Corporate Governance in the not for profit sector
Private matters, December 2012
Since the emergence of the financial crisis, the role of the board of directors of companies has been subject to increased debate. Regulators and investors are asking questions about how directors oversee risk management as well as the types of strategies companies follow. Irish directors are facing challenging times with the introduction of mandatory codes and the growing expectation of, and demand for, boards to surpass best practice standards. As a result of this, Corporate Governance is now a major focus of Irish Boards.
Corporate Governance comprises the processes and procedures by which organisations are directed and managed and consists of:
- Engaging with stakeholders
- Making accountability real through performing effectively in clearly defined functions and roles
- Promoting values and demonstrating good governance through behaviour
- Developing the capacity and capability of the governing body to be effective; and
- Taking informed, transparent decisions and managing risk
In the current difficult economic climate, good governance is more important than ever in order to rebuild confidence and to clarify roles, duties and responsibilities of all those who sit on boards including committees of community, voluntary and charitable organisations. Due to the changing legal and regulatory nature of the community, voluntary and charity sector in Ireland certain standards of governance will be required by both funders and the charity Regulators in due course.
In recent years there has been much publicised in relation to codes of corporate governance but there are many recurring themes as follows:
- Setting direction and purpose for the organisation and linking this to day to day activities
- Increased transparency of organisational activities
- Stressing the importance of independent oversight of management
- Emphasis on the clear definition and understanding of roles and responsibilities of the management, the CEO, and the Board
- Requirement to measure the performance of both the Board and the CEO
- Increased burden of positive assurance required by Boards
- Further emphasis on and clarity in the role of Audit Committees
- Increased emphasis on identifying and assessing the business risks
- Responsibilities of Non-Executive Directors
Up until recently there has been no specific guidelines or appropriate tools for the not for profit sector to assist volunteer boards achieve and demonstrate high standards of governance to their stakeholder.
In recognition of this The Governance Code for community, voluntary and charitable organisations was officially launched on the 28 June 2012 by The Minister for the Environment, Community and Local Government, Phil Hogan. The code provides, for the first time, clear guidelines on the roles, duties and responsibilities of those who run community, voluntary or charitable organisations.
The Governance Code is based around five main principles with each principle having three sub-principles. For each principle the code gives recommendations and guidelines on how to put these principles in place in not for profit organisations. These principles are as follows:
- Leading our organisation
- Exercising control over our organisation
- Being transparent and accountable
- Working effectively
- Behaving with integrity
Organisations will have a choice to subscribe to the code, which will most likely be deemed best practice. A list of organisations that are using the code will be maintained and it is likely that those organisations who do comply with the code will be looked upon more favourably than those who do not. It is intended that both funders and regulators will require adoption by organisations of this code. In the current funding environment organisations need to consider whether non-compliance is the best way forward.
One of the main benefits of good governance is the credibility of an organisation to key stakeholders i.e., funders as well as demonstrating good management, transparency, mitigation of risks and financial soundness. The Code provides access to a tool which allows organisations to demonstrate their high standards of governance to their stakeholders. By adopting the Governance Code organisations will be able to increase transparency, reduce risks and reduce costs.
Deloitte has considerable experience in dealing with the not for profit sector, the risks faced by the sector and the difficulties that could be encountered in the implementation of a code of governance. Deloitte believes these organisations can achieve small but real steps in relation to the implementation of a governance code by defining what risk means to the organisation, agreeing on how to measure risk, documentation of key risks, how controlled they are, levels of exposure and actions needed to limit risk exposure. This would require a small level of input but achieve valuable outputs and would result in a significant step toward meaningful corporate governance.
Deloitte Private Corporate Governance service offering to the not for profit sector
Deloitte offers a wide array of services designed to understand business risks, determine acceptable exposure levels, implement controls, and provide follow-up and constant monitoring of the risk environment. Our service offerings include:
- Internal aAudit and gGovernance reviews
- Risk assessment
- Policy and procedure reviews; and
- Risk and compliance.
Deloitte Ireland Centre for Corporate Governance website
Our not-for-profit team are familiar with the Code of Practice for good governance of community, voluntary and charitable Organisations in Ireland. In addition the Deloitte Ireland Centre for Corporate Governance promotes dialogue, knowledge-sharing and thought leadership on governance issues to help advance collaboration among corporations, the accounting profession, academia, and government. The centre aims to be a resource for executives, non-executives, and the governance community as a whole; its activities include conferences, research, knowledge-sharing, and engagement with public policy around governance questions. Access timely, relevant and balanced governance information on the Deloitte Ireland Centre for Corporate Governance website at www.corpgov.deloitte.ie
For more information, please contact:
+ 353 1 417 2210
+ 353 61 435 5511
+ 353 1 417 2245