Canadian Rural Partnership - Rural Research and Analysis - Governance Do's & Don'ts : Practical Lessons from Case Studies On Twenty Canadian Non-profits

Canadian Rural Partnership
Rural Research and Analysis

GOVERNANCE DO'S & DON'TS - Practical Lessons from Case Studies On Twenty Canadian Non-profits

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Any policy views, whether explicitly stated, inferred or interpreted from the contents of this publication have been developed from the research by the Consultant, and should not be represented as reflecting the views of the Canadian Rural Partnership or those of member agencies or the Government of Canada.

Rural Research and Analysis Unit
Rural Secretariat, Agriculture and Agri-Food Canada
1341 Baseline Road, Tower 7, 6th floor, Ottawa, Ontario K1A 0C5
Fax: 1-800-884-9899
E-mail: rs@agr.gc.ca

Agriculture and Agri-Food Canada Publication Number 25072E
Catalogue No. A114-9/2005E-HTML
ISBN 0-662-39379-1
This publication is available on the Internet at: www.rural.gc.ca

Également offert en français sous le titre : LA GESTION : CHOSES À FAIRE ET À NE PAS FAIRE : Leçons pratiques tirées d'études de cas portant sur vingt organismes sans but lucratif du Canada Agriculture et Agroalimentaire Canada No de publication 22260F

Table of Contents

Acknowledgements

Executive Summary

The project was initially conceived as a series of fairly modest case studies on the governance of ten non‑profit organizations. The lessons learned from these case studies and a review of some of the normative literature on non‑profit governance were intended to lay the foundation for development of a new theoretical framework for understanding boards and governance issues as well as development of "practical resources" for improving the effectiveness of non-profit boards.

The vision and leadership shown by PricewaterhouseCoopers in providing initial support for this project was a key factor in sparking the interest of other funders. I am particularly grateful for the support and patience of Joanne Stidwill, Partner, PwC who encouraged this project to grow beyond the original design.

Thanks to support from Tim Plumptre, Managing Director, The Institute on Governance and financial support from Human Resources Development Canada, Health Canada, Canadian Heritage, Canadian Rural Partnership as administered by the Rural Secretariat of Agriculture and Agri-Food Canada, Alberta Children's Services and Alberta CFSA Region 13 we were able to develop a much more rigorous and comprehensive case study methodology than originally conceived, double the number of case studies in our sample and initiate a continuing program within the Institute On Governance to "Strengthen Governance of Non‑profit Organizations".

This project grew out of my own experience as Executive Director of a large non-profit social service agency, as a board member for a score of national, provincial and local non-profits and as manager of a provincial agency responsible for grants to community social service and employment agencies. These experiences suggested that many members of non-profit boards, though volunteering with the best of intentions, often have limited knowledge of the governance function, limited resource material to draw upon and limited time to commit to training for their roles. These observations have been regularly affirmed by my colleagues over the past thirty years and reinforced by this and other research.

This research will assist in the development of practical, user-friendly tools that will, at least in part, address the needs of busy board members seeking ways to improve their understanding of governance and the effectiveness of the boards and organizations that they serve.

There are approximately 175,000 Canadian voluntary sector/non-profit organizations in Canada, including more than 78,000 registered charities. These groups provide a variety of services for the benefit of the Canadian public, including community service, arts, recreation, religion, social services, education and health. They account for some $90 billion in annual expenditures, assets of $109 billion and about 12% of Canada's Gross Domestic Product. They employ 1.3 million Canadians and benefit from the service of some 7.5 million volunteers. Sixty per cent of their revenues derive from various levels of government. The effective governance of these organizations is therefore clearly in the national interest.

Responses derived from interviews and a Governance Self-Assessment Checklist completed by board members and the CEO's were analyzed in conjunction with relevant documentation to assess the governance practices of 20 non‑profit organizations in Canada.

Overall, we found that interest in governance issues has increased tremendously during the past decade. This has been spurred by aggressive promotion of the Carver "Policy Governance" model, and increased demands for greater public accountability generated by governance problems in a number of high profile cases. At the same time, alternative governance models have not been readily accessible or well understood. As a result, many non-profits have attempted, with limited success and, often, considerable frustration, to implement the "Policy Governance" model or adapt it for their own purposes.

This research identified several models currently used by non-profit boards in Canada. They are referred to in this report as: "Operational", "Collective", "Management", "Traditional", "Policy Governance", "Corporate" and "Constituent Representational". We found most boards use a hybrid of these models created by applying practices drawn from two or more models to different aspects of their mission or responsibilities.

We examined how a number of factors influence governance practices. These factors included: who "owns" the non‑profit; different processes for board selection; the impact of size, complexity and geographic scope; mandate; form of incorporation; financial circumstances; organizational history; knowledge about alternative governance models; personal and political agendas; and critical events and transitional phases. Although others also had significant influence, we concluded that the most important factors in determining an appropriate governance model were the size and complexity of the organization.

Boards and CEO's rated their overall governance effectiveness between 70% and 75% of their preferred ideal on the Governance Self-Assessment Checklist used in these studies. Areas of greatest strength were Board Culture and Board Structure. Human Resources Stewardship, Performance Monitoring and Risk Management were generally acknowledged as requiring improvement. Although 30% of the organizations had experienced serious financial crises at some point during the past decade, the Financial Stewardship of current boards was generally strong. These conclusions were supported by an analysis of documents and interviews with key informants.

The Major Concerns of Boards identified through this research included: director liability; financial viability; adopting more "business‑like" practices while maintaining human service values; how to "add value" to the organization; finding the right balance between "policy focus" and knowledge of operations; improving succession planning for board and staff; strengthening board orientation; developing clarity between the respective roles of board and senior management; improving measurement of board, CEO and organizational performance; and improving communication with stakeholders.

Signs of a Board in Trouble included: excessive turnover of CEO's or board members; difficulty recruiting credible board members; rapid depletion of reserve funds; chronic unplanned or unmanaged deficits; role confusion between board and CEO; low attendance or participation in meetings; poor management of meetings; factionalism; underground communications; unresolved conflicts; failure to address conflicts of interest; decision deadlock; disrespect for organizational norms and policies; and poor communication with funders and other key stakeholders.

The keys to success are easy to articulate. But the doors to good governance are difficult to unlock during the normal course of human interactions and organizational politics. It takes resolute commitment to open communications and a good deal of hard work. The early warning signs of trouble ahead are usually easy to discern. Boards and funding authorities need to be vigilant for these and to take remedial action before, rather than after, crises erupt.