Five questions boards should be asking emerging from COVID-19

With 2020 now behind us, there’s no doubt countless people across the globe will breathe a deep sigh of relief. While there are no guarantees that the worst of the COVID-19 pandemic is over, steps taken over the past nine months certainly place many in a better position to deal with whatever happens next.

For organisations that made rapid changes in response to COVID-19, or were harshly affected by lockdowns, the time has come to evaluate the past and prepare for the future as we move into 2021.

Particularly for the non-profit sector, 2020 presented significant challenges and opportunities with funding uncertainties, swift decision making, and large-scale transformations.

RSM spoke with Campbell Hudson, partner at leading multinational law firm Dentons, to discuss the five questions non-profit boards should be asking right now as we emerge from an unprecedented year…

1. Have your charity’s activities changed during COVID-19?

If your charity’s activities have changed, is it possible that your purpose has changed or evolved during COVID-19 as well? This may be due to a swift pivot, or new partnerships forged to survive the downturn. 

This sparks the need for an investigation into the constitution and governance structure of your organisation to ensure it still aligns with what was lodged with the Australian Charities and Not-for-profits Commission (ACNC).

Where the constitution needs updating, you should:

• seek advice to conduct a proper review of activities
• appropriately amend the constitution
• have it approved by board members
• submit it to the ACNC

2. With the anticipated lifting of insolvent trading protections, how are directors reviewing and managing their personal risk for insolvent trading?

Directors and board members have a duty to prevent insolvent trading. If their non-profit is trading insolvent, directors can be held personally liable for failing to act with due diligence and care.

To mitigate this risk, directors need to conduct a critical solvency review – including assessing whether the organisation will be viable when insolvent trading protections are lifted in the coming months.

If solvency is questionable, ideally seek legal and financial advice as soon as possible. Working with a qualified restructuring adviser is one of the requirements for claiming safe harbour, which affords some protection from insolvent trading claims.

3. Is your non-profit or charity “merger ready”?

The challenging economic climate raises the need for charities to consider mergers as a way to stay afloat and continue providing critical services.

Being merger ready means having these discussions as a board early on. Speak with experts, and contemplate right-fit organisations that you could merge with or potentially acquire under your banner. If you are a small entity, you could also consider transferring your assets to a larger organisation which could save jobs and ensure community services continue.

You may also wish to start the due diligence process, as a successful non-profit merger can take many months to complete, but is a much better outcome for staff and stakeholders than winding up.

4. What actions are you taking to review existing employment contracts and collective bargaining arrangements to ensure they are as attractive as possible?

Engaged employees are the foundation of every organisation, and being an employer of choice means staying on top of employee trends and expectations. At Dentons, we find autonomy and flexibility is key to helping us attract and retain the best people.

In a post-COVID-19 world, this may mean incorporating flexible workplace arrangements into employment contracts to remain attractive to skilled employees.

Regular auditing of employment contracts is important for all organisations, but it’s particularly vital for charities and non-profits where people are really prepared to go the extra mile if their working conditions support them.

5. Have you conducted an audit review of key contracts?

Another important area to review is revenue-generate contracts and expense contracts, such as lease agreements.

With contracts that generate revenue, make sure you:

• know when they are due to expire
• start a dialogue for extensions and renewals
• review terms
• ensure compliance with Australian consumer law if dealing with consumers

If you are dependent on government contracts, it’s important to understand what could be at stake if these are not renewed – which is something you may wish to consider as part of your solvency evaluation.

For expense contracts, review expiry dates and critically examine whether you will need them (and under the same terms) moving forward. For example, if more staff are now working from home, you may not need such a large office space. If your organisation has moved to paperless, you may not require five large photocopiers.  

Where contracts are not needed, it’s time to look at how to finish them up to reduce overheads.

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Get expert help with your review

While 2020 certainly had its challenges, there have also been great opportunities for agile organisations willing to operate outside the box.

These opportunities still exist for non-profits and charities that take a proactive approach to evaluate the past and preparing for the future.

If you have any questions or require further information, please contact your local RSM office.