Not-for-Profit Companies and Associations

Responsibilities and Risks for Officeholders

There are many Not-for-Profit organisations throughout Australia that carry on important work serving their communities in a variety of ways. Typically, those organisations will be governed by a Committee or Board, comprising of interested and well-meaning people occupying positions of responsibility.

Critically, the work undertaken by such Boards or Committees necessarily involve similar governance issues that confront commercial organisations.

Volunteer Boards and Committees are to be encouraged, but members occupying office would do well to bear in mind their obligations as well as identifying and managing the risks that they face in holding office.

At law, officeholders have a responsibility to carry out their duties and act in the best interests of the organisation and its members. This is sometimes referred to as a “fiduciary relationship”, in simple terms; it means that an officeholder must act in good faith and to the best of their ability. It includes recognising where any conflict or potential conflict of interest might arise. It involves understanding the “business” of the organisation, including an understanding of financial matters and, importantly ensuring the solvency of the organisation.

Each person holding office has an individual and collective responsibility to ensure that the organisation is undertaking its activities in accordance with its objects and its constitution or rules; that paid officers of the organisation are managed appropriately and, importantly, that all key information is available to an officeholder to enable them to make an informed decision as issues arise.

Regrettably at times, well-meaning office-bearers leave too much to the paid officials of the organisation and not enough attention themselves including being well informed; to ask searching and relevant questions and to be fully confident before making a decision on any issue that comes before them.

It is not surprising then that often key issues can, at times, be either not addressed or addressed sufficiently. Critical issues such as the compliance of timetabling for annual meetings, auditing of financial matters, lodging of annual returns and so on.

Whilst generally an officeholder will not be held responsible for the actions of the organisation itself, there are occasions where an office-bearer will face civil and, potentially, criminal sanctions. The most obvious of these is to ensure that the organisation does not trade whilst insolvent. Ensuring that the organisation is not trading or providing benefits to the individual concerned. And increasingly, the very significant risks and penalties associated with Occupational Health and Safety matters.

Officeholders ought not be deterred from doing the fantastic community benefit work that is involved in serving on a not-for-profit Board or Committee, but ensure that they take appropriate steps to address the potential risks that they face. In a word, being diligent in their role; taking an active interest in all of the activities and business decisions taken by the organisation.

A useful resource is the Australian Institute of Company Directors, who run educational courses which are extremely valuable in providing insight and advice to officers and intending officeholders.

For further information, refer to Nevett Ford’s publication tab on the website for the article “Good Governance (a pocket guide for directors and CEO’s”)”.

Author:  Paul Stephens