Directors in the not-for-profit (NFP) sector know well that good governance is linked to performance. It is taken for granted that well run organisations and high calibre boards will lead to an NFP meeting its mission.

But in looking at the link between good governance and performance, research has often neglected to focus on NFPs, but rather focuses on the listed sector.

A new report, From blind-spots to sweet spot by Dr Robert Kay and Dr Chris Goldspink of Incept Labs, supported by the Australian Institute of Company Directors (AICD), takes a different tack.

The research goes back to square one, putting aside pre-conceived ideas about the role of the board and executive, and how they are related to performance. The report was prepared for the launch of the AICD’s Advisory business unit, a new service providing consulting services and in-house professional development for the ‘Governing Team’ which includes the CEO, executive team and the board.

The report includes a much wider range of views, taking in the perspectives of one hundred chairs of a gamut of organisations, including private, listed, government and NFP boards.

The chairs were asked to examine their beliefs around governance, performance and decision-making.

Good governance is particularly important in managing biases inherent in the decision-making process, according to the report. Psychology research has shown that the natural state of human decision-making is subject to errors and omissions. Good governance compensates for these limitations.

In the view of the chairs, better decision making was exhibited when the organisation’s Governing Team displayed:

• Diversity of experience
• Independence of mind
• Openness to alternatives.

Bringing together a team with these attributes requires high levels of trust among the Governing Team, the chairs said. However, in some instances over the long-term, theory suggests that high levels of trust can lead to biases, such as group think.

This means that social dynamics affecting the quality of governance operate on a continuum. There are dynamics that minimise bias but the same dynamics at an extreme can introduce bias.

The chairs interviewed spoke of a ‘sweet spot’ where the social dynamic created by the combination of personalities, experience and circumstance resulted in the quality of decision-making being superior. The whole was greater than the sum of the parts.

Maintaining this dynamic is very difficult. A highly-delicate balance exists between the ability to critically evaluate decisions, while also maintaining trust among the Governing Team. Chairs spoke of this balance being rare and, when it did occur, transient.

How did NFP chairs conceptualise performance in the survey? There was an asymmetry in the factors NFP chairs looked at when they were assessing good performance outcomes versus negative ones. For positive performance NFP chairs take a multifactorial approach looking at an organisation’s finances, resilience, impact and stakeholder relationships, whereas in assessing negative outcomes stakeholders and finances were much more important.

Whatever the mission of your NFP, the AICD’s Advisory team can help your Governing Team in being in the good governance ‘sweet spot’. The Board Advisory practice provides tailored advice to help boards navigate and solve challenging issues and improve governance arrangements to standards of best practice.

The AICD’s services draw on its research, data, extensive knowledge and expertise to give organisations the latest insights that will help them respond to social, economic and political trends.

For more information, visit: companydirectors.com.au/advisory