CPA Canada – Governance for Not-for-Profit Organizations

Date: October 22, 2014

Name: CPA Canada – Governance for Not-for-Profit Organizations

Presenter: Lyn McDonell

Many Not-for-profit organizations (NPO) are forming to address the social responsibility of the community. In addition, it is important for non-financial NPO directors to understand the oversight of their financial affairs. CPA Canada presents this event to educate directors about the dynamics of the governance framework. Lyn McDonell, the President of The Accountability Group and the chair of CPA Canada’s Not-for-Profit Committee of the Risk Oversight Governance Board, will present in this seminar. She will share her expertise for all directors with steps to have an effective NPO board. Moreover, all NPO directors will benefit from this presentation.

In the NPO industry, the board has the responsibility of the oversight of operations and the ultimate decision-making. As for the individual directors, they must have duty of care and duty of loyalty. McDonell defines duty of care as directors need to act with the competence and diligence that a reasonably prudent person with similar knowledge and expertise would exercise in comparable circumstance. She also defines duty of loyalty as to act honestly and in good faith in the best interests of the organization. There are 5 important steps to create the governance framework.

Step 1: Understanding the legislative framework and environment

To form the board, members need to ensure they fully understand these five areas of the industry.

1. Legislation & Common Law
2. Community served
3. Social political trends and developments
4. NPO sector trends and developments
5. Other stakeholders

These five areas will help members to understand the reason behind the board.

Members will need to elect board directors to oversight the direction of the organization. They also need to appoint external auditors for financial control. The board directors will appoint a chief executive officer or executive director to manage the operation. The board directors will also retain advisers and appoint committees to delicate responsibilities. The CEO or ED will hire employees to ensure operations are performed. Moreover, it is important to elect the right members first to ensure the framework is on the right track.

McDonell believes there are three levels of approval authority under the hierarchy of the governance authority. The first level is the legislation. This ensures all articles of incorporation are provided correctly to government. The second level is the members. This ensures all bylaws are aligned with the mission and the mission is aligned with the articles of incorporation. The third level is the board. This ensures all board policies, which includes vision, strategy and organization policies, are aligned with the bylaw.

Step 2: Designing the governance framework

The board responsibility comes to 3 simple questions.

• What is the work of the board?
• How will board add value?
• How will the framework be evaluated?

McDonell believes the design of the governance framework forms the work of the board. Boards need to approve the mission, vision, values and strategic directions. Boards need to monitor the organizational performance. They will oversee the financial affairs. They are required to select, supervise, evaluate, and compensate the CEO or ED. Assess the risks and opportunities is important, and develop board’s process is essential. Nevertheless, they need to manage the board dynamics.

Boards can add value by assessing the past, present and the future. To assess the past, boards will look at the previous years of audited financial statements, the quality and quantity of the past services, and the health of the staff retention. By looking at the past, boards can learn from mistakes and incorporate to the new direction.

By assessing the present, board will formulate the state of the operation plan, and set and evaluate milestones for projects. Boards will focus if the operation is on track or need to change.

By assessing the future, board will develop strategy to prepare the shifts in government policy, take advantage of the emerging trends, explore the new client markets and services, and understand the new stakeholders and demographic trends.

McDonell emphasizes the governance can only be effective if it reflects the current standard of good governance. It is important to ensure the policies are consistent with the values of the organization. Flexibility to the future, and nurture a health board dynamic are important. Moreover, boards need to foster a collaborative relationship between the board and the CEO.

Step 3: Implementing the governance framework

Boards will need to confirm mission and articles of incorporation; therefore, they will review the bylaws, board and organizational policies.

The articles of incorporation are like the guide to the framework. The mission statement shapes the articles. Boards need to ensure the mission statement, bylaws, board and organizational policies are relevant for the future of the organization. Any changes are required to discuss with members and stakeholders. If decisions are difficult to make, boards can acquire other governance expertise for assistance.

Step 4: Getting board dynamics right

The best way to ensure the board dynamics are correct is to perform evaluation. This means boards need to evaluate their own performance, evaluate the committees’ performance, evaluate the individual directors’ performance, and evaluate the CEO’s performance.

McDonell believes all board should commit to independence, continue improvement and strong relationship. Therefore, all directors should be skilled and experienced. This will include courage, integrity, collegiality and good judgment. As for board members, diversity is important. Boards need to have credibility and sound. All committees and directors should have regular evaluation throughout the years.

Step 5: Monitoring, learning and improvement

Boards need to be realistic. They need to have the ability to seek outside governance resources for support. Complicated board is not the efficient way to manage. Therefore, keep everything simple and straightforward is important. Boards to need ensure they have involved senior management team with clear communication.

“An engaged board of directors working within a strong governance framework ensures the NPO has the level of oversight needed to meet regulatory requirements and fulfill its mission efficiently and effectively”