Welcome,

BRIEF BACKGROUND

The concept of the ourGOVERNANCE   was proposed after discussions around the critical issues that face the Governing Body of Non-profit Organisations. Development work on ourGOVERNANCE   began back in May 2001, as there appeared to be much work done in the area of For-Profit Governing Bodies, but minimal if nothing in the way of Non-profit Governing Bodies.

The General consensus is that Non-profit Governing Bodies could have as high as 80% of their governing body members who may never have sat on a Governing Body before.  The feeling is that these governing body members may not be aware of how onerous their appointment is, with respect to their fiduciary and statutory responsibility, corporate governance and due diligence issues.

OurGOVERNANCE was developed in the interest of making available to such Governing Bodies and their Chairpersons a tool through which they could individually review their understanding of their responsibility of being a Governing Body Member on such a Board, and embark on personal Governing Body Member Development. The core focus is to empower each Governing Body member with the knowledge to improve their application of this learning/understanding and in so doing improve the effective and efficient decision making that such a Board member has to make, plus to protect the investments made in the organisation by the Incorporators and Funders of such company.

The personal impact on a governing body member will be felt nationally and possibly globally as these individuals may have seats on other Governing Bodies/Forums/Councils etc, and this will in turn have a positive impact on the organisations that they have a governing body membership/executive responsibility for.

The philosophy of corporate governance cannot rely on statutory requirements, generally accepted codes of practice and ethics alone, but must embrace social and economic transformation imperatives.  OurGOVERNANCE   is one way of beginning to address this with specific focus onto corporate governance standards, which are directed at three aspects of any enterprise’s activiti

  • Competent Management
  • Responsible and ethical conduct
  • Accountability to others with a vested interest and society at large

The under- pinning concept for Non-Profit Organisations and their Governing Body  is the propensity to serve and this is the essence of the corporate governance philosophy for non-profit organisations, which by their very definition of legal form, suggest a motive other than making profits for their investors.

PREAMBLE

OurGOVERNANCE   was conceived out of the need for competent, knowledgeable and effective governing body members to be at the helm of Non-Profit Organisations (NPOs).

An easy solution could have been to simply bring together all the publications of professional institutions, the codes of good practice and various summaries and commentaries on legislation, and to extract and reconfigure only the text relevant to such entities within a new format.  This approach would, however, not have encapsulated the intent and ethos of a governance standard for the spirit of service and dedication to the greater good that characterises responsible stewardship governing body membership within a public enterprise having no shareholders.  The King Report qualifies that its recommendations are aimed at business enterprises of a certain size and one of its fundamental premises is that entrepreneurship and enterprise are among the most important factors that drive business.  Enterprise is defined as the disposition to engage in undertakings of risk for profit.  This philosophy of corporate governance is derived from the notion that governing body members must act in the best interest of the corporation and thereby ensure that through their enterprise and integrity, the company’s investors be rewarded with acceptable profits.  Governing body members are regarded as being individually and collectively responsible to the shareholders.

Clearly then, the philosophy of corporate governance for organisations with a purpose other than the undertaking of business with risk for the acquisition of profit, must be based on a different value system.  The challenge confronting the composition of such a corporate governance model was to find a credo or ethos that expressed the true spirit and purpose of public entities without shareholders and share capital, by which their very choice of legal form suggests a motive beyond the bottom line.  This value statement provided the objective of a study to construct a corporate governance model based on the legal, ethical and duty provisions of contemporary codes, but with a philosophy of service. 

OurGOVERNANCE contains many points that can be found in most of the available publications, which in any event are merely extracts from or references to King IV, and other legislation governing the direction and management of Organisations.  It does offer a more concentrated and directly relevant content, but most importantly emphasises the propensity to serve the aims of the corporation, the imperative of delivery and the respect of diversity among its people as values esteemed above the dispensation to take business risk for profit.

INTRODUCTION TO ourGOVERNANCE  

ourGOVERNANCE is a model for Non Profit Organisations.

The programme was developed because of the need for competent, knowledgeable and effective Governing body members and Executives to be at the helm of Non-profit Organisations.

