Governance or Corporate Governance as it is commonly called in the business world refers to a set of principles, policies and processes by which an institution is run. It defines the values with which an institution conducts itself while it goes about achieving its goals and objectives.
Governance not only plays an important role in defining how a company is run, but it also helps to instil confidence among donors, participants and society at large. A good governance policy coupled with effective management is a hallmark of successful institutes.
In simple words, Governance refers to the processes relating to governing an organization through a set of prescribed laws and norms. Effective governance structures are important to achieve the organization’s mission and objectives.
Why is Governance Important?
Most NGOs start small, with day to day management, budgeting and operations being run by founders using hands-on approach. They are involved in all matters as both financial and human resources are in acute supply.
Eventually, the NGO grows and there are both funds and human resource that require professional management and guidance. The founders gradually step back to allow the management professionals to run the day to day affairs. The founders take up the role of board members and overlook into the functioning of NGO as the head of a large family would. But this is easier said than done though. Often the founders maintain interest in day to day functioning and thus do not give the professionals a free hand to manage the operations.
In our numerous engagements with founders, we have often realized that such conflicts arise due to their fear of loss of organization spirit and culture rather than from lack of trust in operational capabilities of management.
This is where a strong governance policy can help. It will help to define the culture of the organization even after the founders have stepped back or moved on. Not only will it instil confidence in the stakeholders but will also prevent missteps on the way.
Adoption of governance helps in the following:
- Enhances the overall performance of the organization.
- Prevents malpractices and corruption.
- Improves better compliance with various legal regulations and procedures.
- Enhances accountability amongst all the employees and board members.
- Improves financial and strategic planning.
- Facilitates better communication with all stakeholders (donors, project staff, beneficiaries, authorities)
- Donor agencies support organizations that have proper systems in place.
- Enhances stability and sustainability of the organization.
- Improves coordination and collaboration at various levels.
Elements of Good Governance
Good governance has eight elements viz. participatory, consensus-oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive, and follows the rule of law. (view sample)
1. Rule of Law: It is important for your organization to comply with all the regulatory and legal frameworks that are applicable in your country. Along with compliance with the existing laws and policies, your organization should also have an internal legal framework to protect all stakeholders. Develop your own policies of keeping records, formats for reports, trip and field reports, internal minutes.
2. Transparency: An important element of governance is transparency, which simply means that all information pertaining to your organization should be easily and freely available. Your reports, information related to board members, donors etc. should be accessible to relevant stakeholders. As long as you are not doing fraud you have nothing to fret so you should publicize your organizations activities. You can use take the support of the press and the internet to showcase your project activities. Publicizing your activities enhances your visibility and promotes public trust.
3. Responsive: Another element of good governance is being responsive. Your organization should have necessary policies that allow you to take necessary decisions in a timely and judicious manner.
4. Consensus Oriented: All decisions within the organization should be taken only after consultation from various stakeholders and necessary frameworks should be adopted only after consensus from all board members.
5. Accountability: Accountability is a very large term and encompasses several issues of an NGO; some of these may include organizational management structure, financial procedures, human resource policies etc. Experts suggest that organizations with high accountability and credibility are often preferred by donors and are more likely to get funded.
6. Participatory: Good governance requires participation from all stakeholders in decision making. Participation ensures that there is freedom of expression, collaboration and respect among decision-makers.
7. Equity and Inclusiveness: Good governance is based on the principles of equity and inclusiveness, which implies that policies and frameworks of the organization facilitate an equal opportunity to its stakeholders irrespective of age, gender, culture differences.
8. Effectiveness and Efficiency: All the processes within the organization should help in enhancing effectiveness and efficiency. The various policies – HR policy, Financial, Fixed assets, Communication policy should be able to enhance the overall performance of the organization.
Board of an NGO
Most NGOs exercise effective governance, through an internal system of rules and regulations that describe the roles and responsibilities of the Board members. The board members of the NGO are responsible for establishing the guidelines for the working of the organization.
Board is at the centre of the governance of NGOs. There are several functions that the Board performs for the successful management and governance of the NGO. Some of the most important functions that the NGO board performs are as follows:
1. Compliance of the organization to its Mission and Vision: A board of directors not only establishes the values, vision and mission of the organization but also ensures that it lives up to these. The Board evaluates the various activities to see if they are in line with organizations vision and mission.
2. Establishing Fundraising Goals: Board members along with the executive director of the NGO establish the fundraising goals for the NGO. They may also help the NGO in establishing contacts with donor agencies and corporate houses.
