Corporate Governance – Key Relationships


Directing an NFP organization is a highly complex activity. For veterans in the NFP sector the complexity is taken for granted. This is part of the challenge and attraction of the work.

But for newcomers (especially with a for-profit background) the complexity can at times seem bewildering. An incoming director needs to be aware of the complexity of the NFP scene. It is not a smooth ride of just “doing good”.


Members are people who join the organization and pay an annual subscription. They pay to belong but they are not the beneficiaries; they derive no direct benefit from being involved. They wish to make the world a better place and the organization is one of their ways of doing so.

Most NFP organizations are membership-based organizations and so a great deal of deal of time is taken up with concerns of the members. If the members are not satisfied, they will not renew membership.

However, some people belong to an organization because they support its broad aims but have little time to get involved with its activities. They enjoy their association with it (such a thinking it is a good cause) but otherwise do not attend events and only glance at publications.

There is a broader question of whether people will be so willing to be members over the long-term. Later generations of younger Australians tend to move in, move out and move on. They are pushed and pulled by competing priorities in education/ training, employment and setting up home.

The board needs to monitor membership levels and think about whether the organization can be reorganized to eventually place less reliance on them. Can, for example, more use be made of government contracts and paid staff?


Clients are the beneficiaries of the organization. The clients may receive assistance over a long period of time, such as children whose parents are having difficulty in taking care of them, or people with disabilities. NFP organizations can provide longevity of continuous care (with similar staff) which some government agencies cannot do. This is one reason why governments are outsourcing work to the NFP sector.

Alternatively the clients may receive some temporary transactions, such as blood transfusion in hospital via donations arranged by Red Cross or assistance with finding employment. Virtually every Australian derives some benefit each year in one way or another from an NFP organization.

It is often difficult to assess how clients feel about the organizations working with them. “Customer surveys” that may be used in the for-profit sector are of little application. Some clients resent the further intrusion into their lives. Others are embarrassed that they need to be clients in the first place. Some have literacy or intellectual disability problems and cannot understand the surveys.

Organizations exist to assist clients. During tedious or fraught board meetings or while trying to understand the complexities of a government funding contract, directors should be motivated to keep on keeping on by the thought that somewhere someone is benefiting from all this. This is a good argument for directors spending some time at the facilities (away from head office politics) and meeting people.

Clients can be inspiring – even if they do not mean to be. They think they live tough lives (which they do). But they are survivors. They have an inner strength and resilience. Some for-profit employees will lavish on a single meal what a person on welfare has to live on for a fortnight.

All parents at home looking after people with disabilities are Australian heroes. Not only are they worn out by the daily struggles of care but they are haunted by the fear of what will happen to their children when they themselves die.

Being a director means confronting matters that many people would prefer to ignore (until they themselves are plunged into a crisis over health, unemployment or old age).

It also means that directors should ignore much of what is covered in the media about “welfare cheats” and “single mothers having babies to receive welfare”. No doubt some people do cheat welfare and some girls get themselves into trouble. But these are the exceptions which make for the media’s daily fare of entertaining their listeners and viewers.

Directors of organizations working with these clients will get a real education in these matters.

Being a director is not for softies.


Volunteers may be characterized in three ways:

  • they assist an NFP organization and accept its strategy
  • they assist of their own free will and receive no financial payment
  • they do not have an employment relationship with the NFP organization.

Traditionally volunteers were members – but not all members were volunteers (they may have lacked the time or aptitude).

New Sources of Volunteers

The notion of volunteering has now changed with some people volunteering who are not members of the NFP organization. First, companies often supply staff for (say) one day a year to help paint or restore a building. This is part of their corporate social responsibility and it will look good in their annual reports. Staff usually enjoy the day away from the office.

It is nice to have the additional labour but deep down the NFP organization would probably prefer a financial donation instead because it could use the money more flexibly than having to arrange tasks for volunteers. However hopefully some of the staff may have been attracted the organization and so may be willing to give their own donations.

