Analysis: the issues that led to recent problems at non-profits may not be understood by the public, funders or volunteers
Recent months have again seen charities and non-profits face criticisms, resignations and, in some cases, closure. All of this has devastated trust in and consequently the public generosity to the non-profit and charitable sector.
The Charities Regulator is providing new oversight for this significant sector. However, the issues that led to these crises and the unique issues facing governance in non-profits may not be understood by the public, the funders and the volunteers.
Non-profit boards are usually volunteers who are not paid fees and receive limited, if any, expenses. Directors’ fees are strictly prohibited in certain non-profit sectors, such as the credit unions in Ireland. But even where directors’ fees are permitted, they are rare: for example, one survey of US non-profits found only two percent of non-profit boards were compensated, while one estimate in the UK found only 14 percent of the top 100 charities paid board members for their time.
From RTÉ Radio One's Today With Sean O'Rourke Show, Jillian van Turnhout discusses her recent report into governance at Scouting Ireland
Money is clearly not a motivator to serve as a non-profit director so what is? Unfortunately, little is known about volunteer directors’ motivations, but the few studies highlight altruism as a key motivator. Volunteering is certainly admirable, as emphasised by Jillian van Turnhout, the author of the recent review on governance in Scouting Ireland.
However, a volunteer director who volunteers out of a commitment to the organisation, its mission or its beneficiaries can find themselves frustrated when they are then required to devote significant time to administrative responsibilities.
Being a volunteer does not diminish your fiduciary duties as a director and the legal consequences of failures at board level
In practice, non-profit boards tend to focus more on day-to-day and operational matters, perhaps as these are of more interest to the directors, but also due to a lack of staff, especially staff with the necessary expertise. In addition, uncertainty on the requirements and expectations of directors is a feature of non-profit boards and can result in a reduced focus on oversight and strategic issues. Thus it is unsurprising that staff and boards do not always agree about their respective roles, duties and responsibilities which leads to tensions between staff and boards and occasionally leading to oversight and governance failures.
A key challenge is that being a volunteer does not diminish your fiduciary duties as a director and the legal consequences of failures at board level which, under the Companies Act 2014, includes criminal penalties, fines and jail time for the board and the individual directors. Consequently, the ideal non-profit board is a mix of relevant professionals, such as accountants, lawyers, fund-raisers, and members that represent the organisations community to ensure effective oversight, accountability to multiple stakeholders and also to protect the individual director and board.
From RTÉ Radio One's News At One, John Farrell, CEO of the Charities Regulator, on how the number of charities in Ireland now exceeds 9,000
However, board appointment methods such as stakeholder and donor appointees or elections by the membership or stakeholders can result in a lack of essential board skills. As most non-profits do not publish directors’ biographies which highlight relevant skills, it is difficult for stakeholders, funders and the public to identify skills gaps on a particular non-profit board which could identify a potential governance risk.
A lack of board experience can be addressed through appropriate training. Board training is an administrative cost for the non-profit and may not result in improved organisation performance. Thus, non-profit boards face trade-offs as improving governance may earn some stakeholders and funders approval, but the increased costs may be criticised by others. In addition, training and more administrative work are additional time commitments for the volunteer, which also implicitly and negatively judge his or her contributions. These factors may explain the generally low level of board training in non-profits.
From RTÉ Radio One's Morning Ireland, John Farrelly, CEO of the Charities Regulator, discusses the rules that apply to charities that engage in political causes
These factors combine to make good governance more challenging for non-profits compared to for-profit organisations, with the boards of non-profits facing higher challenges and greater risks without any financial compensation. Non-profit directors and boards can seek to address these issues. Firstly, improve clarity on the roles of the board and the roles of staff through written and agreed role descriptions for all staff and board members.
Secondly, introduce a board skills gap analysis process so new board members can be identified based on their ability to fill the defined skills gaps. Thirdly, publish the biographies of these skilled board members. This highlights their relevant expertise at board, industry and organisational level, signals to stakeholders the quality of the board and reduces approaches from inappropriately skilled volunteers or stakeholders to serve as directors. Finally, provide inductions and on-going training for board members, accept the impact on administrative costs and communicate clearly to potential directors the impact on their time commitment to the board.
These are not easy changes as they involve engagement and support from stakeholders and potentially a shift in power structures within the organisation. However, communicating internally and to funders the benefits that follow from improved governance supports a more sustainable organisation, particularly in reassuring funders that their investment is well spent. This will be of benefit to members, volunteers and, most importantly the current and future users and beneficiaries of the organisation's services.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