CMA Annual Conference Melbourne

Transcription

1 A paper presented to the CMA Annual Conference Melbourne June 2012 Author: Andrew Lind (Partner) Contact Andrew Lind Partner Brisbane Suite 43, 4 th Level Royal Brisbane Place 17 Bowen Bridge Road Herston Q 4006 PO Box 236 RBH Post Office Q 4029 Phone: (07) Fax: (07) Web

2 TABLE OF CONTENTS 1 NOT FOR PROFIT & CHARITY REFORM A NEW REGIME FOR COMPANIES LIMITED BY GUARANTEE NEW GOVERNANCE ARRANGEMENTS FROM 1 JULY GOVERNANCE STANDARDS - RESPONSIBLE INDIVIDUALS GOVERNANCE STANDARDS - DISCLOSURE REQUIREMENTS / MANAGING CONFLICTS OF INTEREST GOVERNANCE STANDARDS - RISK MANAGEMENT PROCEDURES GOVERNANCE STANDARDS - MINIMUM REQUIREMENTS FOR AN ENTITY S GOVERNING RULES GOVERNANCE STANDARDS - RELATIONSHIPS WITH MEMBERS...14 Page 1 of 16

3 1 NOT FOR PROFIT & CHARITY REFORM Overview page in the Legal Resource Centre of our web site Page 2 of 16

4 1.1 Our web site: What By when Material New UBIT (Unrelated Business Income Tax) regime ( Budget measure to better target NFP tax concessions) Effective from 10 May 2011 Federal Government to move to shut the Word Investments gate and tax charities on unrelated business income Consultation Not For Profit unrelated business tax / UBIT reforms Start date for new unrelated commercial activities (post 10 May 2011) deferred form 1 July 2011 to 1 July 2012 New In Australia special conditions Mid 2012 First Exposure draft: In Australia Special Conditions for Tax Concession entities New School or College Building Fund draft ruling New not for profit governance arrangements (including the external conduct standards) ACNC (Australian Charities and Not-forprofits Commission) Final ruling expected August 2012 Second Exposure Draft (issued 18 April 2012): Restating and standardising the special conditions for tax concession entities (including the in Australia conditions) New draft TR 2011/D5 1 July 2013 Consultation Paper Review of Not-for-profit Governance Arrangements 1 October 2012 Commencement date deferred from 1 July 2012 to 1 July 2013 ACNC start date extended to 1 October 2012 New statutory definition of Charity 1 July 2013 Consultation Paper A Definition of Charity New ACNC public reporting for Charities(the financial reporting framework will now commence on 1 July 2013 with the first financial reports for medium and large registered entities now beginning to fall due after 1 July 2014) New Charitable fundraising regulation reform ACNC from 1 October July 2013 Exposure Draft of the Australian Charities and Not-for-profits Commission Bill 2012together with 11 supporting Fact Sheets and Explanatory Materials Unknown Draft ACNC legislation to be referred to the House of Representatives Standing Committee on Economics, for an inquiry over the Winter Parliamentary break. The Government will then consider any recommendations the Committee makes, before introducing the legislation later in Discussion paper and Fact Sheet 1.2 The ACNC will be an independent statutory body commencing operations from 1 October 2012 and responsible for determining charitable status. 1.3 However, assessment of whether special conditions relating to tax endorsements (e.g. In Australia ) will still be determined by the ATO. This will lead to what will be effectively a dual endorsement process. 1.4 The ACNC is to be established by the Australian Charities and Not-for-profits Commission Bill 2012 (ACNC Bill). 1.5 The Government has recently announced that the ACNC Bill is to be reviewed and referred to the House of Representatives Standing Committee on Economics in June. There is likely to be further scope for submissions at this point but the time window for doing so fairly short. The amended ACNC Bill is then expected to be introduced to Parliament and hopefully passed in July (in time for the commencement of the ACNC from 1 October 2012). 1.6 The expectation is that the revisions will address: Proportionate governance standards; and The ability to adopt a different financial year end than 30 June. Page 3 of 16

