VANSA Governance Handbook (2019) by VANSA

Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa Handbook Governance Handbook Handbook Governance Handbook Handbo Govern vernance Handbook Governance Governance overnance Handbook Governance Handbook Governance Handbo Handbook Governance Handbook Governance Handbook Governa

The Visual Arts Network of South Africa (VANSA) operates as a support point and development agency for contemporary art practice in South Africa. We develop industry knowledge, resources, networks and projects that are concerned with realising new social, cultural and economic possibilities for contemporary art practice in the South African â&#x20AC;&#x201C; and wider African â&#x20AC;&#x201C; context. VANSA is a national network of artists and arts organisations with just over 6000 members.

Governance Handbook

CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF

Non-Profit Governance

001

What is a Non-Profit Organisation?

002

The Difference Between NPOs & For-Profit Organisations

005

The Principles of NPO Governance

007

Governance & Accountability

013

Legal Structures & NPO Governance

017

Boards

026

Purpose & Tasks of the Board 027 01. Determine the Organisation’s Mission & Purpose 030 02. Selecting the CEO 032 03. Support the CEO & Review Their Performance 034 04. Ensure Effective Organisational Planning 035 05. Ensure Adequate Resources 037 06. Manage Resources Effectively 040 07. Determine & Monitor the Goals of the Organisation’s Programmes & Services 044 08. Enhance the Organisation’s Public Image 046 09. Serve as a Court of Appeal 048 10. Assess its Performance 049

11. Adopt a Board Charter & Governance Policy 12. Ensure Risk Management is in Place 13. Succession Planning 14. Practice Collective Responsibility 15. Ensure Accountability to Stakeholders

050 055 061 062

Duties, Legal Status & Potential Liabilities of Boards 01. Legal Duties of Board Members 02. Duty to Act Within Constitution & Powers 03. Duty to Exercise Independent Judgment 04. Duty to Exercise Reasonable Care, Skill & Diligence 05. Duty Not to Accept Benefits from Third Parties 06. Duty to Avoid Conflicts of Interest 07. Delegation

066

Business Judgment Rule

078

Board Composition & Constitution 01. The Question of the Founding Members 02. Structuring a Board 03. Criteria Considerations for Board Members 04. The Role of the Chair 05. Board Induction 06. Board Remuneration

080

064

067 069 070 072 074 075 077

083 084 088 094 101 103

07. 08.

Board Evaluation Board Development

The Relationship between the Board & Management 01. Appointing Management 02. Searching & Short-listing 03. Full Board Consideration & Final Decision 04. Setting Parameters for the CEO 05. Induction 06. Monitoring 07. Terminating Employment

103 105 107 110 113 115 116 123 123 125

The Chief Executive/Board Chair Relationship

125

Conflicts of Interest

127

Is the Board Receiving the Right Information? 01. Reporting: Operational & Financial Information 02. Communication from the Board

134 135 140

Committees of the Board 01. Why form committees? 02. Kinds of Board Committees 03. Disbanding Committees

141 141 142 143

Reference List

146

ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Governance Non-Profit Governance Non-Profit nance Non-Profit Governance Non-Profit Governance Non-Profit ofit Governance Non-Profit Governance Non-Profit Governance Profit Governance Governance Non-Profit Governance Non-Profi nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit nce Non-Profit Governance Non-Profit Governance Non-Profit Profit Governance Non-Profit Governance Non-Profit Governanc ofit Governance Non-Profit Governance Non-Profit Governance nance Non-Profit Governance Non-Profit Governance Non-Profit

001

fit ce

What is a Non-Profit Organisation? When an individual or a group of like-minded individuals see a need or problem in the community, and do something to address that need or problem, they have initiated an action. When that action is sustained by their efforts through organising themselves to continue the activity, they give birth to an organisation. Many community organisations remain in this voluntary state, driven entirely by the energies and resources of the founders and their members. As soon as a community organisation seeks recognition or looks for resources beyond itself it has to establish a formal institution. This usually involves the following: -- The appointment of a controlling body (committee or board) -- The writing of a constitution -- The opening of a bank account -- The voluntary registration of the organisation under the Nonprofit Organisations Act -- The optional registration of the

002

organisation as a Non-Profit Company under the Companies Act, or as a Trust under the Trust Deeds Act. The Non-Profit Organisation (NPO), its continuing service activities, its need for resources and the way in which it organises itself, are all focused on fulfilling its mission. All planning, whether it be for programme or funding, flows out of the need to fulfil the mission.

003

The leaders of the emerging NPO soon find out that they carry three major responsibilities, in order to fulfil the mission and ensure the organisationâ&#x20AC;&#x2122;s survival and growth.

The first responsibility is to make sure that

its service programme is meeting the community needs or problems effectively and efficiently.

The second is to establish a reliable and

sustainable support (funding and other resources) base in order for the organisation to fulfil its work.

The third is to ensure that procedures are

in place to ensure the careful and accountable handling of all the organisationâ&#x20AC;&#x2122;s resources and programmes.

When the day-to-day activities of the NPO increase so much that it is no longer possible to handle them all in volunteer time, the committee or board has to make a decision about appointing full time or part-time staff. The first person appointed is called the Coordinator, or the

004

005

Manager, or the Chief Executive Officer (CEO), and reports to the organisationâ&#x20AC;&#x2122;s governing body. Growth in service, resource-raising, finance and administration will eventually mean that further staff are appointed, usually by the CEO. Some of the work will continue to be done by volunteers, or part-time people. You now have a structure comprised of volunteers at the top â&#x20AC;&#x201C; serving on the board, paid staff below, and volunteers under the staff â&#x20AC;&#x201C; helping to deliver the service or raise the funds.

The Difference Between NPOs & For-Profit Organisations Despite their wide diversity, NPOs share a number of defining characteristics that make them distinct and different from corporates and other entities established for profit. For example -- NPOs are barred from pursuing individual self-interest or private

profit and must apply all their resources to advance a purpose for public benefit. NPOs may be established simply by the act of agreement between three or more people as a voluntary association. With limitations, the profits generated by profit-making organisations can be distributed among members, whereas any profits generated by NPOs must be used to advance the organisationâ&#x20AC;&#x2122;s objectives. If an NPO is dissolved, any remaining assets must be transferred to some other NPO having the same, or a similar, purpose. In for-profit organisations, those with fiduciary responsibilities are accountable to shareholders, while taking into account the social, environmental and economic impact of business (the triple bottom line). Their counterparts in NPOs are accountable to donors, beneficiaries and the broader public, as they often receive public donations. Those with fiduciary responsibility are

006

intermediaries between donors and beneficiaries. NPOs have a duty to use their assets effectively in serving the cause for which they were established.

The Principles of NPO Governance According to UNESCO, governance refers to:

007

Structures and processes that are designed to ensure accountability, transparency, responsiveness, rule of law, stability, equity and inclusiveness, empowerment, and broad-based participation. Governance also represents the norms, values and rules of the game through which public affairs are managed in a manner that is transparent, participatory, inclusive and responsive. Governance therefore can be subtle and may not be easily observable. In a broad sense, governance is about the culture and institutional environment in which citizens and stakeholders interact among themselves and participate in public

affairs. It is more than the organs of the government.Often there is a tendency to equate governance with management, the latter primarily referring to the planning, implementation and monitoring functions in order to achieve predefined results. Management encompasses processes, structures and arrangements that are designed to mobilise and transform the available physical, human and financial resources to achieve concrete outcomes. Management refers to individuals or groups of people who are given the authority to achieve the desired results. Governance systems set the parameters under which management and administrative systems will operate. Governance is about how power is distributed and shared, how policies are formulated, priorities set, and stakeholders made accountable. In order to ensure proper governance a Governing Board is formed to direct the institution in the above matters. The table on the following page summarises the difference between governance and management:

008

agement Governance v Management Governance v Management vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v anagement Governance v Management Governance v Manageme agement Governance v Management Governance v Management vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v anagement Governance v Management Governance v Manageme agement Governance v Management Governance v Management Governance vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v anagement Governance v Management Governance v Manageme agement Governance v Management Governance v Management vernance v Management Governance v Management Governance rnance v Management v Management Governance v SetGovernance strategic anagement Governance vnorms, Management Governance v Manageme agement Governance v Management Governance v Management vernance v Management Governance v Management Governance vision and direction and rnance v Management Governance v Management Governance v anagement Governance v Management Governance v Manageme agement Governance v Management Governance v Management formulate high-level vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v anagement Governance v Management Governance v Manageme agement Governance v Management Governance v Management goals andÂ policies.Â vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v anagement Governance v Management Governance v Manageme agement Governance v Management Governance v Management vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v Oversee management anagement Governance v Management Governance v Manageme agement Governance v Management Governance v Management vernance v 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vernance v Management Governance v Management Governance andGovernance more specifically rnance v Management v Management Governance v anagement Governance v Management Governance v Manageme agement Governance v Management Governance the stakeholders whov Management vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v anagement Governance v Management Governance v Manageme are served by the agement Governance v Management Governance v Management vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v organisationâ&#x20AC;&#x2122;s mission. v Manageme anagement Governance v Management Governance agement Governance v Management Governance v Management vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v anagement Governance v Management Governance v Manageme agement Governance v Management Governance v 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Management vernance v Management Governance v Management Governance rnance v Management Governance v Management Governance v anagement Governance v Management Governance v Manageme

009

t Governance v Management Governance v Management Gover e v Management Governance v Management Governance v Man v Management Governance v Management Governance v Manag ent Governance v Management Governance v Management Gov t Governance v Management Governance v Management Gover e v Management Governance v Management Governance v Man v Management Governance v Management Governance v Manag ent Governance v Management Governance v Management Gov t Governance v Management Governance v Management Gover Management e v Management Governance v Management Governance v Man v Management Governance v Management Governance v Manag ent Governance v Management Governance v Management Gov t Governance v Management Governance v Management Gover e v Management Governance v Management Governance v Man v Management v Management Governance v Manag RunGovernance the organisation ent Governance v Management Governance v Management Gov t Governance v Management Governance v Management Gover e v Management 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decisions and policies, Governance v Management Governance v Management v Manag ent Governance v Management Governance v Management Gov t Governance v Management Governance v Management Gover keep the governance e v Management Governance v Management Governance v Man v Management Governance v Management Governance v Manag ent Governance v Management Governance v Management Gov bodies informed and v Management t Governance v Management Governance Gover e v Management Governance v Management Governance v Man v Management Governance v Management Governance v Manag educated. ent Governance v Management Governance v Management Gov t Governance v Management Governance v Management Gover e v Management Governance v Management Governance v Man v Management Governance v Management Governance v Manag ent Governance v Management Governance v Management Gov t Governance v Management Governance v Management Gover e v Management Governance v to Management Governance v Man Be responsive v Management 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010

GOVERNANCE BAD GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE NCE BAD GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE GOOD GO GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE GOOD GOVERNANCE NCE GOOD GOVERNANCE BAD GOVERNANCE GOOD GOVERNANCE BAD GO GOVERNANCE BAD GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE NCE BAD GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE GOOD GO

011

According to the Department of Social Developmentâ&#x20AC;&#x2122;s Governance Report the following points outline the difference between good NPO governance and bad NPO governance. An organisation that does exercise effective governance: -- Is accessible and responsive to beneficiaries, donors and staff -- Supports transparency, i.e. freely and accurately discloses information about governance, finances and operations -- Operates with a sense of responsibility, integrity, honesty and respect -- Embraces diversity and inclusiveness -- Ensures constructive conflict resolution -- Regularly monitors adherence to applicable laws, regulations and bylaws -- Takes action to build and protect its reputation and interests -- Involves stakeholders in planning and evaluations -- Educates board members about their roles and responsibilities

An organisation that does not exercise effective governance has: -- Too few resources -- Strife and confusion within the organisation -- Inappropriate board meddling in day-to-day organisational operations -- Board passivity or inactivity -- Excessive turnover of the CEO or board members -- Difficulty in recruiting credible board members -- Chronic financial deficits -- Low attendance at, or participation in, board meetings -- Failure to address conflicts of interest at a board level -- Poor communications with funding agencies and stakeholders.

D GOVERNANCE BAD GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE G ANCE BAD GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE GOOD GOV GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE GOOD GOVERNANCE ANCE GOOD GOVERNANCE BAD GOVERNANCE GOOD GOVERNANCE BAD GOV D GOVERNANCE BAD GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE G ANCE BAD GOVERNANCE GOOD GOVERNANCE BAD GOVERNANCE GOOD GOV

-- Promotes public education on the work and value of the organisation -- Engages in regular, objective assessments of its board, the CEO and the overall organisational performance -- Offers quality services -- Provides a healthy work environment.

