BEFORE ENGAGING IN GOVERNANCE – A CHECKLIST

Before becoming a member of a not-for-profit board or committee, we recommend that you should do some serious homework, because being in governance is not a prize for good behaviour or beauty, but involves serious responsibilities and potential personal liabilities.  You need to have a thorough understanding of the organisation’s purposes and activities, and whether or not you will be able to work with the organisation and those who govern and manage it.

The following checklist should assist if you are assessing whether you should become involved in a not-for-profit’s governance.  Some issues are repeated under different headings, and it is generic rather than specific, so it may not be exhaustive.  You need to consider the following issues when considering taking on the responsibilities of not-for-profit governance:

1.  Check the organisation’s legal and reputational status

  1. What kind of legal entity is the organisation?
    • If the organisation is an incorporated society, it may be registered under one of several statutes; but most common are societies incorporated under the Incorporated Societies Act 1908 or Charitable Trusts Act 1957. (N.B. If the current proposed Incorporated Societies Bill is enacted there will be a new modern statute, and societies currently incorporated under the Charitable Trusts Act will transfer to the new statutory regime, and those in governance of societies will need to comply with new and significantly greater statutory obligations).
    • If the organisation is a trust or other entity, there are different legal obligations (and if the entity is a charitable society or trust, the charitable purposes are paramount).
    • If the organisation is a company, it and you will have to comply with the provisions of the Companies Act 1993.
  2. Is the organisation a charity under the Charities Act 2005, registered with the Charities Board?  Check the Charities Services website for information about the entity (Charities Register).  The Charities website has information which may help you understand the obligations of charities and the obligations of those governing charities.
  3. Ask those currently in governance of the not-for-profit if there have been any legal claims against the entity in the last 3-5 years, or any outstanding or pending claims that may result in liability for those in governance, and also ask if those in governance are insured for possible personal liability.
  4. Try to find out about the organisation’s reputation in the community by asking around and searching on the Internet.
  5. Is the entity affiliated with any other organisation?  If so, what is the legal relationship between the organisations, and what (if any) authority can they exercise over each other?

 

2.  Review all relevant documents

You should obtain copies of all relevant documents from the organisation (check relevant websites such as Societies, Companies and Charities to ensure you have all the relevant and up-to-date documents). You should study and, if appropriate, ask questions about the following:

  1. The constitution or governing document (including all amendments – noting that amendments to incorporated society constitutions are, legally, ineffective until registered with the Registrar),
  2. The current strategic plan or mission statements (if they exist), checking also how regularly they are reviewed,
  3. Any current policies (if any), checking also how regularly they are reviewed,
  4. Any current by-laws (if any), checking also how regularly they are reviewed,
  5. A list of those currently in governance and the CEO (if any), finding out if or when their terms expire,
  6. An organisational list or chart showing any staff positions and duties, with the duties and salaries of the senior staff,
  7. A list of members of governance boards and advisory committees, and the responsibilities and powers of those boards and committees,
  8. At least the two most recent audited/reviewed annual financial statements and any subsequent financial statements or reports,
  9. The current annual budget,
  10. The organisation’s website and any printed literature that is regularly handed out to donors or clients of the organisation,
  11. Conflict of interest policies and current disclosures for officers and others in governance, and
  12. Any director liability insurance policy and a summary of other insurance coverage for the entity.

 

3.  Pay particular attention to the governing document

  1. The governing document may be called the constitution, rules, trust deed, or something else.
  2. The governing document sets out the relationship between those in governance and the organisation and any members and any clients. You should read it carefully as you will be bound by its terms and responsible for any failure to comply with it.
  3. Check the last time was that the governing document was reviewed. We recommend that governing documents be reviewed at least every 2-3 years to ensure consistency with the law, good governance, best practice, and to ensure that the document is still relevant for the organisation.
  4. Some of the most important parts of the constitution for you to review are:
    • The purposes section: This section is fundamental to the organisation, setting out its raison d’être. The organisation cannot do anything that is inconsistent with the purposes.
    • The board or committee section: This section will explain the process for appointing or electing you to a governance position, what (if any) your term of office will be, how many times you could be re-appointed or re-elected, and how you could be removed from office. The constitution may also set out what office-bearer positions there are in the organisation.
    • Any remuneration clause: As a not-for-profit organisation, those in governance may or may not be paid and may or may not be reimbursed for expenses including mileage. They cannot receive a share of any “profits” made by the organisation. Some not-for-profits do pay those in governance honoraria or meeting fees, and fees for services performed outside the scope of their governance roles.
    • Any indemnity clause: An indemnity clause will indicate what, if any, indemnity is provided to those in governance of the organisation. You should check that you are happy with the level of any protection you may be entitled to. You should also check if the organisation pays for indemnity insurance for those in governance (or whether you should arrange such cover, if necessary at your cost), and whether that protection extends beyond terms of office.

