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Chapter VI - Good Governance

The scope of good governance is wide and varied. It includes compliance with the regulatory regime, as also optimally managing resources be it financial, human, or intellectual. It should be a system by which organisations should be directed and managed. It influences how the objectives of the organisation are set and achieved, how risk is monitored and assessed, and how performance is optimised. It is a system of principles, policies, procedures and clearly defined responsibilities and accountabilities. It includes interaction between various stakeholders in shaping the organisation's performance and deals with determining ways to take effective strategic decisions and develop added value for all stakeholders.

Why is good governance necessary?

Donors, who now increasingly see themselves as 'social investors', consider good governance as important as financial and programmatic performance when evaluating NGOs or social enterprises for social or impact investment. Donors and investors who are provided with high levels of disclosure and transparency are likely to invest more openly and enthusiastically in such initiatives.

Good governance ensures transparency, which ensures strong and balanced development. It also addresses operational risks and, hence, sustainability for the organisation. It is intended to increase the accountability of the organisation and avoid disasters before they occur. It requires the governing board to assume 'social responsibility' and protect the rights of the beneficiaries, employees, donors, and all those having a stake in the NGO's activities. Improved governance structures and processes ensure quality decision-making, encourage effective succession planning for senior management and enhance the long-term institutional and programmatic sustainability.

Good governance enables an NGO to compete more efficiently and prevent fraud and malpractices within the organisation. Improved management accountability and operational transparency, in turn, fulfill investors' expectations and confidence in management and effectiveness, and, in return, enhance the value of the NGO. Effective governance also ensures efficient risk mitigation systems are in place. A transparent and accountable system makes the Board of an NGO aware of the risks involved in a particular strategy, thereby placing various control systems in place to facilitate the monitoring of the related issues.

Finally, donor or social investor relations is also an essential part of good governance. Donors and social or impact investors directly or indirectly entrust management of the NGO or social enterprise to create enhanced value for their social investment. The NGO is hence obliged to make timely disclosures on a regular basis to all its stakeholders.

How to ensure good governance?

NGO or NPO governance refers to and encompasses all laws, regulations, codes, and practices, that define how the institution is administrated and inspected. It also determines rights and responsibilities of different partners, attracts human and financial capital, makes institutions work efficiently, and provides economic and programmatic value to stakeholders in the long run, while respecting the values of the community it belongs.

For effective NGO governance, the management approach should be in accordance with the following principles:

  1. The organisations should be headed by an effective governing board, and roles, responsibilities and accountabilities within the organisation should be clearly identified.

  2. The governing board should comprise independent minded trustees/directors. It should include an appropriate combination of independent trustees/directors to prevent one individual, or a small group of individuals, from dominating the board's decision making.

  3. The governing board should be of a size and level of diversity commensurate with the sophistication and scale of the organisation.

  4. Appropriate board committees may be formed to assist the board in the effective performance of its duties.

  5. There should be a formal, rigorous and transparent process for the appointment, election, induction and re-election of trustees/ directors. The search for board candidates should be conducted, and appointments made on merit, against objective criteria (to include skills, knowledge, experience, and independence and with due regard for the benefits of diversity on the board, including gender).

  6. The governing board should ensure that a formal, rigorous and transparent procedure is in place for planning the succession of all key office bearers.

  7. Trustees/directors should be aware of their legal duties. Directors should observe and foster high ethical standards and a strong ethical culture in their organisation.

  8. Each trustee/director must be able to allocate sufficient time to discharge his or her duties effectively.

  9. Conflicts of interest should be disclosed and managed.

  10. The governing board is responsible for the governance of the organisation's information, resources (both human and financial) information technology and information security.

  11. The governing board, committees and individual directors should be supplied with information in a timely manner and in an appropriate form and quality by the management team (usually lead by the CEO) to perform to required standards.

  12. The governing board, committees and individual trustees/directors should have their performance evaluated and be held accountable to appropriate stakeholders.

  13. The governing board should be transparent, fair and consistent in determining the remuneration policy for trustees/directors and senior executives.

  14. The governing board should be responsible for risk governance and should ensure that the organisation develops and executes a comprehensive and robust system of risk management.

  15. The governing board should ensure the maintenance of a sound internal control system.

  16. The governing board should present a fair, balanced and understandable assessment of the organisation's financial, environmental, social and governance position, performance, and outlook in its annual report and on its website.

  17. Organisations should consider having an effective and independent internal audit function that has the respect, confidence, and cooperation of both the governing board and the management.

  18. The governing board should establish formal and transparent arrangements to appoint and maintain an appropriate relationship with the organisation's auditors.

  19. The governing board should be responsible for ensuring that an appropriate dialogue takes place among the organisation and other key stakeholders. The board should respect the interests of its stakeholders within the context of its fundamental purpose.

Proponents of good governance say there is a direct correlation between good governance practices and long-term stakeholder value.

Some key benefits

  1. High performance and deeply engaged board and management

  2. Accountable management and strong internal controls

  3. Increased stakeholder engagement

  4. Better managed risk, and

  5. Effectively monitored and measured performance

Suggestions

  1. Establish values and governance structures for your organisation

  2. Ensure that all legal and regulatory requirements are met and complied with fully and in a timely fashion

  3. Establish long-term strategic objectives for the organisation

  4. Establish clear lines of responsibility and a strong system of accountability and performance measurement

  5. Hire the chief executive officer, determine the compensation package, and periodically evaluate the officer's performance

  6. Ensure that management supplies the board with sufficient information for it to be fully informed and prepared to make appropriate decisions and to be able to adequately monitor and oversee the organisation's functioning

  7. Meet regularly to perform its duties and with clarity of purpose

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