When people organise communally to achieve a certain purpose, whether that purpose is to increase financial value for shareholders or to maximise social capital and quality of life for stakeholders, principles of governance will, at some stage, become material to the organisation’s ability to achieve that purpose in an ethical and sustainable manner.
Organisations, whether for profit or nonprofit, ought to set roughly similar goals in order to be as effectual as possible. These goals include, importantly, the effective management of risk and sustainability challenges to maximise the creation of social or other value over the short, medium and long term, and a high standard of ethical leadership. Good governance has additional benefits for nonprofit organisations (NPOs), including accountability to all stakeholders, and increased transparency.
Over the last five years, several codes have been written to make explicit those principles which most effectively translate into good governance of nonprofits. These include; the Department of Social Development’s Code of Good Practice for South African Nonprofit Organisations (2001), the King Code of Governance for South Africa (King III, 2009) and the Independent Code of Governance and Values for Non-profit Organisations in South Africa (2012).
The spectrum of nonprofits itself ranges considerably, from informal structures involving a handful of individuals, to well-funded multinational organisations with complex organisational structures. No one code of good governance can therefore realistically be expected to be universally applicable. Therefore, each organisation and its executive, should have a clear understanding of all the relevant codes and then decide on the applicability of various principles and how they would relate to the organisation’s size, context and objectives.
An important characteristic that these codes share in relation to nonprofits is their aspirational and voluntary nature, focus on self-regulation, and emphasis on principles and values over rules and regulations. This allows for flexibility in the application of these codes to organisations that may be constituted and run in markedly dissimilar ways.
Notwithstanding, each organisation needs to ensure compliance with legislated requirements, such as the Income Tax Act of 1962, the Trust Property Control Act of 1998, The Nonprofit Organisations Act of 1997, and so on.
The King Committee recognises the importance and significance of the nonprofit sector in addressing poverty and inequality. As a result, the committee has convened a special sub-committee tasked with researching and making recommendations on how the principles and practice recommendations contained in King III will apply to nonprofit organisations.
The work of the sub-committee culminated in the drafting of the practice note for the application of King III to NPOs, which provide guidance to nonprofit organisations on how sound governance can be achieved, and is available free of charge as an electronic download from the Institute of Directors in Southern Africa’s website.
All interested non-profits and other stakeholders are urged to review the practice note and contribute written comments.
By improving governance in the nonprofit sector, we ultimately achieve better-managed organisations that are equipped to make a meaningful long-term contribution to the development of South African communities everywhere.
- Tracey Henry is chief executive officer at Tshikululu Social Investments (TSI). This article first appeared on the TSI website.