Great Foundations records as required by the Australian Securities and Investment Commission. There is an excellent list of these requirements on the ASIC website <www. asic.gov.au>. Directors of a not-for-profit company have the same duties as directors of other companies and again these are set out in the Corporations Act, and are also listed in Chapter 5. It is possible for a proprietary limited company, a model usually used for private business purposes, to operate as a not-for-profit in some circumstances.

4

A trust

Trusts are often used to establish a grantmaking foundation. (However, a ‘foundation’ may also sometimes be a company limited by guarantee.) The trust is usually for charitable purposes and may arise following a bequest in a will or may be established for public charitable purposes during the Founder’s lifetime. A trust may have individual trustees or use a company as an incorporated trustee, depending on the requirements in the trust deed. The trust deed will set out the purposes of the trust, the powers of trustees, and other requirements to manage the trust. Trustees are bound by the state or territory Trustee Act, which requires an annual review of the Investment Policy and the investments themselves amongst other requirements.

5

A corporate trustee of a trust or trusts

Some not-for-profits, mainly grantmaking foundations, use a corporate trustee to act as trustee of one or more trusts. The corporate trustee may be a company or an incorporated association. Some community foundations have up to five different charitable trusts supporting different areas of activity. The same corporate trustee acts as trustee of the different trusts.

6

Incorporated by Act of Parliament

A number of not-for-profit welfare or community services organisations are established by an Act of Parliament. Examples of this are churches and organisations such as Trust for Nature. Some schools operate as an arm of€a church organisation, sometimes incorporated under an Act of Parliament.

7

Other forms of incorporations

Not-for-profits may also be incorporated under other legislation such as the Aboriginal Councils and Associations Act, Health Services Acts, Education Acts, co-operative and other legislation. Once incorporated, these organisations are also legal entities. 26

What sort of not-for-profit is this anyway?

Tax exemptions and endorsements The CEO and Board of a not-for-profit must know the organisation’s tax status because this impacts on many parts of the organisation. In Australia, our not-for-profit tax system is not straightforward and does change from time to time. Most recently the Henry Review (a final report on Australia’s future tax system) recommended a review of the fringe benefit tax exemption enjoyed by some charities. Any changes will depend on government policy. The best reference is the Australian Tax Office’s website, which has a whole section dedicated to not-for-profits <www.ato.gov.au/nonprofit>. The ATO also provides a very helpful not-for-profit telephone service on 1300 130 248. The most important things to know about not-for-profit tax are: 1. Charities are treated differently from other not-for-profits. 2. Not all charities can receive tax deductible donations. 3. Some organisations that can receive tax deductible donations are not charitable. 4. Organisations that can receive tax deductible donations from the public are endorsed as Deductible Gift Recipients by the ATO. 5. There are different categories of Deductible Gift Recipient organisations, with different requirements. 6. There are a number of tax exemptions and concessions whose eligibility depends on the organisation’s tax status. 7. This can be a confusing area!

Income tax exemption Only some types of not-for-profit organisations are exempt from paying income tax. In addition to charities (see information below) there are a number of other not-for-profit organisations that may be exempt from income tax. This is because their purposes and activities are considered to be of great public benefit to the Australian community and, as a matter of policy, Treasury has recognised that they should not pay income tax. Most of these entities can self-assess their exempt status provided that they are not charities. The most useful summary of this can be found in the ATO’s Income Tax Guide for Non-profit Organisations, which can be found on the ATO’s nonprofit website.

Charities Not-for-profit organisations that are recognised by the Australian Tax Office as being charitable at law may be endorsed as a Charitable Institution or a 27

Great Foundations Charitable Fund, depending on their legal structure, activities and purposes. Some trusts may be endorsed as an Income Tax Exempt Fund. All of these entities are exempt from paying income tax. There is a formal process to apply to the ATO for endorsement. In order for an organisation to be regarded as ‘charitable’ in Australia, it must meet a number of requirements. Its purposes and activities must fall within one of the four ‘heads’ of charity (as set out in the 1601 Statute of Charitable Uses, commonly referred to as the Statute of Elizabeth). These are activities that are either: • The prevention of poverty, sickness or misfortune • The advancement of education • The advancement of religion or • Other purposes beneficial to the community. In addition, (apart from the relief of poverty) there must be a public, not a private, benefit from the activities. The activities must not be things that are ordinarily carried out by government. And, perhaps surprisingly, the activity must not be simply sport or recreation. It is important to obtain legal advice in this area as it is complex. It is also important to remember that in Australia, being charitable does not mean that your organisation can give receipts to donors for their donations. In order to achieve this status, you must jump through some more hoops!

Receiving tax deductible donations Not all not-for-profit or charitable organisations are able to receive tax deductible donations. The Australian Tax Office administers the sections of the Income Tax Assessment Act that deal with organisations known as Deductible Gift Recipients (DGRs). Division 30B of the Act lists the tables of recipients for tax deductible gifts. An organisation must be endorsed as falling within an existing DGR category or be specially listed in the ITAA (an amendment to the ITAA is passed by Parliament) in order to be eligible to receive tax deductible donations. Some of the DGR categories relate only to part of an organisation, for example a school’s Building Fund or Library Fund. The most useful resource in this area, GiftPack, is again produced by the Australian Tax Office (visit <www.ato. gov.au/nonprofit>).5

5 Source: .

28

What sort of not-for-profit is this anyway? Some examples (there are many more) of common Deductible Gift Recipient6 categories are: • Public Benevolent Institutions – organisations whose dominant purposes are the direct relief of poverty, sickness, destitution, suffering or misfortune and for the benefit of the community, or a section of it (item 4.1.1) • Public University (item 2.1.1) • Approved Research Institute – including the CSIRO and universities, colleges, institutes; associations or organisations approved in writing by the CSIRO; or the Commonwealth Departments responsible for Health, Science or Education (item 3.1.1) • Public Fund entered on the Register of Harm Prevention Charities – organisations whose principal activity is the promotion of the prevention or control of behaviours that are harmful or abusive to human beings (item 4.1.4) • Public Fund entered on the Register of Environmental Organisations (Item 6.1.1) • Public Fund entered on the Register of Cultural Organisations (item 12.1.1) • Public Art Gallery (item 12.1.4) • School Building Fund (item 2.1.10) or Scholarship Fund (item 2.1.13). Once you have obtained tax endorsements from the Australian Tax Office, your Board must continue to meet the requirements of the relevant DGR category. You must continue to remain within your principal purposes and activities and meet your reporting obligations. It is extremely important to seek your own legal advice when you are setting up a new not-for-profit or intending to change your organisation’s activities. The information in this section is intended to provide an overview of the area, not specific advice.

Fundraising There are strict requirements relating to the fundraising by DGR, charitable and other not-for-profit organisations. It is essential that your organisation

6 Source: Australian Tax Office. Adapted from GiftPack: Guide for deductible gift recipients and donors. (2007). DGRTable, pp. 12–21. Canberra: Australian Taxation Office. Retrieved from .

29

Great Foundations obtains the fundraising guide for non-profit organisations from the ATO7, and also obtains the necessary fundraising permits from the relevant State or territory government department, usually Consumer Affairs. It is also important to identify whether money given to a not-for-profit that is a DGR is a donation or sponsorship. For a donor to claim a deduction for a gift to a DGR organisation, the following requirements must be met: 1. There must be a voluntary transfer of money or property. 2. The payment must really be a gift. The donor must not receive a material benefit or advantage. Simple recognition is acceptable; that is, acknowledgment in a newsletter or annual report. 3. The gift must be of money or property that is covered by one of the gift types allowed by the ATO. 4. Gifts that are not money must be valued as required by the ATO.

Other tax concessions Many government inquiries have noted the complexity of current tax concessions in the not-for-profit sector. The Productivity Commission is examining the area and further simplification or changes may emerge. Again, information about changes should be on the ATO website. For example, GST concessions are available to charities, public benevolent institutions and health promotion charities, Deductible Gift Recipients, notfor-profit and public hospitals, and public ambulance services.

Legal and Regulatory Impact Statement It can be useful to prepare a Legal and Regulatory Impact Statement for the Board and CEO of a not-for-profit. This should set out the legal, tax and other regulatory issues affecting the organisation. It should also include insurance requirements. It is a useful document to include in induction kits for new Board or executive staff members. While I was Corporate Solicitor and Government Relations Manager for the MS Society of Victoria Ltd, I prepared a Legal and Regulatory Impact Statement for the Board. This included legislation relating to the delivery of services to people with disabilities and older people, and the myriad of other contractual, intellectual property (IP) and property issues the organisation dealt with on a daily basis. 7 Source: Australian Tax Office. Fundraising: Guide for non-profit organisations. (2008). Canberra: Australian Taxation Office. Retrieved from .

30

What sort of not-for-profit is this anyway? When I worked at Wesley Mission many years ago, our CEO would often quote John Wesley, the Founder of the Methodist movement, when a new program was being considered: ‘Go to where you are needed most’. This gave Wesley Mission the mandate to take on some exceedingly difficult programs for clients that required a great deal of commitment. A great deal of research, due diligence and planning was done before taking on a new program. A senior project team would consider the program from every angle to ensure a good organisational fit, an acceptable financial position, and suitable management structure and style. However, a not-for-profit organisation cannot ‘go to where it is needed most’ without a full understanding of what the implications of change might be. For example, a not-for-profit organisation cannot change from being a direct deliverer of disability services to being a community centre without losing some of the tax benefits that are held by a PBI. New Board members or a CEO might have great ideas about changing a notfor-profit’s activities and objectives to meet changing community needs. However, without a full understanding of the organisation’s legal and tax status and history of service delivery, there is a risk that the Board will end up driving a lemon, when they thought they were driving a prestige vehicle. Understanding a not-for-profit’s legal structure and tax endorsements are fundamental. The rather dour and sometimes frustrating person on the Board raising these issues may not actually lack imagination; they may just have a better understanding of the legal mechanics of the organisation than the more entrepreneurial types. Good not-for-profits include people with a wide range of experience on their Boards to help them make balanced decisions.

Changing roles A few years ago I was approached by a not-for-profit organisation that had been an important part of its local community for many years. It had evolved into a human services organisation with Public Benevolent Institution (PBI) status. This status enables an organisation to accept tax deductible donations because the organisation is providing direct services to a group in need that arouses compassion within the community. Clients of PBIs are often people with disabilities, people who are homeless, frail older people, families in crisis and others in great need. Over time, the children with disabilities who had been clients of the organisation grew up. They needed different supports and training. The organisation began to change to also meet other needs in the community. It was a dynamic and important part of the€community. ➢

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The Board of this particular not-for-profit organisation undertook a review of its PBI status and realised that it was in danger of moving too far away from its original objects in its constitution. It decided to refocus on its disability service role to meet the current needs of people with disabilities in the local area. Some of the Board also began thinking about creating a more general community organisation, which would be not-for-profit but not meet the requirements of a PBI.

CHECKLIST FOR THE BOARD AND THE CEO 1

Do we know the legal structure of our not-for-profit?

2

Do we know the purpose in the constitution, trust deed or Act that established the organisation?

3

Do we know if we have any tax endorsements? If we are a Deductible Gift Recipient (DGR), which category do we belong to?

4

Are there any limitations on how we can operate?

5

What are our reporting requirements under the relevant legislation?

6

Do we hold the correct fundraising permits?

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What should our Board be doing? The Board perspective

5

❚❚ What are the roles of the Board? ❚❚ How do we know if we are an effective Board? ❚❚ How can we improve the way we operate?

What is governance? Governance is the high-level leadership of an organisation, which has a focus on strategy, policy, compliance and monitoring performance. It is the Board’s role to exercise governance. Governance is about stewardship; it is about monitoring that the financial, human and organisational resources are in place to enable an organisation to achieve its purpose and strategic objectives.

The Board The Board as a group leads the organisation. The Chair of the Board is the key link between the Board and staff, but other Board members are likely to be actively involved in Board committees with other senior staff. While a Board always has certain key roles, the style of each Board may vary, depending on the organisation’s history and its stage of development. A Board can make or break a not-for-profit organisation. I say ‘can’ because there are instances where a very weak and ineffective Board is basically carried along by some strong, clear-thinking executive staff. However, in this scenario, the Board has vacated its role – and it is time for Board renewal. While the notfor-profit organisation might be travelling along quite well, the Board itself is adding no value. If key executive staff should leave, the organisation will be floating in a rudderless boat. 33

Great Foundations Creating and maintaining an effective Board requires constant vigilance by the Chair and other Board members or directors. It is easy to lapse into one of the following common problems of not-for-profit Boards. Common misguided thinking includes: • ‘I’m here to help the community – so I’ll leave all my business acumen at the meeting room door.’ • ‘The staff are experts, they know what we should do, I can’t add much to decisions and Board discussions.’ • ‘I like being on this Board. It looks nice on my CV. I feel good about it. If I don’t speak up in Board meetings when things are unclear or incorrect, that is OK. I don’t want to be the one to break up the collegial atmosphere. In fact, two of the other Board members are clients/members of my golf club/parents of my children’s friends. I€definitely don’t want to argue with them!’ This sort of thinking should be avoided by Board members in the not-forprofit sector. You are needed for your clear thinking ability, your experience and perhaps your professional skills. If you can’t give your Board role enough attention, get off the Board. ‘The Board’ in this book includes a Board of Directors of a company limited by guarantee or other entity, the Council of a school, the Board of Management of an incorporated association, or a Board of Trustees of a Trust. Most Boards are voluntary roles in the not-for-profit sector, although some directors receive modest fees – subject to the organisation’s tax and constitutional requirements.

Joining a not-for-profit Board Many people join Boards of not-for-profit organisations because they support the work the organisation does and they want to make a difference to their community. However, joining a Board of a community or philanthropic organisation brings with it very similar governance responsibilities to joining a Board of a profit making venture. At the time of joining the Board of a not-for-profit organisation, there are a number of key questions a potential Board member should ask: 1. What sort of legal entity is the organisation? For example, is it a public company limited by guarantee governed by the Corporations Act; or is it an incorporated association governed by state or territory legislation; or is it incorporated by an Act of Parliament; or is it a trust; or is it in fact an arm of government or another type of entity? 2. Do I know what the organisation actually does? For example, does it provide services to people and what type of services? Is it involved 34

What should our Board be doing? with community education or training? Does it produce art pieces or run large events? Does it make grants and, if so, to whom and for what projects? And finally, do these activities really interest me? 3. Do I know the tax status of the organisation and what this€means in terms of endorsement by the Australian Tax Office as an income tax exempt charity and/or deductible gift recipient, and the organisation’s eligibility for state or territory tax exemptions or rebates? 4. Do I understand the funding base of the organisation? For example, is it largely funded by state, territory or federal government, by philanthropic bodies, or by large- or small-scale budget fundraising – or a mixture of all or some of these? How secure are these sources? Does it provide services for a fee? Does it carry out many of its activities in partnership with other not-for-profit organisations or businesses? Does it have any commercial operations that support its activities? 5. Do I feel confident that I understand the operating environment of the organisation? Is the organisation represented on the appropriate peak bodies or government advisory committees? Does the organisation ever commission research about the need for its services, local needs or future trends? 6. Has the organisation provided me with useful background information that answers the above questions? Do I feel confident about management’s ability to run the organisation on a day-to-day basis? 7. How hands-on will my role be? Is the organisation a start-up venture, or very small and relying solely on volunteers to carry out its work? If yes, do I have the time to give to the organisation that will be needed? 8. What benefits will this Board position give to me? For example: personal satisfaction; opportunities to learn new skills or about a new industry; new networks; Board sitting fees (in limited cases), etc.? If you can’t answer these questions fairly readily or with a modest amount of research, you should stop and reconsider. To quote ASIC’s brochure for new directors: Avoid any company where someone offers to make you a director or secretary on the promise that ‘you won’t have to do anything’ and ‘just sign here’. You could be exposing yourself to many legal liabilities.8 8 Australian Securities & Investments Commission. (2010). Your Company and the Law (Information Sheet 79). Retrieved from .

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Great Foundations

The duties of directors As discussed in Chapter 4, not-for-profits have various legal forms. However, any incorporated body will have a group responsible for the governance of the organisation. In a company, this is known as the Board. The Board is made up of directors. The following outlines the duties of a director of a not-for-profit company. The Corporations Act reflects the common law. Directors’ duties are fiduciary duties. The directors have a trusted relationship to act in the best interests of the shareholders or members as a whole, not of any particular group. (The duties of trustees are summarised in the section after this.) A director must: • Act with care and diligence – section 180(1) of the Corporations Act • Act in the best interests of the company – s. 181(1)(a) • Act in good faith (i.e. honestly) – s. 181(1)(a) • Act for a proper purpose – s. 181(1)(b) • Not improperly use his or her position to gain advantage or cause detriment – s. 182(1) • Not improperly use information to gain advantage or cause detriment to company – s. 183(1) • Keep informed • Not allow the company to trade while insolvent. The duty of care and diligence is met if a director: • Uses the degree of care and diligence that a reasonable person would exercise if they were a director or officer of the company in the company’s circumstances with the same responsibilities as the particular director or officer – s. 180(1) These requirements are met if the business judgment rule is satisfied. The Business Judgment Rule is available to a director only in relation to meeting his or her duty of care and diligence: (2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they: (a) make the judgment in good faith for a proper purpose; and (b) do not have a material personal interest in the subject matter of the judgment; and 36

What should our Board be doing? (c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and (d) rationally believe that the judgment is in the best interests of the corporation. The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. Note: This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence) – it does not operate in relation to duties under any other provision of this Act or under any other laws. Corporations Act 2001, s. 180(2)9 The most critical aspect of the duty of care and diligence is to act in the best interests of the company. You should: • Leave your other hats at the door. • Be an active and informed participant at Board meetings: ask questions, read your papers, exercise your judgment, apply your experience and professional skills. • Avoid conflicts of interest and comply with the Corporations Act and the constitution when disclosing and dealing with any actual or perceived conflicts of interest. This can be tricky in the not-for-profit sector where a director may also be a client of a service or even a donor. The conflict of interest provisions in the constitution and the Act should be followed including: 1. A director must give notice of a material personal interest at a Board meeting as soon as practicable after he or she becomes aware of their interest in a matter – s. 191. 2. A director must not be present or vote on relevant resolution unless other directors who do not have a material personal interest in the matter have passed a resolution allowing the director to participate – s. 195. 9 Corporations Act 2001 (Cwlth). Section 180(2). Retrieved from .

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The duties of trustees The duties of a trustee or trustees of charitable trusts can be summarised as being to: • Acquaint themselves with the terms of the trust deed • Execute the trust according to its terms and the general law so as to benefit the community • Protect and preserve the trust property • Exercise discretionary powers in good faith, upon real and genuine consideration, and according to the purpose for which the power is confirmed • Not delegate their powers or discretions except in accordance with the provision of the trust document • Review the Investment Policy and investments at least once each year • Not invest trust funds in a manner not authorised by the trust deed10 and comply with the Trustees Act 1958 (Vic) in respect of investment. (Note: each state and territory has different requirements. The relevant Acts are: Trustee Act 1925 (ACT); Trustee Act 1925 (NSW); Trustee Act 1907 (NT); Trustee Act 1973 (Qld); Trustee Act 1936 (SA); Trustee Act 1898 (Tas); and Trustee Act 1962 (WA).) In addition, the trustees of a foundation which is endorsed as a Deductible Gift Recipient must meet the requirements of the ATO for Public Funds. These include: • Inviting the public to donate to the Foundation • Ensuring the Board includes a majority of Responsible Persons as defined by the ATO • Complying with TD 2004/23 about donations within the Public Fund and any other relevant tax determinations.

The roles of the Board In addition to its legal duties, the Board has a number of roles within a notfor-profit organisation. An effective Board is active in the following areas: • Setting strategy • Ensuring compliance (legal, financial reporting, risk management) • Monitoring performance (financial and program outcomes) 10 Ward, D. (2008). Trustee Handbook: Roles and duties of trustees of charitable trusts and foundations in Australia (p. 10). Melbourne, Vic: Philanthropy Australia. See .

38

What should our Board be doing? • Appointing the CEO (and sometimes terminating the appointment) • Policy making and review • High-level stakeholder management • Board development (effectiveness reviews, succession planning). It is critical that the Board understands its roles and duties and that it engages in regular reviews of its own performance. A questionnaire to aid a review of Board effectiveness which I have used with many not-for-profit organisations is included as an Appendix at the end of this book. Subject to a legal and financial check based on your not-for-profit’s particular circumstances, you could adapt it for your own not-for-profit organisation. It is best to work through the questionnaire as a regular annual self-education process. The concept of regular evaluation of Board effectiveness aims to develop an evaluation process which helps you and the rest of your Board to meet – and even exceed – your legal obligations, and also monitor your performance. If necessary, new strategies can be adopted to improve any weak areas.

The compliance role In considering the organisation’s legal and financial compliance obligations, the Board must understand the legislative requirements that the organisation must meet. The sample Board Effectiveness questionnaire (pages 136–42) lists a series of questions about public reporting, audit, and financial reporting which relate to a company limited by guarantee. Not-for-profits that are incorporated associations, trusts or other entities will have a range of other similar requirements, mainly aimed at ensuring a level of public accountability. Every Board member should know the organisation’s reporting requirements, both to the relevant corporate regulator and to members.

Annual general meeting Ensuring that the correct procedure is followed to hold and run the annual general meeting – and extraordinary general meetings – is a responsibility of the Board and the company secretary. The company secretary role is covered later in this chapter but it is essential that the Corporations Act, or Associations Incorporation legislation as appropriate (or other relevant legislation), and constitutional requirements are followed if valid decisions are to be made.

Risk management Risk management is an important role of the Board. It is critical that the Board reviews the organisation’s risks at least each year and that a Risk Register is 39

Great Foundations maintained. The CEO should be checking risks regularly and bringing any high-risk issues to the Board’s attention immediately. This area is covered in more detail in Chapter 7.

Formulating strategy There are quite a number of different approaches to the process of strategy formulation (see Chapter 3) but they all contain essential elements. These are to: • Review and clarify the organisation’s vision and mission • Obtain feedback from key stakeholders (staff, Board, clients, funders, staff, government, etc.) about their perception of the organisation and its progress towards its goals • Review the operating environment to check for major changes in policy, programs, funding, regulations, etc. • Identify the key objectives for the next three (five and/or 10) years in each area of operation • Link the key objectives with actual steps and tasks • Identify steps and financial resources to achieve the Strategic Plan through the budget and business plan • Set Key Performance Indicators and timelines for reviewing the Strategic Plan. Once the strategy for the organisation is in place, it is essential that the vision and planned steps to achieve that vision are explained to your important stakeholders either by the Chair or CEO, depending on the communications policy agreed by the Board. Stakeholders will include staff (especially those not involved in the actual strategic planning process), volunteers, clients, partners (i.e. shared service delivery programs), and funders. As mentioned, it is wise to involve key stakeholders in the strategy development process in some way so that they feel part of any new ideas for the organisation’s future.