The programme consists of three different sections:

  1. An Introduction to ourGOVERNANCE
  2. The Study Guide
  3. The Self assessment

Simply reconfiguring all the existing publications on corporate governance would not have fully addressed the core difference between the philosophy of a company established to make profits for investors, and the philosophy of an organisation established to serve a public cause

The business company is driven by enterprise, defined as the disposition to engage in undertakings of risk for profit”.

The social or public service organisation must be driven by a different ethos, and no better one can be found than the value of “batho pele” which underpins the new coat of arms.  This is a Sesotho phrase meaning “people first”

The ethos of a public entity without shareholding and share capital must express the true purpose and spirit of its existence

If “people first” is the credo, then the Non-profit organisation can only be driven by ‘a propensity to serve’.

The 1995 white paper on the transformation of the public service expressed a heart cry of a nation to the ideal of excellence of government and civil society based on four tenets:

  • Representivity
  • Accountability 
  • Service delivery
  • Institutional change

These tenets still hold true today. OurGOVERNANCE allows for the diversity of people that will serve on primarily Non-Profit Organisations Governing Bodies and for the different worldviews and philosophies that they will bring with them

The emphasis is therefore on THE NEUTRAL NEED for responsible, informed decision-making, service delivery and accountability.

The content of the study guide is grouped under four modules covering fifteen sections:

Module 1 – Introduction to corporate governance, and the nature of the Non-profit Organisation.

Module 2 – Duties and functions of a Governing Body .

Module 3 – Governing Body effectiveness

Module 4 – Statutory requirements and code of conduct.

The essence of ourGOVERNANCE   is that once the Governing Body Member of the Non-profit has registered with ‘third sector insights’ they will gain access to not only their personal development programme through ourGOVERNANCE, but they will also have access to the ‘Non-Profit Leadership Forum’ (NPLF) and will receive regular third sector insight’ updates with the latest and relevant information globally and locally, specifically on Non-profit issues.

The Governing Body Member can in the privacy of their office or home and in their own time, work through the study guide and conduct the self-assessment at the end of each module. This will positively allow the Governing Body Member to gain an understanding of their areas of further research and study to assist them in improving their knowledge of Governing body membership and Corporate Governance and the true application of responsible stewardship.

The Non-Profit Leadership Forum (NPLF) will allow the Governing Body Member to interact with other registered members and engage on issues relevant to their tenure as governing body members of Non-profit Organisations. The regular updates will add value in their personal development and keep them abreast of global and local issues affecting the Non-profit sector which may have a bearing on the organisations they are privileged to be a Governing Body Member of.

MODULE ONECOVERS THE FOLLOWING:

1. OBJECTIVE AND SCOPE

The objective is to bring greater understanding of the implications of governing body membership so that they will be enabled to fully and effectively meet their obligations and act as responsible stewards.

2. CORPORATE GOVERNANCE

In this context, it advocates and promotes superior governing body performance through the greater level of understanding that governing body members will acquire of their role.  It is based on the positive aim of enhancing performance and not on the negative of preventing failure.

3. LEGAL NATURE OF NON-PROFIT ORGANISATIONS

Of interest is that profits may be made but can only be applied to the object of its registration.

The NPO landscape in South Africa has different types of NPO’s which can be established, and this section explores the nature of these organisations with a particular focus on these questions:

  • Does the ideal NPO structure have a legal personality?
  • Does it offer limited liability?
  • Has the right to perpetual succession?

4. MAIN OBJECT OF THE NON-PROFIT ORGANISATION – WHY IT EXISTS

Is derived from the incorporators/founders and this can be found in the relevant founding documents.

5. STAKEHOLDERS AND BENEFICIARIES

This stresses that all Organisations have a variety of stakeholders with vested interest in its performance and ongoing success.  The key stakeholders and ultimate beneficiaries are described

6. THE MEMBERS OF THE NON-PROFITORGANISATION

Simply being the parties who signed the founding documents submitted with registration.  They have no entitlement to any profits made.

This module has 6 sections with 28 of 95 questions in the self-assessment.

MODULE TWO – COVERS THE FOLLOWING:

7. THE GOVERNING BODY

Is stated as being the body through which the organisation acts, and its main responsibility is to ensure that the company sticks to its purpose and operates in compliance with all laws.  Governing body members must be given all-important strategic and contractual documents on their commencement of duty.   The board must retain full and effective control over the company and ensure that they take all material decisions.