Second, another source of “volunteers” comes from people who are obliged by government funding to volunteer for an organization. They are working for their unemployment benefit or pension.

Government schemes are not to be implemented at the cost of what could have been done by paid labour and so the schemes are some sort of “nice to have” (but not vital) schemes, such as clearing up a river or looking after a garden. These volunteers have to be supervised and may not always enjoy being coerced into this type of activity.

Third, some people volunteer while looking for employment. They may need time to be away to attend job interviews. They leave when they find employment.

In sum, there are probably more volunteers available than ever before but they stay for shorter periods. They are not an alternative to being able to afford to pay staff. Volunteers, then, are not entirely cost-free. They require supervision, appropriate training, and emotional support.

Nor are volunteers as geographically mobile as paid staff, who will accept the requirement to travel as part of their obligation of being paid to come to work. The availability of volunteers may not always match the geographical location of where clients need to be assisted.

Handling Volunteers

The nature of volunteering has therefore changed. Organizations should try to have some form of volunteer co-ordinator/ manager to ensure that the volunteers are handled correctly. First, volunteers enjoy all the rights of anyone else on the organization’s premises and they should be in an environment where risks are minimized, adequate warnings given and accidents avoided. They should receive adequate work health and safety training.

Second, the volunteer needs to know what is required of them, who will supervise them, where they will work, and what training will be provided.

Third, the volunteer should not be deployed on a task that a paid employee would normally carry out over the long term. In other words, volunteers are not a way of cutting labour costs by shedding workers and taking on volunteers.

Finally there should be some form of recognition given of their services.

Strategic Planning

Members and volunteers, particularly in small NFP organizations with few if any staff, present a unique problem when it comes to planning. In a for-profit organization the planning is done and the staff are expected to carry it out. But in a small NFP organization, heavily reliant on the enthusiasm of members and volunteers, it may be difficult to impose a strategic plan on people who have their own priorities. They will do what they want to do and not necessarily what is put to them by a board.

Directors from the for-profit sector used to organizations running smoothly may find some NFP organizations not quite as co-operative with their own ideas.


NFP organizations traditionally (for centuries in some cases) provided many health, education and welfare services well before government decided to get involved in the provision of these services.

In the 20th century, government replaced – but did not abolish – the work of NFP organizations in many of those services. Government could finance the more extensive provision of those services though its comprehensive taxation powers. Some NFP organizations disappeared but many others continued.

In recent years, government has outsourced many of its responsibilities to NFP organizations and to for-profit companies. The government steers but does not row. This new era has created some tensions within the boards and broader membership of NFP organizations which have accepted government funding.

Government Exploitation of NFP Organizations

Government exploits the good heartedness of NFP organizations. For example, former journalist with The Australian Elisabeth Wynhausen decided to go undercover as a “poor worker” scrambling for menial work.[1] This was similar to American journalist Barbara Ehrenreich’s undercover assessment of the controversial 1996 Clinton welfare reforms.[2] Wynhausen’s gripping story of various workplaces included a period at two (unidentified) church aged care workplaces where she got badly treated.

Aged care workers are generally badly paid and the Australian Government will not provide enough funds for reasonable salaries. Much the same could be said for most other areas of social welfare. NFP organizations, in doing government work, are spread thinly.

Government exploits the good nature of NFP organizations to do its welfare work; they in turn are in effect obliged to exploit their workers because government does not provide enough funding.

Impact on NFP Priorities

Government funding for an NFP organization may distort the organization’s priorities. There are five risks. First, government funding may cover what the organization did its own right for decades (such as child care) or government invites NFP organizations to deliver government programmes (such as labour market programmes). The risk here is that an organization may be tempted by government funding to go beyond its normal remit to take on that additional work. It may be stretched too far.

A second risk arises from the public turmoil in winning and then losing government contracts. If contracts are not renewed, the organization has to lay off staff; the organization receives the public criticism and not government.