Stakeholder management One of the key differences between many not-for-profit organisations and for profit businesses is the large number of stakeholders that must be kept abreast of the not-for-profit’s activities. Stakeholders include members, government funders, clients or consumers, parents, people who attend events, policy makers, ASIC or Consumer Affairs and the ATO (and other regulatory bodies), donors, corporate supporters, industry bodies, peak bodies, partnering organisations, the local community … and others. The not-for-profit must assess the importance of each stakeholder relationship and make sure that 40

What should our Board be doing? enough human resources (including Board members’ time) is allocated to building and maintaining these relationships.

Policy making An organisation should have policies in place which at least address: • Each of its key areas of business • The smooth running of the organisation i.e. administration • Legal requirements i.e. OH&S, equal opportunity, finance, etc. Organisations which are delivering services will need additional policies about the values underlying their services and the way services are to be delivered. There may be relevant legal standards, such as those in the Disability Services Act or Disability Discrimination Act and other similar human services or human rights legislation. Likewise, an environmental organisation will need policies about its operations, the environmental issues it is tackling and acceptable sources of funding. It is good practice to develop a Policy Listing, which clearly states the policies that require Board approval and those that are purely operational and may be approved by the CEO. The Board should approve and then regularly review policies that relate to governance, delegation, financial control and monitoring, audit, codes of conduct, risk management, occupational health and safety, and other key areas of risk for the organisation.

Monitoring and supervision The Board’s role is not only to ensure compliance with the legal requirements as an employer but also to monitor the performance of the CEO and, through the CEO, the staff and volunteers. The Board should be able to assess from information presented in the Board papers whether staff are directing their efforts where it matters; in other words, that they are working towards the strategic goals of the organisation. It is helpful if the CEO’s report specifically responds to progress against the business and strategic plans, at least on a quarterly basis. While often personally satisfying, working in the not-for-profit area can be very demanding. There is always a need to do more with less and to stretch your resources and time as far as possible. Burnout or a complete focus on the everyday workload can lead people to forget the bigger picture. It is the Board’s role to help the Chief Executive Officer and staff to see their work in the larger strategic context or, in other words: ‘Help lift the CEO’s eyes from the heat of battle.’ 41

Great Foundations

Board composition Board composition refers to the make-up of the Board, particularly the skills and experience held by Board members. A Board is a dynamic body with members arriving and leaving due to rotation requirements in the constitution or to their own private circumstances. The organisation is also continually evolving; new services are being taken on or new partnerships are being created. Reviewing Board composition in an objective and impersonal way each year is a very important part of Board evaluation. Board composition depends on several factors:

1

Any legal requirements

An example of this is the requirement, under the Income Tax Assessment Act 1997 for an entity that is managing a DGR (deductible gift recipient) Public or Gift Fund, that a majority of its members are people who the Australian Tax Office regard as demonstrating community responsibility. This is known as the Responsible Persons test. A Responsible Person is: • A person who performs a public function (i.e. retired MP) • A member of a professional body having a code of ethics or rules of conduct (i.e. solicitor, accountant, engineer, etc.) • A director of a company whose shares are listed on the Australian Stock Exchange • A person who has received formal recognition from government for services to the community (i.e. has been awarded an OAM, AO, AC, etc.). It is also possible to apply to the Commissioner of Taxation for approval of a particular person who may not fit the exact criteria but does demonstrate appropriate experience in public life.

2

The stage in the organisation’s life cycle

Organisations go through a life cycle – and are sometimes even revived or recreated and then go through another life cycle! The skills and experience needed from Board members of a start-up organisation are very different from those needed in an organisation that is well established. A more hands-on, visionary style is needed in the early days, whereas a more hands-off, monitoring role will often be suitable for an established organisation. If an organisation begins to lose energy or purpose, a more entrepreneurial style may be needed again. For small, volunteer-based not-for-profits, a hands-on style may always be required, simply for practical reasons. 42

What should our Board be doing?

3

Your sector

Knowledge of the sector in which the organisation operates is critical to knowing the risks, the important organisational relationships and the operating environment. At an advanced workshop for directors which I attended, the need for knowledge of the business was a topic of hot debate. I believe that someone (or preferably several ‘someones’) need to know the practicalities of business in your sector in order to fully understand potential risks and opportunities – and educate the rest of the Board about them. It is not possible to apply the necessary care and diligence to Board decision making if the key drivers and risks of the sector are not well understood. Completing a Board Skills Assessment Matrix is a very useful process at the start-up of an organisation, and then regularly throughout its life. A matrix can be developed, essentially as a table, which lists the required or desired Board skills along one axis and the skills of existing Board members along another. These are then crosschecked and gaps in skills can be easily identified. The process to find a new Board member with the required skills can begin.

The Board as a team It can be useful to think of the Board as a team of people with responsibility for governing the not-for-profit organisation. In addition to finding a balance of skills and experience, there is a growing interest in ensuring that the Board thinks well as a group. Different members of the Board will think in different ways. They bring different thinking styles to decision making. Having a Board that includes people with a range of thinking styles can enhance Board decision making. It can help avoid ‘groupthink’. One of the benefits of encouraging cultural and gender diversity on Boards is that different ways of thinking and different experiences are brought to bear on problem solving. While this may make Board meetings less predictable, I believe it enhances the decisions that are made.

Better Board meetings Do you ever leave a Board meeting feeling frustrated? You are not alone! Every now and then a Board meeting does not work well for any number of reasons. It might be a problem that arises rarely, due to differences in Board members’ personalities or values. But it might also be a sign that things need to change. Frustration following Board meetings can arise for many reasons. Here are some common reasons: 43

Great Foundations • You didn’t spend enough time on the important decisions. • You didn’t really get to the bottom of a concern you had about a report or draft budget. • You didn’t discuss the future, just current crises – yet again. • You didn’t review progress on strategic issues. • You simply ran out of time. • You couldn’t get a word in edgeways! Some questions to think about: • Who sets the Board meeting agenda? • Is it a ‘living document’? • Does the CEO’s report and KPIs link to the strategic plan and business plan? • Is there enough time in Board meetings to discuss important decisions? • Do Board meetings always run out of time? Below I discuss some possible solutions to common Board meeting problems.

Who sets the Board meeting agenda? The agenda should be developed by the CEO or company secretary in consultation with the Chair. The Chair must be satisfied that the agenda will work well and that key items are covered as he or she will be managing the Board meeting. Items that require discussion and decision should be high on the agenda and allocated sufficient time. Reporting items should be covered in the Board papers and only questions on reports should be covered at the actual meeting. Items that Board members raise in Business Arising which already have their own agenda item should not be canvassed twice.

Is the agenda a ‘living document’? Henry Bosch introduced me to the concept of the agenda as a living document at an Australian Institute of Company Directors’ update course. Just because an organisation has used one agenda for 20 years does not mean it is ‘writ in stone’. If an established agenda format is not working, don’t be scared to change it. As long as Board members are meeting their duties and the minutes are well maintained, the actual order of items on an agenda is open to review. For example, you might be receiving regular detailed reports from very well-established Board subcommittees, but this could be done more effectively less often, with more analysis and less words. 44

What should our Board be doing?

Does the CEO’s report track against the strategic plan? It helps keep focus on strategic issues if the CEO’s report can be linked to the key objectives of the organisation as developed in the Strategic Plan and Business Plan. Progress on achieving key tasks should be covered. The CEO’s report should not become a chatty wrap-up of the previous month’s activities!

Is there enough time to discuss important decisions? The Board meeting timetable for each year should include time for strategic planning, Board performance reviews, CEO and senior staff performance reviews, Investment Policy and other reviews, and of course considering the annual financial reports before the annual general meeting. These should be scheduled and the agenda should reflect this. In order to ensure that all views are canvassed on important issues, the Chair might occasionally stop general discussion and go round the table for comment – sometimes those who have said little or nothing have the most pertinent comments to make.

Does the Board always run out of time? Running out of time is usually due to poor agenda planning, poor meeting management skills on the part of the Chair, or the Board agenda not allowing enough time for important discussions. Tackle the agenda first. Send the Chair for training second. If all else fails, revisit your constitution and reconsider the process for appointing the Chair, probably following the next AGM to protect sensitivities.

Induction Joining a new Board can be a daunting experience, even if you have been on other not-for-profit, government or corporate boards. The induction process for new Board members is very important. Good induction can help a Board member become effective more quickly. No induction process at all can leave a new Board member in the dark. At the least, all not-for-profit organisations should provide an induction kit to new members. This kit should include the constitution, trust deed or relevant act and a summary of compliance requirements. It should include the latest annual report, a profile of Board members (if this is not in the annual report), a brief history of the organisation, the operating budget, the Strategic Plan and the Business Plan. Mentoring by the Chair or another Board member can be an excellent addition to the induction process. It provides an opportunity for the new 45

Great Foundations Board member to gain knowledge about past and any current issues in an informal setting and to ask the ‘dumb’ questions that they may not want to ask at an actual Board meeting.

Code of ethics Last but not least, it is good practice for a Board to develop a code of ethics, Board Charter or values statement which sets out its ethical position. This helps all Board members check that their own behaviour at Board meetings, and while representing their not-for-profit organisation externally, falls within expected standards. While issues such as conflicts of interest are covered in legislation, Boards might like to make a statement about how these matters will be dealt with in practice. Boards might also like to consider matters such as any limits on fundraising sources, creating a family-friendly workplace, limiting commercial contracts in the ordinary course of business with Board members, public transparency and so on.

The role of the company secretary ‘The principal role of a company secretary is to support the Board of Directors and oversee the various governance functions of the company.’11 The secretary carries out administrative functions and, together with any director of the company, may execute documents on behalf of the company.12 A company secretary’s role is to support the Board in meeting its corporate governance duties including legal, regulatory and financial obligations. A public company is required to appoint a company secretary under section 204 of the Corporations Act. The power to appoint a secretary is also usually included in the company’s constitution. Company secretaries have some core roles and some additional roles that depend on the nature of the company (e.g. whether they are working for a listed or unlisted public company, or whether the company is not-for-profit) and the needs of the Board. In Australia, unlike some other countries such as the UK and India, there is no legislation requiring formal qualifications for company secretaries. However, most company secretaries have qualifications in law and/or accounting.

11 Companies and Securities Advisory Committee. (2000). Report to the Minister for Financial Services and Regulation on Qualifications and experience for secretaries of public companies. Retrieved from . 12 Corporations Act 2001 (Cwlth), Section 127.

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What should our Board be doing? Typical core responsibilities include: • Monitoring compliance with law, regulations and the organisation’s constitution • Raising legal and governance matters with the Board, which relate to directors’ duties and good corporate governance • Maintaining the company register (and custody of company seal) and submitting records on time to the relevant regulators (such as Australian Securities and Investment Commission or the ATO) • Taking minutes of Board meetings, Board subcommittee meetings, preparing agendas in consultation with the Chairman and CEO, and ensuring that the necessary action is taken • Preparing notices and otherwise meeting the requirements of the Corporations Act in respect of annual and extraordinary general meetings.

Regulatory and financial reporting requirements An incorporated not-for-profit organisation is required to meet certain regulatory reporting requirements. The rationale for these requirements is the need to inform the public and members. For example, a Category 3 (annual revenue over $1 million) company limited by guarantee is required to: 1. Lodge its annual financial reports, directors’ reports and auditor’s report with the Australian Securities and Investment Commission by 31 October each year 2. Send copies of these reports to members who request them 21 days before the annual general meeting 3. Hold an annual general meeting of members before 30 November each year 4. Appoint an auditor at the annual general meeting 5. Advise ASIC of changes to the registered office, directors or secretary. There have been recent amendments to the Corporations Act to simplify reporting requirements for smaller companies limited by guarantee (known as Category 1 and Category 2). You should check section 285A and other relevant sections of Chapter 2M of the Act for details of the new requirements for all companies limited by guarantee.

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Case study: Learning about governance I enjoy working with the Boards of not-for-profit organisations. Some of the Boards that best demonstrate their commitment to self-education are in fact the Boards of schools and education peak bodies. It is very impressive when a Board has worked through a process of reviewing Board performance, identified what issues it will work on in the following year to improve its governance, and then actually does it all. As a consultant, it is wonderful to return a year later, review the Board’s governance improvements, and find that they have achieved everything they set out to do. Processes for reviewing Board performance usually involve a survey across both Board roles and Board function; that is, covering legal requirements and also how the Board actually operates in practice. One particular Board identified a number of actions it would take to improve its ability to carry out its governance roles. In particular, they wanted to change the constitution to reflect current activities and governance processes. They also wanted to complete a number of policies that had been overlooked in the last few years, including a thorough review of the organisation’s management of Intellectual Property, which was a growing area of importance for the organisation. The Board’s work on strategy and performance monitoring was excellent so only needed tweaking around the edges. A lot of the discussion revolved around Board skills and management of Board meetings. The organisation had grown rapidly and was increasingly playing a key role in policy work. Fundraising for cutting edge projects was also required, although the staff had already had some good success with this. The Board reviewed its skills matrix. This is a table setting out the skills that the Board would like to have represented amongst its members, matched against the skills actually held by Board members. Completing a Board Skills Matrix is a very clear way of identifying skills gaps. In this example, the Board decided it needed skills in Intellectual Property and in fundraising, particularly corporate sponsorship. The Board agreed that a strategy to find new Board members with these skills would be on their work plan for the following year. There were also deep discussions about how Board meetings actually functioned. Some Board members felt there were too few Board meetings in a year and not enough time to discuss important strategic issues during the meeting. Too much time was spent on hearing reports rather than tackling the critical issues. After considerable discussion, it was agreed to increase the number of Board meetings to ten per annum and to redesign the meeting agenda so that strategic issues were placed high on the agenda. It was also agreed to ask questions on reports but not to have them presented – it was understood that they would be read by the Board members before the Board meeting.

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What should our Board be doing?

It was a pleasure to return a year later to find that the Board had indeed recruited two new Board members with IP and corporate links. The Board meetings were being held more often and members were increasingly contributing to discussions about strategy. The Board then rolled up their sleeves and got ready to find other ways they could improve their governance over the following year.

CHECKLIST FOR THE BOARD 1

Is each of us clear on our legal duties as a Board member?

2

Do we understand our roles as part of a Board?

3

Is the Board actively involved in monitoring performance and risk management?

4

Do we review our Board effectiveness each year? (see page 134). Have we identified areas where the Board can improve over the coming year?

5

Do we have the optimum skills and experience amongst Board members to achieve the Strategic Plan?

6

Do we have a well-documented induction kit and an induction mentoring process?

7

Are we satisfied with the way meetings are managed? Is our agenda out of date?

8

Are we satisfied that Board papers are received on time and that minutes are of a good quality and timely?

9

Are we reviewing the Investment Policy and Risk Management Framework (register, policy and procedure) each year?

10

Are we managing the AGM effectively? Do we engage members in a constructive and inspiring way at the AGM?

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Great Foundations

CHECKLIST FOR THE CEO 1

Am I supporting the Board appropriately? Do they receive useful reports a week before the Board meeting?

2

Are the minutes completed and distributed within seven days of the Board meeting?

3

Does my monthly and/or quarterly report to the Board indicate progress against the Business Plan and Strategic Plan?

4

Do I provide good quality information to the Board about major developments with strategic or policy implications?

5

Do I actively manage risk with the senior management team and advise the Board on critical and emerging issues?

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Who makes things happen? The human resources angle

6

❚❚ Who makes things happen? ❚❚ Are there lots of staff, or one staff member, or a team of volunteers who do the organisation’s work? ❚❚ How hands-on is the Board?

The team Getting the right team of people, with the right skills and experience, working together to achieve an organisation’s objectives is the core challenge for a CEO in any sector. And getting the right CEO is one of the key tasks of a Board. In the not-for-profit sector, managing people can be particularly complex because you are not just dealing with employees. You are often working with volunteers – and volunteers range from people who want to donate their time to a cause to do a whole range of practical jobs, energetic parents, fundraisers, professionals who provide pro bono services, through to members of the Board.

Volunteers Managing volunteers is not the same as managing paid staff. While it is good practice to have a job description and a clear line of reporting for a volunteer, the motivation to work is more complex. Volunteers are working for many reasons that are not financial – to make a difference in the community, to give something back, to learn new skills, to find new friends, or to feel part of an organisation. In not-for-profits that are membership-based associations, many members may also work as volunteers. In many not-for-profits, Board members are voluntary but their role as a Board member and their role as a volunteer within an organisation should be kept clearly defined. 51

Great Foundations The reasons that people volunteer are many and varied and if volunteers are going to become and remain valued members of the team, their needs must be considered. There is not much point in appointing a person to be a volunteer bus driver if he wants to use his accounting skills. There is no point rostering a person to sort donation receipts in a back office when the volunteer really wants to make new friends. The application for volunteer employment should gain enough information about the person’s skills, interests, qualifications, needs and aspirations to enable the CEO or Volunteer Manager to match the volunteer to the right job. Some positions in the human services sector will require a police check. It is a common misconception that volunteers are a free resource. This is simply not the case. Volunteers must be actively trained, supported and managed like other employees. They must be acknowledged for their work if they are to remain motivated. If an organisation is short of funds, engaging in a large volunteer program is often a mistake. Time and resources will be needed to run the program well. Sometimes it is just as effective, but not as ‘feel good’, to simply employ a part-time or casual person to do the job that needs to be done, at least in the short term. When things are going well and the organisation has a well-thought through volunteer policy and plan, volunteers are a wonderful resource and a very important part of almost any team in the not-for-profit sector. When things do not go well, this is a fraught area.

Performance of volunteers It is very important that each volunteer has a job description, even if the description is the same as for all the other volunteers who, just for example, work in the library or assist with fundraising. As for a paid employee, the employer needs to have a basis for reviewing and managing performance of an unpaid worker. A volunteer expects certain non-financial things from the not-for-profit organisation, such as recognition and an enjoyable place to work. However, the organisation also has expectations of the volunteer, especially that each volunteer will do the job he or she is engaged to do reasonably well and will act in the best interests of the organisation. Poor performance by a volunteer needs to be managed very carefully. While the financial risks are usually low, the reputational risks are potentially high. A not-for-profit organisation does not want a disgruntled ex-volunteer making disparaging remarks about it, even if the volunteer fell far short of expectations. It is important that every volunteer knows who they report to within the paid staff. This person must take responsibility for checking that the volunteer is actually making a positive contribution to the organisation – obviously there 52

Who makes things happen? may be an initial training phase, where a volunteer is learning the job. If things are not going well, the manager must talk with the volunteer and explain what is not working. This must be constructive and provide the opportunity for the volunteer to improve. Several conversations may be required. If the poor performance continues after several of these discussions, the manager should suggest that the volunteer might be better suited to another role in the organisation or a role with another not-for-profit organisation. The manager could help the volunteer make this transition out of the organisation by providing information and contacts. If providing a reference, this should talk about the things the volunteer does well. It should not oversell the volunteer as this will only cause more difficulties for the next organisation and for the volunteer as well. The organisation should acknowledge the volunteer’s contribution, even if it has been less than expected.

Younger volunteers A section on volunteers would not be complete without some discussion of younger volunteers. Younger people are engaging more with not-for-profit organisations for several reasons. Firstly, they know that some volunteer work, especially if relevant to their future or current career, will look good on their CV. Secondly, it is almost trendy to be involved with a not-for-profit. Many younger people who work in large companies are part of corporate community partnership programs where they volunteer as part of their work. Again, there is some status in this. Thirdly, there are many younger people who want to support important causes such as preventing climate change or homelessness. Their volunteering efforts should inspire them but will also help them learn about the challenges and patience required to achieve positive change. Younger volunteers who become involved in governance related roles, perhaps through joining a youth advisory board to a foundation, will need training and mentoring. Sometimes there is quite a learning curve as the volunteers learn about the sector they are working in, about their duty of care to clients, about not-for-profit corporate governance, and/or the not-for-profit organisation’s legal and tax status. The not-for-profit organisation must cater for this learning and support. This will mean an investment of time and often money. If the organisation is seeking to bring new blood into the organisation, perhaps thinking about future Board succession planning, this investment can be very worthwhile. But it is an investment and needs to be prioritised against the other projects and programs that the organisation wants to pursue.

Accident insurance Volunteers are not automatically covered by most workcover legislation. The not-for-profit organisation should take out Volunteer Personal Accident insurance to provide some comfort to volunteers that there will be some cover if 53

Great Foundations they are injured while on volunteer business for the organisation. Maintaining an up-to-date Volunteer Register will help show whether or not the volunteer was an active volunteer with the organisation at the time of any injury. Where a corporate partner wants to provide volunteer opportunities for its staff, the corporate partner should underwrite the additional cost of volunteer accident insurance for its staff. Otherwise this can be a hidden cost for the not-for-profit organisation.

Getting the team right A not-for-profit organisation depends on its team of staff and volunteers to get things done. Their skills and abilities will determine the organisation’s capacity. The team needs to include people who have the right skills and personal style for the stage of the organisation’s development. It is a waste of valuable funds to appoint a marketing manager from the commercial sector at a high salary when the back office does not function and programs or services are not provided on time. The fundamentals must be in place so services or programs can be delivered on time and on budget. Not-for-profits require different teams at different stages of development.13 Once an inspirational or forward-thinking Founder has kickstarted an organisation and the basic legal structure has been put in place, there is a need to demonstrate the organisation’s capabilities and establish the administrative foundations. This takes vision but it also requires practical people who can translate an idea into an operating organisation. The greatest risk at this stage is that one dimension of the organisation will move so far ahead of the rest that it becomes unstable. For example, the charismatic leader might be gaining support from government funding bodies or other major funders and promising huge outcomes. However, the actual financial management and delivery of the program may not be ready for this scale of activity. More planning might be required. More sophisticated accounting or management skills might be needed. It requires an objective assessment of organisational capacity to know what is needed. Another risk is that the organisation is very busy getting on with its work and doing great things. However, no-one out there knows about it. The marketing effort might be a volunteer fundraiser with a brilliant ability to run a donor program but with no experience in gaining media coverage. Unless it is a contemplative order, or is set up with a bequest that fully funds all activities, a€not-for-profit organisation needs to be seen by its stakeholders! 13 For one approach to analysing life stages see Sharken Simon, J. S., & Donovan, J. T. (2001). The five life stages of nonprofit organizations. Saint Paul, MN: Amherst H. Wilder Foundation.

