How a not-for-profit board works

NFP organisations are generally created to benefit the community or members and, as the name suggests, do not have the objective of making profits which will be distributed to shareholders/owners. The NFP sector in New Zealand includes charity, voluntary and non-government organisations.

Many directors begin their career in the NFP sector so it is useful to understand some of the differences and similarities with NFP boards.

Governance is becoming increasingly important in the NFP sector. Sometimes what starts as a small group of people working on a voluntary basis, grows to become an organisation that employs people or receives public funding. In this case it becomes important to put in place proper governance as part of being accountable for how the funds can be used.

Good governance of NFP’s has a lot of the same advantages of good governance in other sectors, that is making sure that an organisation has a clear vision and strategy and management and staff are clearly aligned to achieve it.

In the NFP environment organisations will often have what is referred to as a governing body. There are usually three officers (also called office bearers or office holders) appointed to a governing body:

  • chair
  • treasurer
  • secretary.

Officers must act in accordance with the funding allocated to them and the powers vested in them by the organisation’s constitution. Like any officer or director they have a duty to:

  • act in good faith and in the organisation’s best interests
  • take reasonable care in exercising their duties.

Chair

The chair is expected to:

  • conduct efficient governing body meetings
  • set annual meeting timetables
  • prepare meeting agendas
  • manage the distribution of papers in advance of governing body meetings
  • ensure accurate recording of meeting decisions
  • liaise with the chief executive outside scheduled governing body meetings
  • instruct the auditor in the absence of a finance committee
  • establish governing body committees (sub-groups of the full board) for specific tasks and define their terms of reference
  • attend committee meetings where appropriate
  • make sure the governing body’s resources are being well and appropriately used.

Treasurer

The treasurer’s tasks may include:

  • ensuring that the finances of the organisation are managed appropriately
  • making recommendations to the governing body about income and expenditure, investments and debts
  • keeping records of all incoming and outgoing payments
  • reviewing the annual statement of financial performance (profit and loss) and statement of financial position (balance sheet)
  • ensuring that the annual audit process is undertaken in a timely fashion according to legal requirements
  • providing regular financial statements to the governing body and providing explanations where required
  • drawing up the annual budget in consultation with staff and other governing body members
  • ensuring that sufficient funds are available at all times to support the organisation’s liabilities.

Secretary

The secretary’s tasks may include:

  • convening meetings and booking rooms
  • dealing with correspondence
  • preparing agendas for meetings (in consultation with the chairperson)
  • taking the minutes of meetings (although some governing bodies may want to appoint a minute-taker for this task)
  • ensuring back-up information is available at meetings when required.

Characteristics of NFP’s that set them apart from corporates

  • They are accountable to a wide range of stakeholders.
  • They may be a company formed under Companies Act or established under their own act of Parliament, or the Charitable Trusts Act or be an Incorporated Society.
  • The governing body may be established by statute or elected by the members or some overarching body or be self elected.
  • The governing body may perform a management and operational role as well as governance depending on the size and number of employees.
  • The governing body members are typically appointed for their interest in and empathy with the NFP and may often be unpaid volunteers.

Adapted from the Charities website.