It’s been a busy year in the governance space, as several trends and focus areas have arisen in recent times that board members and governance professionals should consider.
These trends are driven by recent events rather than legislative changes or changes to governance principles for NFPs. From a principles perspective there have not been many changes in recent years. The Australian Institute of Company Directors releases a Not-for-Profit Governance Principles publication which provides a guide for anyone looking to develop, measure and reinforce a good governance framework and was last updated in early 2019.
The context of the trends and changes for this year are largely a response to the Covid-19 pandemic, which provided a real test of the governance policies and principles adopted by an entity and how they stood up in this environment. For some, this impact would have been immediate and direct; others may continue to feel the impact for many years to come. Even if your organisation was not directly impacted there are still many lessons to learn from these experiences.
When considering crisis management, the board’s role occurs well in advance of any crisis. Many boards will have considered and implemented a crisis management plan and there has been a large amount of literature on this in recent years.
When it comes to these plans it is difficult to stress test them to see how they work in an actual crisis, as any organisation would hope that these events are rare and infrequent. There is now an opportunity for assessing these policies, how management operated during this time and what could be improved upon if this situation happened again.
There are numerous concepts for a board to consider in this space, including how the adopted crisis management and business continuity plans responded and adapted to external factors, and whether the business continuity plan allowed for the organisation to continue operating in a remote environment.
It is also worth considering how communication to the board was impacted during this time, including the ability of the board to obtain the information needed swiftly so that any issues can be responded to, the effectiveness and frequency of management’s communication to the board, and key stakeholders and the ability of the company to make necessary decisions in an agile manner.
Key steps that a board can take include reviewing identified risks and updating the risk register. They should also consider scenario planning for these types of events and frequency of board meetings.
Reputation and stakeholder engagement
Reputational damage can occur if there is a divergence between a not-for-profit’s mission statement and their conduct. Many not-for-profits rely on fundraising for their income and the company’s mission and ability to deliver on its objectives are fundamental to its ability to raise funds. Specifically, for organisations relying on grant funding, they may have requirements and timelines to meet as ongoing conditions. Recent events have provided an opportunity to assess the organisation’s communications strategy and the expectations of its stakeholders, members, regulators, and the wider community. There needs to be a transparency in the communications policy and how the objectives of the NFP will be delivered in the longer term.
This period may also have highlighted any reliance upon key stakeholders and the importance of being able to rely on their continued support. Considerations include whether the organisation can find alternate arrangements or diversify if a key supplier or service provider was unavailable. Strategies should also be in place with key funding providers surrounding the organisation’s alignment with their expectations and what initiatives can be implemented to retain their support. These considerations should form part of the risk assessment and response process.
Social welfare and culture
Workplace health and safety challenges are a topical issue and rapid changes to working conditions have likely had an impact on the organisation’s culture. Organisations should assess how the workplace has evolved as a result of changed work practices and how this impacts future workforce planning.
It asks the question of any organisation as to how they are managing their workforce and whether they have the right mix of employees. In the NFP space this also extends to volunteers and contractors and how they can operate in a contactless or remote working environment.
Difficult financial and operational decisions may have been made during this time with salary reductions, layoffs and changes to staff member roles and a different working environment.
Organisations have also had to adopt flexible or work from home arrangements to continue operating. Flexibility was required in management structure and staff communication throughout the office, with virtual meetings becoming increasingly more common. Working from home can also lead to a sense of isolation and a disconnect with the organisation if regular contact is not maintained and channels are not available to support a staff member’s wellbeing. Areas to consider here include strategies for the sharing of corporate information such as face-to-face or online communication, and review of policies surrounding learning and development, team engagement and workplace health and safety risks.
It is important to maintain transparent communication with the workforce during this time, including communication about how the business is performing, why these decisions were necessary and the ongoing outlook. This communication needs to align with the organisation’s strategic plan and mission statement to allow for employee buy-in and alignment with goals.
Financial challenges for NFPs
One constant that many organisations have felt is the financial impact of this event, as organisations struggle to maintain operations. Some organisations have had to make significant changes to their business model to align with changing expectations and their ability to deliver on their objectives.
These financial challenges can be both immediate and longer term. In the short term there may be liquidity and cashflow management issues that have arisen. A board needs to be able to rely on timely financial information in order to make their decisions, and the availability of key financial staff during these times is crucial.
Taking a longer-term view, organisations should focus on their income streams, whether they are still reliable in this environment and the potential to diversify, provide other offerings or seek alternate funding requirements to help support the entity. Event fundraising is likely to be difficult in this environment and not-for-profits have had to consider their ability to raise funds electronically and via online methods. An analysis of expenditure and future commitments would also identify any non-essential and discretionary expenditure that is not contributing to the organisation’s objectives.
Recent studies suggest that not-for-profit organisations are facing increased exposure when it comes to cyber threats, with hackers looking for credit card numbers, emails, personal information and other sensitive data that they can exploit. Not-for-profits tend to be faced with a limited budget with which to implement strategic cybersecurity practices, so the challenge is implementing an effective solution within budget.
IT systems needed to adapt to accommodate working from home. New systems also had to be introduced for receiving donations, as a cybersecurity breach could result in a loss of donor confidence and place a financial burden on organisations. Policies should be introduced to protect donor information, but this needs to be balanced so that the systems are not difficult to use otherwise this may drive away potential donors.
Protecting an organisation from a cyberattack is reliant upon effective communication of cybersecurity strategies and plans. Boards should revisit their risk assessment of the IT environment to see if it requires updating. IT systems should also be thoroughly tested to expose any weaknesses and vulnerabilities.
HLB Mann Judd has recently published information surrounding cyber security, including an article in regards to cyber security for NFPs and a more detailed cyber security report if you are seeking further information on this topic. Also don’t forget about Connecting Up to assist with your software and hardware needs at a discounted price if you are looking to upgrade your cyber security.
Boards need to be looking to the future and identifying the trends and issues impacting other organisations which can provide good guidance and ideas for key focus areas. Careful consideration of the above trending issues should help any not-for-profit in achieving their mission and goals.