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Who makes things happen? It is very common in the early stages of a not-for-profit organisation for the staff and Board to find that they just do not have all the skills they need. A successful not-for-profit organisation will identify the gaps and actively go out to recruit new Board members or staff. Some philanthropic foundations or large not-for-profits will also provide support to emerging not-for-profits to help them pull together the set of skills that they need. Examples of this type of grant are the capacity building grants of $100 000 made available by the Sidney Myer Fund and The Myer Foundation as part of the Commemorative Grants Program in 2009. As a not-for-profit organisation develops and expands, and even during times of decline, the roles and skills of the team will change. This is a constant challenge, especially if funds are tight or if volunteers’ emotions are involved. In education, the core curriculum might change, resulting in different teaching skills being required. A not-for-profit organisation will need access to the following skills on its Board and within its staff and volunteers’ team: • Strategic Planning • Business, Curriculum or Program Planning • Finance • Legal • Management • Expertise in the relevant area (disability services, education, health, the arts, etc.) • Fundraising • Marketing/Communications. It is the Board’s role to ensure that it has the right composition of Board members and it is the CEO’s role to make sure that the staff team is effective. The team should include people with not only a range of skills but also a range of styles. Good decision making comes from different types of brains tackling a problem from different perspectives. You do not want your team to be a group of clones engaged in groupthink. One way that many not-for-profit organisations think about teams can be seen in the Belbin model (see <www.belbin.com>). This can be a fun activity, where each member of the senior management team or the Board identifies the role they usually play within a group. For example, are they an ideas person; are they a person who finds funding; or are they someone who makes sure that everything has been covered? While this is actually a fun thing to do, it has a serious side. The CEO and Board Chair should be constantly aware of how members of the team operate. 55

Great Foundations Managing a positive staff or Board meeting is not just about following an agenda within a given time frame. It is about getting the most out of the people around the table – making sure that they all contribute in some way. It is about making decisions, but it also about knowing when a decision cannot yet be made because more information or time is needed. Being a good leader of meetings is an important skill for a CEO and a Chair. He or she needs to know when to let the violins go for it or when to bring in a bassoon!

Retaining the key players All not-for-profit organisations rely heavily on their staff and volunteers to achieve their goals. Most not-for-profits are involved in service or program delivery – they rely on their people as a critical part of their organisational capacity. In some parts of the not-for-profit sector, staff turnover is a continuous issue for the CEO. This particularly affects emotionally demanding professions such as human services or education. In some sectors the ageing population means that the staff are also ageing, for example in aged care. Staff retention and staff recruitment demand a great deal of attention. Burnout is also a problem that needs active management. One of the challenges for the CEO is to design career paths that are interesting over many years and provide different career pathways, within an organisation or a sector. While the salaries in the not-for-profit sector are often (but not always) less than in the commercial or government sectors, the not-forprofit sector provides other non-financial rewards and opportunities. There will be an increasing need for leaders to think flexibly about how work is undertaken by their staff. This will be because older staff will want to work part-time, people with family responsibilities will continue to seek flexible work hours, and many workers will be looking to make transitions in their careers rather than stay in one job for life.

Alternative career paths For example, let’s think about a secondary teacher in a non-government school in a suburb of Melbourne. The teacher has taught Years 9 to 12 English in the school for 10 years. She is an expert in preparing students for VCE. She loves her work but she is beginning to feel very tired. She raises her fatigue with the Principal when they are discussing the next year’s workload. The Principal can only think of the great VCE results the teacher’s students have produced year after year; he does not really stop and listen to the teacher’s concern. During the September holidays, the teacher goes overseas for a trip. She is travelling to the United Kingdom so that she can revisit the places that gave her inspiration when she was an English literature student at

56

Who makes things happen?

university. She reconnects with some old friends and one offers her an opportunity to study for her Masters in the friend’s department at the University of London. The friend explains to her how she could apply for a scholarship for two years’ living expenses. The teacher accepts and resigns. What could the Principal have done to avoid this scenario? Here are some ideas … He could have listened properly to the teacher’s comments and realised that she needed a break from teaching at the senior level, or from teaching altogether. Rather than lose her experience, he could have offered her a combination of junior teaching and study leave so that she could do her Masters in English in Australia. He could have even encouraged her to travel as part of her research and arranged some relief teaching for part of a semester. He could have suggested that she become more involved in curriculum design and take some time out of the classroom. She could have acted as a mentor to newer teachers and to older teachers who might be struggling with the changing technology, especially relating to filmmaking. He could have suggested that she teach part-time and study business administration or finance subjects so that she could perhaps segue into a school management role later in her career.

Maximising CEO performance Managing a not-for-profit organisation is no easy task. In addition to the usual management challenges facing any organisation, the not-for-profit sector can be a fast changing, complex environment. Government policies change, often just as the CEO has all the right staff and funding streams in place. In addition to this, an organisation is constantly evolving. The type of CEO required next year may not be the same as the person required three years ago. The organisation might be coming out of – or going into – an entrepreneurial phase of repositioning. Alternatively, it might want to consolidate its services and positions. The Board should be looking to appoint a CEO that is able to lead the organisation in the agreed strategic direction. The annual (or six monthly) performance appraisal of the CEO is critical to a not-for-profit organisation’s success. It allows the Board to step back and identify the CEO’s strengths and weaknesses. At the end of the process, it enables an updated set of Key Performance Indicators (KPIs) to be agreed with the CEO that both build on the CEO’s strengths and enable professional development strategies (training, mentoring, exposure to particular projects and so on) to be put in place to overcome weaknesses. Sometimes, it means putting other staff around the CEO with the skills, experience and working 57

Great Foundations styles that complement – not duplicate – the CEO’s. It also provides a means of rechecking that the KPIs align with the organisation’s Strategic Plan.

The performance plan The CEO’s performance plan (linked to the Business Plan with Key Performance Indicators) should reflect the original job description, bearing in mind the changing operating environment and the organisation’s Strategic Plan. The work plans of staff operating below the CEO’s work plans should support the overall Business Plan. There is no point having staff with individual work plans that are operating outside the organisation’s core business – whether this is providing services to people who are homeless, working with communities to protect the environment, running a community arts program, or any of the other activities undertaken by not-for-profit organisations. The Key Performance Indicators should be achievable and able to be measured objectively in some way, not necessarily just by throughput or dollar targets, but also by qualitative feedback.

The appraisal process The Chair of the Board needs to make it clear to a new CEO that an annual (or half-yearly) performance appraisal will be a natural and important part of the job. The process should be organised well in advance to ensure that the CEO has time to prepare and that the Chair or Board subcommittee that will meet with the CEO to discuss performance are clear about the CEO’s KPIs and the Board’s expectations. The actual performance appraisal meeting works well if it is seen as a constructive opportunity to identify any barriers the CEO is facing and to identify where additional skills development may be needed. Outcomes should be documented so that the next set of KPIs is well understood by the CEO and the Board. The Chair of the Board should report back to the full Board in camera (confidentially without other people present) about the meeting and any critical issues that have arisen. The Finance or Remuneration Committee may also want to discuss a salary increase, again in camera. The CEO might also appreciate the opportunity to address the full Board about any critical issues, especially if they relate to changes beyond his or her control that have adversely affected the achievement of KPIs (for example, failing to win a tender to provide services or losing staff because of uncompetitive salaries). The Board can then work with the CEO to tackle these issues. If it becomes clear that KPIs are not being achieved because the CEO’s set of skills and experience simply no longer match the organisation’s strategic objectives, then the Board must make some balanced decisions about succession planning. Many CEOs are now on fixed-term contracts and reappoint58

Who makes things happen? ment should not be automatic if the Board has doubts about the current CEO’s ability to take the organisation to the next stage of its development. As mentioned previously, organisations go through different stages of the life cycle and different stages require different skills. At times, a visionary leader is needed. At other times, a solid manager who can steer the ship steadily is required. Or sometimes, energy with experience is best. If it becomes clear by the end of the appraisal process that KPIs are not being achieved, the process may need to move into a disciplinary sphere. This is a different process and employee relations legal advice should be obtained before this process begins.

The role of the Chair in performance appraisal One of the key roles of any Board is to ‘hire and fire’ the CEO and then to monitor performance. The Chair should have a good working relationship with the CEO but not become their ‘bosom buddy’. While some social contact is helpful in order to get to know the other person better (what motivates them, how they handle stress, etc.), it is very unwise for the Chair’s relationship with a CEO to become so friendly and informal that the Chair is no longer able to provide a monitoring role. This will become very clear during the performance appraisal process and may prevent the Chair from saying what really needs to be said about poor or mediocre performance. Sometimes a Chair will become so friendly with the CEO that he or she will stop hearing the practical and real concerns of other Board members about aspects of the CEO’s performance. Above all, the Chair must be a steward for the long-term health of the organisation itself. The Chair should also use the performance appraisal process, as well as opportunities such as Board meetings and other meetings, to emphasise the links between the organisation’s strategic direction and the CEO’s KPIs. It is easy for a CEO to become diverted from implementing the organisation’s high-level strategy because of staffing problems or new funding and partnership opportunities. The Chair and the rest of the Board should help lift the CEO’s eyes from the everyday operational issues to check performance against the StraÂ� tegic Plan. This is part of the strategic role of the Board.

CHECKLIST FOR THE BOARD 1

Is there a performance appraisal process in place for the CEO?

2

Does the process include Key Performance Indicators linked through the Business Plan with the Strategic Plan? 59

Great Foundations

3

Are the KPIs reviewed and then documented for the following year?

4

Are the KPIs achievable and measurable (including quantitative and qualitative feedback)?

5

Is the process formal enough to ensure that the CEO and Board Chair (or Board subcommittee) have enough information and time to prepare?

6

Does the performance appraisal process exist in a vacuum or does it lead to opportunities for skills or other professional development?

7

Does the Board recognise the type of CEO it needs at different stages of the organisation’s development? Does it review this before the renewal of a fixed-term CEO employment agreement?

8

Does the Board review its own skill set from time to time?

CHECKLIST FOR THE CEO 1

Is the team of staff and volunteers able to deliver the organisation’s objectives?

2

If not, where are the weak areas?

3

How can these areas be improved using existing staff or volunteers?

4

What new skills and style does the organisation need?

5

How could this be funded?

6

Do I need advice from an employee relations lawyer?

7

How will I present my recommendations to the Board to gain their support for this change?

8

Do I have a person or people coming behind me who can lead the organisation in the future?

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Do we understand and manage risk? A risk perspective

7

❚❚ What risks face the organisation? How likely are they to happen? ❚❚ What risks are worth taking? ❚❚ Is risk management part of the organisation’s everyday planning and ❚ performance monitoring?

There has been an increasing focus by some government funders on not-forprofit organisations taking a risk management approach to their work. Some funding bodies require not-for-profits to complete a risk management plan and training. I recently presented to a workshop organised by a peak body in the not-for-profit sector and decided that this area definitely deserved its own chapter. Formal Risk Management Frameworks can be seen by smaller or developing not-for-profits as too difficult or big to take on. This is not the case. The two key things to implementing a successful risk management program within the not-for-profit sector are: firstly to recognise that risk management should be part of the planning and performance monitoring that the organisation is already doing; and, secondly, to adopt or develop a Risk Management Framework which is manageable within the organisation’s financial and human resources. There is no point setting up a very sophisticated system if you won’t be able to keep it going and there is no point setting up a Risk Management Framework that duplicates the forward planning activities your organisation already undertakes. So, what is risk? Here are two definitions: • ‘Risk – the chance of something happening that will have an impact on an organisation achieving its objectives.’14 14 Victorian Managed Insurance Authority. (2008). Guide for developing and managing your risk management framework: Foreword and introduction: Risk Management in the Victorian Public Sector (p. 10). Vic: VMIA. Retrieved from .

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Great Foundations • ‘Risk management is the culture, processes and structures that are directed towards realising potential opportunities whilst managing adverse events.’15 Within the not-for-profit sector, a risk could relate to funding running out, fraud by employees or volunteers, losing preferred tax status, staff competencies not matching a new program in the Strategic Plan, potential injury to clients or staff, loss of reputation, IT security, and many others. These are strategic as well as operational, financial and compliance risks. In many instances, a not-for-profit organisation will be informally managing risk as it carries out its planning and delivery of programs. In fact, managing risk should be part of the not-for-profit organisation’s core business. This chapter outlines a more formal process for ensuring that risk management becomes an integral part of the organisation.

Risk management Risk management – a comprehensive process, supported by appropriate strategies and frameworks that are designed to identify, analyse, evaluate, treat and monitor those risks that could prevent an organisation from achieving its objectives. It covers strategic as well as operational, financial and compliance risks.16 While there are various aspects of risk management that must be managed at an operational level, at the governance level the Board must be satisfied that the organisation has an effective response to risk management. This should include a Risk Register which enables the Board to monitor risks on a regular basis and a Risk Management Framework, which will include a policy, a strategy and a procedure, that enables the organisation to identify: • The nature of the risks faced by the organisation • An assessment and rating of risk (high, medium or low based on an assessment of likelihood and consequence) • The organisation’s ability to accept and manage the risk or to change strategy to avoid the risk. 15 AS/NZS 4360:2004 Risk management. Sydney, NSW: Standards Australia. Replaced by AS/NZS ISO 31000: 2009 which is a direct adoption of the new international standard, and which is based significantly on the 2004 edition of the Australian/New Zealand Risk Management standard. 16 Victorian Managed Insurance Authority. (2008). Guide for developing and implementing your risk management framework: Risk Management in the Victorian Public Sector (p. 10). Vic: VMIA. Retrieved from .

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Do we understand and manage risk? The Board has two important roles to play in risk management. Firstly, it must ensure that the Risk Register and Risk Management Framework are in place, appropriate and actually applied. Secondly, the Board must monitor the Risk Register regularly, usually every six months unless a high risk arises, when closer monitoring is required. The Board makes decisions about the level of risk that the organisation can accept in achieving its mission and Strategic Plan. These are matters of judgment and the Board will benefit from Board members who have relevant experience in this area. An effective Board is looking to check that the risks contained in the Risk Register have been assessed appropriately and that actions have been identified and actually undertaken to manage the risks. The CEO and senior staff will flag high-level risks on the Risk Register and, if these risks are of concern to the Board, the CEO and the Board will agree on the steps that need to be taken to manage the risk. The Board may need to direct the CEO if an issue is beginning to get out of control. High-level risks of concern will be monitored by the€Board on a monthly basis until the risk is manageable. There are times when the Board will decide that a particular course of action recommended by management will not be adopted. For example, the Board may decide that submitting a grant proposal which exposes the organisation to high financial risks because of matching grant requirements is not worth the risk to the organisation’s overall financial stability. (A matching grant is where government or a philanthropic foundation makes a grant to a not-for-profit conditional on the organisation raising one or more other grants of equal value to the initial grant.) The Board should also ensure that management reviews the level of risk within the Strategic Plan and operational Business Plan before the Board considers them for final approval. Ideas and strategies that seemed brilliant after a heady day of brainstorming may not all stand up to the harsh light of everyday budget and other resourcing requirements. Many Boards allocate the monitoring and compliance aspects of risk management to a Board committee. This does not mean that reviewing the Risk Register is a role that should be delegated. Rather, it means that the Board committee can add value by reviewing the Risk Register before it comes to the full Board and provide advice and recommendations for the Board to consider. While many not-for-profits have a Board committee that focuses on risk or audit, in smaller organisations risk might sit with the Finance Committee€or the Governance Committee. A dedicated Risk or Risk and Audit Committee helps ensure that a few members of the Board are taking a particular interest in this area and can bring issues to the full Board’s attention, in addition to reports from management. It also keeps risk as the key focus, rather than monitoring financial performance. Before we consider management’s role in risk management it might help to look at an example that we can work through.

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Great Foundations

Alternative career paths Let’s imagine that the Strategic Plan of Gumtree College includes a plan to expand the IT capability of all teaching programs. This is essential to keep up with emerging technology and the expectations of a very tech savvy generation of teenagers. Each classroom will have an interactive whiteboard and all homework will be sent by email to each student. Every teacher and every student from Year 7 onwards will have a state-of-the-art laptop. Management’s role is to actively consider risk when developing operational plans such as Business Plans and project plans, and to put steps in place to reduce risk and maximise opportunities. The Principal, Chief Financial Officer and Head of Information Technology at Gumtree College meet to begin work on developing a Business Plan for the school, which reflects the Strategic Plan developed by the Board and Principal during last week’s Strategic Planning session. The Head of IT is wildly excited; all his dreams are coming true at last! But the CFO is concerned: how will the IT capability strategy be funded? Her team has already done some initial costing and the interactive whiteboards alone will cost $250 000. Laptops for teachers will cost $70 000 and a deal will have to be negotiated for students – will this increased cost put parents off and adversely affect school enrolments? On the other side of the table the Head of IT begins to paint a picture of his ideal scenario. It is clear to him that there are many behind-the-scenes costs that have to be factored in such as networking, training and maintenance. He makes these observations at the meeting. The Principal begins to sweat. What seemed like a good idea at the time may just be too ambitious within the original time frame. The Principal asks the Head of IT to think of a staged approach and, after the meeting, telephones the Director of Fundraising and the Director of Business Development. Clearly new sources and methods of funding will have to be found. After a great deal more work and risk assessment, the Principal and management team at Gumtree College develop a proposal for the Board to consider that stages the IT capability strategy over three years. In Year 1 of the Business Plan, the interactive whiteboards will be introduced into classrooms used by Years 11 and 12; in Year 2 they will be introduced into Years 9 and 10; and in Year 3 they will be introduced into Years 7 and 8. The Director of Fundraising has identified one government funding source that has good potential, and the Chief Financial Officer has identified several financing options which might be of interest to parents paying for laptops under a lease arrangement. The likelihood of full funding of the program over three years not being obtained has been assessed by the management team as being between possible and likely and the consequence of this as being major. Overall the risk of failing to implement the full program because of funding limitations is assessed as High. This is then presented to the Board for consideration. 64

Do we understand and manage risk?

The Board, recognising the critical importance of having a contemporary IT capability underwriting its teaching program, agrees to the revised proposal on the basis that the implementation is actively and regularly reviewed by the Board on a quarterly basis. Management will be required to take action if directed by the Board, and management must report developments which impact on the strategy to the Board as they arise or at least in the Principal’s monthly report.

Establishing a Risk Management Framework Active risk management can add value to a not-for-profit organisation by: improving the quality of program and project planning and monitoring; enabling risks to be identified in advance and then managed or reduced; and encouraging the organisation to plan ahead. (It should be remembered that some risks are worth taking!) The following are some steps in establishing a Risk Management Framework. It is important that the approach suits your organisation’s available resources and fits with the organisational culture. It should be consistent with key elements of AS/NZS/ISO 31000:2009. It must enable your organisation to identify: • The nature of the risks faced by your organisation • Your organisation’s ability to accept and/or manage risk/s. A Risk Management Framework usually includes an overall strategy, a policy, and a procedure. The risk assessment is summarised in a Risk Register, which is monitored by the CEO and the Board. The risk management policy usually includes: • How risk management links with the organisation’s overall strategic objective • Who in the organisation will be accountable for managing risk • How often risks will be reviewed • The processes to be used for managing risks • The KPIs for risk management • Risk management reporting requirements • How the KPIs will be monitored • The budget available for risk management activities.

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Great Foundations Risk management procedure explains how the policy will be implemented at a practical level. It sets out the risk assessment criteria and rating. The risk assessment criteria will consider risk against: • Likelihood: rare, unlikely, possible, likely, almost certain (for example) • Consequence: insignificant, minor, moderate, major, extreme. and then rate the risk overall: • High/Medium/Low. ‘At a minimum, the Risk Register records: • The risk • How and why the risk can happen • The existing internal controls that may minimise the likelihood of the risk occurring • The likelihood and consequences of the risk to the organisation, business unit or project • A risk level rating based on pre-established criteria framework, including an assessment of whether the risk is acceptable or whether it needs to be treated • A clear prioritisation of risks (risk profile) • Accountability for risk treatment (may be part of the risk treatment plan) • Time frame for risk treatment.’17

17 Victorian Managed Insurance Authority. (2008). Guide for developing and implementing your risk management framework: Risk Management in the Victorian Public Sector (p. 43). Vic: VMIA. Retrieved from .

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Do we understand and manage risk?

CHECKLIST FOR THE BOARD 1

What are the risks associated with the organisation’s key objectives and strategies?

2

How is the organisation assessing, managing and monitoring these risks; that is, what is the Risk Management Framework?

3

Does the Risk Register come to the Board for review at least every six months?

4

Is there a process for bringing high risk matters to the Board’s attention as they arise?

5

Are the risk management processes working effectively?

CHECKLIST FOR THE CEO 1

Do we apply a risk identification and assessment process to the development of the Strategic Plan and annual operational Business Plan?

2

Do we monitor the Business Plan and take action to manage risks?

3

Do I report regularly to the Board about high-level actual or emerging risks?

4

Do we prepare and provide the Board with a thoroughly reviewed Risk Register at least every six months?

5

Do staff understand the importance of identifying and managing risk when they are planning and monitoring their programs?

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How do we get money in the door? The fundraising angle

8

❚❚ What is the organisation’s financial base? ❚❚ Does it receive recurrent government funding? ❚❚ Is it able to receive tax deductible donations? ❚❚ Does it have any partnerships with business, or could it? ❚❚ Does it have any reserves? If so, how are they invested? ❚❚ Is the organisation audited?

Income sources Some not-for-profits are set up with a charitable gift under a will or a trust. They are usually grant-making foundations. Most not-for-profits, however, need to develop a viable income base. Generating income for many organisations in the not-for-profit sector depends on three key things: relationships, knowledge and profile. These take time to develop. This means that all startup not-for-profit organisations, except those set up with a capital fund18, need a short- and a long-term funding plan. Generating the right combination of income sources means being committed to achieving the Business Plan. It also means that you don’t chase every funding opportunity rabbit down every burrow! Dealing with complexity is another aspect of the funding of most not-forprofits. It is extremely rare to find a not-for-profit of any size and impact that has only one source of income. Because of this, juggling cash flow and grant agreement requirements are often ongoing challenges.

18 The capital fund is also known as the corpus of a foundation. It is the funds invested to achieve the organisation’s purpose. The income on the funds (usually at least 80 per cent of income) must be applied to the organisation’s charitable purpose. Some foundations will also use capital funds to support a grant or other project, provided it is within its purpose and allowed by the initial gift or trust deed.

