Originally published on 24 October 2014 as an AICD media release.
More than 30 per cent of Australia’s not-for-profit organisations (NFP) have discussed mergers in the past year as the NFP sector seeks to improve its efficiency and expand the services it offers to users.
This is one of the key findings of the latest NFP Governance and Performance Study conducted by research firm BaxterLawley on behalf of the Australian Institute of Company Directors.
More than 2,700 directors of NFP organisations with a combined income of $15 billion in 2013/14 participated in the study, which was sponsored by the Commonwealth Bank of Australia, making it the largest survey of not-for-profit governance in Australia.
The respondents included directors from a wide range of NFPs, such as educational institutions, aged care facilities, charities, recreational organisations and social service providers.
The push for consolidation is greatest among NFPs with income above $10 million or those operating in social services. Around one-quarter of boards that have discussed a merger believe the process will be complete within two years, setting the scene for a new round of consolidation in the sector.
“The results of our study show that NFP boards have extremely high standards of governance that allow directors to pursue the strategies that will achieve the best outcomes for their organisations and stakeholders. Around 80 per cent of non-executive directors who participated in the study believe the quality of governance in the sector is better than it was three years ago,” said John Colvin, Chief Executive Officer and Managing Director of The Australian Institute of Company Directors.
Other key findings of the survey include:
- Many NFPs are struggling to determine the impact of reforms, or proposed reforms, to government policy and legislation. Seventy eight per cent of respondents called on the government to clarify its direction and create stability in operating environments as a matter of priority in the next three years.
- Eighty four per cent of non-executive directors do not receive fees for their roles and the average amount of time devoted to a directorship is 20 hours per month.
- Only 50 per cent of non-executive directors believe their organisations measure overall performance effectively. Many would like more non-financial information to determine if an organisation is achieving its mission or purpose.
- Sixty two per cent of respondents identified maintaining or building income as a high priority in the next 12 months as they seek to diversify their organisations’ income streams and reduce their reliance on government funding.
- Uncertainty about government funding was ranked as the second most important challenge for school boards in the next three years, behind only the need to maintain or enhance a school’s reputation.
- Directors of aged care facilities nominated financial sustainability as their biggest challenge over the next three years, followed by compliance with government requirements.
“NFP boards, like those in other sectors, require stability in government policy to be confident that the decisions they make will not be compromised. Uncertainty about potential reforms has a significant impact on NFP’s ability to plan for the future, to secure appropriate resources and to maintain the required number and composition of staff,” Mr Colvin said.
“Further, directors of NFP boards fulfil an important role that benefits all Australians, and it is critical that the environment in which they operate allows them to perform their duties as effectively as possible,” he said.
Vanessa Nolan-Woods, General Manager Not-for-Profit Sector Banking at Commonwealth Bank, said the NFP sector is setting itself up for ongoing success by strengthening its financial foundation.
“NFPs are finding innovative ways to build revenue and diversify their service offering so that they are less reliant on government funding,” Ms Nolan-Woods said.
“Consolidation will also help to underpin the NFP sector’s financial sustainability as more organisations seek to benefit from synergy and scale.
“For NFPs, there is nothing more important than using their capital and resources as efficiently as possible. Creating diverse funding sources and greater collaboration among related organisations will ensure NFPs have more options to use resources in areas where they are needed most.”