5 1.7 The Government also recently announced that the governance standards, including the external conduct standards, and the financial reporting framework will now commence on 1 July 2013 with the first financial reports for medium and large registered entities now beginning to fall due after 1 July ACNC web site: New public reporting via ACNC website (e.g. My School) from 1 July 2013 but financials from 1 July The ACNC is expected to have a public information portal (web site) live from 1 July 2013 providing direct no fee access to a whole raft of information about the Charity, no matter what type of legal structure is used Many unincorporated associations for example have never had to publicly report and the level of reporting required is going to take some significant resource allocation Reporting is likely to include: sphere of operation income and expenditure financial history contact details of the individuals managing the entity governing documents (e.g. your constitution) annual reports trustees' reports summary information returns. 2 A NEW REGIME FOR COMPANIES LIMITED BY GUARANTEE 2.1 A company limited by guarantee: Is a public company registered (incorporated under the Corporations Act 2001 (Commonwealth) is a separate legal entity, can sue or be sued in its own name, and can contract or hold property in its own name Page 4 of 16

6 2.1.3 the members (not shareholders) have limited liability as provided in the Constitution of the Company, generally limited to $ Exists for purposes not persons however, the directors of the company will still carry some personal liability. 2.2 It is anticipated that from 1 July : ASIC will still be responsible for Registration (Incorporation) and other public register information officeholders, registered office etc; ACNC will be responsible for: 1) Regulating governance requirements for charities that are companies limited by guarantee; and 2) collecting the annual reports and information statements which it will report on the ACNC public information portal and share with ASIC. 2.3 Given that the ACNC annual reporting will be financials plus more, charities who are companies limited by guarantee can expect an increase in their annual reporting from what they currently report to ASIC. 2.4 There will be two public record keepers for charities who are companies limited by guarantee ACNC and ASIC, with ACNC being the most up-to-date record keeper for financials. 2.5 To what extent will ASIC retain powers of investigation and enforcement over Companies limited by guarantee and its officers? We will have to wait and see what amendments are made to the Corporations Act In the meantime it needs to be assumed that both the ACNC and ASIC will have these powers over charities who are companies limited by guarantee. 2.6 For example, we have the following sub-division in the draft ACNC Bill: Sub-division 142A Suspension and removal of corporate responsible individuals Note: To be drafted. 3 NEW GOVERNANCE ARRANGEMENTS FROM 1 JULY The first thing to say is that we only have a Consultation Paper - Review of not-for-profit governance arrangements (December 2011) (GCP). 3.2 The commencement date for the governance arrangements has been deferred until 1 July Governance is different to reporting 3.3 The proposed governance arrangements are different to and additional to the proposed reporting arrangements. However, failures in governance may be revealed in reporting. What is Governance? 3.4 Governance refers to the practices and procedures in place to ensure that an entity operates in such a way that it achieves its objectives in an effective and transparent manner. (Introduction: GCP) 3.5 Governance has also been described as a system of checks and balances between management and other interested parties. (GCP para 26) 3.6 According to the Consultation Paper, Governance issues [for NFPs] include: 1 Treasury s Not-for-profit reform Factsheet: The ACNC Expose Draft Transitional Issues Page 5 of 16

