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NFP directors need to emphasis innovation and cybersecurity

A new report by the AICD has found not-for-profit governance could be greatly improved with driving innovation and improving cybersecurity measures

Directors of not-for-profits have been found to dedicate more time in their governance roles to address challenges and opportunities, a new survey has found.

The report, released by the Australian Institute of Company Directors (AICD), revealed that governance is improving across the sector with 82 per cent of directors rating the quality of governance as either somewhat or much better than three years ago.

AICD Managing Director and CEO, Angus Armour, said: “There’s no doubt that directors have responded to the need to enhance governance in the sector given the critical role these organisations play in our community.”

AICD’s NFP Governance and Performance Study, now in its ninth year, is the largest of its kind in Australia with 2022 respondents, including directors and executives from a diverse list of NFP organisations with revenue ranging from $100,000 to $50 million.

Key findings of the report include more than half of respondents believe that innovation is the responsibility of management and the other half view it as a responsibility of the board. Seventy-five per cent are actively engaged in monitoring and leading culture this year, an increase since 2017.

Boards have been found to utilise a combination of methods to increase culture in the workplace, such as staff survey results, staff turnover and dismissals, client survey results, OH&S reports and client complaints.

Armour said that although not all boards see themselves as innovators, the board must play a role in facilitating innovation within a business given the growing awareness of the board’s role in setting a culture.

This year’s results found 75 per cent of respondents reported that their culture was monitored well, up from 43 per cent last year. When focusing on NFPs with more than 100 employees that number rose again to 97 per cent.

“NFP directors have seen declining levels of trust in society and in NFPs, and are pursuing improved workplace culture as one measure to address this,” Armour said.

“It’s clear that despite the challenges in measuring culture, directors are focused on establishing and maintaining a culture aligned to their mission and stakeholder expectations. This year’s findings show that directors of NFPs are engaged, committed and have strong foundations in place to meet governance demands and expectations.”

The study also highlighted that there was great need for boards to play a role in driving the innovation to protect the organisation from potential and emerging threats.

“The pressure to innovate is reflected in this study, with 45 per cent of respondents agreeing their NFP did not allocate sufficient resources to innovation and 44 per cent saying their NFP was less innovative than needed,” Armour said.

“However it’s interesting that directors appear split on the board’s role in innovation, with roughly half seeing it as the role of the CEO, while others see the board as driving innovation via the strategic plan or by generating ideas for management.”

More specifically, the survey uncovered that more than half of NFP directors reported that cybersecurity is an operational issue or not considered regular board responsibility.

On top of this, 38 per cent reported their board had a ‘very good’ understanding of the impact of a cyberattack on service users and 25 per cent of the probability of an attack.

“It may be there is a need for NFP directors to improve their capability around technology as boards of any type of organisation cannot ignore cybersecurity risks,” Armour said. “This is certainly an area that the AICD is and will remain focused on.”

When analysing mergers, the study found aged care organisations are more likely to partner with 36 per cent saying the issue had been discussed and 12 per cent either completed or about to complete a merger in the next 12 months.

“While funding, and certainty of funding, remains a challenge for aged care organisations, Australia’s ageing population means the sector will face increased demands on its resources and abilities,” Armour said.

Asked about the likelihood of a merger in the next two years, 40 per cent said there was a 50 per cent or greater chance.

“Directors in the sector are concerned not only about financial sustainability, but how they respond to the need for increased infrastructure and what their financial workforce will need to look like.”

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