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Relationships with funders Successful not-for-profit organisations have good relationships with many stakeholders, including their donors and funding partners. Donors are the mums and dads or local supporters that make tax deductible gifts to the organisation. Funding partners are usually government, philanthropic foundations or corporate sponsors that provide a grant for a particular project. Other not-for-profits such as member associations and schools depend on fees for services. Occasionally a partner will support an organisation just because it believes in what the organisation can do. Sometimes this is known as a capacity building grant. The not-for-profit sector would love more of these! A new not-for-profit should make sure that its administration is set up professionally so that it can efficiently manage its relationship with donors and other funders. Everyone wants their tax receipt in good time. No one wants three copies of a donor appeal letter, a membership fee renewal letter or a€newsletter. Savvy not-for-profit organisations invest in fundraising software from day one, which allows the relationship with each donor to be tracked over time. Each contact is recorded, whether this is a donation, a letter, a telephone call or even a meeting or visit. In this way, a not-for-profit can identify donors who are developing a special relationship with the organisation. These donors are ones to nurture. They have the potential to become major donors or even bequestors. Over time, an organisation can begin to know its larger donors. Some like to be prompted to give. Some are highly organised and give once a year at tax time. These donors don’t want quarterly letters asking for donations. Donors can be turned off by aggressive and/or smooth fundraising approaches. Like almost everything in the not-for-profit sector, the organisation will prosper if it is genuine and focused on its core objectives, whether that is saving rainforests or preventing domestic violence. Donors are not stupid. Relationships with funding bodies can take longer to develop but will often be critical to the organisation’s survival. Again, being genuine, professional and focused when dealing with potential and existing funding partners goes a long way to building credibility. Understanding where your organisation fits within the part of the not-forprofit sector that you work in is critical. If your organisation is seeking funding from government, senior staff will need to join the relevant networks so that your organisation is up-to-date with government policy and able to learn about funding opportunities. Government departments know which organisations are doing what. Philanthropic foundations also talk to each other – and sometimes to government departments to make sure that their charitable 69

Great Foundations investments are good ones. Philanthropic foundations are often able to fund initiatives or activities which government may not be able to fund – perhaps a project is trialling a new approach to solving a problem and is considered too high risk by government, or because of narrow program guidelines. Your organisation needs to be aware of what others are doing in your area – and to always be on the look out for partnership opportunities. Funders often encourage organisations to work together – it shows community service, cultural or environmental networks are working and can lead to a bigger bang for the government or philanthropic buck. The not-for-profit sector is most effective if organisations don’t go it alone, possibly duplicating what’s being done only a few kilometres down the road. Always going it alone may lose your organisation credibility over time. Most not-for-profits depend on in kind donations, especially in the early days, and these can be incredibly valuable. Support for office space, use of office equipment, printing, IT support, media liaison – and other in kind donations – all make a critical difference in building the organisation and building profile. Taking time to build these relationships is also worthwhile.19

Recognising women’s contribution There are many brilliant fundraising programs that have created critical income sources for not-for-profit organisations. But there are some fundraising programs that have an additional dimension, giving them a special quality. In a sense they are building community or supporting social justice, as well as bringing in donations. One program that I know well is the Shilling Wall program of the Queen Victoria Women’s Centre Trust. This program was conceived by former and current Trust Members (who are all women). The Shilling Wall provides a place where women of all ages and backgrounds who have made a special contribution to public, professional, community or family life can be celebrated. Some of the women are famous people such as Joan Kirner, first female Premier of a state in Australia, or Dr Annette Bear Crawford, who led the establishment of the first women’s hospital (run for women, by women). Others are less well-known women who also deserve recognition for their contribution as mothers, sisters, colleagues, friends and mentors. Each woman is recognised by a ‘brick’ in the Shilling Wall, on which her name is inscribed. There is an assigned cost to each tribute depending on its colour. Monies raised directly support programs of the Queen Victoria Women’s Centre. The full tribute for each woman can be read on the Queen Victoria Women’s Centre website.19

19 Source: .

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Women are sometimes forgotten in history books and their contribution within the community may be under-acknowledged because less media attention is given to nongovernment or non-commercial activities. The Shilling Wall provides a public opportunity to recognise the strength of diverse women and the many different ways they have contributed to the Victorian community.

Razzle-dazzle Getting involved in fundraising for a cultural organisation is a rather thrilling prospect. You get to meet lots of fascinating people and attend lovely functions and performances. It can all be rather heady. Who doesn’t want to meet the currently most famous artist, dancer, actor, musician, singer, sculptor or photographer? Especially if it involves witty conversation and glasses of champagne. This is the not-for-profit sector at its most urbane! Of course, the basic premise to remember is that the diverse fundraising efforts for a cultural organisation should be working in ways that complement each other and give the organisation the most effective fundraising base. Working on a couple of projects with cultural organisations has made me realise that there are a few questions that all fundraising volunteers, whether they are on Boards, Committees of Management or Advisory Groups, should know. Who am I fundraising for? Is it the gallery/museum/theatre? Is it the foundation? Or are they the same thing (at times they might be)? Can we accept cultural gifts and what are they? This area can be a quagmire of confusion to the uninitiated. Not all cultural organisations have the same engine when you open the bonnet! Anyone involved in fundraising for a cultural organisation should check whether the organisation is on the Register of Cultural Organisations or whether they are actually raising funds for an Ancillary Fund, which will later benefit the organisation (see <www.arts.gov.au/tax_incentives/register_ of_cultural_organisations>). Fundraisers should know what to do if they are offered works of art by finding out about the Cultural Gifts Program. There are requirements for valuing cultural gifts that must be followed if a donor is to receive a tax deduction (see <www.arts.gov.au/tax_incentives/cgp>). The last thing you want is to be sitting next to a person at dinner who has a great interest in the arts and not be able to accept a gift of a painting or artwork because you, as an honorary fundraiser, don’t know enough. It’s best to be well informed before you start sipping too much champagne! 71

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Partnerships with philanthropy Developing an effective partnership with a charitable trust or foundation is contingent on many factors, not the least of which is the nature of the partners and the project. Some trusts and foundations like to remain passive observers of the not-for-profits they support. Others are very hands-on and actively identify community needs and find the appropriate not-for-profit partners to provide solutions. No matter which grantmakers you approach, there are some universal principles that might enhance your success rate.

Know the project Yes, this sounds basic but it’s surprising how many people don’t have a good grasp of the project they are trying to have funded. It is worth sitting down with the people who identified the need and thoroughly talking through the project. Without this ‘homework’ it will not be possible to write an informative, well-grounded grant application. Some of the best applications are not written by fundraising professionals but by people who know what they want to do and can convey their knowledge and passion. If you are working in a school, you might like to visit the Tender Bridge website . After reading a grant application, a grantmaker should be able to easily answer the following questions: • Why is the project needed? • What will the project actually do? • Why is it likely to work? • How will we know if the project has been effective?

Use research to persuade Grant applications that refer to relevant research about a gap in services or the issue to be addressed are more persuasive. Recent data about social or economic needs or respected scientific information about, for example, medical or environmental challenges is very helpful. But keep it short and informative – this is not an academic paper. Try and show how you are building on the existing body of knowledge or adding value and not duplicating existing services.

Target the appropriate foundation Think carefully about the possible trusts and foundations which you might approach. Consult The Australian Directory of Philanthropy <www. 72

How do we get money in the door? philanthropy.org.au/publications/directory.html> and talk to other development professionals about trusts which have a particular interest in your area of activity. When you have found a likely grant partner, make sure your application addresses all their questions and criteria. Do not use your own standard format. You will seem either lazy or disinterested if you haven’t gone to the trouble of responding to a potential grantmaker’s specific application format. Surprisingly, it is sometimes large not-for-profits that take the most cavalier approach to this.

Consider the role of the foundation What role do you want your philanthropic grant partner to play? Do you just want to receive the funding and provide a report at the end of the project? Could the grantmaker add value as the project develops because of other projects they have funded or because of their particular areas of interest or knowledge? Some trusts become actively engaged in supporting not-for-profit organisations to reach a new level of professionalism or to make links with other not-for-profits in related areas. Some act as mentors and facilitators. These relationships take time to develop naturally.

Be transparent Once the grant relationship is established it is important to be diligent about your commitments. It builds confidence if reports are provided on time and any delays or issues are brought to the grantmaker’s attention. The grant relationship may extend to other projects in the future, so everything you do in relation to a current project will improve – or otherwise! – your relationship with the trust or foundation.

Sustainability The sustainability of projects is an increasing focus of many grantmakers and needs to be addressed in your planning. How will the project be funded if it develops into an ongoing program? How will the outcomes of a pilot project or research initiative be disseminated so that other not-for-profit organisations, funders and policy makers hear about it? While there is a voice beginning to emerge amongst philanthropists internationally supporting longer-term philanthropic grants, the fact is that many Australian trusts and foundations will not fund a project for more than about 73

Great Foundations three years (if that). You must be prepared for this and start thinking of other sources of funding from the start of each project.

Be prepared The pressures on a not-for-profit organisation can be intense. It can feel like everyone is running fast and never getting ahead of the game. In this environment, it is critical that the organisation takes time to think about its future. The Business Plan must include a section on income generation – where funds will come from next year and in three years’ time. You may not always get it right but having a plan will give you direction. A not-for-profit organisation also needs to be ready to respond to opportunities that arise. Every CEO needs one or two exciting and deliverable projects in their back pocket – things that you want to do but that are dependent on a new source of funding. The Board should also know about these projects – everyone should be on alert for funding or partnership opportunities.

The grantmaking perspective This chapter focuses on funding from a grant seeker perspective. Chapter 9 gives the grantmaker’s perspective and looks at philanthropic trusts and foundations as a special part of the not-for-profit sector. They are investors in the sector but they are also part of the not-for-profit sector. It is also necessary for them to know their legal parameters and plan their giving program. A grantmaking foundation usually develops grant guidelines that explain the types of projects that are eligible for funding. The foundation will develop a culture over time and finds its place along the continuum, from supporting traditional charitable giving to funding social change or somewhere in between.

Sponsorship Many not-for-profits gain income from sponsorship arrangements. These are not donations or gifts. They are funds that come with strings attached. The organisation (usually a business) is paying the not-for-profit for some business outcome, often related to a marketing opportunity. The sponsor will be seeking to increase their target market through gaining positive publicity via the not-for-profit’s networks. While these relationships can be very successful for both parties, the not-for-profit must be confident that it can deliver on the business proposition. The not-for-profit must understand that the sponsoring 74

How do we get money in the door? organisation is not doing this for purely altruistic reasons. It expects a material business benefit from the sponsorship arrangement. The term community business partnership is used freely and may mean a commercial sponsorship arrangement between a business and a not-for-profit, a donation from a business to a not-for-profit, or even two different relationships between the same parties. The important thing is that the not-for-profit understands the basis of each relationship, and any obligations it is undertaking if the relationship is in fact a sponsorship deal.

Government funding Most not-for-profit organisations seek government funding at some stage of their life. Some of the principles provided earlier in this chapter about gaining philanthropic funding are relevant to government funding applications, but there are some clear differences. Philanthropy is of its nature independent. Trusts and foundations can fund projects that are testing new ideas and may have an element of risk. Government, on the other hand, is by nature more conservative. Government departments must implement agreed government policy and government does not want project failures to appear in the press. Government funding is usually available to implement a particular government program, for example, a new service for carers of children with a disability; a land conservation program; a capital funding program for schools; core funding for local arts organisations; or an older persons’ accommodation program. The Productivity Commission has noted the complexity of government funding arrangements in its report on the Contribution of the Not-for-Profit Sector.20 There are a myriad of funding programs in every part of the not-for-profit sector at federal, state and local government level. There are also a great number of funding agreements, and accountability and reporting requirements. A number of state governments have begun work to develop funding agreement templates to reduce complexity. The work of the Productivity Commission will also help focus attention on this area. While these are promising developments, on a day-to-day level, not-for-profit organisations will continue to spend many hours on detailed funding applications with sometimes only a small chance of success. How can you improve your chances? A not-for-profit organisation should be clear about its key strategies and its values. It needs to identify the type of programs that it wants to deliver and develop practical operational plans to roll these out, should funding be obtained. The organisation must understand the policy environment that it 20 Productivity Commission. (2010). Contribution of the not-for-profit sector (Research report). Canberra. Retrieved from .

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Great Foundations is operating in and understand how its plans fit with the priorities of federal, state or local government. Then the organisation must scan the funding opportunities regularly and try to match its plans with a government program. You need to write a compelling case (as for philanthropy) but you really need to tick all the boxes. Even if your project is brilliant and fits the policy context, if your application does not meet the department’s assessment criteria, it will most likely be rejected. Some application forms are very complex, especially for research grants or major program delivery grants, for example, in aged care. You may require expert assistance if your organisation does not have grant writing expertise. You need to position your organisation as a ‘can do’, low-risk and lowmaintenance grant recipient who will deliver the program required on time and on budget. Your organisation will usually need to build its ‘reliability’ reputation over time, often by delivering some smaller projects and programs and gaining the confidence of the departmental officers – in whichever department you are dealing with. Your reputation needs to transcend personal relationships because there can be regular staff movements within government departments. Being part of a departmental reference group can help build a network of contacts. Once you have submitted your application and been awarded a grant the work will really begin. You will need to report against Key Performance Indicators included in the grant agreement, which will reflect the project or program plan that you submitted. You may have very little say in the KPIs and may need special software to enable you to report regularly against the service or program delivery targets. In addition to outputs (e.g. how many people with disabilities attended a school in a term or an employment service in a month), most government departments now want to know about outcomes (how many children in Year 7 achieved acceptable literacy levels or how many people with disabilities were placed in open employment), and then some departments want to know about longer term impact. This requires quite sophisticated evaluation, which is discussed later in Chapter 13. Sometimes the cost of new software and training is not funded and is a hidden cost of winning the tender or grant for the not-for-profit. In addition, some government funders will have increasing accountability requirements and may introduce accreditation processes and requirements – these might also cost money. A not-for-profit organisation does not want to undertake this level of complex work unless the program or project is going to help you achieve your strategic plan. One of the greatest risks for not-for-profit organisations is to chase government funding at any cost, only for the Board to realise one day that they have a suite of programs that don’t match their original vision. I have heard this recounted many times during workshops and sessions with Boards. Another problem is trying to obtain funding for a program that is ahead of its time. You may have convinced a philanthropic trust or foundation that your 76

How do we get money in the door? project is worth piloting but you are banging your head against a brick wall if you seek government funding for a project that is outside government policy – even though you know that your project will make a massive difference. You need to spend time influencing policy through joining departmental reference groups and advisory committees, and taking part in relevant activities via a peak body. Sometimes it takes years of groundwork to shift policy.

The long haul Working to change policy relating to education, the environment or how community or health services are being delivered can be a lifetime commitment. It is not for the faint-hearted. But change is possible. Sometimes it takes many drops of water dripping on stone to alter its shape. Sometimes after years – or only months in rare instances – the stars align and meaningful change becomes possible. One example of significant change has been young people moving out of nursing homes into purpose-built housing in the community, allowing them to live with other people of their own age. Seeing people in their thirties living in the corner of an agedcare facility was one of my most distressing experiences when I began to work in notfor-profit disability services in the 1980s. Thankfully, 20 years later, the tide is turning and new housing for younger people with acquired brain injury is being built – by coincidence including in my own neighbourhood. However, other issues also need attention. The allocation of water is one of the€critical issues facing Australia, especially as we face droughts and extreme weather conditions. All competing needs for water are deserving in themselves: water for human use, water for agricultural use, water for industrial processes and water for the environment itself. But if the rivers don’t run in the way they did before Europeans arrived, they might eventually die – they will certainly change forever. I spent some wonderful times learning more about the Murray River through two projects with environmental organisations. There are magical stands of river gums€and mysterious billabongs along the Murray where the sounds of silence are powerful and€you can almost hear the songs of the first peoples. There are also dying trees,€and fish that are trapped by man-made weirs and prevented from travelling up and down the river to their breeding grounds. The enormity of our current environmental problems has made me pause for thought many times over the last 10 years. The complexity of government involvement in water, just for example, is almost overwhelming. Instead of one or two departments to deal with, there can be up to 10 different government and semi-government bodies with an interest in a river. The responsible authorities try to align but they sometimes duplicate their responsibilities, especially along borders such as on the Murray River. ➢

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Engaging in reform in areas such as water policy requires an incredibly informed and sophisticated approach to advocacy. It also requires resources because, in order to take part in consultations and to respond to issues papers, you need data and scientific evidence. In addition, there are areas of Australia where there are very few historical records about water use before and in the early days of European arrival. What is the benchmark? What compromises are necessary? What compensation must be made if land use changes, perhaps away from irrigation in some areas? Where are the tipping points, when changed river flows will end the biodiversity of a river forever, where its systems of regeneration can no longer function? The discussions at the Copenhagen Summit were a mirror of this complexity on a global scale. Get involved in policy change but be prepared, knowledgeable, strategic, long-sighted and persistent. Be aware also of the point at which your advocacy work could adversely affect your tax status if you are a charity. When the going gets tough, the tough really do have to get going!

Man and the Biosphere Program Sometimes there are hurdles to overcome to become eligible for government funding and then to retain it – and sometimes these hurdles change as government policy changes. I had a fascinating experience writing the draft nomination to UNESCO’s Man and the Biosphere Program for the Barkindji Biosphere project, located around the Mildura region in both Victoria and New South Wales. Obtaining recognition as part of UNESCO’s program was required to gain eligibility for seeking funding from the Commonwealth Government’s Nature Heritage Trust. I hear you asking, ‘So what is a biosphere anyway?’ Biospheres are bioregions that have been recognised for their intrinsic environmental values but also for the scope they provide in some parts of the region for sustainable development. UNESCO’s Man and the Biosphere program is interested in an integrated program of conservation, sustainable development, research and education. The Mildura region is a unique area with arid areas alongside the great Murray River and includes areas of archaeological, geological, biological and Indigenous significance. A nomination to UNESCO’s program must cover all these aspects in sufficient detail. The nomination must show UNESCO that the proposed region and programs will enhance humankind’s ability both to conserve (in some zones within the region) and to live sustainably within the natural environment (in other zones). The project had begun with a proposed Implementation Plan prepared for the Sunraysia Economic Development Corporation. This had created opportunities to make

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connections with key local organisations such as La Trobe University, Lower Murray Water, NSW Department of Conservation, Trust for Nature, Sunraysia TAFE and others. The actual application for nomination required further consultation with local organisations and leaders. There was a need to provide detailed information about the rare and endangered native species and the geological history of the region. Some of the most useful information, for example about bird life, came from the records of local volunteers of the Sunraysia Bird Observers Club. The NSW Department of Conservation provided amazing support to the project and provided the scientific maps of the region. The story of the relationship between humans and the particular bioregion is an important part of the nomination and we obtained important historical information€from a book published in 1976 (and not published since), Lament for the Barkindji by Bobbie Hardy.21 This charted some of the history of the Barkindji Nation in the Murray–Darling Region. The project team also consulted with the current Elders of the Barkindji and Latje Latje people, with a particular focus on developing a conservation training program with Sunraysia TAFE for young Indigenous people. After a great deal of work and a final nomination, led by John Irwin, Chairman, and prepared by Scott Jeansch, CEO, of the Biosphere project, UNESCO granted entry of the project to the Man and the Biosphere program. Commonwealth government funding was obtained for three years and some very good work was undertaken. It was a sad day when the project team learned that the Nature Heritage Trust guidelines had changed and biospheres were no longer eligible for direct Commonwealth funding. The biosphere as an integrated project has stalled but Ned’s Corner, an initiative of Trust for Nature with support from The RE Ross Trust, continues to go from strength to strength. (Trust for Nature purchased this sheep and cattle station for conservation purposes in 2002.) Maybe the Barkindji Biosphere’s time will come again. There is certainly continued interest in the biosphere concept amongst communities in other parts of Australia.

Social enterprise21 No book published in 2010 about the not-for-profit sector could fail to mention the rise of social enterprise as another key plank in income generation plans. In some cases, the social enterprise generates net income for a notfor-profit organisation. In other cases, the social enterprise is itself a not-forprofit organisation. There are many models and excellent information can be obtained from either the Centre for Social Impact (see <www.csi.edu.au>) or

21 Hardy, B. (1976). Lament for the Barkindji: The vanished tribes of the Darling River region. Adelaide: Rigby.

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Great Foundations Social Ventures Australia (see <www.socialventures.com.au>). There are also many overseas organisations working in this field and, at times, there are overlaps with philanthropy as trusts and foundations may fund social enterprise as part of a social change strategy. As an inhouse lawyer with not-for-profit organisations for seven years, I worked with many businesses supporting charitable programs. Some simply generated net income (after retention of some working capital) and others actually employed people with disabilities or provided services to people in need. The following case study provides some food for thought.

The story of Multicare The term social ventures and social enterprise are used to describe many activities of not-for-profit organisations – and even some for-profit organisations. A great story of social enterprise began back in the 1980s when the Multiple Sclerosis Society of Victoria (where I worked for five years as inhouse lawyer and government relations manager) developed a number of subsidiary businesses. MS Victoria is now part of MS Australia ACT/NSW/VIC. The Executive Director at the time was a person of great energy and vision and he and the Board could see that the expertise that had been developed in a number of areas had potential as businesses. Income from these businesses could add to the more mainstream fundraising activities of the organisation. Several business ventures were trialled including an attendant care agency, then known as Multicare. That business survived and today is known as Australian Home Care Services (AHCS) and, according to its annual report, has an annual turnover of $50 million. The aim of the AHCS is to operate with an annual surplus which can be distributed to a nominated beneficiary. AHCS operates in a trust structure, where the beneficiary of the trust is an organisation that ‘provides care in the residence of frail aged and disabled persons and to assist in reducing the suffering of people diagnosed with multiple sclerosis’. Why did this business do so well? I think it succeeded because it drew on knowledge and expertise that came from a core business of the organisation. It was not a venture that was unrelated to the business or values of MS Victoria, a not-for-profit organisation. In addition, the Board included experienced business people who were able to give excellent attention and advice to the start-up and early stages of the business. Social enterprises are a growing source of income for many not-for-profits. One possible risk to avoid is that the Board and senior management’s time may be so

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diverted by getting a new enterprise off the ground that the core business of the organisation may suffer. Establishing the business as a separate entity with its own Board helped the MS Society avoid this problem. Of course, some social enterprises are not offshoots of not-for-profits but are the core organisation itself.