012

Governance & Accountability In terms of accountability, NPOs are

Upwardly accountable

to donors, government and foundations, which give them their financial and legal base

013

Downwardly accountable to their

beneficiaries, to whom they provide services or on whose behalf they speak in policy forums

Inwardly accountable

to themselves for their organisational mission, values and staff

Horizontally accountable to their peers

The key differences between NPOs and for-profit organisations hold basic yet significant implications for the way in which NPOs should be governed, namely -- The success of a for-profit, at its very root, is measured according to the profit it generates. If the for-profit has generated a healthy profit during a particular year, that ordinarily spells success for the organisation. This is fundamentally different for a non-profit organisation where, while the goal may be to generate income and possibly a surplus, there are no profits or dividends accruing to any shareholders, member of the board, or staff and the generation of surplus is very rarely a measure of success. The success of a nonprofit can in most cases only be

014

015

measured through the impact an organisation has in terms of its objectives. -- The fiduciaries of the for-profit organisation are accountable to shareholders for the governance of the organisation. If they do not perform well, the shareholders can decide to remove them at the next Annual General Meeting (AGM), through their vote. This is not the same for NPOs because NPOs are accountable to donors, beneficiaries and the public. As such, board members cannot simply be removed by stakeholders who do not ordinarily have voting power within nonprofits. The boards of NPO arts organisations should understand the following in relation to who it remains accountable to:

However much an organisation might feel entitled to them, public funds bring with them the rigours of public accountability and thus scrutiny from the public, the press and politicians. -- The funds are often granted on condition that certain kinds of activity are undertaken and sometimes for specific purposes which places constraints on the activities of the organisation. -- There is an underlying requirement that high artistic standards be maintained and improved. > Commercial sponsors If this is secured, there may be a conflict of artistic integrity, as commercial sponsors will be acting in the interests of the promotion of their image and public relations and this is tied into their funding.

FUNDS COMMERCIAL SPONSORS PUBLIC FUNDS COMMERCIAL SPONSORS PUB ERCIAL SPONSORS PUBLIC FUNDS COMMERCIAL SPONSORS PUBLIC FUNDS CO SORS PUBLIC FUNDS COMMERCIAL SPONSORS PUBLIC FUNDS COMMERCIAL S FUNDS COMMERCIAL SPONSORS PUBLIC FUNDS COMMERCIAL SPONSORS PUB ERCIAL SPONSORS PUBLIC FUNDS COMMERCIAL SPONSORS PUBLIC FUNDS CO SORS PUBLIC FUNDS COMMERCIAL SPONSORS PUBLIC FUNDS COMMERCIAL S

> Public funds

016

Legal Structures & NPO Governance NPOs can be established and formalised in adherence to certain laws and regulations, depending on whether the NPO is constituted as a Trust, a Non-Profit Company (formerly known as a Section 21 Company) and whether the NPO has registered with the South African Revenue Services (SARS) as a Public Benefit Organisation (PBO).

017

The form of legal structure of an NPO may determine how and when governance responsibilities arise.

comply with the registration requirements of the

Companies and Intellectual

Property Commission (CIPC) in accordance with the

Companies Act. As proof of such compliance, the

original incorporators are

issued with a Certificate of

Incorporation, under the seal and signature of the CIPC. The initial directors then

assume responsibility for the ongoing governance of the company.

PROFIT COMPANY NON-PROFIT COMPANY NON-PROFIT COMPANY NON-PROFIT MPANY NON-PROFIT COMPANY NON-PROFIT COMPANY NON-PROFIT COMPANY PROFIT COMPANY NON-PROFIT COMPANY NON-PROFIT COMPANY NON-PROFIT MPANY NON-PROFIT COMPANY NON-PROFIT COMPANY NON-PROFIT COMPANY PROFIT COMPANY NON-PROFIT COMPANY NON-PROFIT COMPANY NON-PROFIT NY NON-PROFIT COMPANY NON-PROFIT COMPANY NON-PROFIT COMPANY NO

A non-profit company must

018

TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A ST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUS TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A ST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUS TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A TRUST A

019 A trust must be registered

at the office of one of

the Masters of the High

Court in accordance with

the requirements of the

Trust Property Control Act.

Upon such registration

being affected, the trustees

are issued with Letters of

Authority under the seal and

signature of the Master; and

the trustees then assume

their ongoing responsibility

for governance.

requires no formal statutory registration, and there is no

dedicated office where such associations must

be registered. In fact, in

terms of the common law,

a voluntary association can come into being simply by

an agreement by a minimum of three people. Such

an agreement is usually supported by a written constitution although,

technically, this is not an

essential legal requirement. Their responsibility for

governance arises after

such an agreement has been reached, whether it is verbal or written. Responsibility then rests upon the

members collectively,

unless provision is made

SSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATIO SSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATIO SSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATIO

A voluntary association

020

RY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOL TION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASS RY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOL TION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASS RY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOL TION VOLUNTARY ASSOCIATION VOLUNTARY ASSOCIATION VOLUNTARY ASS

021

for responsibility to be

carried by a management committee, or similar

structure. Provision is

made under the Nonprofit Organisations Act 71 of 1997 for the voluntary registration of NPOs,

irrespective of the particular form they take. However,

registration under the NPO Act is not a precondition for the legal existence of the organisation, or the commencement

of responsibilities for

organisational governance. The optional registration under the NPO Act is

affected by the Non-Profit Organisations Directorate

in the Department of Social Development.

Although registration under the NPO Act is voluntary, there are certain benefits and advantages which result from such registration. These include: -- The issuance of a Certificate of Registration, which serves as proof of the legal existence of the organisation, and the fact that it is a so-called body corporate, which means that it is a duly formed legal entity with an identity of its own, which is separate from the identities of its members. -- Only registered NPOs are eligible to apply to become grant recipients of Lotteries Funding; the National Development Agency (NDA); the Independent Development Trust (IDT); local and provincial authorities, and various other public and private funding agencies. In terms of the Income Tax Act (Section 30), an NPO may apply to SARS for approval as a socalled public benefit organisation (PBO). The most important benefit of approval as a PBO involves exemption from income tax; but

022

approval also leads to exemption from certain other taxes and duties, including donations tax (on donations made by or to the PBO); estate duty on bequests received from a deceased estate – and, in certain circumstances, exemption from the Skills Development Levy.

023

Some approved PBOs may be eligible for another important fiscal benefit (Section 18A) – which involves the right granted to taxpaying donors to deduct the amount or value of donations they have made to a PBO from their taxable income. This benefit is available only in respect of certain public benefit activities (e.g., activities in such areas as welfare; humanitarian; health care; education; development; conservation; and housing – all public benefit activities listed in Part 11 of the 9th Schedule). The VAT Act also contains provisions that may be of concern and benefit to certain eligible PBOs. For example, if an NPO’s activities fall within certain narrowly defined categories, it is deemed to be a ‘welfare organisation’, which allows it to register under the VAT Act without

having to satisfy the usual eligibility condition of a minimum annual turnover of R1 million. Registration then enables it to reclaim VAT paid on its purchases relating to qualifying activities. The services provided by a â&#x20AC;&#x2DC;welfare organisationâ&#x20AC;&#x2122; may also be zerorated for VAT purposes; and there are similar exemptions from VAT applicable to the provision of educational services, and services involving caring for children by a crĂ¨che or after-school care centre. However, registration under the VAT Act also brings with it administrative and compliance duties, and therefore the potential costs and benefits of VAT registration need to be carefully considered. Needless to say, tax legislation is complex, and each organisation should obtain professional advice concerning its liability for tax and its eligibility for tax benefits. Such tax benefits represent a valuable privilege that should not be abused, and amount to an indirect financial subsidy for eligible NPOs, which is made available at an indirect cost

024

to other taxpayers. This is a further reason why tax-exempt PBOs should consider themselves broadly accountable to the general public.

025

It is a fundamental responsibility of the board to ensure that fiscal privileges are not squandered or abused, and to ensure that an NPO approved as a PBO is thorough in its compliance with the prescribed conditions, including the timeous submission of its tax returns, and that it promptly and accurately discharges its reporting requirements to the Tax Exemption Unit of SARS.

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026

Purpose & Tasks of the Board Governing bodies are known by a variety of names including boards, committees, councils, trusts, etc. Likewise, the term “board members” can refer to those known as directors, committee members, councillors or trustees. In practice, and legally, they are the same thing.

027

Not-for-profit board members are appointed or elected to help steer their community group towards its mission. They must work individually and collectively in that task. A governing board’s primary responsibility, on behalf of its stakeholders, is to ensure that the organisation that it is responsible for remains viable and thrives. This is a stewardship or trusteeship role. It is particularly important to establish a clear distinction between the job of the board to govern – provide direction and control – and the job of the chief executive to manage the operations of the organisation.

There is no law that tells a board what its detailed activities should be. Further, the organisationâ&#x20AC;&#x2122;s constitution or rules provide only general guidance. Boards not only have the responsibility to govern an organisation, they also have the power to decide how that should be done. Effective leadership is the core quality of good governance. It relates not only to the external role of presenting and propagating the cause or mission of an NPO in the public domain; but also, to the internal role that should be played by the board in setting standards, giving direction, and determining strategy. Once again, it is not the function of a board to manage the organisation; but it is the purpose of the board to encourage initiative, including: -----

Income generation Holding managers to account Providing resources needed Ensuring the organisation has a common vision and strategy, which is carried into practical effect by management -- Being concerned in promoting

028

harmonious relationships -- Facilitating the resolution of conflict issues, preferably by negotiation, mediation, or ADR (alternative dispute resolution).

029

Whilst affirming the authority of the executive, the board should make it possible for employees and others with relevant information, whether inside or outside the organisation, to confidentially raise issues such as a lack of integrity or unfair discrimination. The substance and scope of the boardâ&#x20AC;&#x2122;s responsibility to exercise effective leadership is considered in the 15 tasks described on the following pages,

01.

Determine the Organisation’s Mission & Purpose The board must produce documents that set out the reasons for the organisation’s being – its mission statement, goals, objectives and policies. This includes policy development and strategic planning documents that cover the following: -- A clear statement of the organisation’s vision which drives it, and the artistic policy, aims and objectives which it proposes to pursue in the long term. -- Information on how the board proposes to implement the vision and achieve its aims by setting realistic strategies with measurable goals and targets. -- A conflict of interest policy to guard against any possibility of personal gain, by governing body members or staff, being obtained from any of the organisation’s transactions.

030

031

-- It should describe the needs or problems being met, the constituencies that it serves and the constituencies that support the work. -- Above all the board should be able to explain the organisationâ&#x20AC;&#x2122;s uniqueness, and the compelling arguments that will attract funding. -- It is recommended that basic statements of vision, purpose and values are not only incorporated in the founding documents, but are also prominently displayed in the offices of the organisation; on its website (if applicable); and repeated in the organisationâ&#x20AC;&#x2122;s literature, pamphlets, and other documentation, including its strategic plans, annual reports, newsletters, etc. To ensure that the above matters are given due weight and prominence, it is a governance responsibility to regularly monitor and evaluate individual and collective performance against specific objectives; to identify strengths and weaknesses; and to provide opportunities for organisational

learning and staff development. Issues such as favouritism, nepotism, self dealing, bias, and preference should be given particular attention. The governing body should take the lead in adhering to its constitution, policies and strategic plans.

02.

Selecting the CEO It is the task of the board to select and appoint a chief executive officer that will carry out the mission and purposes of the organisation. The governing bodyâ&#x20AC;&#x2122;s interest in the staffing of the organisation should include: --------

Personnel policies Affirmative action policies Record keeping Legal compliance Selection of personnel Organisation charts Job design

032

-------

Salaries Gratuities Motivation Supervision Performance appraisal Career and professional development -- Labour relations In addition, it is the boardâ&#x20AC;&#x2122;s responsibility to:

033

-- Ensure that the executive and senior management have formal job descriptions and letters of appointment describing their term of office, duties, rights and responsibilities and entitlements on termination, if any -- Monitor performance -- When necessary replace the CEO and artistic director.

03.