Third, the tendering process itself is part of the new competition now being forced upon NFP organizations which had previously had their own informal co-operative arrangements – but which now carry a potential penalty because of collusive business behaviour. A spirit of collegiality and sharing of ideas has been replaced by a spirit of competition as, say, child welfare agencies scramble for government funding. (There is also a potential conflict of interest situation if an NFP director is serving on the boards of two organizations competing for the same contracts).

Fourth some of the major welfare NFP organizations used to be involved in advocacy: calling on government to make particular changes. Government contracts may put a limitation on what can be said in public. A by-product is reluctance to criticise government for fear of not having a contract renewed.

Fifth, there is also the problem of the amount of time an organization’s staff spend serving on government committees, responding to government enquiries and surveys. In the various “consultations” staff have to leave their places of work but there is no government money to pay for relief staff. There are also the complexities of financial reporting required by government to acquit (account for) each grant.

Increased Government Regulation

Modern Australian society is increasingly regulated. Even though the Australian Government (irrespective of who is in power) would claim that since the Hawke Labor Government reforms beginning in 1983 the economy is now more market-driven, deregulated etc, in essence all that has happened is that the regulation process has changed – and not been reduced. Yes: the economy is more market-driven but to ensure that the market is operating efficiently there are now greater compliance requirements than ever before.

No doubt the additional regulations may serve some economic or social purpose. But the bottom line is the increased complexity for NFP work. Here are some examples. First all members/ volunteers working with children must now have police checks. NFP organizations have to pay for the checks.

Additionally, there is now a new national system for complaints investigation within residential aged care centres and mechanisms to encourage the reporting of suspected assaults. No doubt al this regulation is required and worthwhile but it does represent yet another burden on aged care providers.

Dr Stephen Judd, the CEO of HammondCare, a major provider of aged care, has expressed concern about fire regulations in residential aged care facilities for people with dementia. Fire regulations require …”:a corridor full of fire extinguishers. I have seen what a man affected by dementia can with a fire extinguisher – and it isn’t putting out fires!”[3] Again, the regulations well meant but the politicians failed to think through all the practicalities.

Even politicians complain about the regulations. NSW State National Party MP Adrian Piccoli in 2005 complained about yet another set of regulations: health and safety:

Volunteer sandwich makers in the country are under siege… Now, under new regulations, anyone who makes sandwiches for the Volunteer Bush Fire Brigade has to be licensed. That means Gladys, from the Berrigan CWA [Country Womens’ Association], a 50-year sandwich-making veteran, plus the raiser of four kids and 40 grandkids, with I can only assume no injury or death, doesn’t qualify to make sandwiches for volunteers any more.[4]

Finally, all large institutions attract litigation from plaintiffs, and NFP organizations are no exception. NFP members and donors would be appalled at the extent to which NFP organizations have been drawn into modern litigious society – and the costs and staff time that are incurred in handling legal matters. I am not able to speculate here on whether, thanks to tortious liability, the legal system is increasingly now making social welfare too “risky” to conduct.[5]

Eroding the Essential Characteristics of NFP Organizations

To conclude this survey, there is the deeper issue of whether too many government regulations and interventions are eroding what makes the NFP sector so special. NFP organizations are not government departments and yet the tighter regulation of their work may well smother the uniqueness of the NFP sector.

An NFP organization’s particular culture helps determine the quality of its service. Government recognizes the value of that service – hence the government funding. But tighter regulation will mean that the uniqueness will disappear if it is required to look alike or all look like government services. Donors to an NFP organization support its work because of its values; they may not be so generous if they thought they would be donating to a semi-government agency. Additionally, different NFP organizations add to the intrinsic pluralism of society.