7 3.6.1 setting the duties and minimum standards of responsible individuals, including rules for proper organisational management and running of the entity; disclosure requirements and managing conflicts of interest; risk management of the entity, including such things as insurance requirements, whether there are any investment rules and requirements and internal/external independent reviews; minimum requirements for an entity s governing rules; and relationships with members (including dispute resolution mechanisms). (Para 30, emphasis added) One standard of governance does not fit all 3.7 The ACNC have indicated that a proportionate approach is being considered so as not to crush small charities. What standards will apply to different tiers we do not yet know. 3.8 The tier levels that apply to reporting are to be: Small entity - Revenue up to $250,000 & not a DGR Medium entity - Revenue of up to $1M if a DGR; or between $250,000 & $1M if not a DGR Large entity Revenue greater than $1M. 3.9 The Fact Sheet issued at the time of the Consultation Paper stated, [t]he Final Report [of the Scoping Study for a National Not-for-profit Regulator] also found that governance rules should take into account: the size of the entity, the risks it presents by virtue of its activities, and turnover as well as the level of government support a NFP receives Therefore the threshold levels for different governance standards may well be different than the reporting tiers. 4 GOVERNANCE STANDARDS - RESPONSIBLE INDIVIDUALS 4.1 The Governance Consultation Paper suggests that Responsible Individuals will include: Directors/officers of the entity; Trustees for the entity; Individuals involved in making decisions that affect the whole or a substantial part of the entity s activities/financial standing; and Receivers, liquidators or administrators. 4.2 The Consultation paper sets out some greater details of the individuals in view: who makes, or participates in making, decisions that affect the whole or a substantial part, of the registered entity s activities; or who has the capacity to significantly affect the registered entity s financial standing; or who in accordance with whose instructions or wishes the responsible individuals of the registered entity are accustomed to act (excluding advice given by the individual in the proper performance of functions attaching to the individual s professional capacity or their business relationship with the registered entity on its responsible individuals (para 85) 4.3 Could this potentially include all persons involved in the management of the Not-For-Profit entity? Page 6 of 16

8 Who do Responsible Individuals owe duties to? 4.4 The Consultation Paper suggests that Responsible Individuals should owe duties to not just the entity (and its charitable objects), but also donors, beneficiaries, volunteers, government, members and the public at large. (Especially para 87 and 90 of GCP) 4.5 In our view it is unreasonable and practically unworkable 2 to expect Responsible Individuals to owe duties to such a large group, particularly given the competing interests and priorities of these groups. 4.6 Many Responsible Individuals of charitable entities will be performing their role on a volunteer basis, without remuneration. To introduce duties to such wide groups will potentially make it impossible for Responsible Individuals to fulfil their overarching role, and dissuade competent persons from volunteering to fulfil such roles. It may also inevitably lead to Responsible Individuals seeking remuneration for the performance of their roles, similar to what currently occurs in the For Profit sector. This will result in a diminution of resources being devoted to charitable activities. 4.7 We suggest that duties owed by Responsible Individuals should simply be owed to the Not-For-Profit entity, and the charitable objects it pursues. It is unnecessary to broaden these duties beyond the entity and its charitable objects. The charitable objects must be for the public benefit to be charitable in the first place. 4.8 The reality is that by requiring Responsible Individuals to owe duties to the Not-For-Profit entity and the charitable objects will still adequately satisfy the public policy position being pursued. Namely, such an approach will adequately address the following duties: 4.9 Duty of care and diligence; 4.10 Duty to act in good faith in the best interests of the entity; 4.11 Duty not to misuse position; 4.12 Duty not to misuse information; and 4.13 Duty to disclose material personal interests Where an entity is receiving government funding or grants, it would be appropriate for the entity to owe duties to relevant government in respect of the expenditure of those funds or grants. However given that there are many Charities (especially religious institutions) that operate without grant funding these duties should be adequately addressed in the terms of the funding or grant, and do not need to be specifically incorporated into legislation. Who has standing to bring a complaint or action about alleged breach of duty by a Responsible Individual? 4.15 Such a right of complaint should, we suggest, only vest in another Responsible Individual, member of the charity or the ACNC A right of complaint should not extend to any person within the public, as this could effectively be used by persons who have an axe to grind with the charity If a member of the public had a legitimate complaint, it could be made to the ACNC who could then decide whether to take the matter further. Minimum qualifications for Responsible Individuals? 4.18 The Consultation Paper suggests that Responsible Individuals should hold certain minimal recognized standing in the community generally or qualifications In the context of a religious body, qualifications for leadership of such a body are usually based on the religious beliefs of that body. Such qualifications often include being a servant, above reproach, temperate, self-controlled, respected, and able to teach. 2 Ultimately decision making is driven by where the benefit of the decision is to be delivered. Page 7 of 16