Support the CEO & Review Their Performance The head or chief executive officer (CEO) of a non-profit organisation, whether it be a volunteer or full-time position, has to report to the governing board. The CEO is expected to make regular reports on progress of the organisationâ&#x20AC;&#x2122;s service and fundraising activities, the administration and financial management processes and the implementation of the organisationâ&#x20AC;&#x2122;s plans. The CEO therefore needs the moral and concrete support of the governing body. The board should thus: -- Clearly delineate the balance of responsibility between the chair and the executive and regularly monitor and review to ensure division remains appropriate to

034

the needs of the organisation -- Approve a formal statement of delegated authority to management.

04.

Ensure Effective Organisational Planning

035

Governing board members must be involved in the planning processes of the organisation which includes defining its desired future and the means to bring it about. They are responsible for: -- Deciding and reviewing the organisationâ&#x20AC;&#x2122;s mission, and what result/s the organisation aims to achieve to fulfil its mission. -- Selecting the functions and specific programmes, both service and support the organisation will need to implement to achieve these results. -- Designing the steps (annual objectives) and structure that will

be necessary to carry out its work effectively and efficiently. In order to do this the governing body should ensure that: -- There are values that guide the organisation -- There is a long-term vision for the organisationâ&#x20AC;&#x2122;s future -- There is a clear definition of the work the organisation does -- There is a description of the results expected from the organisationâ&#x20AC;&#x2122;s work over the planned period -- There is an annual operating plan and budget (both income and expenditure) in place -- The progress towards implementing the plan is monitored and regularly evaluated. Large NPOs might appoint a planning committee to take responsibility for this activity. -- The organisation has a clear and specific annual business plan and budget that are consistent with the long-term vision, aims and objectives, the available financial resources and the skills of the staff.

036

Planning should involve the whole organisation and individual staff members should have segments of the total plan that they can identify as their own. The board and chief executive must start the process by reviewing the current aims and objectives and priorities and refining these as a planning guideline for the coming year. The chief executive should then work with the staff to develop a complete programme of activities.

037

05.

Ensure Adequate Resources A non-profit organisation is only as effective as it has resources to meet its purposes. Providing adequate resources is a governing board responsibility. In larger organisations the fundraiser might not be a governing board member, but the board gives full support to the fundraising processes. It is through the governing body that large potential donors are

influenced. Members should be able to provide contacts in areas of the market with funding potential. To do this effectively they themselves must be financially committed to the organisation. They must establish an annual income plan and monitor the income progress regularly. Many NPOs appoint a fundraising committee to take responsibility for this activity. The board must ensure that adequate attention has been given to obtaining all types of revenue. Three types of revenue available to an arts oranisation include: -- Earned income â&#x20AC;&#x201C; for example, from the box office, sales and income from related business activity such as bars, cafĂŠ, bookshops, etc. -- Sponsorship and donations that the organisation receives from commercial sponsors and donors -- Grants from public bodies. The board has a particular executive responsibility in the second and third areas â&#x20AC;&#x201C; to obtain funding from public bodies and to encourage and

038

maximise income from sponsors and donors. The following should thus be taken into account by board members:

039

-- Board members often have many contacts in the business or public sector and they should be prepared to make an initial approach to a potential sponsor before passing the detailed negotiation and discussion to the chief executive or fundraising expert. Such fundraising should also take full account of the tax reliefs and benefits available to bodies having charitable status â&#x20AC;&#x201C; and most arts organisations should qualify for this. The possibility of tax benefits arising from donations should be mentioned to businesses, commercial firms and private individuals. Income from charitable trusts is another potential avenue for fundraising with which board members can become involved. -- A board which fails to lobby vigorously for grants from public bodies is also putting its organisation at a disadvantage relative to other arts

organisations. It is inappropriate to explore here the intricacies of skillful and successful lobbying.

06.

Manage Resources Effectively The governing board is the guardian of a non-profit organisationâ&#x20AC;&#x2122;s resources. In the case of Non-Profit Companies financial responsibility rests with the individual governing board directors. There is a tendency to rely heavily on those board members who have a particular financial and accounting expertise, but all board members are accountable for financial stewardship, not just those members with a relevant formal qualification. This accountability is best achieved by adopting a governance, rather than a management, perspective. Financial governance entails setting a financial policy framework that will preserve and enhance the financial health of the organisation and allow all board members, regardless of

040

their level of financial training, to share in this critical and unavoidable responsibility. The governing board is responsible for the assets and resources held by the organisation and to make sure they are managed properly, through the implementation of procedures and control mechanisms that ensure the proper use of the organisationâ&#x20AC;&#x2122;s assets. The governing board should thus assure itself of the following:

041

-- That adequate financial planning, budgeting, accounting, payroll, taxes, annual reports to the Department of Social Development, internal controls, financial analysis, cash management, reserves and risk management are in place. -- It is the responsibility of the board to monitor and ensure full compliance with relevant laws, including those that relate to registration, tax status, and the submission of statutory returns. This is not merely a formal or nominal responsibility, as directors and those having fiduciary responsibility can be held personally liable in the event

of non-compliance in terms of various laws. There are many different laws which impose duties upon those responsible for the governance of NPOs. A board should, where necessary, seek professional advice and assurance about such duties and whether these obligations are being timeously and effectively addressed and monitored. A governing board needs to monitor the budget through regular financial reports and taking necessary action to make sure the budget remains balanced throughout the year. The governing board also obtains and accepts the annual audit of financial accounts, looks after the organisationâ&#x20AC;&#x2122;s assets and investments, and ensures that all legal requirements are complied with. The board must ensure that there is effective and transparent financial reporting; and it must satisfy itself as to the existence of adequate financial systems and controls. Within a reasonable time (not exceeding six months)

042

043

following the end of each financial year, an organisation should prepare, publish, and present its annual financial statements, which should be either professionally audited, or at least reviewed by an independent person, in the way described in the Companies Act. -- Board members must fully understand and agree with the draft audited accounts before signing them. It cannot be over emphasised that each board member should understand the financial information provided to the board. -- The boardâ&#x20AC;&#x2122;s responsibility for governance includes a responsibility to ensure that the organisation remains compliant with all its statutory duties and regulatory obligations. -- Ensure that they are to give prior approval to any material capital expenditure, or any material variation from budgeted or forecast expenditure. As part of its accountability, a board is usually required to make an accurate and up-to-date statement of the organisationâ&#x20AC;&#x2122;s finances each

year to stakeholders in an annual report. In most arts organisations it is required that these accounts be externally audited. If your board does not have access to professionally qualified personnel within the organisation (including board members themselves), external advice should be sought to ensure that it is setting appropriate financial performance standards and that it is monitoring those effectively. Remember, all board members, irrespective of their professional expertise are collectively accountable for the financial wellbeing of the organisation.

07.

Determine & Monitor the Goals of the Organisationâ&#x20AC;&#x2122;s Programmes & Services The governing board should have an understanding of each of the organisationâ&#x20AC;&#x2122;s service programmes and/or projects and how they implement the mission.

044

Their role is to question whether the organisationâ&#x20AC;&#x2122;s current programme and services match its stated mission and objectives. The following must be done in order to achieve this:

045

-- Approve the annual programme plans. -- Agree to the methods used to monitor and evaluate the programmes or projects. -- Insist on receiving regular progress reports on each programme or project and their accomplishments. -- Critically analyse the organisationâ&#x20AC;&#x2122;s culture and activities, making sure that changes necessary to build creativity, diversity, responsibility and respect, while recognising all cultural groups as equal partners in developing the organisation, are implemented. -- Should the service programme be complex or of a highly technical character some NPOs appoint a programme committee to take responsibility for this activity. -- Regularly scan the environment beyond the organisation to ensure

that what it is attempting to achieve remains both relevant and achievable. -- Communicating with the organisation’s ‘owners’ and other stakeholders to ensure that they have input into the determination of direction and goals, that they are kept informed about organisational performance, and that the board is able to fulfil its accountability for ensuring that the performance of the organisation is consistent with ‘owners’ expectations.

08.

Enhance the Organisation’s Public Image The governing board serves as a link between an organisation’s staff or volunteers, and the organisation’s clients, members, community and donors it serves. Usually the CEO or the chairperson are the main public spokespersons for the organisation; whoever is

046

047

chosen should be authorised by the governing board. Members could have contacts with many areas of influence; in commerce, the media, the government. They should always guard against giving personal opinions in the name of the organisation and be equipped to promote the organisation with accuracy and enthusiasm at every opportunity. In order to fulfil this responsibility, the governing body members should be informed about the organisationâ&#x20AC;&#x2122;s markets â&#x20AC;&#x201C; beneficiaries, clients, supporters etc. In larger NPOs this could mean taking an interest in market research, market planning, product development, packaging and distribution, pricing, promotion, sales, communications and public relations. At the very least the governing board should know how effectively and efficiently the organisation is serving or reaching these markets. They should ensure that an annual report is prepared.

09.

Serve as a Court of Appeal The mark of an effective and maturing NPO, is one whoâ&#x20AC;&#x2122;s governing board members do not get involved in the day-to-day running of the operation, and do not become involved in the interpersonal relationships of staff, or the controls of the CEO. From time to time the judgment of the CEO might be questioned by a staff member. The board will need to be consulted by the CEO in these disputes. In small or new organisations where some governing body members also serve as volunteer staff, conflicts and confusion often emerge when members do not understand their responsibilities and sensitivities of these dual roles. These processes are more effectively enabled when the organisation establishes and maintains disciplinary and grievance procedures with clear lines of authority and accountability.

048

10.

Assess its Performance Every two or three years the governing board should give itself an opportunity to examine its own progress and performance.

049

This is most effective if each governing board member joins the organisation with an agreed standard of performance or job description in place. Progress can be measured at an evaluation workshop, or by interviews with each member conducted by the chairperson and/or the CEO. Minimum criteria against which performance can be measured could include: -- Knowledge of the organisation -- Commitment to the organisation -- Influence in the client or donor community -- Ability to give -- Willingness to work

11.

Adopt a Board Charter & Governance Policy The board must seek to ensure that the vision and values of the organisation as expressed in its constitutional documents are upheld and elaborated in various ways, primarily by the adoption and implementation of strategic plans. The board points the way, in consultation with the executive. It also leads by ensuring that strategies are sufficiently articulated in operational plans, and by overseeing their implementation. Sometimes boards become lethargic or complacent. This can happen, for example, because there is a highly competent CEO who appears to be able to run the organisation alone, or the board composition has been static for a number of years and needs an infusion of fresh blood and new ideas. It can lead to a spiral, in which the board

050

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loses competence and makes itself increasingly irrelevant. The important thing to recognise is that this can be changed once the problem is identified and acknowledged. Policies enable the board to speak with ‘one voice’ even though the policy may only have been agreed on the basis of a majority vote. This is an important concept because within each board quite different interests and constituencies might be represented. There needs to be a process whereby the board as a whole can make a decision which can be implemented, even when board members are not unanimous. Once a policy is made it is the board’s policy and carries the board’s full weight, regardless of the views of any individual member of the board. The following should be taken into account when developing governance policy for the organisation: -- The task of developing governance policies should be carried out with the active involvement of all board members. -- Policies that define what is expected of the chief executive

and thereby other staff (Ends and Executive Limitations policies) must be realistic and achievable and, therefore, informed by chief executive and staff advice. Chief executive/staff understanding of the boardâ&#x20AC;&#x2122;s intentions is important if policy implementation is to be effective. Use of an appropriately experienced governance consultant can also be valuable. While board committees or working parties may also be used, only the board as a whole should be empowered to approve or adopt a governance policy. Once governance policies are adopted, all board members are bound by them. The board should review its governance policies on a regular basis. Governance policies should always be consolidated into a single document for easy reference and application by board members and staff alike, and to facilitate their revision. A boardâ&#x20AC;&#x2122;s policies should always be at the forefront of its work. Ensuring that every meeting agenda item has an applicable

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policy reference to set the scene for the boardâ&#x20AC;&#x2122;s consideration of that item is a pragmatic and powerful technique for achieving policy implementation. In addition, the board should:

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-- Adopt a formal charter that details the boardâ&#x20AC;&#x2122;s principal functions and responsibilities and monitor the effectiveness of governance practices. -- Provide an induction procedure for new board members ensuring all board members are made aware of their legal duties to act in the best interests of the organisation and the key terms and conditions relevant to that appointment. -- Ensure no single individual has unfettered powers. Once the board has established its governance policies the chief executive should be expected to develop all further operational policies and protocols necessary to achieve the results and manage the risks addressed in the governance policies. The board should not

adopt or approve operational policies. Doing so removes the chief executiveâ&#x20AC;&#x2122;s ability to make necessary operational policy changes when needed without reference back to the board. The chief executive should not be constrained by having to continually seek board approval for matters that the board should properly delegate, and the board should not have to do the chief executiveâ&#x20AC;&#x2122;s job as well as its own. This does not mean that, from time to time, the chief executive may not seek advice or assistance from individual board members about operational matters. When, however, that advice or assistance is provided, board members put aside their governance responsibilities and the chief executive, when weighing up their advice, has the discretion to choose whether or not to act on the advice. A boardâ&#x20AC;&#x2122;s own governance policies can be initiated, altered or deleted as required.