Ironically, as Sydney lawyer Anne Robinson pointed out, there is an element of hypocrisy in politicians creating one set of anti-discrimination laws for NFP organizations and excluding their own organizations:

Do you see a Liberal Party politician being forced to employ a card-carrying Labor member? Or Greenpeace being forced to employ an ardent pro-woodchipping advocate? Or Microsoft an Apple devotee? Nothing will destroy an organization more quickly than allowing people to join it who have antithetical beliefs.[6]

NFP organizations get drawn into this matter if they accept government funding to provide services for government. If they did not accept the funding and provide the services then this problem would not arise. But it is very difficult for an NFP board to turn the temptation of government funding.

The displacement of volunteers by managers and the acceptance of government funding (which are how some organizations are managing to survive) create an underlying tension within organizations. Members who volunteer want to do good; paid managers want to get things done.

The former may have been involved in the organization for decades, through its ups and downs, and have a real passion for the work. The latter would claim to have a similar passion but in reality they are professional managers: their loyalty is towards their particular profession (accounting, law, marketing etc) and not to any particular organization. They will work hard while they are in that organization but they probably will not work there for long as most members stay.

Members and managerial staff therefore may look at the world differently. Directors need to recognize the complexity of human relations within the organization. If a director is seen to side too often with managers, they will lose standing with the members. If they seem too sympathetic to members and the intricacies of their concerns, staff may view them as an obstacle to getting the organization moving.


Donors are very important for many NFP organizations. But fund-raising is another complicated task.

Donation Complexity

A basic problem is the lack of accounting transparency in trying to make sense of the accounts of each charity. How is a person’s donation actually spent? How much money is spent on “administration”? How much is even spent in raising each dollar?[7] How can a donor compare the efficiency of one charity with another? Meanwhile, the media can often find examples of inappropriate spending.

Another problem is what can be done to reduce the apparent duplication and inefficiency within and between the charities? Does a country of only 23 million people really need 700,000 NFPs organizations[8] Why are there, for example, 20 NFP organizations assisting 600 children suffering from cancer? Why are there so many competing NFP organizations looking after the visually impaired? Why are there so many providers of residential aged care: why not force them to amalgamate or at least to co-operate more?

Government unintentionally assists the proliferation and survival of NFP organizations by giving small sums of money to a large number of organizations. It is good for the government’s public relations with the organizations to be seen to be generous (and it helps the public standing of the local politician). But it helps maintain the fragmentation in the NFP sector. Government is reluctant to use its financial power to coerce amalgamations and rationalizations with the NFP sector.

Finally, there is the problem of the cost of administration and infrastructure. Funding bodies usually do not recognize the full cost of providing a service (some of which is the staff cost of accounting for the funds provided by that body). Private donors also have unrealistic expectations: they expect 100 cents in the dollar to go to a particular project, whereas some money has to be retained for the administration.

Administration is a growing problem given all the increasing government requirements relating to documentation, work health and safety, workers compensation, diversity training etc. But “core funding” is hard to come by.

The media tend to be sympathetic in covering stories of tragedies but they also expect 100 cents in each $1 to go to the victims. This is unrealistic but organizations have little success in educating the media on the subtleties of funding. The media publish “bad” news; the tragedy is bad news and perceived flaws in the organizations assisting the victims are also “bad” news.

In particular, there is the need for care over the specific wording of appeals. If the appeal is a sudden response to a tragedy that seeks to capitalize on the public’s emotional response and generosity and the appeal says the money will go to the victims – make sure that it does goes to the victims. There is a temptation to exploit the public’s concern to raise money for more general work of the organization. No doubt that other work is important but the public who give money for “victims” will expect it to go directly and solely to the victims (and not, for example, long-term infrastructure redevelopment such as roads and bridges).

Different Types of Donors

Donations come in three broad categories. First, there are people and organizations who give one-off donations, such as donations on the streets to veterans’ organizations around ANZAC Day April 25 and Armistice Day November 11.

Second, there are people and organizations who want a longer relationship and usually provide much larger sums of money. For example, they may provide enough money for a building or a wing of a building to be named after them.