9 4.20 We have no objection to a set of disqualifying factors that might apply (e.g. that which may prevent a person from being a company director) but to insist on qualifying factors in our view places an unreasonable fetter on the freedom of religious bodies being able to appoint their leaders based on their religious beliefs. 5 GOVERNANCE STANDARDS - DISCLOSURE REQUIREMENTS / MANAGING CONFLICTS OF INTEREST Public reporting of remuneration to staff and board members 5.1 The Consultation Paper suggests in a number of places that public reporting of remuneration to staff and board members will be required (see for example paras 105 and 112). 5.2 The Consultation Paper acknowledges that this is a contentious issue but is clear on the desired policy direction: The remuneration of management and board members can be a contentious issue for NFPs, particularly in attracting and retaining staff. However, given that NFP entities are often in receipt of public monies, and receive various concessions, such as tax concessions, consideration needs to be given to some level of disclosure. (para 119) 5.3 The reality is that the imposition of duties on Responsible Individuals will inevitably include an obligation to only pay persons reasonable remuneration for services rendered (for example, the duty to act in good faith in the best interests of the entity would undoubtedly result in such a duty being imposed on Responsible Individuals). 5.4 The right of privacy of responsible individuals also needs to be considered. If there is to be reporting of this perhaps along with dates of birth of responsible individuals, this information should be available to the ACNC only and not to the general pubic. It could therefore be taken into account in any alleged breach of duty or alleged failure of the body to be charitable. 5.5 However, the desired policy direction of disclosure being paramount to privacy on the issue of remuneration of responsible individuals has been confirmed in various conversations with Treasury officials. It seems to me that unless the sector speaks loudly and clearly about this, we will see a requirement for public reporting of remuneration to Responsible Individuals. So a church would need to disclosure remuneration to Pastors (and quite probably on a Pastor by Pastor basis) rather than a total Staff Costs line item. Conflict of Interest Policies 5.6 The Consultation Paper goes as far as setting out a sample Conflict of Interest Policy at Para 126 as follows: The law could require all NFPs under its jurisdiction abide by a conflict of interest policy. A sample policy might include that: a responsible individual should avoid any conflict arising between their personal interests (or the interests of any other related person or body) and their duties to the entity; a responsible individual must not take advantage of their position to gain, directly or indirectly, a personal benefit, or an benefit for any associated entity (their wife, say, or a commercial entity); a responsible individual shall not make use of inside information (such as knowing the details of a tender application of a NFP and using this to undercut it); the personal interests of a responsible individual member, and those of associated individuals, must not be allowed to take precedence over those of the entity generally; a responsible individual should seek to avoid conflicts of interest wherever possible. Full and prior disclosure of any conflict, or potential conflict, or the appearance of potential conflict, must be made to the decision-making body. Once the conflict has been declared, responsible individuals must decide whether the responsible individual should: refrain from voting (this is a minimum); Page 8 of 16

10 refrain from participating in the debate; withdraw from the meeting during the debate and the voting; suggest that the responsible individual consider resigning; and where possible, should develop guidelines on what kinds of appearance of conflict call for what level of care Will such policies apply at members meetings as well as directors meetings? Accounting Standards? 5.8 We query the wisdom of imposing accounting standards for financial reports of small Not-for-Profits as often the account keeping is done by volunteers. Compliance will be an increased cost burden to small not-for-profits. If a small not-for-profit was in receipt of significant government funding it could be a condition of that funding that financial reporting complied with certain standards. 6 GOVERNANCE STANDARDS - RISK MANAGEMENT PROCEDURES Risk Management policies 6.1 The Consultation Paper suggests that Not-For-Profit entities should have a Risk Management policy in place, to identify fraud or mission drift. In principle, I think this is a good idea. 6.2 Extracts from the Consultation Paper: NFP entities must still ensure that the public monies received are being spent according to the purpose they were provided for (and not subject to mission drift). (Para 52) What processes an entity has in place to identify fraud or mission drift, to ensure that it is still operating in accordance with its governance rules, and ensure that it is complying with all relevant laws are important for entities operating for the public benefit, and receiving public benefits. (Para 127) Over time an entity may slowly drift away from its mission without realising it, or expand, for example, to overseas jurisdictions to which it is not provided tax concessions to operate in. Adequate risk management strategies help to ensure the entity stays on target, and ensure that procedures are in place should issues or problems with current practices come to light. (Para 130) Strategies for protecting against mission drift? 6.3 What processes could be adopted to guard against mission drift? Do you have a documented and agreed statement of mission? Is this consistent with your Objects in your Constitution? Who has to approve a change of mission? Is there place for a Director of Mission or Mission Committee in your organisation? Minimum insurance 6.4 Is it appropriate to mandate minimum insurance requirements for Not-For-Profit entities? 3 Page 9 of 16

