Board Matters podcast: "Value creation" with Jonathan Mason
Managing risk, creating profitable growth, effective oversight of cash flow, effectively managing cyber security in the 21st Century are…
OPINION: Civil society sits at the heart of our daily activities. We rely heavily upon the vital and often invisible work of the not-for-profit (NFP) sector.
New Zealand has the highest number of charities per capita in the OECD – over 28,000. This is undoubtedly too many, however their contribution is colossal and not always properly valued.
If we are talking dollar value, in 2018 the charity sector was worth over $12b per annum to our GDP.
There are numerous dedicated and talented chief executives and teams working for successful and long-standing charitable organisations. These are complex and often sizeable multi-million-dollar enterprises that have to meet stringent compliance requirements.
Additionally, they are also run under the critical gaze of public scrutiny with scant tolerance for any misstep.
So why are the skills and experience of these people often valued differently than those working in the business sector?
Those not-for-profits may have a lot to teach business. NFPs can be fearless in their activism and often take bold, but calculated risks to ensure their voice is heard and that they remain sustainable.
NFPs can be skilful at articulating that most elusive of things, defining and measuring impact, when it isn’t directly financial.
These chief executives don’t have many of the standard tools to attract and retain staff such as high salaries, performance bonuses, insurances, and large personal development budgets.
Instead, they operate by inspiring and instilling passion in their staff to ensure they believe in the purpose of their organisation and the critical part they play.
There is an enormous challenge to attract and retain talented staff when they could earn substantially more in the private sector.
NFP roles are often drafted and scoped, and then devalued by a salary that won’t attract the talent required.
The not-for-profit sector doesn’t always champion itself. We have been educated that NFP administration costs, or overheads, are all bad. There’s an expectation from many donors that 100% of each donation should go solely to mission.
Yet obviously, without staff and infrastructure, that simply isn’t possible.
While businesses are expected to invest in infrastructure and visionary technologies, we have little tolerance for NFPs to invest in these same things.
At the same time, most people donating to a charity want a receipt, they want to be thanked and acknowledged and be sure their personal data is secure.
They want to learn about the organisation through a high-quality website.
They want to see evidence of impact, and increasingly want to understand how such impact is measured.
While all valid and essential, these elements come under the headings of administration or overhead.
Donors and funders often seem to expect smoked salmon for the price of herring.
Not-for-profits are praised for reporting that nearly all their funding goes directly to providing services, with acceptance for only minor overhead costs.
In contrast, businesses invest in research and development for continuous improvement. These same costs are treated as “overheads” for an NFP and viewed negatively.Yet innovation and efficiency are essential for NFPs to be operating effectively.
A not-for-profit reporting a cost to income ratio in excess of 50% would be vilified, yet this is an accepted businesses practice to achieve growth.
NFPs tasked with delivering “essential services” are even perennially under-funded by Government.
They are asked to deliver services at unviable rates that are often considerably lower than the Government pays its own staff doing the same work, with inconsistent annual adjustment for inflation and no security of ongoing funding.
This leaves organisations having to play catch-up, and spend time and precious resources fundraising the shortfall.
A further and significant challenge of having so many charities can be governance in some NFPs.
If charities are providing services that governments can’t, won’t or shouldn’t provide, they surely require and deserve excellent governance.
It is a concern to hear NFP governance roles sometimes being promoted as a “stepping-stone” for aspiring commercial directors.
The community sector needs skilled and dedicated directors who contribute in the same way as they would on a government, state-owned or NZX board.
Trustee commitments are not a second-class directorship on which to cut one’s teeth.
Directors need to treat NFP board roles as an equal and valued part of their portfolio, do their due diligence and walk in with eyes wide open to the organisation they are joining.
They also need to demonstrate commitment, evaluate their own skills and be clear how these will bring value to advance the mission and vision of the organisation.
It is time to truly value this vital sector and those who work in it and govern it. Let’s start with being open to better understanding the sector and the challenges under which it operates.
This article was originally published by Stuff.
Pru Etcheverry, ONZM MInstD is a leader in the for-purpose sector and has been honoured for her work as an Officer of the New Zealand Order of Merit (ONZM). She brings skills in strategy, governance, leadership, non-profit management, and advocacy. Pru uses her expertise with local and international clients to successfully develop and implement innovative strategic solutions that create measurable impact.
Pru is passionate about the social category in ESG and CSR and seeing the magic that is unleashed by building strong, authentic engagement and partnerships between the business and community sectors.
While CEO of Leukaemia & Blood Cancer New Zealand (LBC), Pru grew it from a fledgling organisation to a high-profile NGO generating $70 million of sustainable revenue. Prior to working in the NGO sector Pru had a corporate career with multinational healthcare companies.
Pru is currently chair of Grandparents Raising Grandchildren, a trustee of SkyCity Community Trust (Auckland) and chair of Te Ira Kāwai, the Auckland Regional Biobank.
The views expressed in this article do not reflect the position of the IoD unless explicitly stated.
Contribute your perspectives and expertise on an area of governance to the IoD membership and governance community. Contact us email@example.com