Finally, there are philanthropic partners who want to have a large and long-term say in how the NFP organization actually runs and what it does. They may also seek further opportunities to fund projects.

Each type of donor will require different types of recruitment and handling. For example, there may need to be different methods of communicating with each group.

Care has to be taken that some of the organization’s activities do not erode the opportunities for fund-raising. On the one hand some donors may well want to have the organization speaking out on certain matters, while other donors may be offended by what is being said. American NFP expert Stephen Block has warned that:

Historically, non-profit organizations have also been associated with championing certain objectionable views and advancing questionable values on behalf of humanitarian efforts that society has not always appreciated or even deemed acceptable… Prohibitions against child labour, the abolishment of slavery, advancing civil rights and promoting HIV research are just a few examples of social reforms that originated by a few individuals who voluntarily associated with each other to speak out against prevailing viewpoints of their time.[9]

In other words, speaking out on an issue may appeal to some donors but offend others.

Another problem arises from trying to recruit specialized staff and having to pay higher salaries. The Financial Review did a survey of “corporate refugees who fancy a career stint with a charity might be interested to hear of improving pay and greater flexibility”. However the article also noted:

But what about the potential public relations nightmare? When volunteers go knocking for a donation for a particular charity, will mums and dads wonder if most of their donation is going towards the $87,000 that charity is paying its human resources director?[10]

This is a reflection on the growing professionalism of the NFP sector. Salaries are now much higher at the top of NFP organizations. After all, the CEOs and others in the C suites may be running multi-million dollar organizations. But some of the less affluent, loyal donors and members may be surprised by the size of those salaries.

Setting an Example

A director on the board of an organization raising donations in a major appeal may well have to set an example by being a major donor themselves. They cannot seek donations from others if they themselves are not giving. Giving of their time is welcome but possibly not enough.


Wider Community

Directors need to make sure that the organization benefits – or at least does not harm to – the community. If for-profit companies have a wider corporate responsibility, so does an NFP organization.

NFP organizations operate in a complex web of other bodies: government, funding agencies, unions, community groups (for example, a welfare organization may interface with the support group associated with its clients), competing and allied NFP organizations, and the media. Directors may not themselves have to liaise with all of these but they need to have knowledge of the web when they think about decisions.

The decisions being made affect not just members, clients and volunteers but also possibly some of these other bodies. For example, if the organization is a large employer in a small local community, redundancies and the closure of services will have wide ramifications. Directors also need to make sure that the organization is continuing to meet community expectations and that these changes are reflected in its strategy. It may also need to carry out some community consultations.

Directors may serve in effect as goodwill ambassadors to the wider community. They may have to lend their good name to ventures, meet with major donors, and lobby government. This work will be in addition to attending board meetings.

Social Determinants of Health

Directors of organizations working in areas such as health, education, welfare, people with disabilities, aged care labour market programmes, and criminal justice, need to be aware of this emerging new paradigm. The “social determinants of health” paradigm suggests that addressing one social problem needs to also include wider issues. Compartmentalization and specialization may be counter-productive.

Beginning in the late 1960s a longitudinal study was done of British Whitehall civil servants (The Whitehall Studies) which traced over the years the cardiovascular function and allied health issues of a range of civil servants. They were an interesting population cohort: all working geographically in the same area, speaking the same language, deployed in broadly the same type of work – and really only divided across the lines of civil service grades.

The prevailing view at that time was that people at the top had a more stressful working life. But The Whitehall Studies, pioneered by the Sir Michael Marmot (professor of epidemiology, London) revealed that it was much healthier to be a senior civil servant than a junior one. Job stress, lack of clarity in what one was supposed to be doing and for whom, and conflicting priorities all made life at the bottom of the civil service ladder riskier than life at the top. In short, there was a social gradient to health.

One implication of this continuing research is that many problems are more complex than first assumed. There is a tendency in the modern western world to break problems down into components. Perhaps we should be focussing on the inter-connectedness of issues. Some problem areas in Australia for example seem to have had a lot of money devoted to them over the decades but there is still a lack of progress in solving them.