11 6.5 It seems to us that an entity must be allowed to select the insurance that it considers appropriate and necessary. We suggest that this could be properly managed through the ACNC s educative activities. 7 GOVERNANCE STANDARDS - MINIMUM REQUIREMENTS FOR AN ENTITY S GOVERNING RULES 7.1 The Consultation Paper suggests that there should be minimum requirements for an Entity s governing rules. 7.2 With respect, we suggest that such an approach would infringe section 116 of the Commonwealth Constitution 4 (Commonwealth not to legislate in respect of religion) and the international right of religious freedom (as expressed in Article 18 of the International Covenant on Civil and Political Rights, ratified by Australia on 13 August 1980). 7.3 How a religious entity chooses to express itself, and relate to its members should be a matter for the religious entity depending on its religious beliefs and practices. To seek to mandate such an expression is an unreasonable infringement on such religious freedom and arguably offends prohibiting the free exercise of any religion. 7.4 We accept that rules need to be disclosed to the ACNC, and indeed made public, but do not accept that the content of the rules should be mandated by government. 7.5 Within Religious Institutions, there is a variety of beliefs regarding Church leadership and governance (such as whether the broader church should be involved in the government of the church, the appointment of Leaders and the roles those leaders have). These views vary from Institution to Institution, and to seek to mandate minimum rules would, it seems to us, inevitably infringe upon these views. What might minimal Governing Rules (Constitution) requirements look like? 7.6 The minimum Constitutional requirements that Government has imposed Aboriginal and Torres Straight Islander Corporations under the CORPORATIONS (ABORIGINAL AND TORRES STRAIT ISLANDER) ACT 2006 ( CATSI Act ) may provide some guidance as to what is in view. 7.7 The CATSI Act includes a requirement for corporations to put in place rules or constitution that comply with a standard rule book. This establishes minimum governance measures but does allow for replacement rules to accommodate differing needs. Importantly, the rule book stipulates that a number of members rights (that are consistent with the Corporations Act ) must be adopted. These include members rights to: : attend, speak and vote at general meetings; : be made a director; : put forward resolutions at general meetings; : ask the directors to call a general meeting; and : look at the books and records of the corporation (if the directors have authorised them to do this, or if the members have passed a resolution which lets them do this). (Para 158) 7.8 Framework of the CATSI Act: 66.1 Requirements (1) The following are the internal governance rules requirements for an Aboriginal and Torres Strait Islander corporation. (2) The corporation must have a constitution written in English that sets out the corporation's objects. 4 SECT 116 Commonwealth not to legislate in respect of religion The Commonwealth shall not make any law for establishing any religion, or for imposing any religious observance, or for prohibiting the free exercise of any religion, and no religious test shall be required as a qualification for any office or public trust under the Commonwealth. Page 10 of 16