3. Assessment of NGO activities: Board members regularly evaluate and assess the working of the NGO, through reports and discussions. Based on the assessment, the board members suggest revision, modification and restructuring of current projects and programs.
4. Establishing policies: Board members draft policies and protocols for the smooth functioning of the organization. These policies may be related to human resource management, communication, fundraising, administration and procurement etc.
5. Hiring the executive director: The responsibility of hiring the executive officer lies completely in the hands of the board members. The board members should develop the ToRs for the position of the executive director and then accordingly identify the right candidate for the job.
6. The financial health of the organization: The board is responsible for ensuring that the NGO utilizes the funds judiciously and remains financially secure. Board members develop a comprehensive financial policy to achieve accountability and transparency.
7. Annual budget and annual work-plan: Board members develop and approve budget on an annual basis. Based on the approved budget, a work-plan is drafted to carry out various activities as per the budget.
8. NGO representation: Board members are the face of the NGO. They represent and promote the organization in various events and functions. Chairman of the board carries several responsibilities and as the leader of the board, it is his/her duty to accomplish the organization’s mission and vision.
Best Practices for Ensuring Good Governance
1. Maintain board minutes: The minutes of the board meeting should be maintained properly. These minutes help you to keep track of the points/actions that were discussed and suggested by the board. The minutes of the meeting should include the Organization Name, Date, time and place, Members Attendance, Motions made and the Voting process (view sample).
2. Have a standard process for hiring board members: Board members play a crucial role in the functioning of an NGO, and therefore, one should be careful while appointing them. It is essential to identify the right board members who can help in the overall development and success of your organization. Board members play a crucial leadership role within the organization and proper process should be followed to appoint them. The board recruitment plan should clearly indicate the Number of board members required to fill up the vacancy, Criteria for selection of Board members, Key Qualities to be assessed, Tenure of a board member, Terms of Reference for the job and the time within which the vacancy needs to be closed
3. Clear allocation of responsibilities: It is important for you to have clearly defined roles and responsibilities of all staff members (view sample).
Chairman of the Board
- Scheduling board meetings
- Provide Leadership
- Establish good governance practices and procedures
- Ensure that the board is properly briefed about organization progress/issues and challenges
- Ensures effective participation of the board in the development of the organization
- Ensure compliance to the strategies and policies
- Represent the organization in networking events
- Setting the agenda
- Coordinate the effectiveness of the board.
- Participate in meetings
- Guide the organization as per their expertise
- Monitoring and Evaluation of projects and financial resources
- Recruiting new board members
- Selecting Executive Director
- Strategic planning
- Maintain Integrity
- Manage day to day operations of the organization
- Maintain communication and liaise between the chair and other employees
- The hiring of staff and volunteers
- Creating and approving the annual budget and financial projections
- Attend and host fundraising events
- Promote integrity, honesty and compliance of all procedures and processes
4. Organizational Structure: Your organization should also have a proper organization chart reflecting the structure within the organization and how each position is related to each other. The organogram defines the chain of command and relative ranking of various positions in an organization (view sample).
5. Adopt suitable Processes/ Policies to deal with various decisions: A policy is a deliberate system of principles to guide decisions and achieve rational outcomes. A policy is a statement of intent and is implemented as a procedure or protocol. Policies are generally adopted by the Board or senior governance body within an organization whereas procedures or protocols would be developed and adopted by senior executive officers.
Some of the ways in which policies help organizations are as follows:
- Internal control
- Effective office management
- Receptive staff
- Improves transparency and accountability
- Enhances trust amongst stakeholders
- Conflict Management
Policies are drafted by board members and once approved by the senior executives they come into force (view sample). There are a whole lot of policies that can be developed by an NGO, some examples include:
- Finance and Accounting Policy
- Human Resource Policy
- Communication policy
- Conflict Resolution Policy
- Procurement Policy
- Leadership Succession Policy
- Fixed Asset Policy
- Membership Policy
6. Make the list of trustees and board members public: Experts suggest that the list of current Board members should be publicly accessible. You should update the list whenever there is a change of board members. This list should be available on your website and on annual reports. A sample list should look something like this:
- Experience (years)
7. Annual Reports: Publishing your annual reports regularly is a great way to ensure that you are fulfilling the required activities responsibly. The annual report provides the readers with details about all the activities that your organization undertook a particular year. Make sure you use images and data to represent important changes and activities that you completed in a particular year (view sample)
8. Self-assessment and Evaluation of Board: Your organization should have a well-defined evaluation/ assessment process for the board members and the executive director. This evaluation helps to find the existing gaps in the leadership and accordingly recommend corrective measures to improve board performance.