An example of this complexity is in finding employment for an Australian in a labour market programme. This entails not only providing training for the client and finding a potential employer, but also working with the client’s psychological make up to cope with the threat of having a job when all their mates are unemployed. The client is being moved out of their comfort zone.

Additionally there is a low rate of unemployment in areas of a low rate of unemployment. In other words, a young person leaving school may have a relative who plays tennis with a businessperson who is seeking a new member of staff and so the friend is encouraged to employ the relative. But in a depressed area, there are far fewer chances of networking; a person might lack the right sort of relatives; a person may lack role models of people getting up to go out to work.

All this has led to interest in “social inclusion” and “social exclusion”. The argument is that people who feel socially excluded tend to have worse health and education outcomes. Just how this new paradigm will be put into operation is still under debate in all countries.

But the new paradigm does suggest that directors of organizations that operate in some areas of social concern need to be alert to this research and ask that staff monitor the implications for the organization’s work. It may require, for example, partnerships with organizations operating in allied fields to ensure a more comprehensive approach to each client’s needs.

Organizational Alumni

Alumni are former directors and staff members. The directors may have served for the full time permitted under the constitution and had to stand down but they would still like to be kept involved in some way with the organization. Former staff may have retired or left for other positions and they too may like to remain involved. These people may be sources of donations and perhaps informal advice.

Federal NFP Organizations

Australia has evolved over the last two centuries from colonies into states and territories, with some power grudging centralized in Canberra from 1901 onwards. Many NFP organizations are also organized along traditional state/ territory lines and have the same state/ territory – national body tensions that may be seen in Australian politics.

From a corporate governance point of view, it often makes sense to have one central national location. But Australians often prefer to have their own local state/ territory branch. There is no easy way out of that dilemma.

It may mean that the real financial and membership power is at state/ territory level and that the national board has little capacity to influence the overall direction of the organization. It is, for example, pointless doing a national strategy for an organization whose state/ territory branches want to operate in their own way and may well have the organization’s constitution on their side.

A starting point would be an exercise to begin to create “one organization” and gradually centralize functions. The government’s new regulations on charities and not for profits can be helpful here. But this needs to be done carefully so as not to alienate long-term members and volunteers.

[1] Elisabeth Wynhausen Dirt Cheap: Life at the Wrong End of the Job Market, Melbourne: Pan Macmillan, 2005

[2] Barbara Ehrenreich Nickel and Dimed: Or [Not] Getting by in America, New York: Metropolitan, 2002

[3] Stephen Judd “Has Research Delivered Best practice?” Australian Aging Agendas, December 2010, p 53

[4] Adrian Piccoli “Gladys Rates the Rules a Few Slices Short of a Loaf”, The Daily Telegraph, April 5 2005

[5] A very basic example from aged care: in residential aged care the worker has one workplace and can be supervised; but now in the evolving field of community care (where care is taken to people living in their own homes) there are now several “workplaces” and the worker cannot be so easily supervised.

[6] Anne Robinson “Challenge for Human Rights Champion” (letter) Australian Financial Review, September 11, 2000, p 13

[7] For example, young “street ambassadors” [“chuggers”: charity muggers] approach the general public in crowded thoroughfares; but it has been alleged that 95 per cent of the first year’s donations go to the collection organization and its young people; only 5 per cent goes to the nominated charity; “Charities Hand Over up to 95% to Street Marketers”, Sydney Morning Herald, October 26 2009, p 5

[8] Adele Ferguson “Costly Compassion”, Business Review Weekly June 29-July 5 2006, p 50

[9] Stephen Block Why Nonprofits Fail, San Francisco, CA: Josey-Bass, 2004, p 9

[10] Fiona Carruthers “The Good Life”, The Weekend Australian Financial Review, June 20-3 2007, p 30