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12.

Ensure Risk Management is in Place

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Traditionally, the discipline of risk management has been devoted to addressing threats of accidental loss. In this context, the most that the process of risk management could ever accomplish was to reduce or eliminate losses from, say, accidents to art works or facilities. Another important perspective, however, is that of non-accidental risks. This would cover, for example, losses from poor programming judgments or from errors in forecasting audience numbers. It is also very important to consider the possibility of gain from risk. As in other aspects of the boardâ&#x20AC;&#x2122;s job it is important to adopt a more broadly based and strategic approach. Strategic risk management embraces both possible gains and losses from risk. It seeks not only to counter all losses, both from accidents and from unfortunate business judgments, but also to seize opportunities for gains

through organisational innovation and growth. Effective and strategic risk management is vital if your organisation is to be all it can be. What a board expects the future to bring and how it prepares for its vision of the future greatly affect the amount of risk confronting the organisation it governs. A strategic approach to risk management is conspicuously proactive. It counters ‘downside’ risks by reducing the possibility of something unwanted happening (probability) and the impact (magnitude) of losses if it did, and by resourcing/financing recovery from these losses. It seizes ‘upside’ risks by searching for opportunities to more fully, more certainly and more efficiently achieve its mission and by developing plans to act on opportunities as they present themselves in the future. There are five main reasons why a board needs to ensure that its organisation takes a strategic approach to risk management and that it is always able to handle risk effectively and to advantage. These are outlined below:

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-- To counter losses – this typically involves reducing the probability, magnitude or unpredictability of accidental losses. Techniques for reducing accidental losses usually involve either avoiding or modifying the activities that may generate accidental losses. -- To reduce uncertainty – uncertainty can be reduced by gathering more data to improve understanding and predictions and by anticipating and preparing for a wider range of outcomes. -- To take advantage of opportunities – organisational success is frequently characterised by innovation and the ability to see and take advantage of possibilities others may have overlooked. Strategic risk management not only helps in identifying opportunities for gain, but also better positions an organisation to seize those opportunities. -- To be good a corporate citizen – organisations, like individuals, are good corporate citizens when they act according to, or beyond, community standards and expectations. Being a good

citizen in this context is about behaving ethically and obeying the spirit as well as the letter of the law. When it consistently acts as a good corporate citizen an organisation tends to be less prone to liability losses (downside risks). It is also more likely to be presented with beneficial opportunities and to gain positive public support (upside risks). Ultimately the board is accountable for organisational performance. It must be clear how much risk is acceptable in order to achieve worthwhile rewards. It must, therefore, determine the appropriate risk â&#x20AC;&#x2DC;appetiteâ&#x20AC;&#x2122; or level of exposure for the organisation. To a significant extent this will reflect the purpose of the organisation. The board should thus: -- Actively participate in major decisions affecting the organisationâ&#x20AC;&#x2122;s risk profile or exposure; ensuring that important questions are addressed such as, should the risk be spread by working with another organisation

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or transferred through the use of funder/sponsor underwriting or insurance? Monitor the management of significant risks to reduce the likelihood of unwelcome surprises by, for example, receiving regular reports from management focusing on key performance and risk indicators, supplemented by audit and other internal and external reports. Report annually to key stakeholders on the organisationâ&#x20AC;&#x2122;s approach to risk management, with a description of the key elements of its processes and procedures. Ensure that strategic risk management enjoys effective implementation by making sure that the expression of its expectations and the delegation of its authority to management is formally documented in policy, creating a formal basis for accountability and an explicit framework for performancemonitoring. Review its attitude and approach to risk regularly because the conditions that create risk are changing continuously. One

exercise that a board can do on a regular basis (at least annually) is to brainstorm the various risks facing the organisation to create a risk map. The various elements identified are initially placed on a mind map type diagram. Each of the risks identified can then be assigned an assessment of the likelihood that the risk factor will occur and, if it does, what its potential impact could be. -- Where possible, try to control or mitigate those risks that have the greatest significance for the organisation. This should include even those risks that are beyond the organisationâ&#x20AC;&#x2122;s ability to influence. In such cases the board should ensure that the organisation has a â&#x20AC;&#x2DC;Plan Bâ&#x20AC;&#x2122; to be prepared to respond quickly and appropriately to matters that are otherwise beyond its control. -- In a large organisation this may justify the appointment of a special committee charged with responsibility for risk; but for most NPOs, issues of risk will need to be managed in a manner that is affordable and appropriate to the resources of the organisation concerned.

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13.

Succession Planning Succession planning is something which is often overlooked and can result in periods of underperformance by the board. It is linked to the problems associated with board members staying too long in the position.

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A board needs regular changes in personnel, to remain energetic and fresh, and to reflect changing needs and conditions. At the same time, it should avoid the sudden loss of people who perform key functions, such as the chairperson, or company secretary. This is an issue that should be on the board table for discussion at least annually. A board that can move from a situation in which its members cling to office for protracted periods, to one in which they recognise the value of changes in personnel, is performing a valuable service for the organisation.

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Practice Collective Responsibility The collective responsibility of the board should act as a reassurance to board members. While they may have individual areas of expertise which are called upon from time to time, the members of a board act collectively as a body and reach their decisions as a group. No board member, and this applies in particular to the chairperson, should feel solely â&#x20AC;&#x201C; or even primarily â&#x20AC;&#x201C; responsible for any board decision. The best solutions are those which represent the collective wisdom of the board as a whole. A corollary of this is that decisions should be reached by the group. The board is undermined if, for example, board members privately canvass each other for support for decisions. It is necessary for everyone to trust that the board as a whole will arrive at

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the best result, and to act in that belief. Sometimes it is difficult to see the reasons why we favour a particular course of action. Board members can fall into the habit of deferring to the CEO. A dominant chairperson may stifle the opportunity for real debate. A good habit to develop is that of asking questions such as these before giving support to a decision:

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-- Do I have enough information about this issue? -- Do I understand the pros and cons? -- What is the short-term/long-term benefit to the organisation? -- Is the proposal consistent with the aims of the organisation as set out in its constitution? -- Is it in keeping with its ethos? -- Will it cause a conflict of interest or loyalty for me or any board member? -- Is it likely to be met with internal resistance, or for some other reason may need to be handled sensitively? -- Are there negative impacts for employees, or, in the case of a

company, for the members? -- Does it compromise the organisation in any way? These questions are helpful in guiding board members to identify solutions which are in the best interests of the organisation.

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Ensure Accountability to Stakeholders NPOs and their boards are accountable to a number of constituencies and stakeholders. These include, but are not limited to the following: -- Donors – with respect to the organisation’s integrity and effective use of funds. -- Beneficiaries – with respect to the organisation’s awareness of needs, and deployment of resources. -- Members – with respect to democratic governance and

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fidelity to purpose. Employees – with respect to fair remuneration, employment conditions, transformation and empathetic human relations. Volunteers – with respect to their contributions of time, energy and skills. Government – with respect to legal and fiscal compliance, and effectiveness in allocating resources and addressing needs. Other NPOs – with respect to possible synergies and opportunities for collaboration. The general public – with respect to tax benefits and fiscal privileges.

Duties, Legal Status & Potential Liabilities of Boards A governing body that meets the legal standards of its constitution and registration, in the performance of its duties, also positions the organisation for success through good management and ethical practices. Service on a governing body is very important for the organisation, and the performance of duties must be taken seriously. Each individual governing body member, and the body as a whole, is held accountable for actions with respect to the organisation. They may delegate some of the work to outsiders, but they cannot delegate their final responsibility. As the governing body is controlling assets belonging to another, it and each member of the governing body individually is in a relationship of trust (fiduciary relationship) towards the organisation. In accordance with its fiduciary duties, the governing body is expected to act in the best interest of the organisation.

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1. Legal Duties of Board Members

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Further to their fiduciary duties, members of the governing board also have statutory duties imposed by various laws (e.g. the Companies Act, the Trust Property Control Act or the common law), the incorporation documentation of the organisation (e.g. the Memorandum of Incorporation of a Non-Profit Company, trust deed of a trust or founding document/constitution of a voluntary association) and any agreements entered into by the organisation (e.g. the appointment letter of employment contract of a member of the governing body). Members of the governing body should understand their duties in order to avoid personal liability that may follow from breach thereof. Regardless of no or limited remuneration, breach of legal duties could still result in accountability and personal liability. Compliance with all laws and regulations applicable to the organisation is important for various

reasons, the most important of which include that non-compliance could result in fines, criminal liability or even personal liability for members of the governing board. Board members do not need to be experts in any area of the law, but they should be aware of the areas of the law which affect directly their organisation. Major areas now include: Employment Protection, Disability Discrimination, Gender Discrimination, Health and Safety, Financial Services, Pensions, Data Protection, Freedom of Information, Environmental Protection and Human Rights. This list is far from exhaustive and each area is enshrined in legislation, with many associated codes of practice, regulations and guidelines. Organisations are subject to all of these areas and more and are advised to undertake a risk assessment to identify the most relevant issues where action might have to be taken to comply with the law. As a newer area of the law is introduced or its scope extended, boards should be alert to such

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developments and add these to the risk profile.

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Failure to comply with aspects of employment law can bring heavy penalties, with industrial tribunals now able to make substantial awards where an employer has acted unlawfully or unfairly. Penalties are particularly severe if discrimination based on gender or race has been evident. Boards should, in particular, ensure that practices in relation to recruitment and employment are fair and that agreed procedures are followed consistently. Clear arrangements should exist for dealing with problems and disciplinary matters and a system for regular staff appraisal must be in place. The board, a committee of the board or the chair should be responsible for the appraisal of the most senior executive. 2. Duty to Act Within Constitution & Powers Board members have an obligation to act within their powers as set out in the constitution of the organisation and only exercise these

powers for the purposes for which they were conferred. Boards must act in a way that they consider, in good faith, would most likely promote the success of the organisation and be for the benefit of its beneficiaries and the public as a whole. The board must exercise this duty whilst having regard to the following non-exhaustive list of factors: -- The likely consequences of any decision in the long term. -- The interests of the organisationâ&#x20AC;&#x2122;s employees. -- The need to foster the organisationsâ&#x20AC;&#x2122;s relationships with suppliers, customers and others. -- The impact of the organisationâ&#x20AC;&#x2122;s operations on the community and environment. -- The desirability of the organisation maintaining a reputation for high standards of business conduct. 3. Duty to Exercise Independent Judgment The board members have a duty not to act in accordance with the will

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of others, whether that be through delegation or by simply acting in accordance with the wishes of others; rather, they must exercise independent judgment on matters affecting the organisation. This does not prevent board members from relying on the judgment of others in areas in which they are not expert or from properly delegating matters to committees or appropriate individuals.

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The duty does not, however, affect any actions taken by the board in accordance with the constitution of the organisation, or through any agreement entered into by the organisation that may restrict the future exercise of discretion by its directors. For example, making agreements for finance which could constrain future action, or entering into a joint venture or a licensing agreement. The board of directors should give careful consideration to their statutory duties when considering any such agreement, and if such an agreement hinders the organisationsâ&#x20AC;&#x2122;s ability to exercise its powers in the future, it may mean that the directors are breaching

their duties by committing the organisation to such an agreement. 4. Duty to Exercise Reasonable Care, Skill & Diligence To act as an ordinary, wise person would â&#x20AC;&#x201C; in the same circumstances; applying careful, attentive and informed participation. There is no measure of just how much time, skill and attentiveness an individual must bring to their actions as a governing board member. This standard requires that governing board members base their decisions on adequate information. Governing board members donâ&#x20AC;&#x2122;t have to be experts at everything that comes before them. However, any member with special expertise is expected to contribute that specialised knowledge in their activities as a governing body member. A director who is an accountant, for example, would be expected to behave as a reasonable person with the knowledge and skills of an accountant. Each member need not be fully involved in every

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action and decision of the governing board. The duty of care permits delegation to other members, committees, staff or even outsiders, within reason.