Investment Most not-for-profit organisations need to make decisions about how they will invest their money. Organisations should always seek paid or pro bono professional investment advice. The sum invested may be only short-term government funding that stays in the bank for three months at a time, or it may be a huge estate that has been received under a bequest or any other combination of sources. This is an area where there is a risk that doing nothing will cost the organisation money. Even the smallest not-for-profit should check with their bank about accounts that provide more interest than an ordinary cheque account, and accounts that attract less or no fees because your organisation is, for example, a Charitable Institution. Many Boards of not-for-profits establish investment committees that are subcommittees of the Board. These committees sometimes co-opt experts to assist them. An investment committee will develop an Investment Policy. It often invites proposals from a number of fund managers to ensure that the not-forprofit organisation is receiving good returns and good service for a fair fee. The Board must comply with any applicable law in this area, especially if it is a trust. The organisation should seek financial and/or legal advice if it is not certain about any aspect of its investments. Trustees of a charitable trust are required by law in some states to review their Investment Policy each year. Some not-for-profits are committed to investing as a way of reinforcing their purposes. When developing their Investment Policy, they reflect on whether they could add positive or negative screens to the instructions they give their funds manager. For example, a health organisation may not wish to invest in a company that produces cigarettes. This is an area of increasing interest both in Australia and internationally. Larger investors can play a role as shareholders by encouraging good corporate behaviour around environmental management, employment practices and other issues of social concern.

Finding an investment style One part of the Board’s role that many people struggle with when they move into the not-for-profit sector is the Board’s approach to investing. Successful entrepreneurs or people who have enjoyed success at the big end of town 81

Great Foundations often approach the investment of a not-for-profit’s funds in an entirely different way. They are aware that there are issues of fiduciary duty if an organisation is a trust or a company. The risk profile with which directors may have operated in the past changes – they usually become very risk averse. While this is completely understandable, and the Board certainly wants to always act with care and due diligence in the best interests of the organisation, there are times when, for example, investing all funds in cash at call could be unwise as other safe investment options might be available that give a better return. The Board must seek independent advice if it does not hold highlevel expertise amongst its members. It should certainly not invest in highly speculative investments. Some Board members are often appointed because of their expertise in finance, and they should share their expertise to assist Board decision making about other safe investment options that could fit within the Board’s shared risk profile and the organisation’s legal requirements.

Compliance Complying with financial and legal reporting requirements is central to maintaining control of a not-for-profit organisation’s activities and preserving the organisation’s integrity. The financial compliance requirements will depend on the legal and tax status of the not-for-profit organisation. At a minimum, a not-for-profit organisation must maintain a set of accounts that enables it to track its transactions, make management decisions, report to members and acquit any funding. The Board should receive a profit and loss statement tracking performance against the approved annual budget, together with a balance sheet and a cash flow statement. The Board needs to decide how much detail it requires in the financial reports, taking into account the complexity, stage of development and resources of the organisation. Organisations that are companies limited by guarantee will require an annual audit and need to present accounts by an approved auditor to the annual general meeting and ASIC in order to comply with the Corporations Act. A Treasury review of corporate reporting includes a recommendation which would introduce a three-tier reporting structure to reduce the burden on small (revenue under $250 000), non-DGR companies limited by guarantee. Organisations that are incorporated under the various state and territory Associations Incorporation Acts will require an audit if they fall into a prescribed category. Some government funding agreements will require an audit of the funded project or the organisation’s financial accounts as a whole. It is important to read any funding agreements from government, philanthropics or sponsors€carefully. 82

How do we get money in the door? Ensuring compliance is a key role of the Board. Ensuring that insurance covers are in place is the role of management but must be checked by the Board. Most not-for-profits will have some or all of these covers: public liability insurance, business risk insurance, directors’ and officers’ insurance, volunteers’ personal accident and professional indemnity insurance. Advice must be sought about appropriate cover. The CEO should ensure that the Board is informed of any changes in compliance requirements. A solid back office function will help ensure compliance with legal and regulatory requirements. There is more about back office operations in Chapter 14 of this book.

CHECKLIST FOR THE BOARD 1

Do we receive the right level of financial information to enable us to monitor performance, including by funding source?

2

Do we understand the conditions of the grants we receive or the sponsorship arrangements that we enter into? Is there a process to assess risk before we enter into these arrangements?

3

Do we review our investments regularly and seek appropriate advice, and do we review our Investment Policy actively at least each year?

4

Are we clear about our role (if any) in raising funds for the organisation? Do we have the skills and connections to do this?

CHECKLIST FOR THE CEO 1

Do we have an income plan?

2

Do we have reliable relationships with our key donors and funders?

3

Do we have a database for managing donations professionally?

4

Do we maximise our use of in kind support?

5

Are we well-connected in our sector? Do we participate in planning committees and networks? Do we keep up-to-date on government policy?

6

Do we do what we say we will?

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9

❚❚ Does a foundation have any limitations on what grants it can make? ❚❚ Are all foundations the same?

Grantmaking trusts and foundations have been given their own chapter in this book because they have some features that are different from many other not-for-profit organisations. I have had a fascinating time working with a range of different foundations over the last 10-plus years and they are certainly not a homogenous group of organisations. Some great inspiration has come from the work of overseas foundations. Having the opportunity to learn from overseas has enabled some Australian foundations, such as community foundations, to make great progress in their development in a very short time. But first a word of warning. The word ‘foundation’ does not have a definite legal meaning in Australia. It can be used to describe a number of different entities which engage in philanthropic activities. It is probably best to treat this as a puzzle, which you may need to be Sherlock Holmes to solve!

Foundations are not all the same To understand a particular foundation, you must first look into its past and find out how and why it was established. The first question to find out is whether it was established under a will, under a trust or under a company structure.

Foundations established under wills Some of Australia’s leading foundations were established under wills. This gives them some very important strengths. They are almost always established 84

Why is grantmaking not easy? for charitable purposes and under the will a trust is created. Charitable trusts do not pay tax on their income. These trusts are established with a corpus which the Founder has allocated from his or her estate. This means that the trustee or trustees do not have to constantly chase donations or grants. These trusts were established for general charitable purposes or for a particular charitable purpose by the testator or testatrix (will maker) and this guides the type of work the trust undertakes and the grants it makes. In fairly rare situations, the trustee may seek an order from the Supreme Court to vary the purpose of€the trust if it can no longer be carried out. Trusts and foundations that are established under wills as charitable trusts may make grants for the specified or general charitable purpose(s). The will may also specify additional requirements about the type of organisation that can receive a grant – perhaps that the organisation must be endorsed as a Charitable Institution. The ability to fund projects for charitable purposes gives these foundations greater flexibility in the grants they can make. It can allow more opportunity for innovation if the trustees decide this would have reflected the testator’s wishes. Well-known Australian trusts and foundations have been established under a will by some inspiring philanthropists.22

Alfred Felton (1831–1904) Alfred Felton was a bachelor who emigrated from England in 1853. He divided his time between his role as a partner in a pharmaceutical company and his passion for art collecting.22 The Felton Bequest is one of the most famous philanthropic trusts in Australia. Most people know that it is the funding source of many of the major acquisitions of the National Gallery of Victoria, but not everyone realises that the Felton Bequest has also made a major contribution to services for women and children in Victoria.

William Lionel Buckland (1899–1964) Like Mr Felton, William Buckland established a trust under his will that supported more than one area of interest. Income from half of the trust funds is used to support public hospitals and benevolent institutions. The other half is to support public scientific and educational work. Mr Buckland’s lifelong farming interests ➢

22 Source: .

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influenced his gift, as he indicated a special interest in education in agricultural and related pursuits. Mr Buckland was a successful businessman and the William Buckland Foundation was established with 4 million pounds in 1966. ANZ Trustees (Charitable Services) provides administrative and grant research and trustee services to both the Alfred Felton Bequest and The William Buckland Foundation.23

Roy Everard Ross (1899–1970) Roy Everard Ross was a far-sighted philanthropist who was able to reflect his own interests in the philanthropic trust he established in 1970. In addition to supporting projects that tackle disadvantage and increase community wellbeing, the Ross Trust funds projects that protect and preserve the flora and fauna of Victoria. Mr Ross was a knowledgeable naturalist and the trust has become one of Australia’s leading funders of environmental projects. Amongst other business interests, Mr Ross was an engineer and Founder/Chairman of Hillview Quarries Pty Ltd. Again, Mr Ross was far-sighted as his will allowed the trustees to continue operating the quarry as a form of investment. This has proved to be an excellent source of revenue for the trust over the years. Since its inception, the Ross Trust has distributed over 70 million dollars in grants for charitable purposes in Victoria.24 It is hard to estimate the impact on Australia’s social and cultural fabric of the grants made by these and other trusts and foundations. But we can say they have been extremely significant. All of these organisations have supported issues and programs that were cutting edge at the time. It has been an honour for me to assist these trusts with grant research and other projects.2324 While the previous examples have all been men, there is an increasing interest and profile of women in Australian philanthropy. Some inspiring Australian female philanthropists include Dame Elizabeth Murdoch, Jill Reichstein and members of the Victorian Women’s Trust. Women’s Donor Network is an organisation that has been set up in Australia by women philanthropists to grow philanthropy by women, often for projects involving girls or women (see <www.womendonors.org.au>).

23 For further information: . 24 For further information: .

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Why is grantmaking not easy?

Foundations established during the Founder’s lifetime Another category of trusts and foundations are those that are established during the Founder’s lifetime. Sometimes a foundation is started by a family, not just an individual. Over time, the family will also make bequests into the foundation or a related charitable trust. Foundations that are set up during a donor’s lifetime are usually established as a charitable trust or as a company limited by guarantee with charitable status. Many of the trusts have a corporate trustee, which again is usually a company limited by guarantee. These trusts and foundations can be established in various ways but most are either charitable trusts or companies that have been endorsed as Ancillary Funds, which are a type of grantmaking Deductible Gift Recipient (DGR). It is necessary to examine the trust deed or constitution to check the purpose of the trust and foundation and any limitations on its grantmaking. A DGR Ancillary Fund can only make grants to a charitable institution that is a DGR€– but not another DGR Ancillary Fund! This is because, as a matter of policy, the ATO does not want tax deductible donations washing around between foundations and not actually being applied for a charitable purpose. Some foundations may have a number of trusts within a group managed by one corporate trustee with charitable status. Since 2006, individual donors have been able to establish a private foundation, first known as a Prescribed Private fund, and now known as a Private Ancillary Fund, which are essentially private charitable trusts. Interestingly, many of the trusts and foundations established during a Founder’s lifetime grow over time, and not just through the interest, dividends or other income on capital investments. The Founder or his or her family may add to the initial settled sum at different times. The Private Ancillary Funds were established to encourage Founders to build up their foundation. Some private foundations are also divisions of businesses owned by the Founder or part of a family trust. A well-known private foundation which was established during the Founder’s lifetime is The Ian Potter Foundation.

A great financier and philanthropist Sir Ian Potter ‘Sir Ian Potter was one of Australia's most visionary and internationally minded business leaders in the decades after the Second World War. He played a leading part in financing the growth of the manufacturing industry in the 1940s and 1950s, and then the mining industry in the 1960s … In 1935 Sir Ian Potter set up his own stockbroking ➢

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firm, Ian Potter & Co, which soon became one of the two leading firms on the Melbourne Stock Exchange … Through Ian Potter & Co and his pioneering merchant bank, the Australian United Corporation, Ian Potter raised about 40% of all new corporate capital in Australia in the 1950s and 1960s.’ The Foundation ‘The Ian Potter Foundation was the first public charitable fund created under an amendment to the Income Tax Assessment Act in 1964. This amendment meant that the Foundation was eligible to receive tax deductible donations … His original gift to the Foundation was in fact one million pounds of shares in Australian United Corporation (AUC) and Australian United Investment (AUI). The latter is still held by the Foundation today. When Sir Ian died in October 1994, he bequeathed to the Foundation shares to the value of approximately $50 million, representing well over half of his personal estate. This doubled the Foundation's corpus and made it one of the largest private philanthropic Foundations in Australia.’25 The Foundation has led the way in funding many leading projects in medical research, the arts, environment, science, community wellbeing, health and education.

Foundations established by businesses Many companies also establish foundations. Again, these can take various forms and it is sometimes only through a search of the Australian Business Register and the Australian Securities and Investment Commission Register that it is possible to identify the exact nature of the foundation. It may be a charitable trust. It may be a company limited by guarantee. It may be a subsidiary company. It may also be a division of the company, or a division of one of the companies in a group. (You may need the assistance of a Dr Watson to work it out!) In addition, many of these businesses extend their work beyond making grants to the not-for-profit sector and also provide their staff as volunteers. This can be a win–win situation; however, as I said earlier in this book, volunteers do not come free and not-for-profits may need additional funding to be able to meet the planning, supervision, insurance and training costs of engaging volunteers. Examples of business foundations include Macquarie Group Foundation, the Westpac Foundation and many others.25

25 Source: .

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Why is grantmaking not easy?

Community foundations In addition to private foundations, there is a growing group of foundations that belong to their local community. These are community foundations€and there are nearly 30 of them across Australia. They range from very small foundations supporting a small rural community, such as the Community Foundation for Tumut Region, to statewide community foundations such as the Tasmanian Community Foundation or the Western Australian Community Foundation, to foundations supporting regional centres such as Geelong, Ballarat and Mount Gambier (Stand Like Stone Foundation). Community foundations aim to build up the resources of a local community to help the community prepare for social and environmental challenges and deal with disasters. In addition to their grantmaking work, community foundations are usually involved in community building projects to assist their community. These can include convening meetings on key issues; undertaking research into community needs; providing opportunities for gaining leadership, philanthropic and governance skills; and even coordinating community projects where no other suitable local organisation exists. Community foundations differ from private foundations because they are publicly owned and managed. The trustee is a company limited by guarantee with charitable status. The Board of the trustee company comes from the local community. The trustee company must also report to the public under the Corporations Act. Community foundations are also different because they usually include a number of charitable trusts, depending on the needs and interests of the local community. Almost all have a Public Ancillary Fund and€a Charitable Fund. Many also have an Educational Scholarship Fund and some have a Disaster Relief Fund; other trusts are also possible. The confidence and energy that a community foundation can give to its community has to be seen to be believed. Australian Community Philanthropy is a new self-help peak body of community foundations which is working to support community foundations across Australia, in partnership with other interested bodies.

Other foundations There is another group of public foundations that have been established for public policy reasons. They are particularly interesting because they show government’s willingness to respond to a particular need in the Australian community through enhancing philanthropic vehicles. These foundations have some form of government ownership or accountability and have special features to their tax status. Three of them are able to act as conduit bodies for other eligible not-for-profits – this is very rare and generally not allowed by the ATO. They are: • Australian Sports Foundation <www.asf.org.au> 89

Great Foundations • Australia Business Arts Foundation <www.abaf.org.au> • Foundation for Rural and Regional Renewal <www.frrr.org.au>. Other foundations are established to support the work of a particular charity. There are many foundations in this category – many public universities, schools and public art galleries have foundations. Again, the foundation can be structured and managed in a number of ways. Another group of foundations are hybrids – they deliver medical research or health-related services but also make grants. They are partially philanthropic. Foundations like the Heart Foundation fall into this category. However, some not-for-profits with ‘foundation’ in their name are not philanthropic. They deliver services to a group in need of health or community support but do not make grants. By now, you should have the clear impression that not all Australian foundations are the same! Fortunately, many trusts and foundations have publicly available websites that provide more detail about their grant eligibility criteria. Philanthropy Australia produces an annual directory to Australian philanthropic trusts and foundations.26 The Australian Council for Educational Research’s Tender Bridge is a very practical and well thought out project that helps schools work through the complexity to find compatible trusts and foundations and other funding sources. Some foundations are private and€can only be found by word of mouth. If you are a grant seeker, you should always keep your ear to the ground in case you meet a person with a suspected philanthropic bent. You should also have the three sentence summary of your pet project well rehearsed in your mind – you never know when you might need it!

The approach to grantmaking As you can see from the above explanation, there are many types of philanthropic trusts and foundations. Most share one thing in common: they make grants for purposes that are charitable. However, the way they go about this varies enormously. Some foundations are also active in other philanthropic activities. So let’s look at the activities of philanthropic trusts and foundations more closely. The approach to grantmaking by philanthropic trusts and foundations varies from completely reactive grantmaking which responds to applications, through to a fully developed strategy of proactive grantmaking, and all the permutations in between. The manner in which grants are made is often influenced by the history of the particular foundation. 26 For further information: .

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Why is grantmaking not easy? It is not uncommon for local accountants or solicitors to manage a number of charitable trusts that were established under wills. This is clearly not the core business of the accountant or solicitor, and these foundations usually make grants once a year based on advice from others. The same grants might have been made to the same organisations once a year for 40 years. As long as the organisations that receive grants are eligible under the terms of the will, there is nothing legally wrong with this. However, some foundations are looking for more impact from their grantmaking. There are many philanthropic trusts and foundations that have employed professional staff, studied the needs of the community (taking into account any parameters in the will, trust deed or constitution), and developed very sophisticated and creative strategies for grantmaking. Interestingly, there is sometimes a difference in view between the desires of the professional staff and the vision of the Board or trustees. In the end, it is the Board (of the trustee company) or the trustees personally who must decide on the foundation’s strategic direction. It is very important that staff keep their Board abreast of changing community needs and expectations and current ways of doing business in the not-for-profit sector. There is no right or wrong way to go about grantmaking but giving will be more effective if the Board is able to articulate a vision for what its grantmaking aims to achieve: whether it wants to be reactive, proactive or a combination of these, and some sense of its own risk profile. Some foundations are happy to receive grant applications that respond to grant guidelines once or several times a year. These applications are then reviewed by the Board, professional staff and/or advisers. Often reports are provided to the Board. Ultimately the Board makes the decisions about the grants that are to be made. Foundations demonstrate a real connection with their grantmaking work when they engage in some or all of the following: • Regularly review their grant guidelines to ensure that they capture the desires of the Founder(s) and the needs, terminology and aspirations of the present trustees • Reflect on the values that underlie their grantmaking and check that they are still appropriate • Look outside themselves to consider how the community is changing, and identify emerging trends and issues • Reflect on how proactive they want to be in finding other not-forprofit organisations that they could fund • Reflect on how accessible they want to be – I personally believe any foundation with charitable status should consider unsolicited applications at least once a year, in order to embrace the public benefit aspect of their status 91

Great Foundations • Identify ways they can make their grantmaking management more effective. There is an approach known as ‘impact-driven foundations’, articulated by Luc Tayart de Borms.27 This approach consciously links the strategic decisions of the foundation about issues of social disadvantage or environmental concerns that it wishes to impact upon, with the way it manages its grantmaking and other aspects of its work, so as to maximise this impact. This will be discussed further in the section ‘Other philanthropic activities’ below.

Where can we make the most difference? A couple of years ago a leading Australian foundation embarked on a very detailed consideration of the current and emerging needs facing Australia in a number of areas including education, the environment, and poverty and disadvantage. Rather than believe it had all the answers inhouse, the foundation invited thought leaders from not-for-profit organisations in these areas, together with academics, to facilitated meetings to thrash out the emerging issues facing Australia and what a foundation could even begin to do about them. This was a very sophisticated process with an external facilitator who was experienced in future visioning processes. The project also allowed for formal reporting. The foundation reflected on the process and the reports and made significant changes to its grantmaking program as a consequence of these think tank-style forums. This level of sophistication is not available to all foundations but the process demonstrates the depth of reflection that philanthropic trusts and foundations can undertake to guide their work.

What do we value? As an example, The Ian Potter Foundation, a private foundation, has articulated the principles that underlie its grantmaking. They are set out in their annual reports and on their website. These principles have driven the type of projects that the foundation has funded over many years. They also reflect the Founder’s visionary and entrepreneurial approach to his own life.

27 Tayart de Borms, L. (2005). Foundations: Creating impact in a globalised world (p. 76). West Sussex, England: John Wiley & Sons. Retrieved from .

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Why is grantmaking not easy?

Funding Principles Six common principles are central to the Foundation’s grant-making across all Program Areas: •

A commitment to excellence. We support organisations, programs and individuals who are outstanding in their field in a national and international€context.

• An emphasis on the ‘Innovate, Evaluate, Disseminate‘ strategy. We seek to fund programs and projects that take a new approach to problems and support the evaluation of their trial, and, if successful, their replication in other locations or contexts. •

A focus on prevention. In seeking to maximise the value of our grants, we try to address the causes of problems, rather than treat the symptoms. Supporting research is fundamental to this approach.

•

Potential for leverage. Our grants have greater impact when combined with support from other sources. These might include other trusts and foundations, government, business and volunteers. We are happy to be one of a number of supporters of a program.

•

Long-term thinking. We try to fund programs that will continue to have an impact well beyond the period of our support. In making grants, attention is given to the sustainability of the project at the conclusion of the period covered by the grant.

•

Partnerships. We encourage applications from organisations which are working with others in their field, and indeed in other fields.28

Other philanthropic activities28 Making grants is not the only activity of many philanthropic foundations. Earlier in this chapter I mentioned the concept of ‘impact-driven foundations’. This was one of the key take-home messages from a very interesting project led by The RE Ross Trust in collaboration with The Myer Foundation and The Ian Potter Foundation. The project became known as the International Philanthropy Collaboration and took place at the State Library of Victoria from

28 The Ian Potter Foundation. Annual Report 2008–09 (p. 5). Retrieved from .

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Great Foundations 19 to 22 November 2007. I was fortunate to co-author the project’s report Conversations about possibilities29 with Rosemary Addis. There are times in the not-for-profit sector when there is an opportunity for Board members, staff and advisers to reflect on what they do and how they do it. This was one such opportunity. The annual conferences in many parts of the not-for-profit sector are critical times for creative thinking and reflections. Opportunities to attend and present at international meetings are also important times to learn and exchange ideas. Quantum leaps in practice or thought can take place. The discussions during the International Philanthropy Collaboration provided space for some of the overseas foundations – including the King Baudouin Foundation (Belgium), The Nuffield Foundation (UK), the Walter and Duncan Gordon Foundation (Canada) and several leading New Zealand foundations – to challenge the thinking of Australian foundations in several areas. Supporting the achievement of a foundation’s charitable purposes through work beyond grantmaking was a recurring theme. Many Australian foundations see their role as primarily making grants. By contrast, the King Baudouin Foundation spends 60 per cent of its income on grants and spends 40 per cent of its income on ‘non-financial tools’; these include ‘policy development, research, strategic communications, advocacy, partnership development and convening’ meetings.30 As a foundation committed to positive social change, the Foundation believes that change will not be achieved simply funding NGOs (non government organisations): a balanced strategy which includes research, communications and stakeholder engagement is required.31 The Nuffield Foundation provided an excellent example of becoming actively involved in research to support its grantmaking program. The Foundation has employed two in-house research teams working on scientific issues of particular concern to the Foundation. Many foundations fund research projects: it is not as common for a foundation to identify the research project that is needed and then go out and actively find the right partners to undertake the research. The Walter and Duncan Gordon Foundation did this in relation to water research. In Australia,

29 Brown, C., & Addis. R. (2007). Conversations about possibilities: Themes and reflections from the International Philanthropy Collaboration. Melbourne: RE Ross Trust. Retrieved from . 30 Brown, C., & Addis. R. (2007). Conversations about possibilities: Themes and reflections from the International Philanthropy Collaboration, (p. 18). Melbourne: RE Ross Trust. 31 Brown, C., & Addis. R. (2007). Conversations about possibilities: Themes and reflections from the International Philanthropy Collaboration, (p. 18). Melbourne: RE Ross Trust.