12 (3) The corporation's constitution must cover the matters that this Act specifies must be covered in the corporation's constitution. (3A) The corporation's constitution must provide for the resolution of disputes internal to the operation of the corporation. (4) The internal governance rules must cover the matters that are provided for in the replaceable rules (see section 66-5). (5) The internal governance rules must also be: (a) internally consistent; and (b) adequate and workable, given the context in which the corporation operates; and (c) consistent with this Act 57.5 List of internal governance rules The following table sets out the main provisions of this Act that deal with the internal governance of Aboriginal and Torres Strait Islander corporations. The table indicates those rules that operate as replaceable rules and Division 60 tells you how replaceable rules operate. Item Subject of provision Provision Chapter 3--Basic features of an Aboriginal and Torres Strait Islander corporation 1A Resolution of disputes subsection 66-1(3A) 1 Chapter 4--Members and observers section How does a person become a member? 2 Application to corporation section subsection (2) is a replaceable rule 3 Determination of applications for membership section subsection (7) is a replaceable rule 4 Fees for membership and being an observer section Obligation to contribute on winding up section Corporation may impose other membership obligations section Liability of corporation members section Cessation of membership section Resignation section subsection (2) is a replaceable rule 11 General section Member not eligible for membership etc. section Member not contactable section Member is not an Aboriginal and Torres Strait Islander person section Member misbehaves section Different classes of members section Observers section subsection (2) is a replaceable rule 18 What protections apply to variations or cancellations of class rights? Division Corporation or directors may allow member to inspect books section Page 11 of 16

13 Item Subject of provision Provision Chapter 5--Meetings 20 section Director may call meetings 21 Request by members for directors to call general meetings section When must directors comply with members' request? section When must a requested meeting be held? section Amount of notice for general meeting section Notice of general meeting to members, officers and observers section subsections (2), (5) and (6) are replaceable rules 26 Auditor entitled to notice and other communications section Contents of notice of general meeting section Members' resolutions section Notice of members' resolutions section Members' statements to be distributed section Purpose section Time and place for general meeting section Technology section Quorum section subsections (1), (2), (5) and (6) are replaceable rules 35 Chairing general meeting section Auditor's right to be heard at general meetings section Adjourned meetings section subsection (2) is a replaceable rule 38 Who may appoint a proxy section Rights of proxies section Appointing a proxy section Proxy documents section Body corporate representative section How many votes a member has section Objections to right to vote section How voting is carried out section Matters on which a poll may be demanded section When a poll is effectively demanded section When and how polls must be taken section Corporation must hold first general meeting within 3 months of section registration 50 Corporation must hold AGM section Extension of time for holding AGM section Business of AGM section Questions and comments by members on corporation management section at AGM 54 Questions by members of auditors at AGM section Circulating resolutions section Resolutions of 1 member corporations section Constitution to provide for meetings section Page 12 of 16

14 Item Subject of provision Provision 58 Calling directors' meetings section Use of technology section Chairing directors' meetings section Quorum at directors' meetings section Passing of directors' resolutions section Circulating resolutions of corporation with more than 1 director section Resolutions and declarations of 1 director corporation section Minutes section Members' access to minutes section Chapter 6--Officers 67 section Minimum number of directors 68 Maximum number of directors section Eligibility for appointment as a director section Majority of director requirements section Consent to act as director section Corporation may appoint a director section Directors may appoint other directors to make up a quorum section Term of appointment section subsections (1) and (3) are replaceable rules 75 Alternate directors section How does a person cease to be a director? section Director may resign section subsection (2) is a replaceable rule 78 Removal by members section Removal by other directors section Remuneration section How a secretary or contact person is appointed section Terms and conditions of office for secretaries section Terms and conditions of contact person's appointment section Duties in relation to disclosure of, and voting on matters involving, Division 268 material personal interests 85 Powers of directors section Negotiable instruments section Delegation section Right of access to corporation books section Page 13 of 16

15 Item Subject of provision Provision 89 Member approval needed for related party benefit Part 6-6 For Charities with well considered Constitutions this may not be a big problem but for many small churches running as unincorporated associations this will be a challenge in terms of time, resource allocation and how to remain faithful to their convictions about Biblical teaching on governance and leadership. A key will be that churches engage with this as early as possible. 7.9 It is worth having a look at the ORIC (Office of the Registrar of Indigenous Corporations) web site ( the gateway for reporting by Aboriginal and Torres Strait Islander corporations, as this may be instructive about what we see from the ACNC. 8 GOVERNANCE STANDARDS - RELATIONSHIPS WITH MEMBERS 8.1 The Consultation paper again draws heavily on the model for Aboriginal and Torres Strait Islander corporations. In regard to Aboriginal and Torres Strait Islander corporations, the CATSI Act contains a chapter (Chapter 5) on how meetings for these corporations may be conducted. Under this Act, there are two kinds of meetings: directors meetings and general meetings. Some of the rules in Chapter 5 can be modified (they are replaceable rules ), whereas others cannot. The rules are extensive, so some significant ones are discussed below. Part 5.2 deals with general meetings. An Annual General Meeting must be held every year, and a general meeting must be called if a certain number of members request it; The Chapter also sets out rules governing the use of proxies and how voting is to be conducted during meetings. These largely reflect the Corporations Act provisions. Part 5.3 deals with directors meetings, and provides that the constitution of an Aboriginal and Torres Strait Islander corporation must specify how often directors meetings are to be held. A director may call a directors meeting by giving Page 14 of 16