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To act in good faith, in the best interests of the organisation. The duty of loyalty imposes safeguards and standards of fairness in situations where there are conflicts of interest. The legal standards address this concern by requiring activity such as: full disclosure; approval by the majority of governing body members; getting good deals for the organisation. Another type of loyalty is raised when an individual member and the organisation are potentially in competition for the same side of a transaction. Only when the organisation chooses to forgo the opportunity is a governing body member free to go ahead on their own behalf. A director shall act honestly and responsibly in relation to the conduct of the affairs of the organisation. This provision is

expressed in plain language and needs no explanation. 5. Duty Not to Accept Benefits from Third Parties A board member must not accept any benefits from third parties that arise by virtue of their office as a board member, or equally through their doing, or not doing, anything in their capacity as a director. This does not apply to any transaction approved by the members of an organisation or one for which it is provided that approval is needed. This obligation continues beyond the point where a director ceases to hold office, and they can be held liable for things they did, or did not do, during their office as a director. There is no minimum threshold, but the duty is not infringed if accepting the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest. A director shall not use the companyâ&#x20AC;&#x2122;s property, information or opportunities for their own or anyone elseâ&#x20AC;&#x2122;s benefit, unless this is permitted in the constitution or

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the use has been approved by a general meeting of the members of the organisation.

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This rule reflects the fact that directors are similar to trustees in control of someone elseâ&#x20AC;&#x2122;s property. Directors may not use or personally benefit from that property, or seek personal gain from their position. Neither, for example, may they divert business opportunities away from the organisation to themselves or to organisations controlled by them. 6. Duty to Avoid Conflicts of Interest If a director is, directly or indirectly, interested in a proposed transaction or arrangement with the company, they must declare the nature and extent of that interest to the other directors before the organisation enters into the transaction or arrangement. The Companies Act requires directors of non-profit companies to declare all personal financial interests and to follow the procedures as set out in the Act. King III determines that certain conflicts of interest are fundamental

and should be avoided and that other conflicts (whether real or perceived) should be disclosed in good time and in full detail to the governing body and then appropriately managed. A duty is imposed on a director to avoid any situation that would give rise to a direct or indirect conflict of interest with the interests of the organisation. This applies particularly to the exploitation of any property, information or opportunity, regardless of whether the organisation could take advantage of the same. Conflicts may also arise when a director makes a profit in the course of being a director, without the knowledge and consent of the organisation. Conflicts of interest arising in relation to a transaction or arrangement with the company are covered by separate legislation. Boards are advised to establish formal registers of interests to record declared interests and potential conflicts. Any declarations of interest should be formally recorded in the minutes of meetings of the board.

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7. Delegation

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The legal duties outlined are extensive and are added to as time passes. Board members should keep up to date with developments and discuss changes to legislation at board meetings and consider how they might be affected. Most directors will be nonexecutive, that is, they are not paid employees of the organisation, and as such are unlikely to be able to give and are not bound to give continuous attention to the affairs of the organisation. They are entitled to rely on the managers and other officers of the organisation to carry out the day to day duties and functions which may properly be delegated, and directors may, in the absence of grounds for suspicion, trust that those managers and officials will perform those duties honestly and with integrity. Directors cannot therefore be liable for every breach of duty by a company official unless the director sanctions the conduct which constitutes the breach or if they fail to exercise any reasonable controls over the senior staff and/or do not undertake any

regular monitoring of activity. The right of delegation does not however relieve directors from the responsibility of appointing appropriate managers demonstrably capable of carrying out the tasks delegated to them, or from attending the meetings of directors at which the performance of the managers and officials of the organisation would be regularly supervised, monitored and reviewed. Directors also have a duty to act if anything suspicious arises.

Business Judgment Rule The business judgment rule is found in section 76(4) of the South African Companies Act 71 of 2008 and relates to the directorâ&#x20AC;&#x2122;s duty to act in the best interests of the company and with care, skill and diligence. In terms of the rule, a director will be protected from allegations of breach of the duty to act in the best interests of the company and with care, skill and diligence in relation to a matter where that director has (i) taken reasonably diligent steps

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to become informed about the matter, (ii) either had no conflict of interest in relation to the matter or complied with the rules on conflict of interests & (iii) had a rational basis for believing, and did believe, that their decision was in the best interest of the company. The business judgment rule therefore becomes a shield for directors against liability imputations. The business judgment rule protects honest directors from liability where a decision turns out to have been an unsound one and prevents the stifling of innovation and venturesome business activity. However, the enactment of the business judgment rule is not a fortress for directors as dishonest and irrational directors will still face the sanction of the court for breach of the duty to act in the best interest of the company and the duty to act with care, skill and diligence.

In terms of section 77(2)(a), a director may be held liable in accordance with the principles of the common law relating to breach of a fiduciary duty, for any loss or damages sustained by the company as a result of a breach of inter alia, the duty to act in the best interest of the company. (90)

Board Composition & Constitution The way the board is composed is a crucial issue which impacts directly on the quality of governance of an NPO. For example, it is generally considered undesirable for the director or chief executive to act as chairperson of the board. Board members should be recruited with due regard to a number of factors, including knowledge, skills, diversity, and available time. There should also be a policy directed at achieving, from year to year, a balance between the twin benefits of continuity and of renewal. Thus, new board members should periodically be introduced, and longserving members should periodically

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retire. In the case of self-funded, family or corporate foundations, the founders and funders are likely to require representation on the board, but they may not exercise unilateral control over decision-making.

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A board member is usually appointed by the members of the organisation or co-opted by the board. Whatever form the constitution might take, new board members should ensure that their appointment has been made in terms of that constitution to avoid any doubt in the future. It is quite common for representatives of funding organisations to attend meetings of the board as observers as a condition of funding. The board should consider developing a competency framework as a way of defining the range of skills and aptitudes needed. Boards are encouraged to develop this policy which should describe: 1. The rules governing appointments to the board, including the maximum number of directors, the power of external bodies to nominate directors (if applicable), provision for term limits and for

retirement by rotation. 2. The general principles that will guide the recruitment of a balanced group of directors, including diversity (of age, gender, experience, geographic location etc.), alignment with the values of the body, experience and interest in its work, and so forth. 3. The specific aptitudes, skills and experience that are considered desirable in the companyâ&#x20AC;&#x2122;s current circumstances. 4. The approach the board will take to board recruitment, development and performance evaluation. The role and responsibilities of directors should be set out explicitly in a document that forms part of the boardâ&#x20AC;&#x2122;s governance standards â&#x20AC;&#x201C; usually consolidated into a volume of materials called the governance manual or handbook. On appointment, every director should receive a copy of this handbook, along with a letter of appointment setting out the term of their appointment and any other conditions.

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1. The Question of the Founding Members

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One of the characteristics of arts organisations is that often the initial drive to form an organisation and provide its artistic vision is stimulated not by the board but by an individual or small group. Their ideas form the organisationâ&#x20AC;&#x2122;s aims, and initially that individual will build a board around him or her to form a company to legitimise the administration and to allow it to apply for public subsidy and so on, often at quite a late stage in the development of the artistic vision. In such circumstances the board members have to â&#x20AC;&#x2DC;buy inâ&#x20AC;&#x2122; to an already mature artistic aim. If they invite other people to join the board, the new board members recognise the primacy of the entrepreneurs and their vision. In these circumstances the tasks are built around the skills, experience and interests of the members of the group. However, once most groups have been going for a period of years, changes in the board and a host of other influences can lead to

a situation where the board is forced to assume responsibility for the survival of the organisation. In many cases, the board must bring in new staff to fill gaps left by the departure of founders or to do jobs that were not previously necessary. 2. Structuring a Board A high performing, effective board is essential for the proper governance and leadership of an arts organisation. It should challenge management and hold them to account, and also represent the best interests of the members as a whole rather than those of individuals, geographical areas or communities. Size of Boards With the difficulty of recruiting good people and, because it is considered to be more efficient, boards are tending to become smaller. However, a board that is too small casts a heavy load on a few people and limits the range of talent and experience that is available for the boardâ&#x20AC;&#x2122;s work. On the other hand,

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when a board is too large, lines of responsibility are often blurred. It is difficult to find commonly acceptable meeting dates, discussion becomes lengthy and diffuse and, worst of all, cliques begin to develop.

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Representation on Boards Many people ask whether specific interest groups, such as friendsâ&#x20AC;&#x2122; groups, staff, artists or local authorities should be represented on boards, and some longestablished companies have a nominating system enshrined in their constitution. There are means other than formal nomination to ensure a broad spectrum of interest and it is always open to a board to invite people who are not members to attend and contribute to meetings. There are, however, some benefits in allowing interest groups to nominate members for election to a board, they are: -- Interest groups are likely to select people whose personal qualities and competence equip them for

membership. -- That particular groupâ&#x20AC;&#x2122;s confidence in the board is promoted, and a means of liaison is provided between that group and the board. -- The board, as a single entity, has available in its deliberations the views of all the interest groups. It must be emphasised, however, that all board interests must pursue the interests of the organisation as a whole. A board member nominated by an interest group should not treat their appointment merely as an opportunity to promote the interests of the nominating group. All board members must also respect the confidential nature of the organisationâ&#x20AC;&#x2122;s business: this can affect the extent to which a nominated board member can report back to the nominating group. Age & Terms of Appointment of Board Members A board whose membership reflects the mix of age, gender, abilities and races of the wider community within which the

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organisation works is probably best equipped to carry out the duties described in this booklet. Boards are urged to review their range of membership each year and make positive efforts to redress any obvious imbalance. Many organisations limit the time that people can serve on boards. Good practice is to restrict this to two terms of three years each.

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Clearly an organisation should give careful consideration to the advantages and disadvantages before determining its own practice, but in principle the review of membership is one which the board should undertake along with its annual review of progress. Reappointment should not be automatic. If possible the board should ensure that individual board terms are appropriately staggered, so that there is a continuity of appropriate knowledge, skills and experience on the board, as well as continuity on organisation and board-specific issues. It is possible to obtain

continuing involvement of a retired director by appointing him or her a patron or honorary adviser. The disadvantages can be minimised by ensuring that the board gets some new blood at each annual meeting. All boards should consider actively the representation on the board from the point of view of geographical area, gender, disability and cultural diversity. Those organisations which claim to have a national remit or in receipt of public funding are expected to pay particular attention to this. 3. Criteria Considerations for Board Members Recruitment of members is a constant challenge for some arts organisation boards. The ability to provide time and attention are important prerequisites for board membership regardless of other attributes like, for example, being connected to possible funding sources. Arts boards typically seek to recruit people with specialist skills (e.g. lawyers, accountants and marketing and business people, etc.). While it is important for many

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arts organisations to gain access to this type of advice on a voluntary basis these are functional rather than governance skills. As has been done in some arts organisations, it may be preferable to engage those functional skills other than by appointment to the board.

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What is needed around the board table is not a team of experts but an expert team. An arts board should be constantly wary of becoming an operational committee, rather than a team of governors giving direction and exercising strategic oversight of organisational purpose and performance. This does not prevent board members working in the organisation but when they do so, they must be conscious of wearing a different (operational) â&#x20AC;&#x2DC;hatâ&#x20AC;&#x2122; (such as in the case of a board member working as a volunteer for the organisation). Whether board members are elected or appointed, every effort should be made to ensure that they bring a level of understanding about the purpose of the organisation and appropriate governance skills (or are given the opportunity to acquire these). There are several general criteria for

assessing the suitability of proposed board members. Quality Regardless of age, profession or other characteristics, each board member should have integrity, intelligence and a successful record of achievement so as to command the respect of fellow board members, the staff and the outside world. They must have an understanding of the different requirements of a not-for-profit organisation and the division of responsibilities between the board and the executive staff. Ability to Cooperate Each board member must be able to work as part of a team. A brilliant person can make a negative contribution to a board if he or she is unable to work easily with other people. Members must be able to discuss issues vigorously but harmoniously without dominating the discussion and to move quickly towards a group consensus. Attendance at board meetings should be an enjoyable and rewarding experience.

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Genuine Interest A person should have a genuine interest in and commitment to the organisationâ&#x20AC;&#x2122;s activities and its artform and be willing to learn about the context in which arts organisations operate. This is particularly relevant where people are likely to seek membership of the board for social contact or prestige.

