Time to focus on Culture as NFPs face a Complex Future

Originally published on 5 September 2017 by AICD.

A landmark study, released today by the Australian Institute of Company Directors, has revealed that while many not-for-profits have strong organisational cultures, most lack formal processes to measure or manage their culture.

The annual NFP Governance & Performance Study provides a snapshot of how the sector is faring, as well as lessons for NFP leaders, governments and funders in how to strengthen Australia’s vital NFP sector.

This year the study explored issues of organisational culture, along with risk and reputation management, and how NFPs are building foundations for long-term success.

AICD General Manager Advocacy Louise Petschler said that this year’s survey has taken place in a climate of unprecedented change for NFPs.

“The NFP sector is in a period of immense flux, with the emergence of new funding models, an increasingly complex operating environment, and new regulatory challenges. These factors mean governance has never been more important,” she said.

“Getting culture right is fundamental for NFPs in order to attract talented employees and dedicated volunteers, and is vital in protecting against misconduct.

“Understandably, many directors rated their organisational culture highly. Its great news that 70% of directors would recommend their NFP as a good place for family or friends to work.

“However, only half said that culture had been discussed at board level in the past 12 months.

“Culture is too vital to be left to chance, especially considering the risks poor culture poses to the success and viability of an NFP. The study will help directors reflect on how they can more actively manage their organisational culture.”

Similarly, while most directors thought their NFP took an appropriate level of risk, half of directors reported no formal risk management statement.

“Risk and reputation needs to be on the minds of all NFP boards. Simply put, a strong and well-deserved reputation is one of an NFPs greatest assets and boards should build and protect this invaluable asset.”

Underscoring the results from last year’s study, there were still many NFPs barely breaking even and directors who were uncomfortable with the idea of NFPs making a profit.

“The fact is NFPs need to make a profit to survive, much less thrive. Without profit, NFPs will be unable to navigate difficult periods, meet CPI increases or tackle the challenges and opportunities of a fast-changing world from a position of financial strength,” said Ms Petschler.

The NFP Governance & Performance Study is a cornerstone of the AICD’s commitment to supporting NFPs in achieving better outcomes through good governance. The Study is the largest report of its kind for the NFP sector, drawing on the responses of almost 2,000 NFP directors and governance leaders.

The release of the Study follows the announcement of 140 AICD scholarships to support directors of smaller NFPs. The scholarship recipients will be announced later this month.

Key Findings of the 2017 NFP Governance and Performance Study:

Culture:

• More than 70% said they would be very likely to recommend their organisation as a good place to work to family and friends.
• 45% of respondents said that culture is clearly recognised, defined and formally embedded in processes and decision-making.
• 52% said culture had not been formally on their board agenda in the past 12 months.
• Only 36% of NFP directors said their board was actively overseeing culture.

Risk:

• On balance, more directors felt their organisation was taking on too little (36%), rather than too much risk (20%).
• Only 41% of respondents said their board had a formal risk appetite statement.
• 71% of directors of NFPs with over $50 million in annual revenue said they had a fully developed risk management process, compared to 36% for those with less than $5 million in revenue.

Reputation:

• 86% of directors rated the importance of their reputation as highly important (8 or above).
• 41% of respondents said reputation is formally considered by the board and management when making all strategic and operational decisions.
• Stakeholder surveys are the most used mechanism for evaluating reputation (70%), then CEO/staff feedback (54%), followed equally by media reports and growth in funding/support (46%).

AICD Media Contact: Carissa Simons 0417 348 659

The Australian Institute of Company Directors is committed to excellence in governance. We make a positive impact on society and the economy through governance education, director development and advocacy. Our membership of more than 40,000 includes directors and senior leaders from business, government and the not-for-profit sector.