THE release of the King 3 report on corporate governance last year and its imminent application have invigorated debate on corporate governance and social responsibility. Although this is a positive step, there is a need to orientate the debate towards the responsibilities of the nonprofit organisation sector in a more meaningful way.
The problem with King 3 in its present form is that, in failing to mention specifically the role of governance in the nonprofit sector, it inadvertently sees nonprofit organisations’ activities within the same prism as those of the corporate sector. This is a mistake given the vast inherent differences between the two sectors, and represents a misunderstanding of both the role of civil society organisations, as well as their footprint on the southern African and global landscapes.
Perhaps the most obvious difference between the two sectors is that the corporate sector exists to achieve the maximum amount of profit possible, while the nonprofit sector, by definition, has to channel any resources it generates towards the benefit of the organisation and the work that it does.
There are other differences, too. Directors of a nonprofit organisation freely and voluntarily give of their time to fulfil an altruistic purpose; in the corporate sector, directors do not freely give of their time, and expect the highest possible remuneration.
The corporate sector could also generally be described as a more homogenous industry than the nonprofit sector.
The latter ranges from small and informal community-based organisations to church and faith-based organisations; to so-called big international nongovernmental organisations (Bingos), which operate on a multinational level, using large budgets and exercising considerable control over policy formation and state action. In addition, the majority of nonprofit organisations are trusts and voluntary associations.
The King 3 claim that it covers all entities regardless of founding constitutions is spurious. Trusts and voluntary associations have their own body of law, including aspects of common law, as well as guidance from international principle and practice, taking into account the degree of funding that comes from abroad.
A key issue in the nonprofit sector is the general principle of participative decision- making. The sector is accountable to various constituencies including the general public, donors, beneficiaries and partners, and, in the case of voluntary associations, to members. Hence, the sector would expect to be consulted before codes and measurement tools relating to its governance were established.
The Institute of Directors represents its members, whose profile does not resemble most organisations in the nonprofit sector. It has a clear mandate to undertake its task for the for-profit sector, but has no mandate from the nonprofit sector and nor has it been accountable to that sector.
Is there a need then to have a governance framework for nonprofit organisations? I believe so, particularly considering the work they do. Very often, this involves the provision of public services — the building of schools, for instance, or providing emergency access to medicine in natural disasters. Governance of the organisation and its funding is critical to donor and beneficiary confidence, aside from the necessary oversight of organisations by their boards on behalf of the public (as they are public benefit organisations).
There is therefore a need for SA’s nonprofit sector to explore the development of a good governance code or charter that speaks to, among others, the specific governance and risk management needs of nonprofit organisations. Such a code needs to be aware of the multilayered and multitextured nature of nonprofit organisations. Different standards need to be set for community-based organisations with limited resources, and Bingos, which can wield the same positive power as a group of governments.
Besides the clear principles of good governance — such as oversight of the organisation’s direction and affairs; fiduciary responsibility; and ensuring the organisation’s responsible and ethical management — such a code could gauge questions of local inclusivity and consultation in the design and implementation of programmes, and recommend access to information for those affected by the programmes.
This code needs to be separate from a corporate governance framework that has, as its driving force, the interests of the commercial sector. Procedures such as “integrated reports”, “audit committees”, “corporate citizenship policies” and “business rescue proceedings” will not find place with small community-based organisations, which have neither the resources nor the technical know-how to discern which of the principles in King 3 apply to them.
It is futile for nonprofit organisations to shape themselves solely into the governance mould required for the corporate sector, as they have long since bypassed that mould. Social responsibility is not a question of “apply or explain”, as in King 3; the application of altruistic values and the provision of social capital are inherently present.
The question is, how are nonprofit organisations applying these values — a complex algorithm that needs to be solved by thorough input from the nonprofit sector, and not the top-down approach King 3, with its corporate and government muscle, seeks to impose.
n Gastrow is the executive director of Inyathelo — The South African Institute for Advancement.
A key issue in the sector is the general principle of participative decision-making. The sector is accountable to various constituencies