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Discretion Boards should not be secretive, but their business often requires discretion. For example, in a financial crisis, a staffing dispute or where there is public concern about the content of a programme. Board members should therefore have a proper respect for confidentiality and are in fact legally obliged not to disclose confidential information to any third party without the agreement of the board. Availability A potential board member must be willing to devote enough time to attend to the organisationâ&#x20AC;&#x2122;s business.

Absence of Conflicts People should not serve on a board if they have, or are publicly believed to have, interests that conflict with those of the organisation itself. Every organisation should maintain a register of interests and have clear procedures for dealing with any conflict or potential conflict of interest. Willingness to Retire The needs of an organisation change over time and the right mix of skills today may be unsuitable tomorrow. Board members must be willing to retire when their skills are no longer relevant. If the constitution does not provide for retirement of board members after a maximum period of six years, consideration should be given to altering this or to introducing a standing order which has this effect. Professional Qualifications of Board Members What mix of professional skills does the board of an arts organisation need? -- For all except perhaps the largest organisations, a board

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needs one or more members with professional knowledge of the relevant artform. A person with knowledge and experience of management and organisation. A person or persons with knowledge of finance, banking, accounts and legal and regulatory matters. A business executive, particularly with marketing and/ or public relations skills is very valuable. A person with human resources experience is becoming more necessary, particularly for those organisations which employ a lot of staff. People with good contacts and with proven fundraising skills are also very important. People with experience of local and central government can be helpful, and those with an educational or community background can advise on outreach, audience development and educational aspects of the organisationâ&#x20AC;&#x2122;s work.

Every organisation should look at its current challenges and plans, and then piece together the best set of skills for the board to complement and support the skills of its staff. 4. The Role of the Chair The most important single factor in achieving (or not) a high standard of governance in arts organisations is the effectiveness of the chair. The chair sets the tone of the board and their primary role is to provide assurance of the board’s governance integrity via the effective management of governance processes. As a secondary responsibility the chair may also represent the board and its policies outside the organisation. The chair is bound by the board’s governance policies and thus has no authority to unilaterally alter, amend or ignore the board’s policies. The chair is not the ‘boss’ of the board. The concept of ‘servant leadership’ is a more appropriate way of thinking about this role. While the chair may delegate certain aspects of their authority, he or she remains accountable for it.

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The Chair The chief executive, who will often not be a board member, is the key person in determining the success or failure of an organisation. However, the chair of the board frequently runs a close second. The relationship between these two individuals is of crucial importance for the success or otherwise of the organisation. It is important that this, as in the case of the distinct responsibility boundaries between board and employees, is recorded formally and agreed. The chair is also responsible for ensuring that individual board members make an effective contribution to the organisation and carry out any tasks allocated to them. Chairing an arts organisation can be a thankless and onerous task, and whilst many might be prepared to join a board, few are willing to take on the work of the chair. The succession plan for chairs is one of the most difficult a board has to deal with and it should be planned openly well in advance. The role of chair should be subject

to the same terms as other directors and the chair him or herself should make provision for replacement in due course. Leading the Team It is not the individual board members but the board itself which holds the powers conferred by the organisationâ&#x20AC;&#x2122;s constitution and which has the collective responsibility for the organisation. It is therefore essential that the chair involves all board members and makes the board work as a coordinated and cohesive team in performing the tasks allocated to them, both in reaching decisions and importantly, in living with them after the event. To achieve this, the chair must find ways to resolve or, if necessary, table for discussion any differences between individual board members. Divisions within a board frequently exist because the board has failed to discuss and agree the organisationâ&#x20AC;&#x2122;s aims and objectives or because these have not been communicated successfully. Some boards have found it helpful to hold an occasional retreat or

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â&#x20AC;&#x2DC;away dayâ&#x20AC;&#x2122; policy meeting. Such occasions not only allow longer time for discussions and resolution of key issues but also provide opportunities to get to know one another outside the meeting room. It can also be a useful opportunity to invite the views of independent bodies which have an interest in the organisationâ&#x20AC;&#x2122;s success. Independent facilitation can be a useful way of prompting discussion and challenging entrenched views.

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The successful team depends upon the involvement of all its board members. If it is considered that particular board members are not pulling their weight, the chair should ask them to resign. Organisations should try to recruit board members with a wide spread of interests and experience. However, care should be taken to prevent the board from fragmenting with board members taking responsibility only for those tasks which fall within their own area of interest or expertise. A board has collective responsibility for ensuring the health and success of the organisation in the long term.

Duties of the Chair The chair must guide the board in recognising what its duties are and, sometimes more importantly, what they are not. Board members can easily be sidetracked into discussions of an artistic nature, such as the merits of a proposed production or exhibition, even though they might lack the necessary expertise and despite having employed a professional to advise them on such questions. This may lead to a deferral of discussions of crucial matters like private sector fundraising at a time when funds are desperately needed. Such deviation from purpose can be avoided by strong chairing and having a timed agenda for the chair as a guide.The chair must ensure that board discussion benefits from the expertise of all members. If necessary, the chair must draw out reticent members, or those with specific skills, and attempt to curtail discussion by those with little or nothing to contribute on a particular issue. Considerable diplomatic skills are often needed to succeed.

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The chair must apportion the time of meetings. A timed agenda, discussed and agreed with the chief executive, is invaluable in achieving this. To ensure discussion of priority items, the chair may order the agenda so that, if slippage occurs, it is minor items that are deferred. Too often, the order of items on the agenda reflects more about the history of the organisation than it does about current priorities. The basic agenda stays the same from meeting to meeting and new items, even if they are important, are added on at the end eventually becoming part of the standard agenda which becomes as a result unmanageably long. The chair must meet regularly with the chief executive or senior staff or committees and must, prior to board meetings, find out what is going on, thus determining the best approach to the agenda. The chair must also be available to act as a guide, counsellor and mentor to the senior employees. In many smaller arts organisations, staff may have had little executive experience and frequently no formal training in basic management skills

such as budgeting, marketing, staff development, and so on. If this is the case, the chair should ensure that there are adequate staff development programmes in place to allow them to obtain the appropriate skills. While the chair must guide and assist, he or she must not dominate the executive staff or interfere in executive decision making. Chairs who have either dominating personalities or substantial prestige in the community must take particular pains to avoid undermining the chief executive and indeed other senior staff. There are cases where senior arts executives make almost no decisions without reference to the chair. If the chair is out of town, or just too busy, the organisation waits and suffers. Board members should themselves ensure that the chair is doing their job effectively, and, if not, should take steps to change the chair. The chair should also ensure that attendance by members is

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reasonable. Any member who is absent frequently should be approached by the chair in an effort to improve attendance. A board member is not absolved from decisions taken by the remainder of the board in their absence.

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The chairperson should make sure the design of the agenda lies with the board. Board meetings are for board members to address governance matters not to be a forum for discussion of management matters. When the full board designs its own work-plan and translates this into an annual agenda, a board is less likely to find itself distracted by operational detail or sidelined doing little more than reacting passively to management initiatives. Certainly, the chief executive should have an input to the agenda design, but the process should be led by the chairperson acting on behalf of the board. 5. Board Induction It is of paramount importance that new board members be properly briefed, and the board should

discuss and determine the way in which this matter will be handled. In addition to a verbal briefing from the chairperson (or another board member delegated for the purpose) and the organisation’s most senior managers (artistic director and/or CEO or equivalent), new directors should have the opportunity to visit the organisation’s premises and gain an understanding of its work in practice, assuming they are new to it. The verbal briefing will provide an opportunity to describe the structure of the organisation and any issues that are currently affecting its operations – especially financial issues, or legal actions involving it. The company’s constitutional documents should be provided, together with a recent set of management accounts (where available), audited financial statements and any other relevant written materials, in the form of policy documents, company plans, and so forth. Where the organisation has one, these documents can be appended to the Board Governance Handbook.

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6. Board Remuneration Traditionally, most board members regard their appointment as an opportunity for service and agree to make themselves available without remuneration.

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However, where the level of involvement is significant, NPOs sometimes pay a modest fee, and for the reimbursement of reasonable travel and accommodation expenses. It must be emphasised that any such remuneration or reimbursement must always be modest and proportionate to the resources of the organisation. Actual attendance or other active participation in the business of the board should be a condition for payment of any such fee. The issue of board remuneration may also be subject to conditions laid down in conditions of funding by grant-givers and of course in the organisationâ&#x20AC;&#x2122;s own constitution.

7. Board Evaluation Besides asking themselves whether they are meeting the minimum

compliance standards set out in relevant legislation, most boards from time to time pause to reflect on their own performance and standards. Board self-evaluation should cover topics such as: -- Board composition, standards and performance -- Financial oversight, audit and risk -- Ethics and compliance (including conflicts of interest or loyalty) -- Stakeholder relationships -- Board processes and procedures -- Board dynamics Members should answer structured questions that relate to the particular work of the organisation and its current strategic priorities and needs, and ample opportunities should be provided for each director to make their own comments on every topic, or on any other topic they would like to raise. The questionnaire should raise the question of the performance

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of the chairperson, and the relationship between the board and the organisationâ&#x20AC;&#x2122;s executive and artistic leadership. These may be sensitive matters, but they can be a source of underperformance in any organisation. Having decided how it wishes to undertake this process, the board should set aside time to discuss its findings and to act on them. A board that is interested in continuous improvement will conduct a self-evaluation exercise periodically, say once every three to five years. 8. Board Development Board members should be provided with professional development opportunities to update and enhance their skills and knowledge, relevant to the arts organisation and the board. The findings of a board selfevaluation exercise will usually set out a series of actions that the board needs to take to improve its own capabilities and performance. These might include:

-- Changes in the composition of the board (retirements as well as recruitment). -- The creation or enhancement of board committees. -- The articulation of explicit governance policies or standards. -- The requirement for the board to receive some specific professional advice or support. The fiduciary obligations of directors require that they take care to inform themselves on every matter on which they are expected to form a judgment or make a decision: it is no defense in law for a director to claim ignorance of financial or regulatory matters, for example.

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The Relationship between the Board & Management

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To make the most of governing body and staff effectiveness, governing body members, committees and staff will need to work together cooperatively, recognising how each of their roles and responsibilities overlap with each of the others. This is all done with the aim of achieving the NPOâ&#x20AC;&#x2122;s mission. The primary responsibility of the staff, whether they be full-time, parttime or volunteer is to implement the organisationâ&#x20AC;&#x2122;s programme in accordance with its constitution, mission and strategic plans. This includes the development of its own human resources, the faithful stewardship of its resources, and the optimum use of all its resources, including time. This empowerment process focuses on building human capacity and improving the skills of people. The CEO takes responsibility for leading these processes and activities. He or she should strive to keep the staff informed and enable

them to participate in identifying needs and opportunities, helping them to address these and take ownership of the processes. The staff leadership should: -- Provide policy guidance and leadership to the governing body. Staff policies must adhere to the Labour Relations Act and other relevant legislation and must protect the rights of employers, employees, members and volunteers. -- Manage, direct and implement all service, fundraising and administration operations, programmes and activities of the organsation. -- Implement the policy decisions and directives of the governing body. -- Uphold and adhere to the constitution and policies of the organisation. -- Educate the governing body regarding their unique and also overlapping roles and responsibilities with the staff. -- Report regularly to the governing body and otherwise ensure that

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the board is kept informed of all organisation activities. Establish and maintain effective internal communications systems. Maintain effective financial controls in place; approve all financial disbursements and otherwise monitor all financial and accounting activities of the organisation. Prepare annual budgets with the assistance of the staff, a treasurer (if appointed) and finance committee (if appointed). Hire, supervise, evaluate and fire staff. Develop adequate and acceptable systems of assessing skills, experience and qualifications, levels of responsibility and performance, and remunerate on this basis. Have clear and transparent procedures for employing new staff and disengaging staff. Encourage and support the involvement of volunteers. Maintain organisation records, files, documents and archives. Enter into contracts with suppliers on behalf of the organisations, with approval of the governing body.

-- Represent the organisation to other organisations, the media and the public at large. -- Prepare meeting agendas, staff notices, reports, daily correspondence and other necessary internal and external communications. -- Maintain the confidentiality of sensitive information. 1. Appointing Management When appointing its chief executive, the board should take care to ensure that it has canvassed the field of available candidates in order to attract the best person for the position. All potential candidates should be thoroughly assessed for appropriate skills and experience, organisational cultural compatibility, and an understanding of, and empathy with, the organisationâ&#x20AC;&#x2122;s artistic vision, core purpose and general business. An ability to develop an effective partnership with the board and whoever is the artistic leader is vital. A board should give serious consideration to adopting a process

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that includes, or at least considers, the following main steps.

