RSM New Zealand

Incorporated Societies & Governance - An Australian Survey

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Australia, like New Zealand has a lot of incorporated societies.  We are both nations that by and large appreciate the concepts of free association and civil society.  A recent annual survey by the Associations Forum in Australia into association boards and their governance highlights some interesting observations and lessons for New Zealand associations.

The Associations Forum Pty Ltd (www.associations.net.au) is a commercial, member-based network of 500 associations, charities, clubs, societies and other not-for-profit organisations, mostly based in Australia.  While RSM has no association with it (if you will excuse the pun!) the forum has for the past 10 years been running an annual survey of their members regarding common practice and publishing this for the benefit of its membership and the wider sector. 

We at RSM really appreciate organisations that undertake good work and then make their findings available for the benefit of others and hence wanted to help share some of these observations wider.   The following are some of the findings from the 2018 survey, as well as our take on these for New Zealand incorporated societies.

1. Being incorporated under any of the eight Australian State or Territory Associations Incorporations Acts remains appropriate for a number of associations.  However, each year a number of associations convert or transfer their incorporation to the Corporations Act, (in Australia, Companies Limited by Guarantee under their Corporations Act are one of the most common legal forms for charities) with the national law seen as being more appropriate given the nature and size of their organisation.    

Firstly, aren’t we lucky in New Zealand to only have single national legislation!  However, anecdotally we see a similar trend in New Zealand with some incorporated societies restructuring, usually to the form of a charitable trust legal entity structure.  Primarily this appears to be due to the challenges of the membership form of governance of an incorporated society in an environment where increasingly many “users” or “stakeholders” of what the incorporated society offers want what services it offers but don’t also want the responsibilities or formality of being a member of a legal entity. 

2. Some federations of separate associations around the country that represent the same cause and members are restructuring to become a “single-entity” association.  

Again, we are also seeing this trend in New Zealand.  Generally, this is a strategic move to enable improved economies of scale and to help ensure better sustainability of the overall cause. 

For example, RSM recently provided some advice to a nationally recognised cause that consisted of 32 separate regional incorporated societies.  This meant 32 governing bodies, 32 separate memberships, 32 local managers, administrators and 32, sometimes competing, fundraising efforts.  In addition, because they all supported the same cause they also had the additional legal structure, membership, governance and meetings etc related to the national federation on top of their local incorporated society.   Conversely, their branding and national body website would we suggest have most of the general public believing that there was just one entity in New Zealand for this particular cause.

Interestingly (and fairly normally in our experience) there was also a wide disparity between the 32 as regards those that were operating OK and those who were in a reasonably critical state of decline. 

From an external objective perspective, it is relativity obvious that transition to a single organisation could significantly improve the overall effectiveness and sustainability of the cause.  However, politically this can be very difficult to achieve as this involves giving up local sovereignty and a leap of faith that a better resourced single organisation supporting the cause can do it better than 32 (sometimes competing) regional ones. 

3. When the make up of an association board is markedly different to the demographics of the membership, the gender, ethnicity and age balance should be considered.  It is rare for associations to introduce board quotas for diversity or representation.

Diversity and inclusion are hot topics in New Zealand at present in the For-Profit world just as much as it is in the Not-For-Profit world. 

4. The majority of respondents indicated that the ideal number of directors on a board is eight or nine directors.   This is an effective number for meaningful discussions at board meetings and allows for a range of skills and perspectives on the board.

Board size in any organisation is always an interesting debate and one to which there is no single “right” answer.  Our RSM observation to this is; if you want to go fast; go light.  If you want to go far; go with many.  Generally, the more representational an organisation is or wants to be, then the more a larger board may be advisable.  However, one must always remember that more voices at the table generally requires more dialogue, more effort and more time.

5. The President/Chair is usually best chosen by the other board members.  As directors work closely with each other, they are in a better position to assess the qualities and attributes of their leader than the membership at large.

As we have all probably experienced in local politics; sometimes name recognition does not always result in the best person for the job. 

6. Having independent Chairs is rare as associations prefer leadership from within the membership with cause related knowledge.

7. Independent directors may improve the dynamics of the board with their fresh perspectives. However, we recommend no more than two independent directors because most valuable directors come from within the membership – provided they are trained in governance

Just to be blunt; in our experience far too many association boards suffer from myopia and groupthink.A well-meaning member with intimate knowledge of the cause may not always be the optimal answer as regards what an organisation needs in order to continue to evolve and thrive.

8. Board reviews and evaluations are becoming more common.  However, many associations clearly requiring objective help do not undertake such reviews.

It is great to see good practice becoming more pervasive.However, opening oneself up to potential criticism as a board, even if done for all the right reasons, always takes bravery and effort.

9. We support modest director fees being paid when there are sufficient financial resources and when the fees to be paid are not an incentive to join the board.

Paying board members is a very interesting, and often highly emotive topic in terms of the reaction it engenders.  We suggest it is the topic worthy of a separate article but offer the initial thought that the financial cost of good governance needs to be measured against the organisational impact of bad governance. 

10. The median length of time on the board of 4 years and the average of 4.4 years is healthy.  We support directors being on the board for long enough to learn and contribute before retiring with a sense of accomplishment

Again, board tenure is another balancing act.  What is appropriate can depend upon a range of factors including board size, organisational maturity, management capacity, and even the level of stability within the area in which the organisation acts.  However, what is generally clear is that too short and too long a tenure both can prove problematic for the good governance of incorporated societies.

In conclusion, incorporated societies, like all organisations, need appropriate and strong governance to firstly survive, and then to thrive. While we may have their measure at rugby, there are some valuable governance lessons to learn from the experience of our cousins across the ditch.

 

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Authors

Craig Fisher
Audit Partner, Chairman - Auckland Central
Mithun Lal
Audit Manager - Auckland Central