Not-for-Profit sector makes increasing contribution

Well-managed Not-for-Profit sector makes increasing contribution to the New Zealand and Australian economies

Hay Group research finds four key drivers of Board Effectiveness

Auckland – 5 December 2012 – The increasing contribution to New Zealand’s GDP from Not-For-Profit (NFP) organisations is forcing the sector to apply corporate management processes in order to continue to meet their financial obligations, a research study shows.

The report titled ‘Board effectiveness in the not-for-profit sector’ represents the findings from research conducted by Hay Group, showing that the NFP sector has become a major employer by making a significant contribution to the economy and is therefore being required to be more sophisticated in the management approaches applied.

The Hay Group report sought in-depth responses from more than 90 not-for-profit CEOs, Chairs and Board Directors across Australia and New Zealand. The aim of the study was to better understand the key characteristics of effectiveness and how board performance in this important sector can be optimised.

Researcher and report author, Helen Scotts, Director at Hay Group, believes the research findings come at a critical time for the not-for-profit sector.

“The not-for-profit sector in Australia and New Zealand employs over 1 million paid staff and contributes significantly to these economies in terms of GDP, so Boards are required to deal with increasingly high-risk decisions requiring a highly professional and prudential approach,” said Scotts.

“The rapid growth in this ‘Third’ sector means the role and effectiveness of the governing Board becomes a critical success factor in the long-term sustainability and contribution of not-for-profit organisations.”

The research identified the four drivers that contribute to board effectiveness:

1. Purpose: The underlining intent of the organisation and also the unique value-add that the board offers. A clear purpose that answers the question ‘why do we exist’ is challenging, consequential and compelling, and provides the necessary checks and balances to hold board members to account. Where these checks and balances are missing, risk can be multiplied. Yet when the purpose is clear and challenging, it has the effect of galvanising directors.

2. People: The collective ‘bench strength’ of the board, encompassing the mix of capabilities, experience and contribution of individuals, is also critical for the not-for-profit sector given the increasingly complex and high-stakes decisions facing boards. A gap in areas of governance, sector knowledge or commercial experience is acutely felt. Getting the right mix involves finding people with the ability to think strategically and also understand the whole sector at a sophisticated level.

3. Boundary management: The relationship and management of boundaries between both the Board and the CEO and also with the senior management team is pivotal in the success or failure of a not-for-profit organisation meeting its objectives. The Board needs to maintain the appropriate level of involvement, commitment and passion for the work of the organisation, without crossing over into management space and meddling in operations, or conversely, being too removed or passive.

4. Performance: Regular evaluation of the Board’s performance, specifically how closely its work is aligned to the core purpose is an important component of high effectiveness. For example, questioning whether the focus was sharp, and ensuring that every decision stemmed from or reinforced the core purpose. The practice of alignment and evaluation has an enormous benefit and powerful effect on engagement, performance and overall effectiveness.

“A key finding in the research is around the influence of purpose. When Boards have an articulated purpose (and real sense of value-add) and remain focused on it, perceptions of their overall performance appears to be more positive,” explained researcher and report author, Helen Scotts.

“The challenge for Not-for-profit boards is to strike the right balance across each of the interdependent components. It takes a high degree of professional maturity to appreciate and respect such a delicate balance, especially in a sector where passion and enthusiasm to be involved in the cause is almost second nature.”

Other findings include;
- 35 per cent of respondents felt they had real capability and skill gaps, and consequently their organisation was not as effective as it could or should be.
- Only 41 per cent of Not-for-Profit Boards annually review their performance, with few adopting any kind of formal self-evaluation.
- Only three per cent appeared to apply the accepted corporate feedback mechanisms and 360 degree appraisals of individual Board members.

“Not-for-profit Boards need an equal degree of accountability, capability mix, clearly defined roles and ongoing development and evaluation required for corporate board members,” commented Scotts.

“Yet, the overarching purpose, and the deep commitment to a special cause that underpins the not-for-profit organisation commands an elevated significance. As such, pursuing a ‘corporate path’ towards Board effectiveness can potentially overlook the central vision or disrupt the unique dynamic of the Board.”
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For further information

About the Board effectiveness in the not-for-profit sector report:
Hay Group surveyed over 90 not-for-profit CEOs, Chairs and Board Directors across Australia and New Zealand. Participants spanned 17 subsectors from disability services to education, aged care, arts and culture, youth services and health organisations.

Data was gathered through an online survey and comprehensive interviews conducted face-to-face or over the phone.

Both the survey and the interviews sought to obtain data pertinent to better understanding what separates effective boards from the rest and indeed the impact that such Boards can make on organisational performance.
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