Role of governance structures in the non-profit sector
Vijay Naugain February 13, 2020
Director-HR at ChildFund India and Sri Lanka
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There are over 3 million development organisations (INGOs/NGOs) in India working tirelessly over several decades towards the betterment of deprived, excluded, vulnerable and most impoverished communities to bring positive change in their lives. Such work has been primarily dependent on the resources provided by individuals and businesses, institutions and sometimes the government. The resources include financial, non-financial/in-kind to support needy individuals and communities in the urban as well as rural and remotest areas in the country. While the organisations may have always had the governance and reporting mechanisms to meet statutory compliances, the need for better, stronger and transparent accountability mechanisms have only been growing every day, especially with changing legal framework engaged and informed donors and source of resources.
There are local organisations which have been registered in India since independence. Then there are others which have been operating in India as branch offices of foreign organisations (INGO) governed through their international governing bodies. Some have registered local entities as well as local governing structures and can raise local resources to support their work. The process of setting-up organisation and the governing structures depends on the legal framework one chooses to register as, for example, as a Society, Trust or a Section 8 company.
Given the sheer nature of programs work, and resources received, the development organisations not only have a responsibility towards those who contribute but also where and how the funds are used. The non-negotiable area is to have in place robust governance and financial systems to not only manage the resources they receive but transparently report back to donors, communities and various authorities as per the law of the land. It is therefore imperative to have systems and mechanisms in place which facilitate and support the organisation’s work but also ask difficult questions when needed.
The foundation of an organisation lies in its vision, mission and objectives. Each organisation goes through an evolution in its journey, aligning it with the changing context and needs of its stakeholders and communities. However, it must remain true to its vision and objectives. The organisations which do not have a clear vision and purpose struggle for existence and growth.
The organisations are, therefore, required to create a founding document stating their vision, mission, objectives supported by systems and processes that will deliver the intended purposes. Such founding document is best created in consultation and with the involvement of as many stakeholders as possible, particularly those who will form an integral part of the organisation and those whose lives will be impacted by the organisation in current form or the future. As per statutory requirement, the founding documents (generally titled as Memorandum of Association and Rules & Regulations), duly adopted and signed by the founding members of the organisation as well as those desirous of being part of the organisation, are submitted to the regulatory authorities in the country. Such a document must be revisited frequently to be reminded of the purpose of the organisation. Moreover, to have requisite systems and processes in place to deliver its objectives and to be aligned to changing context and laws.
The Accountability Mechanisms
For an organisation to succeed, remain accountable and transparent in its work and dealings, it is essential to have a credible governance system in place. Such a governance system should not only ask relevant questions and demand accountability from the management but also guide them to focus and achieve its objectives. Depending on the size of the organisation and nature of work, each organisation sets up its governance mechanism drawing on internal and external people and resources based on their skills and experience relevant to the organisation.
While smaller organisations may have a single governing body or a board, the large organisations’ governing structure may include two tiers of the governance structure – Governing Council/Board and General Assembly/Body. The General Body has more comprehensive representation, including that of the communities organisation works with, along with the requisite skills and experience from multi-disciplines and stakeholders that will support the organisation. The General Body plays an essential role in steering and approving the strategy of the organisation, approving annual accounts/financials and appointment of statutory auditors.
On the other hand, the members of the Governing Council/Board are elected out of the General Assembly/Body. The Board plays an important role and provides regular oversight and guidance to the management including on the implementation of organisational strategies, approving policies and monitoring appropriate utilisation of organisational resources. In some organisations, another tier is added in the form of the Sub-Committees on specific subjects such as programs, finance, HROD, fundraising etc., with members drawn from the General Body and Governing Council supported by the management with organisational inputs and data. Such Sub-Committees are assigned specific tasks to come back with their recommendations for the Board to discuss and take decisions.
While CEO or Director of the organisation plays a crucial role as an ex-officio member (secretary) in supporting the governing bodies on behalf of the management, it does not have voting power and hence no direct role in decision making of the governance structure. It is pertinent to note that there must be a clear line between management and governance. There is no conflict of interest between both or within any of the bodies. It is equally important to have a mechanism to record that there is no conflict of interest and that it is compliant with the objects of the organisation.
Participation of stakeholders/ communities
The point is not limited to having mechanisms for good governance but democratic governance. Participation of internal people, external stakeholders and communities in the core business of the organisation is crucial for the organisation to be owned by them but also for the organisation to be true to its founding principles. Many organisations not only consult their stakeholders and communities but also allocate a certain percentage of seats for their representation on the governance bodies. This plays a vital role in the direct participation of wider stakeholders and communities in the organisational governance, opening space for direct understanding of the work, questioning the management where needed and help organisations to improve on all aspects regularly.
Compliances & Reporting
With the ever-evolving external environment, changing governance and laws of the country, multiple choices for people to contribute their resources, much aware donors and contributors and social media playing a critical role, reporting back has never been so important. All these aspects place an even higher emphasis on having a robust governance system in an organisation. For any organisation, who has not ramped-up their internal control and monitoring as well as reporting mechanisms, will find it challenging to survive/thrive.
The purpose of having a governance mechanism is multi-fold – to have a robust accountability mechanism to ensure resources raised by the organisation are delivered as per organisational objectives, to ensure democratic space for broader representation of stakeholders and communities in the organisational business and to comply with the law of the land. The important point, however, is that such governing bodies must not remain ornamental or on the paper but serve its real purpose of ensuring the highest level of accountability in an organisation. The governing bodies must contribute a wealth of their experience and skills but also ask tough questions and guide the organisations to answer those questions. In many organisations, that is the case, and many may have to follow the learning and experiences. Whatsoever the case may be, the organisations must remain true to their purpose, do all that is needed to reach the remotest person in the organisational set up to achieve their objectives and be transparent and accountable to internal and external stakeholders.