The main functions, duties and responsibilities of the governing body collectively, as distinct from individual roles, are highlighted.

8. DUTIES AND RESPONSIBILITIES OF A GOVERNING BODY MEMBER

States that governing body members individually and collectively are responsible for the direction of the organisation and are accountable to its members/founders.   Main function is responsible stewardship over the plans, funds, and resources of the organisation and their application to the stated purpose of the organisation.

To perform with utmost loyalty, good faith, care, skill and attentiveness. Governing body members must always be sure that they have sufficient information and time to make well informed decisions.

Sets out the rights, duties, obligations and liabilities of a Governing Body Member.

9, THE CHAIR ( CHAIRPERSON )

Sets out guidelines for the role and effectiveness of the chairperson.

Primarily to manage the process, protocols, productivity and effective decision making of the board meetings and to ensure that all governing body members fully participate.

This module has 3 sections with 22 of 95 questions in the self-assessment.

MODULE THREE – COVERS THE FOLLOWING:

10. GOVERNING BODY EFFECTIVENESS

Globally fund managers are becoming more critical and extremely thorough when conducting their due diligence around the board composition and requiring regular governing body member and governing body performance reviews.

Emphasises that Governing Body effectiveness refers to the performance of the governing body members not only in their meetings, but also to their consistent attention to and carrying out of duties and responsibilities throughout their term of office.

Effectiveness begins with the selection and appointment of the right people. There should be no element of tokenism or cronyism in appointments.  Dedication cannot be fabricated or faked.

Political behaviour, being behaviour that is not sanctioned by the governing body or does not serve the objectives of the organisation, must not be condoned.

Governing body members must abide by final decisions of the governing body, but may have their reservations placed on record.  Recommends that the board subject themselves to regular self and outside appraisal.

11. MANAGERS AND COMMITTEES

States that the governing body is required to appoint managers to operate the business on a day-to-day basis and to set up ad-hoc and standing committees, e.g. 

  • Internal audit committee
  • Remuneration committee
  • Social & Ethics committee

Managers must have appropriate authority and approval frameworks, be fully informed and enjoy governing body support to act within their powers and limits of authority.

12.  EMPLOYEES

Confirms the governing body responsibility to ensure that all employment legislation is complied with.  The common law and constitutional rights of individuals must also be respected.

Employees must have formal contracts.  The organisation can reasonably expect certain standards of behaviour and performance from their employees.

This module has 3 sections with 22 of 95 questions in the self-assessment.

MODULE FOUR – COVERS THE FOLLOWING:

13. AUDITING REQUIREMENTS

The Companies Act, 71 of 2008 (“the Act“) contains a number of provisions relating to auditing and accounting requirements. However, unlike the old Companies Act of 1973 which required all companies to be audited, the Act is less onerous in the sense that only certain categories of companies will need to be audited and this also depends on whether the audit would be in the public interest to do so.

In terms of the Act, there are two main categories of companies, namely a profit company and a non-profit company. A profit company is further divided into four sub-categories, being a (i) private company, (ii) personal liability company, (iii) state-owned company and (iv) public company. In order to establish whether a company must comply with the requirement to be audited (by an auditor) or simply independently reviewed (by an accountant), will depend on the type of company concerned.

The role and duties of auditors are set out. The Act also requires that accounting records be kept by the company and these are listed in this section.

The governing body members are responsible for the preparation and presentation of annual financial statements including a governing body members’ report.

The auditors must satisfy themselves that records have been kept, minute books and registers have been kept and that the financial statements reflect the true state of the company’s accounts.

Take into account the implications of the Organisations Public Interest Score  as well as what is contained in the founding document in this regard.

14. LEGAL AND STATUTORY COMPLIANCE

Legal and statutory requirements on governing body members are extensive and onerous.  Governing body members must be aware of the full implications of appointments to Governing Bodies.  Governing body members share equal responsibility regardless of specific duties.

Negligence, fraud or recklessness may result in civil and criminal action against them.  The removal of a Governing Body Member must follow certain procedures.

Acts of governing body members remain valid despite defects found afterwards in their appointment or qualification.

15. CODE OF CONDUCT AND ETHICS

Ethics and morality pertaining to business are defined and it is confirmed that it is the responsibility of the governing body members to determine the moral and ethical climate of the organisation.  The subject of shared values is also dealt with.