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Description of the Ideal Candidate The critical starting point is for the board to develop a clear and agreed description of the type of person it feels will provide effective leadership to the organisation over the next three to five years. To a significant extent this will flow from the board’s understanding of the challenges facing the sector and the organisation itself, of the strategic results the board wishes the organisation to achieve and of both the internal and external ‘environmental’ conditions that it anticipates affecting it over that time period. The two most important sources of information for this purpose are within the organisation itself – namely staff and board members themselves. These perspectives are both important and can give clarity and focus to the recruitment process. Staff Perspectives Obtaining a staff view on the challenges facing the organisation

and the characteristics that should be sought in the new chief executive will provide the board with a valuable insight into staff perceptions of the type of leadership they require to give their best. It will also give the board a snapshot of the internal health of the organisation. A process like this should be designed to increase key stakeholders’ sense of ‘ownership’ of, and support for, the appointee. One way of doing this is to have a facilitated focus group discussion to which staff representatives or all staff are invited. Apart from its general value this will assist the board in making a decision about the desired profile of the new chief executive and in choosing the best-suited candidate. Board Perspective The chief executive is responsible to the board as a whole. It is important, therefore, that the whole board takes an active part in the recruitment process. The most effective way to do this is to have a thorough discussion at the start of the process to define the desired qualities sought in the new appointee. Again, a facilitated

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workshop is worthwhile. The aim is to consider staff perceptions gained through the previous step and to agree on the key attributes sought and the key result area that the new chief executive is to achieve. 2. Searching & Short-listing

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Assigning Board Responsibility If it wishes to, the board can then delegate the recruitment process to a board committee set up to oversee the next phases of the process. A smaller group than the full board is often preferable to provide effective liaison if recruitment consultants are used during the search and short-listing phases and to ensure confidentiality is maintained throughout the process. Recruitment Consultant The committee might be delegated by the board to appoint an external recruitment consultant to assist with the production of a shortlist of candidates meeting the boardâ&#x20AC;&#x2122;s specifications. Within an agreed budget the task of that adviser could be to undertake an

advertising and/or ‘search’ process to produce a short-list of say three to five candidates for more detailed scrutiny by the committee. Typically, this process would involve documentation on the attributes of each of the short-listed candidates. Simulation Testing There is increasing evidence that reliance on the standard approach of interviews and reference checks – even when supplemented by psychometric tests – does not necessarily produce a candidate whose actual on-the-job performance will meet the board’s expectations. If resources permit, shortlisted candidates should experience an intensive, tailored simulation of the types of pressure they will face on the job. There are firms that specialise in this type of testing for senior executive appointments. From these steps it should be possible for the committee to recommend a preferred candidate (or perhaps two) to the full board for final consideration. When deciding how much of this suggested process to undertake, a board should always

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remember that most hiring decisions are made primarily on the basis of easily identifiable or recognisable characteristics. These are usually the types of things that can be listed on a CV – for example, a candidate’s experience, skills and knowledge. However, this should be thought of as simply the tip of an iceberg. Subsequent ‘firing’ decisions are almost always made on the basis of attitudes and aptitudes constituting that part of the iceberg that is below the surface. A recruitment process should always be designed to help a board understand what is ‘below the surface’. 3. Full Board Consideration & Final Decision Final Selection Process Given the extensive process that has gone before, the final step would be for the board as a whole to meet the leading candidate(s). By this stage it could have considerable confidence that an interview or discussion with the short-list of candidates recommended by the committee would allow it to reach a final decision. At this point it may be little

more than a question of the board assessing the degree of chemistry it has with the candidate(s). Appointment The final step in the process could once again revert to the committee to oversee reference checking and the finalisation of the new chief executiveâ&#x20AC;&#x2122;s employment contract within terms agreed to by the board. The contract and performance expectations should fully reflect the boardâ&#x20AC;&#x2122;s expectations. It is wise to take specialist advice on both the employment contract and performance agreement aspects of the appointment. 4. Setting Parameters for the CEO Setting Expectations, Managing Performance It is for the board to decide on the ambit of authority of the CEO/the artistic director. It does this on the basis of its understanding of how the line between governance and management can best be drawn in the unique context of its own

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organisation. This issue should be discussed openly and thoroughly with the successful applicant. The remit of a CEO is often described for contract purposes as â&#x20AC;&#x153;managing the day-to-day business of the organisation, subject to the overall control and direction of the boardâ&#x20AC;?. It is wise, to the extent possible, to be more explicit, at a minimum by defining the responsibilities of the CEO/artistic director in their contract, and by ensuring that the board has agreed a statement of those powers which it has reserved to itself. These typically include setting strategy, approval of contracts over a stated financial level, approval of the creation of new posts etc., in addition to the powers prescribed by law (for example, appointment of the auditor or adoption of the audited financial statements). Making Clear the Extent of Delegation to the Chief Executive The board should do nothing that undermines its ability to hold the chief executive accountable for operational performance.

A particular risk is that the board (or any individual board member including the chairperson) starts directing the chief executive or even worse, other staff, as to how something should be done. When this occurs, it takes over part of the chief executiveâ&#x20AC;&#x2122;s job itself and he or she can no longer be held accountable for the result. The boardâ&#x20AC;&#x2122;s basic operating assumption must be that a competent chief executive is fully capable of managing and overseeing all operational matters. While the chief executive may seek and accept advice from the board or individual board members this should be viewed as no more than the chief executive gathering information from a variety of different sources in order to make an effective decision. The chief executive should be delegated maximum authority to manage all operational matters. The boardâ&#x20AC;&#x2122;s job is to judge the results achieved and to hold the chief executive accountable for those results. An effective and productive board-chief executive relationship is built around the following:

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-- Mutual respect for their separate but mutually interdependent roles and responsibilities. -- A clear and unambiguous definition of the results to be achieved. -- Clearly defined and documented delegation and authority. -- Mutual agreement about the boundaries of freedom granted to the chief executive in order to carry out their role and tasks. -- A fair, ethical and transparent process for evaluating the chief executiveâ&#x20AC;&#x2122;s performance. -- An ability to engage in robust debate, and a mutual willingness to challenge and to offer and receive constructive criticism. In essence, these mean that the board must do its job first. Once the board has made clear its delegation to the chief executive, it must respect the agreements reached and refrain from giving instructions to, or evaluating, any staff member who reports to the chief executive. That does not mean that board members should not be free to talk with other staff, but they must take care to

ensure that in the normal course they do not come between the chief executive and their staff. Constraining the Chief Executive’s Freedom to Act It is imperative that the chief executive knows what they can do without having to refer back to the board. The chief executive should not be faced with having to continually seek board permission to carry out ‘normal’ operational actions. The most effective way of doing this is to define ‘boundaries’ for management action using a proscriptive or limitations format, stating what cannot be done, rather than what can or should be done. This may, at first, seem a negative approach but it is one that is quite commonplace. The main advantages of this approach are the following: -- The board has better focus, clarity and more effective overall control. -- The provision of clear boundaries gives greater certainty of expectations for the chief executive and less ‘second guessing’ by the board.

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-- There is increased empowerment for the chief executive. -- There is increased likelihood of innovation in the means chosen because operational approaches are not prescribed by the board. -- Board agendas become less cluttered by the chief executive seeking permission to do things.

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Once the boundaries are proscribed, the chief executive is free to work within them to make decisions and take all actions appropriate and necessary to achieve the outcomes and priorities agreed by the board. The board has the right to impose as many limitations as it chooses and to define these to whatever level of detail it considers necessary. It must reach the point, however, where it is confident that it will be able to support the chief executive in making â&#x20AC;&#x2DC;any reasonable interpretationâ&#x20AC;&#x2122; of its words. If it cannot do this, it may need to specify more detailed policy (narrowing still further the scope for chief executive interpretation). Alternatively, it might be forced to conclude that it does not have the necessary confidence in its chief

executive and, therefore, should seek a replacement. On a regular (at least annual) basis a board should examine the key risks facing the organisation. In terms of its stewardship role it must ensure that those risks that could have the greatest impact on the organisation and the most probability of occurrence are adequately covered by policy. â&#x20AC;&#x2DC;Executive Limitationsâ&#x20AC;&#x2122; policies may be thought prudent to cover various categories of risks including the following: ---------------

Budgeting/financial planning Financial condition Investments Remuneration and benefits Protection of assets Property management/physical resources Ends focus of contracts or grants Business continuation Treatment of staff Equal employment opportunities Communication and support to the board Treatment of customers Programmes and services Public awareness

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This is not intended to be an exclusive nor exhaustive list. There may well be other types of risk that individual boards would identify as relevant to their particular situation. Similarly, some of the risks topics on the list may have little relevance to some boards. 5. Induction

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Steps should also be taken wherever possible to ensure that the new chief executive – particularly if appointed from outside the organisation – is as well briefed and well prepared as possible. The objective is to get the new person ‘fully functional’ as soon as possible. 6. Monitoring Monitoring Chief Executive Performance The chief executive’s performance will be continuously, systematically and rigorously assessed by the board against achievement of the Results policies and compliance with Chief Executive Limitations policies. The board will provide regular performance feedback to the chief executive. The purpose of monitoring

the chief executive’s performance is to determine the extent to which the board’s policies are being met. Only data relevant to the board’s policies will be considered to be monitoring data. The board will acquire monitoring data by one or more of three methods: -- by direct chief executive reporting to the board; -- from an external, disinterested third party selected by the board to assess compliance with board policies; or -- by direct board inspection, in which a designated director or directors assess compliance with the appropriate policy criteria. In every case, the standard for compliance shall be that the chief executive has met or can demonstrate compliance with the intent or spirit of the board policy being monitored. If at any time the board engages an outside evaluator to assist the board to conduct an assessment of the chief executive’s performance, the process must be consistent with this policy. Any such evaluator is a contractor to the board, not the chief executive.

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7. Terminating Employment If the chief executive or any other staff member is no longer effective, it is the boardâ&#x20AC;&#x2122;s task to take prompt action to redress the situation.

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Staff management is an integral part of good governance and a strategy for human resources should be adopted as part of the long-term plan. All organisations should have as a minimum a series of codes of practice on matters such as discipline, grievance, redundancy, maternity and so on. An ethical code which explains the organisationâ&#x20AC;&#x2122;s approach to conflicts of interest and equal opportunities is also highly advisable.

The Chief Executive/ Board Chair Relationship The chief executive is employed by the board as a whole. Only decisions or instructions of the board acting together can, therefore, be binding

on the chief executive. This means that, excluding extraordinary circumstances, the chair should not personally issue instructions to the chief executive. Given their respective responsibilities it is likely that the chair and the chief executive will often meet or communicate outside scheduled board meetings. Great care should be taken, however, to ensure that this forum does not serve as a de facto board meeting. It would be rare for the chair to receive â&#x20AC;&#x2DC;officialâ&#x20AC;&#x2122; information from the chief executive that should not also be made available to other board members. The chief executive/chair roles are integral parts of the total leadership team, but together they should ensure that their actions do not exclude the rest of the board. Regular chief executive-chair liaison can provide a useful opportunity for the chief executive to test interpretations of board policies and to discuss ideas and options. However, the chair should take care never to be tempted to give, or remove, permission to the chief executive to carry out operational

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actions. All operational decisions, within policy, should be the choice of the chief executive who is then held to account for the effectiveness and appropriateness of their choices.

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In many arts organisations, particularly those that, because of limited resources, are largely ‘working boards’, the separation between the board and the chief executive is not as distinct as might be desirable. In these circumstances it is important that the chair, at least, has a clear sense of the separation of powers and can intervene when necessary, perhaps even acting as a protective ‘heat shield’ for the chief executive when needed. Regardless of organisational circumstances, the chair should never come between the board and the chief executive.

Conflicts of Interest Conflicts are defined in many ways; however, the basic tenet of any of these definitions is the tension between multiple competing interests, whether personal or

financial. This usually manifests in the entanglement of the private and professional interests of an individual. An example of such a conflict is a member of the governing body participating in a vote in favour of purchasing products and services from a company that the member owns. The Companies Act requires directors of non-profit companies to declare all personal financial interests and to follow the procedures as set out in the Act. King III determines that certain conflicts of interest are fundamental and should be avoided and that other conflicts should be disclosed in good time and in full detail to the governing body and then appropriately managed. In addition to this boards should: -- Develop a policy that prohibits direct and indirect conflict of interest by members of governance structures, members, employees and volunteers. -- Ensure that members of governance structure and staff

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excuse themselves from decisions where they have or are perceived to have, a vested interest. -- In the case of an independent board or trust, adopt a policy that discourages members from submitting tenders to organisations or applying for staff positions within the organisations; this policy must stipulate that if they desire to do either, they must resign from the governance structure. -- Ensure the governance structure approves the annual budget, appoints independent auditors and receives audited statements.