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Why is grantmaking not easy? the Poola Foundation did this by researching climate change, and funding the establishment of The Climate Institute. By convening meetings, community foundations can bring people from different sectors of a community together to brainstorm issues. For example, the Tomorrow: Today Foundation in rural Victoria has led a project linking various educational bodies with the community to improve early learning, school retention and post-school learning. Not-for-profit, private and government providers, service and community representatives are developing this very practical project. Some overseas foundations become very actively engaged in advocacy. In Australia, working to change the existing law is not a charitable activity. If the not-for-profit organisation is a charity, work on changing public policy (not the law itself) must be a secondary and incidental activity. In the context of a broader role for philanthropic foundations, it is interesting to note the 2007 definition of philanthropy adopted by members of Philanthropy Australia: The planned and structured giving of money, time, information, goods and services, voice and influence to improve the wellbeing of humanity and the community.32 It will be interesting to see how the ‘beyond grantmaking’ activities of Australian philanthropic trusts and foundations evolve in the next decades.

CHECKLIST FOR THE GRANT SEEKER 1

Are we clear about our own legal and tax status and what this means for our eligibility to approach philanthropic trusts and foundations? Have we checked that we are eligible for a grant if our project is well received?

2

Have we developed our project to address a particular need? Is our application written in plain English (not full of jargon), supported by research and does the project plan and budget demonstrate a well thought out project? Is the project compelling and doable?

3

Have we taken all available opportunities to discuss our project with the trust or foundation and made sure that it is of interest to the foundation? Have we considered what other projects have been funded and the foundation’s current areas of interest?

32 Source: Philanthropy Australia .

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4

Is there anything else that we can do to demonstrate our ability to carry out the project, for example provide referees from other foundations or key organisations that the foundation already knows?

5

Have we met all application deadlines?

6

If we receive funding, can we meet all reporting deadlines and other accountability requirements? Are we clear what these are?

7

While the project is underway, are we keeping the foundation up-todate or as involved as the foundation would like to be? (This will vary from close involvement to no involvement.)

8

When the project is finished, have we demonstrated or found something that we should share with others in our area of work or with policy makers? How can we do this most effectively?

CHECKLIST FOR THE GRANTMAKER 1

Are our grant guidelines clear and accessible? Have we thought carefully about our current areas of interest?

2

Is the grant application process straightforward?

3

How can we assist grant seekers so that time is not wasted on project applications with no real hope of success? What is realistic?

4

How can we assess grant applications fairly and draw on sufficient expertise to enable an informed decision?

5

How can we help ensure that the project finds full funding if we cannot fund the whole amount required?

6

Are our reporting requirements realistic and meaningful? Will they provide information that is useful for the foundation to learn from?

7

How can we support the project implementation beyond funding? Is there any networking, mentoring or other value that we can contribute?

8

Once the project is complete, how can we help the funded organisation share learnings and ideas with others?

9

Have we received any feedback on what it was like to deal with us as a funder? Is there a process to enable us to continually improve our work?

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How do we manage internal and external change?

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Changing perspectives

❚❚ Does the organisation keep up-to-date with its policy environment? ❚❚ Does it have useful links with government – local, state or federal? ❚❚ Does the organisation contribute to the development of policy? ❚❚ Can the organisation easily adapt internally so that it can respond to change?

What’s happening out there? Not-for-profit organisations do not operate in a vacuum. Effective not-forprofit organisations are tapped into changing government policy in their area of work. They also usually join the relevant peak body so that they can monitor what other organisations are doing. Each not-for-profit also wants to learn from the experience of others. Funders can often tell if an organisation is proposing a project that is not really a step forward – they may know of other not-for-profits already trying this approach or who have already tried it and learnt that it’s not the answer. Connecting with other not-for-profits in your area of interest and expertise can result in quantum leaps in knowledge – learning from interstate and overseas initiatives can save a great deal of time and heartache. Not-for-profits tap into policy developments at many levels, even global. For example the United Nations Millennium Development Goals, adopted by the UN General Assembly in September 2000, set out targets to be achieved by 2015. These include goals such as to ‘ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling’ and that girls and boys will have equal access to all levels of education.33 Keeping abreast of policy developments will make sure that your

33 Source: .

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Great Foundations organisation’s programs are relevant and contemporary. No one wants to be part of a dinosaur organisation! Strategies to ensure that your organisation is connected are: • Joining a peak body • Joining or creating a local group of interested organisations • Joining an advisory committee at the local, state or federal government level that is working on issues within your organisation’s area of work • Monitoring the media for information about Senate and other parliamentary inquiries and taskforces • Making submissions to government inquiries that are relevant to your organisation. Not-for-profits that are charities need to ensure that their policy work is incidental and supports their principal purpose and activities.

Who else is out there? An effective not-for-profit knows who is doing what in their area of expertise. The CEO at least should make it their business to liaise with other organisations whose work or interest overlaps or relates to your own. Opportunities for partnership might arise. Working to achieve changes to government policy is more effective when your organisation is not the lone voice.

Adapting to change There are very few not-for-profit organisations that succeed by doing the same thing for years on end. This is because the not-for-profit sector is inextricably linked to society and to social change. As times change, the needs, concerns and aspirations of the community change. It is even possible to see this in our tax system. As the community became concerned about protecting the environment and about preserving and promoting cultural heritage, the government introduced new incentives to encourage donors to support these areas. The Register of Cultural Organisations and the Register of Environmental Organisations were created to enable individuals to receive tax deductions on their donations to approved cultural and environmental organisations. The Education Scholarship Fund DGR category was established more recently to provide educational opportunities. Many foundations and schools have established Education Scholarship Funds. In addition to this there is a constantly changing policy environment, which creates new funding streams to address social, environmental, health, cultural 98

How do we manage internal and external change? and other community issues. On top of this there is the fact that not-forprofits are themselves organisations with their own life cycles. All these factors lead one to understand the saying that the one unchanging thing in life is change! Adaptive capacity is the ability of a not-for-profit organisation to ‘monitor, assess and respond to internal and external changes’. Organisational capacity assessment processes often examine an organisation’s relative strength in areas such as use of research data to inform planning, the process for developing new programs and for consulting with and assessing community needs, the ability to influence policy makers or to enter into partnerships.34

Change of Board members By its nature, Board membership is dynamic. Even when you think you have the perfect combination of skills and experience and the right Board culture – full of healthy but respectful discussions about strategy and organisational performance – the likelihood of change is high. This might be due to the ill health or even death of a Board member, or it might be because a Board member’s other roles change and the Board role is no longer possible or appropriate. It might be because time limits for Board appointment have been reached – years can pass very quickly when you are busily engaged and even having fun! In other situations, Board appointments might relate to positions held or appointments made by member organisations. Suddenly the Chair or a key Board member might find themselves only three months away from being replaced, for no reason other than that the member organisation’s constitution provides for this. The most important lesson from these experiences is the need to think ahead; the Chair particularly should be actively aware of possible changes and begin preparing the Board for change well in advance. A Board member who is due€to retire but has a special set of skills or critical networks could be encouraged to suggest one or more replacements for the Board to consider. Changes that are forced due to provisions in the not-for-profit’s constitution need to be included in the organisation’s Board recruitment and induction plans. In this situation, the CEO sometimes becomes the sole holder of corporate memory. He or she should do all they can to make sure that successive Boards are quickly brought up to speed about their Board duties, organisational roles and current strategic issues. 34 Marguerite Casey Organizational Capacity Assessment Tool: A Funder’s Guide to Organizational Assessment (2005). Saint Paul, MN: Fieldstone Alliance.

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Great Foundations Organisations evolve and a small membership-based organisation might be a multimillion dollar enterprise 10 years later. The constitution and the Board may then need an overhaul.

Change of CEO For some not-for-profit organisations, especially those with a quickly rotating Board, the CEO inadvertently becomes the key person in terms of corporate knowledge and networks. The tenure of the CEO can become the key risk that the Board must manage. For any organisation, a change of CEO is a major disruption. Appointing the new CEO is one of the Board’s most important roles. The CEO requires a very good understanding of where the organisation is going – not only where it has been – and the skills that will be needed in the next stage of organisational development. The CEO must also have the emotional intelligence to work with the Board, senior staff and key stakeholders.

Change of policy environment Government can be the most important stakeholder for a community, health or educational organisation, especially if it is receiving program or project funding from federal, state or local government. Monitoring and understanding the external policy environment is critical for most not-for-profit organisations, if they want to remain relevant and achieve acceptable service standards. For example, a disability services provider must meet the requirements of the Disability Services Act 1986 (Cwlth), the Equal Opportunity Act 1995 (Vic) and the Disability Discrimination Act 1992 (Cwlth). A change in government can create opportunities – or take them away. It can result in new legislation and changed accountability requirements. For organisations operating nationally, these changes are even more complex as they must monitor both state or territory and Commonwealth policy developments and legislative changes. For example, until we have standard national fundraising and association legislation in Australia, complying with different regulations in each state or territory will continue to be an area of inefficiency for national not-for-profit organisations. For relatively young not-for-profit organisations, it is particularly important to keep informed about policy changes; good reputations depend on being part of the action, not playing catch up. One of the Board’s key roles – in addition to strategy, compliance and managing performance – is policy development. In this context, policy includes internal policies on areas like employment and fundraising. Policy also 100

How do we manage internal and external change? includes aligning service delivery with current standards, such as those set out in the Disability Services Act. A Board needs to ensure that it remains informed about external policy changes and that it monitors internal policies against any changing external requirements. The CEO and Chair should ensure that policy updates provided by peak bodies are included in Board papers.

Changes within the organisation As an organisation develops it moves through various stages. The actual stage of organisational development will have an impact on the way a Board manages change. The life stages of an organisation can be described in many ways. One approach developed by the Wilder Foundation describes five stages as follows: 1. ‘Imagine and inspire – This is the vision or idea stage, where the organisation is not yet formalised and where imagination and inspiration abound 2. Found and frame – This is the start-up phase of the organisation, when it receives its official non-profit status and all the activities of founding and framing an organisation occur 3. Ground and grow – In this stage the organisation is concerned with building its foundation by grounding activities and “growing the business” 4. Produce and sustain – This is the mature phase of the organisation’s life when production is at its peak and sustaining the organisation is a high priority 5. Review and renew – In this stage, the organisation is reinventing itself in some way, shape or form through a process of review and renewal.’35 In the start-up phase (found and frame), the organisation is looking to recruit Board members who are ‘can do’ people with vision. In the early stages of an organisation’s life, Board members may also act as volunteers in some operational areas. They will need to understand the difference between their Board and volunteer roles. As the organisation becomes more established and employs more staff, Boards should move to a governance role where they monitor operations, set strategic 35 Reproduced with permission of Fieldstone Alliance, from Sharken Simon, J.S., & Donovan, J.T. (2001). The five life stages of nonprofit organizations. Saint Paul, MN: Amherst H. Wilder Foundation; permission conveyed through Copyright Clearance Center, Inc.

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Great Foundations direction, develop policy and ensure compliance with legal and financial accountability requirements. The Board will then operate at a strategic level. During the produce and sustain stage, the Board needs members who can steadily manage the organisation’s growth or development. During times when an organisation is losing its capacity or direction, new Board members will need to be recruited who can once again provide energy and vision to take the organisation forward. The most critical task for the Chair is to monitor the organisation as a whole, so that he or she has a good understanding of where the organisation is in its life cycle and what skills and knowledge are needed on the Board at that particular moment in time. In some situations, this may even mean that the Chair will need the wisdom to realise that it is now time for them to hand over the reins, even if this is not required by the terms of the constitution. Managing change is an inevitable part of organisational life. A not-for-profit organisation will be more effective if the Board manages change with foresight, rather than on the run. Adapting to change should be encouraged if your not-for-profit organisation is to gain in reputation in the years ahead.

CHECKLIST FOR THE BOARD AND THE CEO 1

Does our organisation actively monitor changes in our external environment?

2

Does the CEO highlight these changes or likely developments in reports to the Board?

3

Is the organisation open to change when this is required?

4

Do we review our organisational capacity to ensure the organisation is able to change?

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Do our partner organisations help us achieve our mission? The partnership view

11

❚❚ Who does the organisation work with? ❚❚ Are these really useful collaborations? Are they partnerships of habit? ❚❚ Who should the organisation partner with?

There is often a great desire for partnerships within the not-for-profit sector. These sometimes evolve naturally through synergies between organisations and sometimes are created because government or philanthropic funding opportunities require evidence of collaboration. The desire for a partner can also develop because finding a corporate sponsor to be your partner can be like finding a pot of gold at the end of the rainbow! However, partnerships without a useful purpose are an unwise use of time and resources; they need to be carefully thought through and managed. The following are some tips for worthwhile partnerships between not-for-profits or between not-for-profits and business partners. 1. Both parties are clear about what they want from the partnership and what they can offer the other organisation. 2. Both parties are honest in their dealings with each other. 3. Both parties are prepared to talk through difficult issues or differences of view in a constructive way. 4. Neither party is holding so much or so little financial or political power that the partnership will never be balanced. 5. There is a clearly documented agreement about what will happen, by when, who will pay how much, and by when.

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Great Foundations 6. There is agreement about how the partnership will be promoted to third parties and how the organisations will work together on marketing and communications. 7. There is an agreed way to review the partnership at least once each year to see if it is still achieving its objectives for both parties. 8. There is an agreed way out of the partnership when it is over, or if it€fails. A good partnership can last for years. A bad partnership can cause great harm to the reputation of either or both organisations, and be a source of worry and financial or reputational loss. It can distract the CEO and the Board from achieving the agreed Business Plan. If a proposed partnership does not stack up, walk away. There is nothing wrong with embarrassment, especially if it saves you money in the long run.

Supporting rural and regional renewal One interesting partnership that has proven to be successful for more than 10 years is€the partnership between the Sidney Myer Fund and the Federal Government that led to the formation of the Foundation for Rural & Regional Renewal in 2000. I had the privilege of working with the Sidney Myer Fund soon after the project’s inception and was able to observe the forging of a strong partnership. Like most partnerships between organisations, it arose from the personal connection between two key leaders: Mr Baillieu Myer AC, then Chairman of Trustees of The Sidney Myer Fund, and the Hon. John Anderson MP, then Deputy Prime Minister of Australia and Minister for Transport and Regional Services. Both were concerned about the challenges facing rural and regional communities in Australia, including the loss of young people from rural communities, the impact of drought, and the effect of geographic disadvantage in many areas such as education. Both have a connection with the land and with rural communities and are thoughtful men, able to see ahead to anticipate challenges and opportunities. Through their own personal connection, they were able to develop a vision for a foundation that focused on supporting the renewal of rural and regional communities. Like any good idea whose time has come, a couple of serendipitous events occurred. The year 1999 marked the centenary of Sidney Myer’s arrival in Australia. The Fund was planning to celebrate Sidney Myer’s life and philanthropic contribution to Australia through a series of major grants. The formation of the Foundation for Rural & Regional Renewal meant it would be a perfect candidate for one of these grants. The Sidney Myer Fund and the Minister’s office organised a rural futures think tank of experts and community representatives. This was held in June 1999 in Parliament House, Canberra. The enthusiasm for the concept of a foundation was enormous.

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Soon afterwards, the Federal Government began planning a Regional Summit. This was a major gathering of people with knowledge and passion about improving the chances of rural and regional Australian communities. This exciting event was again held in Parliament House, Canberra. Present at the summit, in addition to Mr Myer and the Hon. John Anderson, were several key people including: Helen Morris, the Executive Officer of the Sidney Myer Fund; Jan Hirst, Mr Anderson’s policy adviser, and the Rt Hon. Ian Sinclair MP, who later became the foundation’s Chairman. The summit produced recommendations, including the establishment of a national charitable foundation focused on rural Australia. The Prime Minister, John Howard, announced the establishment of the foundation at the Regional Australia Summit in October 1999. The Sidney Myer Fund granted $1 million to the formation of the foundation and this leveraged a grant of $10.7 million from the Federal Government to form a corpus. The Government also granted up to $3.8 million of recurrent funding across eight years. The Federal Government also passed legislation to list the foundation as a Deductible Gift Recipient, enabling it to receive tax deductible donations. This was a fabulous start for any foundation – and it was built on a partnership between government and philanthropy.

David and Goliath Partnerships between not-for-profits of different sizes can be sensitive to negotiate and manage. A smaller not-for-profit organisation, which I shall call David Support Services Ltd, identified an opportunity to increase the services it provided relating to a certain form of disability that had been very under resourced. With a great deal of excitement, David Support Services investigated the new program’s tender requirements, only to find that a small organisation wouldn’t be successful on its own. It could not apply for a service focused on one age or disability group: the tender required a response that encompassed the whole of a geographic region. This was outside the Constitution’s objects and the organisational experience and capacity. What could be done? This opportunity was too good to just walk away from. Through networks that the Board and CEO had built up through involvement with a peak body organisation, David Support Services was able to gather a number of organisations that could form a good team to deliver this service. The size of the organisations ranged from small to huge. There was concern that, as a small organisation, David Support Services would be unable to have much impact on service delivery if the tender was successful. Meetings were organised and the team brainstormed how the service delivery network could be developed for the area. Things ➢

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went very well until discussions turned to the allocation of funding. Then discussions became a polite struggle for control of the funds. Unfortunately, the funding body was not able to be convinced that a series of modest grants linked to an overall services plan would be effective across a region. They insisted on one lead organisation. They did not want to deal with a whole range of smaller- and medium-sized organisations. Simplicity was their goal. The group met and continued discussions. A great service plan was designed. Lots of work was done gathering data on the need for the services and the likely client profile. David Support Services’ client group continued to feature highly. The day for the tender was coming closer and closer. David Support Services wanted to go ahead with the tender but did not entirely trust all its partner organisations. Funding is tight in the not-for-profit sector and David Support Services knew that it would be hard to protect its funding stream. A Partnership Agreement was developed, which included the allocation of funding to each partner organisation. This was signed. The tender was completed. Everyone crossed their fingers. The tender and the service that was established was a success and the client outcomes were very good. However, behind-the-scenes concerns remained about funding allocation for David Support Services’ clients. Years passed. CEOs changed. Governments changed. The organisation began to lose more and more influence over the particular funding stream. The CEO at the time raised questions about the original Partnership Agreement. Finally, the original documentation was pulled out of the bottom drawer. Documenting agreements is never to be underestimated! Discussions were held with the partners and funding body. In the end, some funding was provided by the Department directly to David Support Services so that part of its clients’ needs could be met directly.

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Do our partner organisations help us achieve our mission?

CHECKLIST FOR THE BOARD AND THE CEO 1

Are we clear on our expectations about the partnerships we establish?

2

Do we document our partnership relationships so that everyone is clear about expectations and timelines – and budget allocations?

3

Do we make sure that communication channels (formal and informal) function well?

4

Do we feel valued in our current partnerships?

5

Are there any partnerships that are no longer adding value to our organisation and that we should end on an amicable basis?

6

Are there any partnerships that we should develop as a strategic priority?

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Do the right people know about us and what we do?

12

The marketing perspective

❚❚ What is our image? ❚❚ Do we substantiate our image with actual achievements? ❚❚ Who needs to know about us? ❚❚ What are our key messages?

Getting the message out While a few not-for-profits might be able to successfully depend on word of mouth to build their reputations and memberships, most need to be much more proactive. Communicating the organisation’s key messages can be a make-or-break activity – especially in the early days. In order to be successful, a not-for-profit needs to build its reputation as a can do, trustworthy organisation. It needs to attract grants, fees for service and/or donations. It needs to attract partners within and outside its area of impact. It needs to reach the right audience, whether this is people in need of some sort of support, politicians or whoever needs to receive the organisation’s message or messages. To do this, a comprehensive, realistic and cost-effective communications and marketing plan is essential. Not-for-profit organisations operate within a network of stakeholders, not in a linear chain of suppliers and purchasers. The marketing of a not-for-profit involves promoting the organisation and its services with the aim of engaging particular stakeholders in this network, including donors and service users (such as parents of school students). Therefore, an effective communications plan will include a marketing plan. The communications plan should try and deliver key messages to the different stakeholders. Not-for-profit organisations are in fact building their brand. The brand can be translated into key messages and embedded in the communications and 108

Do the right people know about us and what we do? marketing plan. There are a few key aspects of an effective communications plan for a not-for-profit. • The messages must be clear. • The plan must be very cost effective. • The CEO, staff and Board must stay focused. Once the Board has developed the Strategic Plan, one of the first important steps is to try to capture the strategic direction in one or two (or three maximum) statements. These are the key messages that need to come through at any suitable moment and in every appropriate marketing tool. Getting the messages clear can be difficult – it requires discipline and focus. It is often easier to say more rather than less. But in this context, less is definitely more! This is an area where it can be a worthwhile investment to gain expert advice from a communications or marketing specialist. The way the messages are presented is also important. If you want to be seen as a dynamic, modern organisation you do not want a conservative, oldfashioned logo. At the other extreme, if you want to be seen as a reliable organisation with capacity to receive large government grants, you may not want to seem too lighthearted and ‘out there’. Again you need to be clear on where your organisation is going and where its funding and other income is likely to come from. Money is almost always limited in the not-for-profit sector. Marketing and communications plans need to be cost effective. They need to build on what is already there (for example, revamping the e-newsletter and website to capture stories that demonstrate the key messages, and using a style and logo that support your organisation’s direction). They need to find opportunities to gain free promotion. This could be through filler advertisements in local or national newspapers, being sponsored at commercial sporting or arts events, or piggybacking your donor appeal onto a corporate’s mail-out. In the not-for-profit sector, you need to be able to demonstrate that you have spent your communications budget wisely. In the day-to-day battle of running a not-for-profit, it is very easy for the communications effort to become regarded as a sideline or considered to be unimportant. This must be avoided and, if the CEO does not understand the importance of consistent communication, the Board must continually bring the staff back to the direct link between strategy, messages and the communication plan. Any communications budget not spent on the key messages is potentially money wasted. Any marketing activity should consistently promote the key messages. There is simply no point spending $10 000 on a set of postcards, banners and flyers for an event if the key messages do not even appear. 109

Great Foundations A simple message, striking logo and focused campaigns should ultimately lead to positive results in improved profile and, if well targeted, increasing income. There is a catch though. Your organisation should be genuinely working on the issues in the way that you say you do. Be careful not to create an image that you cannot really support. Even the most impressive marketing campaign can fail if your organisation just can’t deliver the goods. It is better to build your organisation’s profile as a credible organisation over time through demonstrating that you know your stuff and can deliver on your plans and€programs. One of the biggest risks in not-for-profit marketing is that personality or ego can get in the way! It may be the CEO, the Chair, the Marketing Manager or even the Services Manager who dominates the brand. The communications plan and branding should always be about the organisation as a whole. Everyone in the organisation should work together to build a sustainable reputation. Depending on one person for profile can work well in the short term but people move on and the organisation needs to have a life of its own, independent of any individual. While formal communications can achieve a great deal, informal communication is also critical. An established identity with clear goals will enable valuable supporters to influence others in an informal setting. For example, the fate of a grant application, or the decision about which school to send a child to, often lies in the hands of one or two people who listen to their friends, work colleagues, parents of their children’s friends, Board colleagues and so€on.