A code of conduct is applicable to everyone in the Organisation.

The code must be made available to all. Each organisation should specify its own code of behaviours and ethics.

This module has 3 sections and 23 of 95 questions in the self-assessment.

GLOSARY OF TERMS

Glossary of Terms

The DTI The Department of Trade and Industry Department of National Government
CIPC Companies and Intellectual Property Commission

Department of Trade and Industries Agency established to register and administer companies including Non-Profit Companies (NPC’s)

 

DSD The Department of Social Development Government body under which the NPO Directorate operates
NPO Non-Profit Organisation All types non-profit structures
B-BBEE Broad Based Black Economic Empowerment Legislation to regulate transformation
NPC Non-Profit Company One type of company registered with the CIPC.
NPT Non-Profit Trust A type of NPO registered with the Master of the High Court
VA Voluntary Association

The Voluntary Association (VA) is the most common legal form for non-profit organisation in South Africa.

No office of registry exists for voluntary associations

CBO Community Based organisation A sub category of NPO
CSO Civil Society Organisation A sub category of NPO
FBO Faith Based organisation A sub category of NPO
PBO Public Benefit Organisation A NPO which has qualified for SARS tax exemption status under the specific section such as 18 (A) or 10(1)(cN)
NGO Non-Governmental Organisation Another acronym which covers all NPO’s. NGO’s used to be viewed predominantly as advocacy or activists type of organisations
SARS South African Revenue Service Government Agency tasked with tax enforcement
TEU Tax Exemtion Unit Specialised Unit of SARS
CSI Corporate Social Investment An element of the B-BBEE score card. Corporate South Africa’s social investment into NPO’s.
FD Founding Document The founding document is the core legal document for each of the different types of NPO’s. I.E NPC – has a MoI, a NPT has a Trust Deed and a VA has a constitution
Registered NPO All NPO’s registered on the DSD NPO register The NPO register is administered by the DSD’s NPO directorate
KING IV Code of Good practice The fourth version of the IoDSA’s code of good practice
Independent Code NPO Independent code of practice The Inyathelo independent code of good practice
IoDSA Institute of Directors in Southern Africa The premium governance body in Southern Africa
MoU Memorandum of Understanding A document agreed between parties in confirming their understnadning of the agreement containe within the document. Sometimes know as a MoA (Memorandum of Agreement)
IFRS for SME’s International Financial Reporting Standard for Small and medium sized enterprise An often used, acceptable financial framework
GAAP Generaly Accepted Accounting Principles Is a collection of commonly-followed accounting rules and standards for financial reporting.
PFMA Public Finance Management Act  To regulate financial management in the national government and provincial governments; to ensure that all revenue, expenditure, assets and liabilities of those governments are managed efficiently and effectively; to provide for the responsibilities of persons entrusted with financial management in those governments; .
MFMA Municipal Finance Management Act The key objective of the Municipal Finance Management Act (2003) (MFMA) is to modernise municipal financial management in South Africa so as to lay a sound financial base for the sustainable delivery of services.
AGM Annual General Meeting This is the annual meeting of the members/founders/incorporators at which the governing body is appointed and the auditors retained or changed.

Core legislation

NPO Act The Nonprofit Organisations Act 71 of 1997
Trust Act Trust Property Control Act 57 of 1988 as amended (Non-profit Trusts)
Companies Act The Companies Act 71 of 2008
POPI Protection of Personal Information Act 4 of 2013

 