 

4.  Ask questions

Apart from the issues mentioned above, check:

  1. If this is not clear from the constitution, what your term of office will be and whether you can be re-appointed or re-elected?
  2. Is the CEO a board member?
  3. Is there a clearly defined policy or document indicating what is delegated by those in governance to the CEO and/or officers?
  4. Are there any codes of conduct or ethical or cultural practices you should be aware of?
  5. What committees, people or staff have the authority to act on behalf of those in governance between governance meetings?
  6. Are there any purely advisory committees you should know about, and what are their roles?
  7. How are any committees elected or appointed?
  8. What, if any, risk management policies does the organisation have?
  9. Those in governance probably have different backgrounds and differing levels of governance experience, so regular training is important. What, if any, training is provided for those in governance?
  10. Discreetly seek to ascertain whether there are factions around the governance table; and whether some in governance play “politics” or exercise undue influence over the dynamics and decision-making of those in governance (including anyone, such as the CEO, who is not actually in governance).

 

5.  Clarify the organisation’s expectations of you

Ask those currently in governance:

  1. About governance meetings:
    • How often are governance meetings held, how long do they run for and what is the average attendance rate at governance meetings?
    • Who prepares the agenda?
    • Are meeting papers and reports always sent to those in governance at least a week in advance of governance meetings?
    • What is the focus of governance meetings generally? For example, governance meetings may focus on policy development, operational decision-making, financial assessment, operational monitoring or strategic discussions.
  2. Are there any governance committees? Will you be expected to sit on them, and, if so, what additional time commitment is involved?
  3. Will you be an office-holder?
  4. What expenses will be reimbursed?
  5. Are there any policies outside the constitution for removing those in governance for non-performance?
  6. How much will you be paid, if anything?
  7. What induction and ongoing training is provided to those in governance?
  8. Is there a manual or resource for those in governance to assist them to understand the role and familiarise themselves with the organisation?

 

6.  The strategic direction of the organisation

Find out answers to the following questions from the documents or from asking those in governance:

  1. Does the organisation have a strategic plan? When was it last reviewed? Does it reflect the actual practice of the organisation? Have strategic goals been met in the last two years?
  2. How is strategic performance reported to those in governance?
  3. How is the CEO’s performance measured, and how frequently?
  4. What are the current CEO’s qualifications and experience, and how long has the CEO held the position?
  5. How involved are those in governance in other operational matters such as appointment of staff, audit and risk management, internal dispute resolution, and work health and safety?

 

7.  Familiarise yourself with the finances

Find out answers to the following questions from the documents or from asking those in governance:

  1. What is the organisation’s tax status?
  2. How are financial matters reported to those in governance?
  3. What are the organisation’s sources of funds?
  4. What has the organisation’s cash position been like over the previous year?
  5. Are you confident, from your review of the financial reports, that the organisation can meet its debts and liabilities? If you are not certain, ask.
  6. Are long-term borrowings, e.g. mortgages over buildings, adequately secured?
  7. Is there a governance risk and audit committee? Who is the auditor and how long has that person been the auditor? Do the last two audited financial reports include any concerns from auditors?
  8. Does the organisation have an independent external financial advisor?
  9. Are there financial policies and systems in key areas such as financial reporting, CEO and officer remuneration, financial management and protection of assets?
  10. What are the organisation’s significant assets and what are their values?
  11. Does the organisation have a policy to protect its assets?
  12. How often do those in governance review financial reports and policies?
  13. Does the organisation have an investments policy? Are investments secured? Does the organisation have an overdraft arrangement with a bank? Is that facility utilised often?
  14. Who has authority to sign cheques or confirm payments through electronic banking on behalf of the organisation?
  15. Who has authority to purchase major capital items?

 

8.  Clarify anything that doesn’t seem right

After reviewing the documents and making the enquiries outlined above, if there is anything that doesn’t seem right to you, ask more questions.  For example:

  1. Do you see anything on the website, the financial statements, the tax returns, or elsewhere that raises issues relating to potential conflicts of interest between anyone in governance and the organisation?
  2. Do you see anything else on the website or in operations that may be inconsistent with:
    • The organisation’s stated purposes, or
    • The organisation’s tax-exempt status (if applicable)?
  3. Importantly, can you:
    • Support the purposes in the organisation’s constitution,
    • Dedicate the time required to attend meetings and the organisation’s activities, and
    • Remain up-to-date and knowledgeable about the finances of the organisation?

Our website, has a number of articles on it that may be of interest to you, and reading these may raise other issues for you to check out.

 

Contact Us

For more information about these notes, or for specific advice, please contact Mark von Dadelszen, telephone 06 870 7829 or email mark.vondadelszen@bvond.co.nz.