NFPs can look to the past for lessons on governance practices

Restructuring Insights

Not-for-profit governance practices are based on a model that is over 50 years old.

While the collapse of Acacia College and the governance issues that plagued Methodist Ladies’ College occurred almost a decade ago, we are still seeing many similar situations unfolding in NFPs across Australia.

Last year we posed a question as to whether it Not-for-profit governance practices are based on a model that is over 50 years old.was time for NFP boards to move away from the Carver Model in light of several factors, ranging from current trends to historical instances of concern.

In exploring this idea further, we wanted to take a deeper look at an instance where reliance on the 50-year-old governance principles was likely a key element in the collapse of a low-fee independent school run by the Uniting Church in Australia – Synod of Victoria and Tasmania, as well as governance issues in their flagship college in Melbourne.

By shining a light on the circumstances surrounding these schools, we have an opportunity to take away important lessons which we can apply to modern-day scenarios.

The financial demise of Acacia College

Located in outer Melbourne, Acacia College was a private school owned by the Uniting Church in Australia – Synod of Victoria and Tasmania. It taught students from preschool through to year 9.

The school was closed by the church due to claims it was not financially viable; a decision that devastated 540 students, their parents, and teachers. While the school originally had an admirable vision, details of its flawed financial history came to light after its closure and brought An inquiry into the failed school, Acacia College called for greater accountability.into question the need for more transparency surrounding the financial health of private schools.

The Uniting Church in Australia – Synod of Victoria and Tasmania was forced to sell $53.9 million in assets to recover the $36.6 million Acacia College debt. Congregations in Tasmania and Victoria were asked to identify surplus properties that could be sold.

The property sale was the biggest in Victoria and Tasmania Synod history since the Uniting Church was formed in 1977. It resulted in historic churches, church halls, and manses being sold. Many of these assets were sold at reduced prices and caused much heartache and angst for congregations and communities. This was foreshadowed by one member of the synod who was quoted as saying, “Probably there is one thing we can all agree on, and that is this will be painful.”

An inquiry into the failed school called for greater accountability, and the investigator who reviewed the failure said there needed to be a “far greater level of vigour and accountability.”

The investigator also went on to say, “Ultimately there wasn’t one single board or committee that took overall responsibility of the project.”

Several factors, including the chosen location of Acacia College, would have played a role. It was developed in a new area that had very little in the way of infrastructure and transport, so it would have been difficult to attract students from neighbouring regions.

According to sources and media reports, there were also serious concerns around a lack of due diligence, financial acumen, and good governance practices.

Under the Carver Model, the board of directors would have been determining the strategy and then handing all responsibility to the CEO and management. This disconnect became the perfect breeding ground for miscommunication, limited oversight, a low level of vigour and accountability, and no overall responsibility.

Governance issues and the resulting media storm for Methodist Ladies’ College in Melbourne 

In another blow to the reputation of the Uniting Church in Australia – Synod of Victoria and Tasmania that year, it was also revealed that there were issues between the board and staff at their flagship Methodist Ladies’ College (MLC) in Melbourne. This resulted in the principal being sacked for allegedly receiving significant overpayments.

Over a period, numerous articles and media reportsGovernance issues are the resulting media storm for Methodist Ladies College in Melbourne. were filed about the internal fight between the board and ex-principal. Relations between key stakeholders became so toxic that the Uniting Church in Australia – Synod of Victoria and Tasmania issued a stinging rebuke to the board of the elite Melbourne school and demanded an apology for its behaviour.

Further, the church sought to intervene in the principal’s sacking which resulted in the board launching a court action challenging the church’s authority.

The animosity continued between the school and the church for another three years until MLC cut ties with the Uniting Church in Australia – Synod of Victoria and Tasmania by overhauling its constitution to remove the church from involvement in governance or finance matters.

Resulting from an independent governance review, the board’s powers were curtailed and greater representation and transparency was reimplemented.

What we can take away from this experience

Tension between boards and management has perhaps been accepted as a natural part of running a company. However, I’d like to think that we can challenge age-old assumptions and be prepared to throw out methodologies that are proving ineffective.

This is especially true for NFPs, where a commercial mindset may not be front and centre – yet the landscape is always changing and there is simply no guarantee that today’s circumstances (and funding sources) will be the case tomorrow. For this At RSM, we can help you identify risks and opportunities, particularly as they relate to financial sustainability and creating greater cohesion between boards and management.reason, a much more collaborative approach to governance is needed where we maximise the input of all resources and individual strengths to mitigate the risk of negative outcomes.

Because it’s often difficult to instigate positive change from the inside, it can be hugely beneficial to work with an experienced adviser who can provide practical and objective guidance to drive improvements. This is especially important if your NFP is already experiencing financial pressure as a result of changing circumstances or governance issues. As we’ve seen with Acacia College and MLC, issues left unchecked can quickly spiral out of control.  

At RSM, we have consulted extensively with charities and NFP boards (including schools) on governance practices. We can help you identify risks and opportunities, particularly as they relate to financial sustainability and creating greater cohesion between boards and management.

If you are experiencing financial hardship, we can also provide an in-depth Options Report which details the specific avenues available to you for restructuring and recovery. 

By taking action early, you have an opportunity to thwart a negative trajectory and ensure you are still there to provide valuable services to the people in our communities who need them most.

For more information

To speak with a specialist adviser in the not-for-profit sector, contact your local RSM restructuring and recovery team today.

Authors

Andrew Bowcher
Partner - Wagga Wagga

Contact your local insolvency specialist