Governance vs. Management
Some boards (such as working or collective boards) fulfill both management and governance responsibilities. The board’s foremost responsibility, however, is to govern its organization. Although management staff may be involved in governance work, the board is ultimately responsible for governance and cannot delegate this responsibility.
Distinguishing Between Governance and Management
As Mel Gill describes it, governance is about “…achieving desired results and achieving them in the right way (2005).” Governance involves decisions that have implications on the organization and incorporating the values and vision of the organization when making these decisions. The establishment of values, vision, mission, and goals are key aspects of governance.
Management is the “organization of tasks, people, relationships, resources and technology to achieve the organizational purpose (Gill 2005).” The management team guides operations within the framework and according to the values set out by the board in its governance policies.
For example, fundraising is usually a management responsibility. Establishing fundraising guidelines and ensuring that there is enough funding for the organization’s activities is the responsibility of the board. The board can and should receive feedback from management (and staff and volunteers, if it is a small organization) when creating fundraising guidelines and plans. However, the ultimate decision-making responsibility regarding fundraising practices and priorities lies with the board. Even if management plays a key role in establishing the guidelines, the board is ultimately responsible for the guidelines and any implications associated with them. Only the board may enact formal changes to the guidelines.
It is very important to distinguish between the responsibilities of the board and management as these can overlap and cause conflict.
For more information on governance, please visit the following link:
Governance Matters- Canadian Co-operative Association
Establishing Policy: Directing Organizational Operations
There are three types of policies:
1. Framework and Governance Policies
These policies reflect the values and mandate of the organization and outline its direction. In effect they set limits on the activities of the organization and they lay out principles to guide all decisions.
Some examples of framework policies are:
- The mission statement
- Constitution and bylaws
- Goals and objectives
- Organizational structure and the roles and responsibilities of the board
- Standing committees (which ones exist and for what purposes)
2. Operational Policies
These policies set the boundaries for the principal activities of the organization, providing a guide for decision making and outlining the allocation of physical, human and fiscal resources.
Boards develop policies in the following areas:
- Financial management
- Human Resources
- Advocacy
3. Administration or Functional Policies
These policies govern the day-to-day delivery of services and activities and the conduct of the people in the organization. It is most often staff who develop administration policies and rules.
The model of governance that the board follows will determine how much involvement it has in policy development.
Risk Management
Risk management is :
The process of anticipating risks and putting in place mechanisms to change and control risks.
An ongoing process that an organization should use to protect itself, its clients, volunteers, and staff.
The essence of risk management is planning and prevention.
Although risk management is often associated with critical events and transition periods, it should, in fact, be practiced at all times. Any time a board member perceives an element of risk in something that the board or the organization is undertaking, proper precaution should be applied so as to prevent harm to the organization and its members.
Why Do Boards Need to Practice Risk Management?
The board is the legal steward of the organization. As such, the board itself can be held liable for damages that arise from taking actions that harm the organization or its staff and volunteers, if it is deemed that the board did not exercise due diligence and care at the time of the action.
Risk management is not only important due to the legal consequences that it can entail. Stakeholder and community relations can be affected by the board’s actions; although these may not involve liability issues, they must also be handled with care as they can be difficult to rebuild if tarnished in any way. For example, deciding to overlook the success of a social program or neglecting to act on a social crisis could severely diminish an organization’s status within its community.
Common Sources of Risk to Non-Profit Organizations:
Ø Injury to clients, staff, volunteers, and the public
Ø Damage to property
Ø Employment practices
Ø Fraud
Ø Non-compliance with legal requirements
How to Practice Risk Management
Any risk management plan should involve the following elements:
- Establish the Context of a Risk Management Program- determine who will be involved (over and above the general risk management that all board members practice) and how the risk management plan will be carried out. For example, will there be a formal process for dealing with risks once they are identified or will the board simply discuss risks that are brought to its attention?
- Identify and Acknowledge Risks- senior staff, committee members, and all board members should be aware of potential sources of risk. If possible, designate a team of people from a variety of backgrounds (board members, experienced volunteers, paid staff, clients) to identify sources of risk within the organization.
- Evaluate and Prioritize Risks- board members should openly discuss any risks that are identified and should discuss how best to deal with each one. Determine which risks require immediate action and which ones only require monitoring.
Risk Management Strategies
Avoid / eliminate – Avoid programs that cannot be delivered safely. Eliminate such programs in an appropriate manner if they exist already
Modify / mitigate – Not all activities need to be avoided if they involve some risk. Develop policies or procedures that enable the organization to deliver a service or carry out a task more safely, instead of cancelling it altogether
Retain/ accept – Establish tolerable limits of risk. Understand that not everything can be controlled, and determine what level of risk the board is able to manage
Share/ transfer – Share risk with another party or transfer the risk completely to another party. An example of this is outsourcing a service to another organization instead of delivering it directly
Other Ways to Prevent Harm to the Organization
- Comply with the organization’s bylaws and regularly review them to ensure that they conform to changing circumstances and legislation
- Safely store important documents
- Back up electronic files off-site
- Develop contingency plans for foreseeable risks
- Diversify income sources
- Establish a reserve fund
- Screen all volunteers
- Ensure all employees have/know their job descriptions and provide orientation and training
- Address any hazards associated with fundraising events
- Implement sound financial controls
- Adopt the Canadian Code for Volunteer Involvement (created by Volunteer Canada)
- Ensure the board gives its approval of any financial or business practice that may create financial liability
- Conform to Generally Accepted Accounting Principles (GAAP)
- Include an indemnification clause in bylaws
- Ensure that a financial audit is conducted annually and that problems are redressed
- Conduct strategic and long-term planning
- Ensure that the organization has sufficient resources to conduct its affairs and pay its employees
Dealing with a Crisis
Some crises cannot be prevented. If a crisis arises within an organization, immediate attention is usually required; board members will have to step in order to help staff, especially the Executive Director or CEO, to deal with the problem and manage the media and stakeholder relations associated with it. Board members are expected to react quickly in these situations so as to prevent further harm to their organization. Interference with operations is acceptable during a crisis provided that board members detach themselves from operations once the crisis has been dealt with.
Adapted from Mel Gill’s Governing For Results (Trafford Publishing, 2005).