REFERENCES

  1. Basic Conditions of Employment Act, 75 of 1997.
  2. Code of Ethics of the Institute of Governing body members in Southern Africa (IoDSA).
  3. Code of Ethics of the Institute of Management Consultants (IMCSA).
  4. Code of the SA Institute of Managers (SAIM).
  5. Governing body membership, March 2001, published by The Institute of Governing body members.
  6. Public Finance Management Act No. 1 of 1999.
  7. The Organisations Act No. 71, 2008.
  8. The Employment Equity Act, 55 of 1998.
  9. The Insolvency Act, Amended to No. 122 of 1993.
  10. The Kind IV Code of Corporate Practices / Conduct and subsequent revisions.
  11. The Labour Relations Act of 1995.
  12. The Skills Development Act of 1998.
  13. Various Summaries of the above Documents published by Price Waterhouse Coopers, Deloitte & Touche and other auditing firms.
  14. White Paper on the Transformation of the Public Service, November 1995.
  15. White Paper on National Strategy for the Development and Promotion of Small Business in South Africa, March 1995.
  16. Du Pree, Max, Leading without Power – Finding Hope in Serving community, Shepherd Foundation, 1997.
  17. Drucker, Peter F, The New Realities, Mandarin Paperbacks, 1990.
  18. Goleman, Daniel, Emotional Intelligence – Why It Can Matter More Than IQ, Nloomsbury Publishing, London, 1996.
  19. Handy, Charles B, The Hungry Spirit – Beyond Capitalism, A Quest for Purpose in the Modern World, Hutchinson, 1997.
  20. Hersay, Paul, Blanchard, Kenneth, H and Johnson, Dewey, E, Management of Organisational Behaviour – Utilising Human Resources, (7th Edition), Prentice Hall, 1996.
  21. Jannis, Irving L, Victims of Groupthink, Houghton Mifflin, Bostyon, 1972.
  22. Joubert, Dian, A Typology of Value Orientations, in Basic Concepts in the Methodology of the Social Sciences, Mouton, J, and Marais HC, (Eds), HSRC Publishers, 1996.
  23. Klubkholm, F, and Strodtbeck, F I, Variations in Value Orientations, Evanston, 1961 and Kluckholm, The Scientific Study of Values, University of Toronto, 1958.
  24. Mouton, Johann, and Uler, Johan, Knowledge, Method and the Public Good, HSRC Publishers, Pretoria, 1997.
  25. Muthien, Yvonne G, Khosa, Meshak M, and Magubane, Bernard M, Democracy and Governance Review: Mandela’s Legacy 1994-1999, HSRC Publishers, 2000.
  26. Robbins, Harvey, and Finley, Michael, Why Teams don’t Work – What Goes Wrong and How to Make it Right, Berrett-Koehler Publishers Inc, 2000.
  27. Robbins, Stephen P, Organisational Behaviour – Concepts, Controversies and Applications, 2nd Edition, Prentice-Hall Inc, Englewood Cliffs, NJ, 1983.
  28. Schein, Edgar, H, Organisational Culture & Leadership, 2nd Edition, Jossey-Bass Inc, 1992.
  29. Tannebaum, Robert and Schmidt, Warren H, How to choose a Leadership pattern, Harvard Business Review, Fifteen Key Concepts for Managerial Success, Reprinted from HBR, May-June, 1973.
  30. Publication on the New Coat of Arms for South Africa printed by the Government Communication and Information System.
  31. Responsible Stewardship model by MRB Bus.
  32. Ricardo Wyngaard – Nicole Copley – NGO Matters/Juta – Governance for Nonprofit Boards. 2017
  33. Cathy Masters – Paul Tyler – NGO Matters/Juta – Practical Fianancial Management for Nonprofits. 2017
  34. Nicole Copley – NGO Matters/A practical legal guide tostarting up. 2017
  35. Australian Institute of Company Directors (AICD) – Reveiewing your Board. 2018

Prescribed and recommended learning resources

  • Companies Act & Regulations 71 0f 2008 – Juta
  • Schedule 1 Companies Act – Provisions concerning non-profit companies
  • Extract from – Companies act 71 of 2008. Part F – ‘Governance of Companies, Section 76: Standards of directors’ conduct.
  • The Board of Directors and committees – a comparison between the new Companies Act and King III – pwc
  • The Non-Profit Organisations Act 71 of 1997 – What Non-Profits must know – Inyathelo
  • NPO database – Department of Social Development, South African Government
  • King Code of Governance Principles for South Africa 2009 – IoDSA (Institute of Directors in Southern Africa)

 IMPORTANT:


The information contained in this overview does not necessarily represent the opinion of Third Sector Insights NPT (TSI), MRB Bus, or the authors.  The contents do not constitute advice on the topics covered.  While reasonable care has been taken to ensure the accuracy of the information, TSI, MRB Bus expressly disclaims all and any liability to any person, relating to anything written or omitted to be written or to the consequences thereof in reliance upon the contents.

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