16 reasonable notice to the other directors. The quorum for a directors meeting is a majority of the directors present for the whole meeting, and a resolution is passed by a majority of the votes cast by those directors entitled to vote. Part 5.4 contains requirements for keeping Minutes of general meetings and directors meetings. Part 5.5 provides that the Registrar is able to exempt corporations from the requirements of the chapter, for example, for small corporations where there is no need or capacity to hold a meeting. (Para 165) 8.2 Our comments above regarding Religious Freedom (above) are equally valid with regard to a Institutions relationships with its members. Andrew Lind June 2011 If you would like a copy of this paper ed to you with the hyperlinks please just send me an Andrew.lind@corneyandlind.com.au Extracts from this paper on our web site will be in the Legal Resource Centre under the not-forprofit menu item in the near future. APPENDIX From the appendix to the GCP: The Commission of England and Wales has developed a principles based approach to governance, and has issued advice in Good Governance: a Code for the Voluntary and Community sector. 5 The six high level principles are (followed by sub-principles and supporting advice): Principle 1 Principle 2 Principle 3 An effective board will provide good governance and leadership by understanding their role. An effective board will provide good governance and leadership by ensuring delivery of organisational purpose. An effective board will provide good governance and leadership by working effectively both as individuals and as a team. Members of the board will understand their role and responsibilities collectively and individually in relation to: their legal duties; their stewardship of assets; the provision of the governing document; the external environment; and the structure of the organisation. The board will ensure that the organisation delivers its stated purpose or aims by: ensuring organisational purposes remain relevant and valid; developing and agreeing a long term strategy; agreeing operational plans and budgets; monitoring progress and spending against plan and budget; evaluating results, assessing outcomes and impact; and reviewing and/or amending the plan and budget as appropriate. The board will have a range of appropriate policies and procedures, knowledge, attitudes and behaviours to enable both individuals and the board to work effectively. These will include: finding and recruiting new board members to meet the organisation s changing needs in relation to skills, experience and diversity; providing suitable induction for new board members; providing all board members with opportunities for training and development according to their needs; and periodically reviewing their performance both as individuals and as a team. 5 Page 15 of 16

17 Principle 4 Principle 5 Principle 6 An effective board will provide good governance An effective board will provide good governance An effective board will provide good and leadership by exercising effective control. and leadership by behaving with integrity. governance and leadership by being open As the accountable body, the board will ensure that: the organisation understands and complies with all legal and regulatory requirements that apply to it; the organisation continues to have good internal financial and management controls; it regularly identifies and reviews the major risks to which the organisation is exposed and has systems to manage those risks; and delegation to committees, staff and volunteers (as applicable works effectively and the use of delegated authority is properly supervised. The board will: safeguard and promote the organisation s reputation; act according to high ethical standards; identify, understand and manage conflicts of interest and loyalty; maintain independence of decision making; and deliver impact that best meets the needs of beneficiaries. and accountable. The board will lead the organisation in being open and accountable, both internally and externally. This will include: open communications, informing people about the organisation and its work; appropriate consultation on significant changes to the organisation s services or policies; listening and responding to the views of supporters, funders, beneficiaries, service users and others with an interest in the organisations work; handling complaints constructively, impartially and effectively; and considering the organisation s responsibilities to the wider community, for example, its environmental impact. Want to know more about the UK model? See: Page 16 of 16