06May

Key considerations for NPO governing bodies

The culture, behaviour and performance of an entire nonprofit organisation depends on the governing body, and on their tone from the top. They need to be motivated, skilled and act in the best interest of the organisation in knowing and fulfilling their fiduciary duties. By Leigh Roberts CEO, Integrated Reporting Committee of South Africa, and the Good Governance Academy

Key considerations for NPO governing bodies

Today’s organisations can no longer operate as they did in the 20th century. The 20th century was a time when organisations consumed resources faster than nature could regenerate them and came to be mistrusted by the very people they were established to serve, society. The 21st century has to be one of sustainable development and the generation of value creation, rather than value erosion, for the economy, society and the natural environment. For all three are linked: they are inherently inter-connected with society entirely dependent on the natural environment for its existence.

Non-profit organisations are not exempt from this. Indeed, non-profit organisations play a vital role in practising, promoting and living out this principle. These organisations are directed and overseen by governing bodies which are comprised, in the majority, of volunteers – people who accept accountability for the organisation, and responsibility for every aspect of the organisation, for no financial compensation. The culture, behaviour and performance of the entire organisation depend on the governing body, depend on their tone from the top. They need to be motivated, skilled and act in the best interest of the organisation in knowing and fulfilling their fiduciary duties.

The Healthy Company by Mervyn King and Leigh Roberts, Juta 2021, provides guidance to organisations and their governing bodies. It is a handbook for 21st century organisations and their governing bodies – a useful tool and reference. The book guides governing bodies on key questions that they should consider. These questions are formulated to guide governing bodies such that they are able to demonstrate their accountability by making decisions in the best interests of the long-term health of the organisation they are charged with. When making decisions, governing bodies should continually evaluate whether their decisions will achieve the four governance outcomes as indicated by King IV, (The King IV Report on Corporate Governance for South Africa 2016, Institute of Directors in South Africa):

- Ethical culture
- Good performance
- Effective control
- Legitimacy.

Governing bodies should also be mindful of the business judgement rule. This rule requires governing body members to honestly apply their minds when making business judgement calls. Several conditions are necessary in this regard and include: the member needs to have had no conflict of interest when making the call; they need to have had all the information necessary to make the call; and their decision needs to have been a rational decision, within the circumstances, at the time.

Key decision-making conditions for governing body members include:

- Information: Ensuring that all necessary information is available to them and this information is accurate and timely;

- Rational: Understanding whether the decision they are proposing is rational, given all the information available;

- Stakeholders: Ensuring that stakeholder needs, wants and expectations have been considered and any associated communication will be clear, concise, understandable and transparent; and

- Conflict of Interest: Understanding whether they personally are facing any conflicts of interest, whether real or perceived, when making a decision.

Mervyn King and Leigh Roberts point out that “the foundation of all this is intellectual honesty”.

A video of Mervyn King talking on the concept of intellectual honesty is available free of charge on the Good Governance Academy’s Community portal. A print copy of The Healthy Company can be purchased directly from Juta, Amazon or The Book Depository and the eBook can be purchased from Juta or van Schaik.


This article was first published in Inyathelo's 2020/2021 Annual Report.