There are a number of areas where conflict may arise, such as in the case of community members where the community members are not only the beneficiaries but also serve on the non-profit organisationâ&#x20AC;&#x2122;s executive committee. It also mentions the appointment of relatives and friends as employees or appointing them as paid consultants or service providers as examples of conflict. It proceeds to recommend that the Companies

Act should be followed as best practice for dealing with conflict even where the organisation is not a company. The process prescribed by the Companies Act involves the following: -- Disclosure of interest and its general nature -- Disclosure of any known material information relating to the matter -- Disclosure of any observations or pertinent insights relating to the matter -- Recusal from decision-making in the matter by the conflicted party. The expectations and actions of the board and its members set the moral tone for the organisation. A failure to manage board membersâ&#x20AC;&#x2122; conflicts of interest undermines the moral authority of many boards. Ideally, potential conflicts should be minimised at the point when board members are appointed. Because that is not always possible each board should also have some form of Conflicts of Interest policy that describes expectations and the processes to be followed when a

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conflict is identified. Every board should require its members to declare any conflicts of interest relating to their duties as board members. The following page shows an example of a simple conflicts of interest policy:

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The board places great importance on making clear any existing or potential conflicts of interest for its members. All such actual or potential conflicts of interest shall be declared by the member concerned and formally recorded in a Members’ Interests Register. Accordingly: 1. Any business or personal matter which is, or could be, a conflict of interest involving the individual and their role and relationship with (name of organisation), must be declared and recorded in the register. 2. All such entries in the register shall be presented to the board and recorded in the minutes at the first board meeting following entry in the records. 3. Where a conflict of interest is identified and/or registered, the board member concerned shall not vote on any resolution relating to that conflict or issue. 4. The member shall remain in the room during any related discussion only with the board’s approval. 5. All such occurrences will be recorded in the minutes. 6. When the chairperson is aware of a real or potential conflict of

LICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLIC F INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF REST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTERES LICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLIC F INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF REST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTERES

CONFLICTS OF INTEREST

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LICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONF F INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS O REST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTE FLICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONF F INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS O REST CONFLICTS OF INTEREST CONFLICTS OF INTEREST CONFLICTS OF INTE

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interest involving one or more board members, the chairperson must take whatever steps are necessary to ensure that the conflict is managed in an appropriate manner according to this policy. 7. Individual board members aware of a real or potential conflict of interest of another board member have a responsibility to bring this to the notice of the board. 8. Examples of conflicts of interest are when: (a) a board member, or their immediate family or business interests, stands to gain financially from any business dealings, programmes or services provided to (name of organisation) (b) a board member offers a professional service to (name of organisation) (c) a board member stands to gain personally or professionally from any insider knowledge if that knowledge is used for personal or professional advantage.

Is the Board Receiving the Right Information? Board members have a right to receive information from management in an understandable and accurate form. Time should be devoted to deciding what the key performance variables are that the board must monitor in order to accurately judge the health of the enterprise. The form and detail of monitoring information should be relevant to that required for sound governance decision-making. A boardâ&#x20AC;&#x2122;s time is too valuable to allow its meetings to get bogged down in micro-managing operational detail. Board monitoring should demonstrate a broad, balanced concern for all aspects of organisation performance, not focusing on one aspect (e.g. finance) to the exclusion of other matters. For example, in arts organisations the board will want to monitor the quality of artistic achievement relating to the ultimate purpose of the organisation.

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Depending on the composition of the board it may need to seek external advice on the quality of artistic achievement.

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In order for the board to have control over but be free from the complexity of staff operations and thus focus on strategic thinking, there needs to be clearly stated and agreed processes for keeping the board informed about the outcomes of staff effort â&#x20AC;&#x201C; without encouraging board involvement. This balance is often difficult to achieve. While, individually, many board members will be interested to know about the details of day-to-day actions and events in the organisation, these are often, in themselves, of little relevance or use to the board in carrying out its governance responsibilities or doing its strategic thinking. 1. Reporting: Operational & Financial Information Operational Information The way in which the CEO reports to the board is another matter that should be discussed and mutually

agreed, so that practices can be understood by both parties. For example, if the board wishes to see a written report in advance of a meeting, it is entirely reasonable to ask for it. It is good practice for the board to set out in writing the matters on which it reserves the power to make decisions. In addition, it may be wise to agree that issues such as the following should be referred to the board: -- Anything that involves an unexpected or unforeseen claim against the organisation, or its funds. -- Any dispute between the organisation and a third party. -- Any significant disagreement, or difficulty with an employee. -- All matters concerning insurance. -- Anything affecting the ownership of property or any other valuable asset of the organisation. -- Significant proposed contracts, or terms and conditions of significant agreements (which can be defined by reference to value). -- Anything that might threaten the reputation of the organisation. -- All non-routine correspondence with the organisationâ&#x20AC;&#x2122;s bank,

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accountants or solicitors. -- Matters concerning grant-aid and donations, including Arts Council Conditions of Financial Assistance, and correspondence of a non-routine kind from funders. -- Anything that would involve a significant change in an established policy, plan or practice of the organisation.

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An agenda brought to the board should state whether matters are being brought to the board for information or for decision. The CEO will also be expected to keep the board informed, in a general way, about the activities of the organisation, its significant successes and failures. Financial Information Clear, regular financial reports are essential. It is helpful to have the format of financial reporting approved by the organisationâ&#x20AC;&#x2122;s accountant. Whether or not this is done, it is imperative that the board has approved the way in which the figures are compiled and reported, and that the board is satisfied with

the processes for internal financial control. At a minimum, an annual budget should be settled before the beginning of each financial year by the CEO, and approved by the board. Monthly management accounts should be prepared by the CEO/Financial Officer and furnished to board members, in time for the board to consider them before the next meeting. The board should be able to measure the performance of the organisation against budget, at regular intervals throughout the year. Board papers should provide adequate detail and perspective to allow the board to make wellinformed decisions and to check progress against the organisationâ&#x20AC;&#x2122;s aims, objectives and priorities. Basic requirements include the following: -- Financial data, such as a statement of income and expenditure for the current period, and year to date, compared with the budget and corresponding figures for the

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previous year. -- Forecasts of income and expenditure to the current year end. -- A cash flow forecast and a note of current bank balances. -- Operating statistics for the key aspects of the organisationâ&#x20AC;&#x2122;s affairs, including qualitative assessments of the work.

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How Much Information Is Enough? If a board receives too much printed material, members tend not to read it. If they receive too little, then meeting time is wasted while members find out the facts. Time and practice should develop the right balance. What is required is a clear agenda for meetings together with sufficient information on each item to give the necessary background for a useful discussion and for decisions to be made. Every effort should be made to avoid the tabling of papers (the chair should strongly discourage this practice if it exists), particularly those which contain figures such as budgets, accounts

and other financial data. These are often difficult to absorb fast and tabling does not allow sufficient consideration of important matters. It is important that board papers are circulated not later than one week before the relevant board meeting. 2. Communication from the Board All board members should keep in touch with staff members and drop in on the organisationâ&#x20AC;&#x2122;s exhibitions, performances or other activities to get a feel for how things are going. Board members should make a special effort to attend touring, community and educational activities to gain some experience of an area which is often less understood than the mainstream work. There can be no formula for this activity. However, boards often discuss issues without practical knowledge of them. Board members who carry out effective reconnaissance can bring problems to the early attention of their colleagues and take remedial action before the problem gets worse.

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Some boards are extremely secretive about their decisions and strictly control distribution of the minutes. This is justifiable where the minutes contain, for example, staff details which are confidential to the directors. Confidential issues apart, there is a case for following good practice of some highly successful arts organisations which pin up the minutes on a staff noticeboard or circulate them by e-mail for everyone to see.

Committees of the Board 1. Why form committees? An important structural issue that has a great deal to do with the quality of governance in the sector is the role and contribution of board committees. It is common practice for governing boards to establish committees to assist them in aspects of their work. Establishing a committee can be a useful means of focusing board attention or expertise on

a particular problem or area of work. Appropriate members can meet separately, thrash out a problem and come back to the full board with a recommendation. 2. Kinds of Board Committees Larger NPOs may require subordinate governance substructures to assist the board in undertaking its responsibilities. Such sub-structures may include, for example: a. An Executive Committee b. A Regional Committee c. A Project Committee d. A Fundraising Committee e. An Audit Committee f. A Remuneration Committee The terms of reference and composition of any such committee should be carefully considered and managed to ensure that there is an appropriate balance between internal and external members; that the committee remains fully answerable to the board; and that it does not supersede or override the limits of its delegated authority

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and responsibility. Moreover, the board should be aware that the appointment of any such committee and the delegation of specific areas of responsibility does not absolve it from responsibility for ensuring the overall good governance of the organisation.

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It is strongly recommended that boards and their committees should regularly review their own performance â&#x20AC;&#x201C; and that of their individual members â&#x20AC;&#x201C; usually on an annual basis. Boards should also conduct an annual review of the performance of the director or chief executive. 3. Disbanding Committees Committees have a useful role to play, but occasionally become more powerful than the board itself. It is important to make it clear whether the board is delegating power to the committee or whether the board is required to approve or ratify any decision recommended to the board by the committee. Notwithstanding their usefulness, it is worth considering whether all committees should not be ad hoc

and disband at least annually. At the very least an annual review of the usefulness of any standing committee should be carried out. Committees can sometimes usurp the power of the board in a particular area and make other decision making by the board problematic because of this. Experience suggests that finance committees are particularly prone to this behaviour. Such a committee is normally established for excellent reasons â&#x20AC;&#x201C; to use the expertise of accountants or other financially experienced people on the board to best advantage, and to free the time of the board to concentrate on broader issues. The committee is frequently set up in a time of crisis. However, it is likely to remain and, if care is not taken, to usurp the boardâ&#x20AC;&#x2122;s chief role: the balancing of objectives and priorities against valuable resources. Even worse, it may have the effect of reducing annual budgeting to a mere process following the pattern of prior years. Any committee set up by a board, regardless of its purpose, should be broadly representative of the board,

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be entrusted with a specific role and be asked to report back to the board on a regular basis. An organisationâ&#x20AC;&#x2122;s major decisions can sometimes be put in the hands of people who place too much emphasis on a single issue when a balanced approach is necessary. Committees should have written terms of reference agreed and minuted at a board meeting.

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Australia Council for the Arts, Essential Governance Practices for Arts Organisations, (2015). Creative New Zealand, Getting on Board: A Governance Resource Guide for Arts Organisations, (2009). Department of Social Development, Codes of Good Practice for South African Non-Profit Organisations, (2001). Institute of Directors in Southern Africa, Practice Notes: Application of King III for Non-Profit Organisations, (2013). Inyathelo and Department of Social Development, Governance Practices of National Non-Profit Bodies and National Networking Organisations in South Africa, (2010). Inyathelo, The Independent Code of Governance for Non-Profit Organisations in South Africa, (2012). Irish Arts Council, A Practical Guide for Board Members of Arts

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Organisations, (2015). Law: An Analysis, Journal of Humanities and Social Science, Vol. 3 No. 7, April 2013. Centre for Promoting Ideas, USA. Linda Muswaka, Directors Duties and the Business Judgment Rule in South African Company Scottish Arts Council Care, Diligence and Skill, (2008). UNESCO, Education Quality Frameworks: Concept of Governance, http://www.unesco. org/new/en/education/themes/ strengthening-education-systems/ quality-framework/technical-notes/ concept-of-governance/

Visual Arts Network of South Africa 2 Transwerke Building 2 Sam Hancock Street Constitution Hill Braampark Johannesburg 2000 www.vansa.co.za VANSA Governance Handbook 2019 Research and Content Development: Visual Arts Network of South Africa Researcher: Mika Conradie Design and layout: Robyn Cook Reserved for use under a creative commons licence

It is recommended that you read this booklet in conjunction with The Independent Code of Governance for Non-Profit Organisations in South Africa. This can be downloaded at www.governance.org.za.

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