Raising the bar in Geelong The Geelong Community Foundation is a success story within the Australian community foundation sector. It began in 2000 and by the start of 2010 it had built two charitable funds worth $11.6 million in total – with another fund for education scholarships on the way. This provides a wonderful base for making grants for eligible community projects in Geelong and its surrounding areas, including the Surf Coast and Bellarine Peninsula. How was the excellent fund development outcome achieved? A sustained, multipronged marketing strategy is the basis of the Geelong Community Foundation’s success. The special ingredients included a well-connected and active Board, an outgoing and credible Executive Officer who understands relationship building through his background in sales, appealing opportunities for donors to establish a Fund named after their family within the foundation, and a regular appearance in the local media – all supported by a dash of solid administration.

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Do the right people know about us and what we do?

Marketing a not-for-profit organisation depends on a partnership between the Board and the CEO and Development or Fundraising Manager. The Board may be able to open doors to potential donors but without the support of volunteer or paid fundraising staff, leads may be left to grow cold. Andrew Lawson, the Executive Officer of the Geelong Community Foundation, spends time with potential donors explaining the work of the foundation, and taking donors to visit local charities to see their gift at work. He makes sure that good records are in place and that the paperwork required to establish a subfund with the foundation is all available, correct and professionally presented. Twenty families in the region have established Named Funds within either of the foundation’s two funds and this is a growing part of the Geelong Community Foundation. The establishment of funds like these depends on the not-for-profit having a trustworthy relationship with individuals and their families. The inaugural Chair, Geoff Nielsen, and the next Chair, Barry Fagg, have been wonderful role models within the community – both have established Named Funds with the Foundation. Some of the donors indicate a preference to support a particular issue or area; others are happy for the gift to be used on a project wherever it is most needed within the Greater Geelong Region community. Over time the foundation has built its reputation within the community through events and by individual visits with local lawyers and accountants, who might be advising potential donors. A consistent, professional and reliable approach has led to a steadily growing reputation as a ‘can do’ foundation. The local newspaper supports the Geelong Community Foundation by inviting an article every two months. The foundation writes its own article, often about a recently funded project that has made a difference. Some of the projects have focused on supporting children in education, for example through funding the Red Cross’ Good Start Breakfast Clubs at schools in the Geelong region, and providing financial assistance to families in need via Uniting Care Family Support. Marketing a not-for-profit organisation is often a steady trust and profilebuilding exercise. The stronger the relationships that a not-for-profit can build within its local community or its community of interest, the more it will be able to build its presence and brand and eventually its donor base. Not all notfor-profits are the favourite hobby of a celebrity with easy access to media coverage. Many others are ultimately successful simply through doing what they do well and, over time, gaining the confidence of their stakeholders – donors, grant seekers, clients and the broader community.

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CHECKLIST FOR THE BOARD AND THE CEO 1

Is the organisation clear about its key messages?

2

Do we have a marketing plan?

3

Do the marketing plan and the communications plan link with and support the Strategic Plan?

4

Does the marketing plan support the fundraising plan and program development plan (or the Business Plan, which often includes all aspects of the organisation’s work)?

5

Are staff clear about who has responsibility for the marketing effort?

6

Is there a communications policy in place?

7

Is the budget for marketing and communications realistic?

8

Do our back office systems enable useful record keeping?

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Do we spend enough time navel gazing?

13

The planning and evaluation angle

❚❚ Does the organisation reflect on what it does? ❚❚ Are the CEO and the Board able to learn from successes and so-called failures? ❚❚ How does everyone know when the organisation has done a great job?

All not-for-profits are involved in planning. This can be formal, as outlined in the earlier sections in this book on strategic planning and risk management. Or it can be very informal, for example in a small sporting or interest-based club. Whatever form it takes, planning is essential.

Evaluation Evaluation is part of the planning process. It is what should happen after the Business Plan or project plan is in place and being implemented. The word ‘evaluation’ brings out exhausted sighs from many people working in the not-for-profit sector. Sometimes funders’ expectations about evaluation are onerous, and not even funded. Somehow, a not-for-profit organisation must find the financial resources and skills to consider what it is doing and whether it is working. However, even in a situation when resources are scarce, it is essential that some effort is put into analysing the effectiveness of the services or programs being delivered by the organisation and what impact is being achieved. Sometimes, because of varied funding sources and the often high expectations of funders, particularly government departments and some foundations, evaluation can become an area of complexity and confusion. Does the funder want the project or program evaluation to measure outputs or outcomes or even impact? Does the data collected have to be quantitative (i.e. measurable) or 113

Great Foundations can it be qualitative (i.e. personal reflections and experiences)? How will we measure things if we don’t have the right software? What if our evaluation is too basic? What if it shows our project is weak? Will we lose our funding? Panic and worry can surround evaluation. As a Board member or CEO, it is useful to take a step back to assess the goals of evaluation. Then it is possible to ask other questions such as: Why is the organisation spending time and money on this particular project’s evaluation? Does the effort spent on evaluating one project provide useful information for internal planning? Is there an easier way? An excellent summary of the goals of evaluation are to: • Indicate improvement in interventions (for example, the way a service assists people with mental illness, or those who are homeless, or to increase access to arts education, or change irrigation practices or … the list is endless!) • Demonstrate impact • Inform strategy • Be accountable (to funders, donors and clients) • Build capacity (to improve the organisation’s ability to achieve its mission) • Educate society.36 An organisation should not embark on a process of project or program evaluation unless at least several of these goals will be achieved. In particular, the evaluation must test the work being done and it must add to the organisation’s knowledge about its core business. It should also meet the realistic expectations of funders. One of the most useful evaluation tools developed for the not-for-profit sector is an Evaluation Handbook, which is available as a free resource, funded by the Kellogg Foundation.37 It enables an organisation to think beyond outputs (how many people received a service), beyond outcomes (1000 babies were immunised against hepatitis C) to impacts. It helps answer the question: What change did we make? It helps an organisation to think more holistically about the project or program they are undertaking. Sometimes it is the smallest thing that makes the biggest difference – such as visiting a person at their home rather than meeting in a strange office. Evaluation should be considered at the beginning of projects, not at the end. The evaluation methodology should be set down in the initial funding 36 Bonbright, D. (2009). ‘Proving or Improving?’ Alliance, 14(1), 49–51. 37 Source: .

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Do we spend enough time navel gazing? application for the project. The cost of evaluation should be included in the project budget – and hopefully, the government or philanthropic funder will recognise the need for reflection and review. There may be a difference between the tools or measures used for internal and external purposes. For example, a funder may only want to know about the impact on the lives of people receiving a service. However, the organisation may also want to know whether promotion of the project has increased its profile within the community (and among potential donors). Collaboration can be useful in building a project evaluation process. Perhaps there is a Masters or PhD student who could assist your evaluation while at the same time gathering research for their thesis. Contacting universities and other research institutions can be worthwhile. They may also have access to different funding sources which can be cost effective in helping fund the evaluation, perhaps as a research project. Action research is an approach to planning, acting, observing and reflecting on practice, providing opportunities for staff to think about what they are doing, and to learn and make changes as a project proceeds. Action research approaches to evaluation provide a reason to stop and reflect during the life of a project. It is about continual improvement and learning from what you do. An action research approach can also often involve collaboration, where several researchers work together to test an idea or solve a problem. There is always time pressure in not-for-profit organisations. It can be difficult to fight for the time necessary to reflect on the past and imagine the future. Good evaluation processes will assist in this reflection. It is not time and money wasted – if the information is used well. The information from evaluation reports should be carefully considered by the CEO and Board, even in a summary form. What findings could have an impact on strategy? What findings mean that the organisation is actually putting good money after bad? Does the methodology provide the information that is needed? It is important that the CEO and Board ask what might seem like dumb questions. They should not be overwhelmed by the jargon of social scientists, educationalists or economists! Evaluation is a means to providing the best service possible. It is not an end in itself but should support the organisation’s overall strategic and program planning processes.

Planning a project Running a project takes time and effort – and money. You should only embark on a new project if: 115

Great Foundations 1. It fits with your organisation’s purpose and strategic objectives 2. There is evidence of need for the project or it is likely to demonstrate a community need or a new approach to an intransigent problem.

Getting started This section provides some ideas about how you get a new project idea off the ground. Some initial questions to think about are: • Why do you want to do the project? For example, how will it change or extend the services or curriculum you offer? • Where did the idea come from? • Why do you think it will work – or why is the idea worth testing? • Does the project fit with your organisation’s purpose and strategic objectives? The first step is to scope the project, often through informal or formal brainstorming with colleagues or other partners. Think about these questions: • What are the project objectives? • Where will the project be located? • Who are the key players? • What resources (human, financial, in kind support) will the project need? • How long is the project likely to take? • How will you know that the project has worked? The next step is to develop a project plan. The plan will need to include the following information: • The project objectives • The project methodology (i.e. what exactly you will do) • Who will do what – do you have existing staff with the required skills and experience or will you need to recruit or to provide training? • The key stages of the project • The risks inherent in the project and how these are to be managed • The project timeline (make sure this is realistic!) • The project deliverables and performance indicators • The likely cost of the project, including a sustainability strategy if the project is more than a pilot project • An evaluation strategy – how will you know if the project is effective? 116

Do we spend enough time navel gazing?

Choosing your project methodology There are many types of projects and often many ways of reaching a project goal. Doing the same thing year after year is only wise if you know that it is effective. Some key questions are: • Did this methodology work in the past? • How do we know this? • What would be other ways of achieving the project goals (e.g. small evening sessions rather than a weekend conference)? • What other options are there? How could we find out about similar projects in other areas or countries?

Managing the project As the project proceeds, someone or a small group (often the executive team and, at a higher level, the Board) must monitor the project against the project milestones and against the budget. These are the key questions to ask: • Who has responsibility for managing the project on a day-to-day basis? • How will that person report to senior management and the Board on the project? How regular and how formal will this be? • Have the risks been correctly identified and rated? Who is responsible for monitoring the risks associated with the project? • What will we do if the project is falling behind or running over budget? • Do we have a contingency plan if the project is failing?

Project funding Many projects require some financial support, even if they largely use volunteers. The project budget should be sufficiently detailed for the CEO to be able to identify the level of support required. You may need some assistance with submission writing to funders although, in my experience, a genuine application from the people who know the project can generate as much interest by funders as a slick package.

Evaluating the project As mentioned, evaluation should be considered at the beginning of a project. You must be able to assess whether the project has achieved its objectives 117

Great Foundations or not and, if not, why not and whether anything can be learned from this. Projects that fail can provide as much learning as ones that are immediately successful. The report on the project is critical. It can be used as a basis for discussion within the organisation or within your sector. It can be used to explain the outcomes and learnings to funding bodies – with a view to gaining further funds for implementation. Project reports that advance knowledge in any area should be disseminated. How is Australia to be the clever country if good ideas and useful experiences are not shared?

Filtering great ideas from overseas Some great Australian not-for-profits have emulated not-for-profits in the United States, Canada, the United Kingdom and other countries. At times this can work well. However, sometimes there are cultural or financial factors at work in the country of origin, which mean that programs don’t translate easily. One of the most exciting projects that I have worked on had an unexpected ending. In fact it was not a true ending. The fundamental concept of the US organisation (Waterkeeper Alliance) was sound, but some aspects of the US model had been underestimated and only became clear as the program tried to adapt to Australian conditions. Another more truly Australian version may well emerge over time. In addition, Waterkeeper Alliance had developed from the grassroots upwards. In Australia, we were trying to develop both the grassroots organisations and the national support body at the same time – using some of the same people. The aim was to replicate the values of the US model but it was very demanding operating start-ups at the local and national level. Waterkeeper Alliance is a very impressive organisation which had its genesis in an association formed to save the Hudson River in New York State. Robert F. Kennedy Jr is one of the founders of the Waterkeeper Alliance. Waterkeepers work to protect their local river, lake, bay, creek or sound from pollution, degradation and other environmental challenges. The US Waterkeepers are often engaged in legal action to defend their river or lake. They are usually employed by the local Waterkeeper organisation and sometimes have a whole team of employed people advocating for their local body of water. This model is inspiring. It caught the imagination of people here in Australia who could see that our rivers, lakes, creeks and coastal areas also needed protection. (In fact, some of the rivers urgently needed more water to flow down them.) After a lot of thought and planning, Waterkeepers Australia was established. A leading Australian foundation and some leading environmental organisations helped get things started. Other important philanthropic support came on-board. A lot of good work was done by

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local Waterkeepers – and is still being done. So why did the model not work so well in Australia in its first iteration? The US Waterkeeper model is based on a series of quality standards, which require, amongst other things, a full-time employed Waterkeeper. Finding ongoing funding to employ a local Waterkeeper, particularly in rural areas, is not easy in Australia. The Waterkeeper needs to be independent of government, as there may be times when the€ Waterkeeper needs to question or challenge a government planning or waterrelated decision or policy. And while the local river or lake is important to a community, there are lots of other community causes that demand fundraising support, and some are more visible. The local Waterkeepers and the national support organisation were all start-ups and under pressure to develop their organisations, deliver programs and find resources. This meant that in Australia many local Waterkeepers were voluntary or partially funded, which did not generally accord with the US quality standards. The standards were simply too difficult for many local community organisations to meet. In the US, many Waterkeeper organisations fund their operations from successful legal prosecutions, for example actions against industrial companies for polluting waterways. The Australian approach to litigation is much less robust. Australians tend to seek to resolve issues prior to litigation. Australian law does not always allow a local community organisation to gain standing in an environmental legal action. A great deal of expertise is required to navigate this area. This expertise was often provided pro bono by the Victorian Environmental Defender’s Offices – a wonderful service that is stretched across many environmental issues.38 In the US, Waterkeepers also help fund their work through business activities, such as recreational programs during holiday periods. Again, such initiatives take resources to establish. As I write this, some of the local Australian Waterkeeper groups are still active and will continue to grow. The concept of a national support body for community groups protecting their rivers, creeks and lakes is still relevant. It’s a question of how this can be implemented in Australian conditions. The US model cannot be easily transferred without a significant funding base, particularly at a local level. Maybe a single donor or network of supporters who can underwrite the cost of the core Waterkeeper roles across Australia’s waterways will be found in the future.

38

38 See for further information.

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CHECKLIST FOR THE CEO 1

Does the organisation know why it is doing its range of work?

2

Does it have a system for reviewing what it does?

3

Does each new project have evaluation and risk management embedded within it?

4

Do evaluation reports connect with program and strategic planning?

5

Do evaluation methodologies match the needs of the project and the organisation – or do we over-think or under-evaluate?

6

Are critical project risks communicated to the Board?

7

Do staff have time to reflect on the past and imagine the future?

8

Do we have the right mix of planning and evaluation skills within the staff or do we need to buy in some expertise to build our credibility in this area?

CHECKLIST FOR THE BOARD 1

Do we receive adequate information from the CEO (and senior staffâ•›) about the evaluation work undertaken by the organisation, especially where it might change our overall mix of services or strategy?

2

Do we allocate sufficient funds within the budget for program and project evaluation?

3

Have we built the right collaborative relationships for planning and evaluation? Are we missing some key stakeholders?

4

Do we evaluate our own strategic planning sufficiently?

5

Do we filter ideas from overseas into our own context?

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Do we have a robust back office? Below the radar!

14

❚❚ Why do the administrative, knowledge management and financial systems matter so much to not-for-profit organisations? ❚❚ What happens if they are not in place or are weak?

Corporate memory No book on not-for-profit organisations would be complete without mentioning the absolute importance of the ‘back office’ – those parts of the organisation that support its activities but are largely unseen by the public or clients. Throughout this book, I have mentioned fundraising databases, legal record keeping, data for program evaluation, financial monitoring and the many other behind-the-scenes tools that make a not-for-profit operate efficiently and effectively. It is not enough that an organisation looks or sounds good. It must back up its promises to donors or to the other people or communities that use its programs with good service delivery. And when the current Board and CEO have moved on, where will the corporate memory – the knowledge about the organisation’s history, values and ways of operating – be held? Answer: In the written records and databases that the organisation has developed since its first day of operation. Then the next generation of not-for-profit leaders can begin work based on a sound knowledge of the organisation and its history – and can avoid having to reinvent the wheel! The organisation must have the IT capacity to manage its operations. This will include financial management and a range of other software to manage human resources, project planning and implementation, fundraising and/ or communications, and service delivery such as enrolments. Money spent early in the life of an organisation on building solid operational processes will assist the organisation in the longer term. There are many software packages 121

Great Foundations that have been designed to assist not-for-profit organisations. It is not usually necessary to have this tailor made. Talking to other not-for-profits in your sector, even interstate and overseas, can provide very useful information about your options. Just for example: the Community Foundation Network (CFN) in the UK developed a program called DIGITS (Donor Information and Grant Information Tracking System) which was specifically developed for community foundations in the UK. Community foundations are hybrids; they are local fundraising, grantmaking and community building organisations. Community foundations need an integrated system which tracks donations, grants and communications. Rather than reinvent the wheel and invest more money in software development, a number of us working with community foundations recommended to Philanthropy Australia that they enter into an arrangement with CFN to make this software available to Australian community foundations. This program has now been up and running for several years. The back office must also manage compliance. Financial and legal reporting procedures must be tracked. Insurance must be held and reviewed each year. This will include public liability and professional indemnity; volunteers’ accident, and directors’ and officers’ insurance covers; and various business and property covers as are needed by the organisation. A policy manual should also be kept up-to-date and reviewed on a rolling basis. The policy manual will list all policies and procedures of the organisation, including those that are governance-related or require Board approval, and those that relate to dayto-day operations.

Standard chart of accounts One of the most exciting developments within not-for-profit accounting has been the recommendation by the Productivity Commission (in its Report into the Contribution of the Not-for-Profit Sector published in 201039), following work led by the Queensland University of Technology, to establish a standard chart of accounts for not-for-profit organisations. This is a Federal Government initiative but it is hoped that in time all states and territories will also accept the chart of accounts. The standard chart of accounts will enable not-for-profit organisations to set up their accounts and sub-accounts using agreed headings and meanings. This will make reporting to government funding bodies much less complex. It should also make annual reports easier to read and compare. This will assist the transparency of not-for-profit organisations. 39 Productivity Commission. (2010). Contribution of the not-for-profit sector (Research report). Canberra. Retrieved from .

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Monitoring performance Both the CEO and the Board need to be able to monitor the financial and service performance of their not-for-profit organisation regularly. The sophistication and detail of the reporting the CEO and Board require – and are able to get – will depend on the following factors: • Complexity of the organisation • Organisation’s level of accountability to government • Financial wellbeing of the organisation • Experience of the CEO and Board. In this area, the CEO needs the level of information that enables him or her to monitor whether the budget is being achieved, and whether any areas of performance are ahead of or behind the budget or performance targets. The Board will usually need less detail but must have enough information to ensure that it can monitor which parts of the organisation are performing well or poorly, and whether the key accountability requirements, such as government funding agreements, are being met. Regular reporting and monitoring allows the CEO to initiate action at the management level to deal with poorly performing areas, and enables the Board to contribute its knowledge and experience in managing problem areas. The value of the Board is often best realised when times are tough and difficult decisions need to be made.

External reporting Not-for-profit organisations that are incorporated under the Corporations Act, Associations Incorporation Act or other legislation will have annual reporting requirements that they must meet. It is essential that the CEO keeps abreast of any changes in the reporting requirements and informs the Board of these. The Federal Government has recently amended Chapter 2M of the Corporations Act to provide for a three-tier reporting structure for companies limited by guarantee. This reduces the reporting and audit requirements for smaller companies. There are three categories: Category 1 – a company with an annual revenue under $250 000, which is not endorsed as Deductible Gift Recipient; Category 2 – a company with an annual revenue between $250 000 and $1 million without DGR status or a company with an annual revenue under $1 million with DGR status; and Category 3 – a company with an annual revenue of $1 million and above. If you manage a company limited by guarantee, you should read the Act carefully to check the requirements for your particular company.

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Great Foundations

What can we do with that painting? The Chair of the Bilby Gallery, a regional community-managed gallery, sat gazing at the Director’s report in her Board papers. She reread the recommendation and asked herself: Was it really possible to sell the second oldest painting in the collection because it was no longer in keeping with the gallery’s acquisition plan? Hadn’t it been part of the original collection? Could it even be separated from the other paintings donated at the same time? The Chair had real doubts but how could she be certain? The Chair called the Director and asked if the gallery could check the records pertaining to the original gift of the Girl in a Blue Hairband painting. Were there any conditions attached to the gift? Several days passed and the Chair was passing the gallery. She called in and asked if the Director was available. Soon enough, the Development Manager of the gallery, who had only been in the job for three months, came to Reception. The Director had sent him in her place to explain the situation. ‘I think we need to go out for a coffee,’ the Development Manager said to the Chair – this always makes any Chair start to wonder! A few minutes later the Development Manager explained what had happened. ‘We just can’t find any records of the original gift of the painting. We think it was bequeathed under a will but we are having trouble finding the name of the donor. It might even have been given on a long-term loan. We have got all the records out of storage but they are in disarray. They need to be stored correctly and the key information should be put on a collection database. I have found a recent valuation and the painting was worth $740 000 in 2006. We don’t actually know if we can sell it or not.’ The Chair sat and thought. As a lawyer, she could foresee all sorts of legal wrangle if the Gallery could not feel confident about the terms upon which it held the painting. It would be unwise to sell the painting without a lot more research. Perhaps one of the local solicitors held some records. Maybe the Probate Office could be searched. The Director was no doubt going to be very frustrated. Maybe she would now see the value in maintaining the gallery’s records! It had only been last year that there had been a kerfuffle about the membership list. Who was a full Member and entitled to vote at the annual general meeting, and who was an Associate Member and only entitled to attend the meeting but not vote? That had taken days of painstaking work by the Administration Officer to go through all the correspondence and begin entering all the records onto a database. If the back office had been in great shape, this sort of painstaking work would not have been required.

