Governance Propriety – mixing governance and management

Mixing Governance and Management

In many voluntary organisations those who direct or manage the actual activities of the entity may attend meetings of those who govern it on an ex officio basis.  In the balance of this article I will refer to that person as a “manager,” to cover managers, coaches, directors, conductors, and any similar person, and to the governance body as the “committee.”  Some problems can arise as a result:

  • The manager may start being treated as, or may start acting as, a member of the committee.
  • The manager may prepare agendas and minutes, to a degree controlling what the committee discusses and how its discussions and decisions are recorded,
  • If the manager is sent all agendas and minutes it may become difficult for those governing to deal with issues involving the manager without some embarrassment and subterfuge.
  • Those dealing with the manager may make incorrect assumptions about that person’s authority.
  • Where those governing insist on being involved (for instance in deciding who gets awards) those in management are likely to say “don’t they trust” us, when the issue is not trust but protecting those in both governance and management from criticism (for instance, of cronyism).

Where the manager is either deemed to be, or is elected as, a member of the committee those problems are compounded, and the manager cannot bring to the committee the necessary degree of independence expected of committee members.  If those in governance are also paid employees of, or contractors to, the entity individuals can then, effectively, be employing or engaging themselves, determining their own performance indicators, remuneration and perks (an example is given in the article Lessons from a Polytechnic).  Further, it may be difficult for the rest of the committee to raise sensitive issues or to question or decline to approve the manager’s proposals and actions.

The longer those states of affairs exist the more difficult the problems are likely to become.

Those in Governance Contracting with an Organisation

It is sometimes difficult to attract competent people to serve in governance in voluntary organisations.  In the balance of this article I will refer to that person as a “director,” to cover committee and board members, trustees, and any similar person.  People with relevant skills, particularly lawyers and accountants, are likely to be seen as desirable additions to voluntary boards and committees because of the skills they bring to governance.  My own view is that if such people are prepared to serve in governance and do so on a pro bono basis then their skills should be called upon and provided.  However, problems can arise:

  • Instead of concentrating on the governance role the director may get inappropriately involved in management.
  • If there are professionals on the committee other members may “leave it to them” and not provide the governance oversight they should devote – and non-professionals do this at their perils as recent finance company prosecutions have reminded us.
  • While the director brings valuable skills to the governance role, because they are involved in governance the director will find it difficult to provide truly independent advice where some degree of detachment is required.
  • Where the entity has professional advisers, the director may help in defining the brief for the engagement.  However, the director needs to avoid undue criticism of the performance of paid advisers, partly because the paid advisers are likely to have investigated the matter more closely than those in governance typically can or do, and partly because the director’s criticism may be seen as professional  jealousy or “one upmanship.”  Directors who have retired from a profession also lose touch with current practice.
  • Where the entity needs to engage external professionals, engagement of the director or any firm the director is involved in is likely to create at least the perception of a conflict of interest and in the case of a charity may invite a complaint to and investigation by the Charities Commission and, potentially, a critical conclusion and involvement of the director’s professional standards body.

Finally, if any director is reimbursed expenses or paid an honorarium such a director is exposed to the risk of being accused of receiving more than is reasonably justifiable.

Avoiding Problems in Confusing Governance and Management Roles

As they old saying goes, the time to fix a roof is when it’s not raining.  Once a problem has arisen, fixing it is always more difficult than avoiding the problem in the first place.  As I said in an earlier article (“Managing Conflicts of Interest in Societies and Charities”) if those who govern also manage then the roles can be too readily confused, to the detriment of both good governance and good management.  Being conscious of the problems of conflicts of interest and loyalty is a good start, but the conflict issues identified above are sometimes quite more subtle.

  • As I said in my previous article the concept of the separation of constitutional powers is as applicable to societies and trusts as it is to nations, and voluntary organisations need to consider very carefully the wisdom of having managers as members of committees.  Public companies do this without great difficulty, but their directors are professional and there are recognised means to deal with any problems associated with having executive directors.
  • It is good practice to schedule time in committee agendas (or some full meetings) when the manager does not attend.  This should not be regarded suspiciously by the manager as a private “complaint” session, but as good governance practice.  Such committee-only time enables free discussion of issues such as those not necessarily involving the manager, new member applications, member complaints and discipline, governance review of management performance and reporting, and the like.
  • Managers and those chairing not-for-profit organisations’ meeting should be conscious of potential conflict of interest or loyalty issues and ensure that those conflicted do not participate in decision-making.  The objective is to preserve the integrity and reputation of those involved as well as to protect the interests of the organisation.

The problems associated with the confusion of the differing and potentially conflicting roles and responsibilities of those governing and of those managing was probably not very well recognised until the last decade or so.  Dealing with the issues requires an understanding of the issues, of potential solutions, but also of the dynamics of human relationships.

This is one of a series of articles on societies and charitable trusts (originally published in the NZ Lawyer magazine) by Mark von Dadelszen, a Hastings lawyer and author of Law of Societies, 3rd Edition, 2013. If any reader has examples of issues that have arisen or questions about societies or charitable trusts that might be a suitable subject for one of these articles please contact Mark at mark.vondadelszen@bvond.co.nz.