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Do we have a robust back office?

CHECKLIST FOR THE BOARD AND THE CEO 1

Do we have a donor database?

2

Do we have a services’ database or solid records of the programs we deliver and their outcomes?

3

Do we have a professional financial management software system?

4

Do we have copies of all major project or program reports, particularly evaluation reports?

5

Do we hold all former annual reports, including financial statements?

6

Do we hold financial records for at least seven years?

7

Do we hold minutes, Board and membership details as required by ASIC or the state regulator?

8

Is there more we can do to preserve corporate memory within our organisation?

9

Is our insurance cover adequate?

10

Is our policy manual reviewed each year?

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Future proofing your organisation

15

Gazing into a crystal ball

❚❚ What steps can a Board and CEO take to increase the likelihood of a not-for-profit organisation reaching its preferred future (until it has completed its mission)?

The idea for this chapter came from a presentation I made at Our Community’s Board Builder Conference in 2009 (see <www.ourcommunity.com.au>). I mulled on the topic of future proofing for several months, especially as some notfor-profit organisations had been hard hit by the global financial crisis. But financial difficulties are not the only reason that not-for-profits fail to achieve their goals. There can be tough decisions to make in lots of the areas that have been previously discussed in this book. Future proofing is about applying the best practice in strategic planning, business planning, risk management and performance management, so that your organisation can adapt successfully to new challenges and events as they arise. In this fast-changing environment, it is just not possible for a Board or CEO of a not-for-profit organisation to put the strategic plan in place, sit back and wait for the end of the financial year. Constant vigilance is required. The steps in future proofing can be described as follows: 1. Know your not-for-profit organisation’s desired future (and have a vision that is shared by the Board and senior management). 2. Feel confident that your organisation has the capacity (leadership skills, policy awareness, human and financial resources, and business and program planning capabilities) to achieve this future. 3. Feel confident about your organisation’s ability to adapt to challenges and opportunities. Embed a culture of learning and adaptability. 126

Future proofing your organisation 4. Ensure you have a system in place that enables the Board and senior management to predict what could go wrong and to manage risks.

Ensuring the desired future As has been discussed in Chapter 5, one of the key roles of the Board of a notfor-profit organisation is setting the organisation’s strategic direction. Strategy formulation is a Board responsibility. The Strategic Plan must articulate the organisation’s preferred future and this needs to be shared between the Board and the CEO, then with management, staff and volunteers. Here are some useful questions for the Board to consider: • Are you clear on your not-for-profit organisation’s preferred future? • Is it included in the Strategic Plan? Is it the vision or the overarching organisational objective? • Did the Board consider possible changes in the external environment when you developed the Plan? (Information from other fields or organisations can be crucial information.) How can you be sure that the status quo will continue? Have staff, advisers and all the Board been able to contribute their thoughts on this? • Did you consider any data or research to assist your planning? Did you use your own internal data about program or service delivery to consider trends in demand, or emerging or growing issues? Did you look at any Australian Bureau of Statistics, local government or scientific data to enable you to gain an objective picture of where you will need to concentrate the organisation’s effort in the next few years? • Will the Strategic Plan be reviewed each year – and an updated strategic Plan prepared every 3 to 5 years? Does the Strategic Plan link to the annual Business Plan?

Organisational capacity While day-to-day management is not the Board’s responsibility, the Board needs to be sure that implementing the Strategic Plan is within the organisation’s capacity. The implementation of each strategy requires a different set of skills, experience and abilities within an organisation. This might relate to the type of people that are on the Board: it can be difficult to embark on a major policy research project if no one understands how government works at a political and a departmental level. It can be extremely difficult to embark on a major capital campaign, if none of the Board is able to open any doors 127

Great Foundations to corporate supporters or high net worth individuals who might become major€donors. Implementation issues can also arise if the staff do not have the required skills and experience to achieve the Strategic Plan. If a not-for-profit organisation needs to take a quantum leap in what it does, the Board must consider the human and financial resources that are available. There is no point in putting a Strategic Plan in place that is doomed to failure. Everyone feels great after the strategic planning workshop, but no one feels great in six or 12 months’ time when none of the strategic plan KPIs (key performance indicators/targets) have been achieved. If upgrading the IT system is critical to improve program planning and evaluÂ� ation or financial monitoring and reporting, there needs to be a person on staff (or on contract) who can provide the necessary technical advice to ensure the IT project happens on time and to meet the organisation’s requirements. I have seen a number of instances where an IT project becomes a real financial burden because there is no one on staff who can manage the project effectively. It is often a Board member who then steps in to try to salvage the situation, spending a great deal of pro bono time and effort. Realistic human resources planning would avoid this. The other area where things often go awry is in relation to building projects, maybe a new community centre or nursing home. Again, a certain level of expertise is required to make sure the project progresses on time and on budget and any variations can be dealt with€efficiently. Having the right style of CEO and Board to achieve the new Strategic Plan may also mean changes. For example, a CEO or Board Chair that has led a solid performance during a time of little change may not be the person to lead the organisation in times of change or of repositioning. A more adaptable, creative style may be required. Some of this returns to the theme of a robust back office. The Strategic Plan must be able to be supported by the organisation. It may be necessary for the Board to reconsider the timing or resourcing of a key plank of the Plan after a realistic review of the organisation’s current capacity. The Board must thoroughly test the draft budget presented by management, which is intended to underpin the Strategic Plan and the Business Plan. The Board must never accept a budget because it doesn’t want to ask a dumb question or it doesn’t want to offend the CEO (or Chief Financial Officer or Treasurer). The Board is ultimately responsible for the Strategic Plan and the health of the organisation. This long-term view will have to transcend any short-term sensitivities if the Board genuinely wants to future proof the organisation. The Strategic Plan should be reviewed against a Risk Management Framework and high and medium risks should be identified. Management can recommend 128

Future proofing your organisation actions to reduce risks and the Board must consider whether these stack up. How much risk does the organisation want to take? We often think about financial risk but, as already discussed in Chapter 7 on risk management, there are other forms of risks that not-for-profit organisations can face – these include reputational, OH&S and accountability risks. Once the Strategic Plan is in place, the Board must actively monitor performance. Strategic issues must be discussed at each Board meeting and the Strategic Plan reviewed fully at least every six months. Most Business Plans link to the Strategic Plan, so the CEO’s monthly report to the Board will flag emerging issues. The Board must be able to tell when the Strategic Plan is not being achieved and find out why. The Key Performance Indicators in the Plan must be useful tools that can flag problems – or when appropriate provide cause for celebrations – regarding performance. The CEO must keep the Board informed of key issues and challenges. ‘No surprises’ is a good mantra for the CEO. It is much better to bring small issues to the Board’s attention before they become large problems, when it is too late for anyone to take effective action. There is probably nothing worse for a Board member than sitting around the Board table and finding out about a problem once the proverbial horse has bolted. The Board will soon lose confidence in the CEO if this happens more than once.

Adapting to change A not-for-profit organisation’s ability to adapt to change can influence its ability to remain relevant and sustainable into the future. As mentioned in Chapter 13 on planning and evaluation, strong not-for-profit organisations spend time and resources reflecting on what they have done, and updating – even changing – their program delivery. The Board should allow funding for program evaluation in the budget – and all grant applications should include the cost of project evaluation. The Board should ensure that management has support in this area. The Board should also encourage senior staff to take part in relevant peak body and government committees so they are abreast of any imminent or possible changes in their part of the not-for-profit sector. Sustainability has long been a buzz word in the not-for-profit sector. ‘How do we make this sustainable?’ is the lament of Boards and CEOs. ‘How do we know that you are sustainable?’ is the concern of funding bodies. Sustainability is almost a catch-22 concept. To be financially sustainable a not-for-profit organisation needs to know that it has a secure income source (more likely, income sources) for, say, 20 years. Unless a not-for-profit organisation has an endowment fund that it can invest and then use this income to fund its ongoing activities, or a very robust business income stream, it is difficult for a 129

Great Foundations not-for-profit to ever be able to say categorically that it is sustainable. That is the nature of the sector. Funding streams are very dependent on government policy, which changes as governments at all levels change, or on trusted personal relationships, that naturally wax and wane as key people move in and out of key positions, so it is hard to be confident of any funding source for more than a three-year funding agreement. Some not-for-profits are able to establish their funding stream within a Department’s core budget – but again, governments change. This is why so many not-for-profits dream of a wealthy benefactor who will leave them a large sum in their will – or during their lifetime. And this does happen, but it doesn’t usually happen by chance; it happens because key people have developed a trusted relationship with the potential benefactor over many years, through small projects to large undertakings. (The endowment must also be wisely invested.) This difficulty in achieving sustainability is why not-for-profits also dream of the business or social venture that will provide them with a long-term source of income. As I have noted in a case study in Chapter 8, this does happen. But again it is not usually by chance; it is because key people with the right knowledge and experience have worked together over many years to build up the business. Financial sustainability in the not-for-profit sector requires constant attention because change really is the only constant. A not-for-profit organisation that is clear about its vision, Strategic Plan, Business Plan and operating environment, and that is actively monitoring its performance, has the best chance of creating a sustainable business model. It will be ready to adjust operations to match income sources as required.

Achieving balance Finally, the Board of a not-for-profit organisation should encourage management to learn from successes and failures. It must lead by example and be ready to learn from its own successes and failures. A successful not-for-profit usually has a clear vision of the impact it wants to make to improve Australia’s social, cultural, educational or environmental wellbeing. It has the correct balance of skills and experience amongst its Board to lead the achievement of this vision, and the right style of CEO to implement it. It carries out its mission professionally and inspires the confidence of others.

Overcoming organisational fatigue There are many stories of not-for-profit organisations that fail. Some fold in the midst of a crisis, some run out of funds, some find they are no longer relevant – and

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some simply run out of steam. For a whole range of reasons, the Board and staff are€exhausted. One foundation that I have worked with for many years is a wonderful example of how an insightful and tenacious person or small group of people can turn this around and revive an at-risk organisation. This story is interesting for several reasons. Firstly, the foundation had money in the bank. It was not on the verge of financial collapse. Secondly, the Board members were committed to the organisation on an emotional level. However, they didn’t give enough priority to the need for practical attention. A successful not-for-profit organisation oozes energy. Things get done in a timely way. This foundation’s Board and Executive Officer had put in so much pro bono time that they had finally run out of energy. They had made some wonderful grants over the years and grown some donor preference funds. But they were weighed down by a lack of administrative back up. Things became dormant. The Executive Officer (who was also part of the founding team) resigned. The Board met infrequently and began to think about winding up the€organisation. What changed the course of history? Several things happened. The Executive Officer met some potential new Board members with lots of energy. Two larger foundations decided to support the foundation with two capacity building grants (one large and one small). The foundation was able to address one of its real weaknesses: no back office support. The foundation developed a partnership with another not-for-profit to receive administrative and financial management support for a fee. This development alone made a critical difference. Then a process began to slowly recruit some fresh blood to the Board. This happened through networking and personal introductions. Several Board briefings and information sessions were held. Many coffees were drunk in cosy cafes. New project ideas were tossed around. New possibilities for the foundation’s work were canvassed. Enthusiasm began to build again. A formal Board training and strategy session was held and a new Strategic Plan was developed. Several new Board members were recruited. The Executive Officer was reappointed, this time as an Executive Director (that is, also a Board member). Momentum began to grow. The foundation climbed back on to its feet and now faces a very promising future.

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Great Foundations Not-for-profits depend very much on having an effective Board and CEO with energy and vision. Not-for-profit work is often demanding and people do become tired. It is better to make your contribution and know when it is time to leave than stay too long on a Board or on staff. Never underestimate the importance of a strong back office. If the administrative base of a not-for-profit is not in order, everything will eventually fall apart. The Board will feel anxious. Donors will feel anxious. Great promises will not be supported by professional proposals. Grantmaking may become chaotic. Legal parameters may be forgotten or ignored. A tree cannot grow without roots. A not-for-profit cannot grow without a sound administrative base. Initial effort and investment in this area will pay off. It’s not sexy but it’s important.

CHECKLIST FOR THE BOARD AND THE CEO 1

Are we clear about where our not-for-profit organisation wants to get to and what we want to achieve?

2

Do we understand the risks involved and can we manage them?

3

Do we have the capacity as an organisation to reach our goals or do things need to change?

4

Do we monitor our progress regularly?

5

Do we monitor our external environment closely enough so we can adapt to changing policy or financial environments?

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Conclusion

By their nature, not-for-profit organisations are not static. The demand for services or programs waxes and wanes depending on many external factors – including changing economic conditions, the discovery of new treatments, emerging environmental challenges, government funding initiatives, and reviews of tax law. The ability to respond to these changes while continuing to build reliable and clever organisations is the challenge for CEOs and Boards. The ability to remain fresh and open-minded and to know when it is time to bring new blood into your organisation are critical elements for success. You could utilise this book as a basis for asking questions and seeking more information as you make governance or management decisions. Building a resilient and effective not-for-profit organisation is a little like conducting an orchestra – just when the violins are in perfect harmony with the cellos, the trumpets miss a beat and require renewed attention! Reflect and learn on your journey as a CEO or Board member. It will have its highs and lows, but there will be satisfaction to be found in both making a difference to many lives and establishing great foundations for your not-for-profit.

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Appendix ❚❚ This questionnaire was developed for community foundations. Not-for-profit organisations are welcome to adapt this approach to their own situation but should seek legal advice about compliance requirements. Please acknowledge ❚ the original source of this questionnaire.

Board effectiveness review A process for regular self-assessment Introduction The Board of Directors or a Committee of Management of a not-for-profit organisation is responsible for its governance. All members of the Board share a variety of duties and roles. Duties arise from the laws relating to the form of incorporation of the organisation and the common law. Roles reflect these duties and the organisational purpose that is to be achieved. The Board’s role includes both the compliance function and other key areas of responsibility; these key areas are often summarised as monitoring and supervision of the Executive Officer (and through the Chief Executive Officer, any staff), strategy formulation, risk management and policy making. The nature of not-for-profits also means that some or all of the Board are often involved in communicating with stakeholders, including with funders, government policy makers and member organisations. In some organisations the CEO may be known as Executive Officer or even Executive Director. An Executive Director is usually a member of the Board. A CEO or an EO is not a Board member but does report to the Board. 134

Appendix Board effectiveness can be enhanced if the Board is able to: 1. Develop strategies to ensure that all of its roles are carried out 2. Review its performance, preferably on an annual basis. Developing an effective Board takes time and commitment. Paid staff need to understand that they work with Board members who may have many other work responsibilities. Board members will want to be asked to contribute to the organisation in a way that makes the most effective use of their expertise and skills. The following questionnaire is designed to provide Board members of an organisation with a framework for firstly analysing their performance, and then identifying both areas of strength and strategies to improve weaker areas. Each Board member may view matters a little differently but this can be the basis of worthwhile discussion, drawing on the skills and experience of each Board member. Participants should treat this as a self-education process and€part of good governance: no organisation is static and different skills and knowlÂ�edge may be required at different stages of the organisation’s evolution. The questionnaire assesses Board’s effectiveness under six categories: 1. Compliance and Risk Management 2. Strategy formulation 3. Policy making 4. Board relations and composition 5. Monitoring and supervision 6. Communicating with stakeholders.

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Appendix

Board effectiveness questionnaire Name of organisation: _________________________________________________

1

Compliance and Risk Management

Objective/Requirement

Yes

Partially achieved

No

Maintain income tax exempt status as a charity engaged in education Annual return to ASIC lodged Minutes of Board meetings maintained ASIC advised of changes to Board, registered address etc. Company records maintained in accordance with Corporations Act 2001 BAS returns completed on time Annual audit completed on time Annual meeting held on time Information about Board members’ duties provided to all Board members as part of induction Information about tax status provided to all Board members as part of induction The company checks annually that it is still carrying out its purposes in the constitution The Board reviews the Investment Policy at least once a year The Board monitors compliance with legislation relating to the company’s commercial operations Board subcommittee with responsibility for finance and audit meets regularly (i.e. at least every two months) The Board ensures that there is a Risk Management Framework in place for the organisation and that it is reviewed every six months and acted upon Overall Rating: (please circle)

Excellent

/

Good

/

Satisfactory

Comments:

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Great Foundations © Catherine J. Brown 2010

/

Poor

Don’t know

Appendix

Board effectiveness questionnaire Name of organisation: _________________________________________________

2

Strategy formulation

Objective/Requirement

Yes

Partially achieved

No

Don’t know

Major strategic planning process completed at least every three years Strategic Plan monitored regularly and at least annually Strategic issues discussed at Board meetings and action taken as appropriate Strategic Plan is linked to the Business Plan (which is monitored at least quarterly) and is reviewed annually Income development and investment plan(s) in place and reviewed annually Engagement of members of the organisation considered as part of strategic planning process Overall Rating: (please circle)

Excellent

/

Good

/

Satisfactory

/

Poor

Comments:

Great Foundations © Catherine J. Brown 2010

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Appendix

Board effectiveness questionnaire Name of organisation: _________________________________________________

3

Policy making

Objective/Requirement

Yes

Partially achieved

No

Policies in place for: ❑ Communications ❑ Finance and audit ❑ Investment ❑ Office administration ❑ Board and staff induction ❑ Program development ❑ Management of intellectual property ❑ Partnership development ❑ OH&S and employment policies ❑ Other________________________________ Process in place to review policies on a regular basis Overall Rating: (please circle)

Excellent

/

Good

/

Satisfactory

Comments:

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Great Foundations © Catherine J. Brown 2010

/

Poor

Don’t know

Appendix

Board effectiveness questionnaire Name of organisation: _________________________________________________

4

Board relations and composition

Objective/Requirement

Yes

Partially achieved

No

Don’t know

Board meetings held at least four times per year Board papers circulated one full week before the meeting Board agenda set by Chair with advice from Chief Executive Officer and company secretary Board Executive meet regularly between Board meetings Chair and Chief Executive Officer meet regularly i.e. formal appointments to meet in person or by telephone CEO/company secretary informs the Chair of governance issues as they arise Company secretary liaises with Chair regarding minutes of Board meetings Board has the optimum mix of skills and experience necessary to carry out the organisation’s purposes Board subcommittees have the optimum mix of skills and experience, and include at least one Board member Board subcommittees meet regularly and follow correct lines of accountability (i.e. having recommendations approved by the Board, or operate within formal delegations) Board subcommittee meeting papers circulated one full week before the meeting Board meetings provide adequate opportunities to discuss all aspects of the company’s business Board actively involved in a review of its own performance at least annually Overall Rating: (please circle)

Excellent

/

Good

/

Satisfactory

/

Poor

Comments:

Great Foundations © Catherine J. Brown 2010

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Appendix

Board effectiveness questionnaire Name of organisation: _________________________________________________

5

Monitoring and supervision



‘Help lift the CEO’s eyes from the heat of battle.’ Objective/Requirement

Yes

Partially achieved

No

Board appoints the CEO Employment agreement and KPIs for CEO Annual performance appraisal process for CEO CEO reports to Board regularly about achievement against KPIs of all aspects of organisation’s business CEO carries out performance appraisal of senior management staff and ensures all staff are appraised each year Process established for addressing barriers to staff performance Employment law obligations understood and documented Budget is communicated to employees with management responsibility Overall Rating: (please circle)

Excellent

/

Good

/

Satisfactory

Comments:

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Great Foundations © Catherine J. Brown 2010

/

Poor

Don’t know

Appendix

Board effectiveness questionnaire Name of organisation: _________________________________________________

6

Communicating with stakeholders

Objective/Requirement

Yes

Partially achieved

No

Don’t know

Communications plan developed and adopted, then reviewed annually Clear allocation of Board members or staff to communicate with stakeholder groups Board is satisfied that it plays an effective leadership role at a government level within Australia on behalf of members Overall Rating: (please circle)

Excellent

/

Good

/

Satisfactory

/

Poor

Comments:

Great Foundations © Catherine J. Brown 2010

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Appendix

Board effectiveness questionnaire Name of organisation: _________________________________________________

Self-assessment summary Which of the Board’s roles are being carried out most effectively? 1. 2.

Which of the Board’s roles require attention and additional support? 1. 2. 3.

What three strategies or actions could be taken to improve Board effectiveness? 1. 2. 3.

Do you think most other Board members would share your views? If not, why?

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A 360â•›° guide to building resilient and effective not-for-profit organisations Great not-for-profit organisations are built on a solid foundation of knowledge, creativity, experience, and agreed values and purpose. Great Foundations is a practical guide for people working in not-forprofit organisations, especially aspiring Board members and CEOs and people for whom this is new territory. It is for people who want to make the most effective contribution they can to their chosen not-for-profit organisation. It is about the importance of giving attention to all parts of a not-for-profit organisation—and understanding why the back office should really be front of mind at least some of the time; why a slick marketing message is not enough without solid program delivery; why you need to know what is under the bonnet of your not-for-profit’s engine from a legal perspective; and why thoughtful planning and active networks are critical to your not-for-profit’s survival.

Great Foundations

Great FOUNDATIONS

Great FOUNDATIONS A 360â•›° guide to building resilient and effective not-for-profit organisations

After many years working as a Board member, lawyer, CEO and adviser within and to not-for-profit organisations, Catherine Brown has written Great Foundations to share her knowledge about notfor-profit organisations. It will also give you ideas about how your experience in other sectors can add real value to a not-for-profit Board or organisation. Great Foundations will give you the information to ask the right questions—when they need to be asked.

ISBN 978-0-86431-886-2

9 780864 318862

Catherine J. Brown

Catherine J. Brown has spent more than 20 years contributing to the not-for-profit sector as a lawyer, consultant, CEO and Board director. She is passionate about enhancing not-for-profit organisations through supporting Boards and CEOs to find solutions to the challenges that they face. Catherine has also worked in commercial and government roles and is keen to increase the two-way exchange of knowledge and skills between all three sectors. More information about her consultancy can be found at www.catherinebrown.com.au

Catherine J. Brown Australian Council for Educational Research