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Introducing The KPMGDirectors’ Toolkit and how it will benefit the NFP director
2 August 2014
Board Advisory Services
Challenges for the Australian Not-for-Profit Sector
3© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Key challenges for the Australian Not-for-Profit Sector
Fundraising for the Future
Attracting the right people
Regulation and Compliance
Relevance and Recognition
Obtaining assistance and the right tools
4© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Introducing the Directors’ Toolkit
The Directors’ Toolkit is an important tool for today’s NFP boardroom. Designed in an interactive iPad / tablet-friendly format
It is an essential resource for today’s NFP director.
Updates, new sections and version releases
We will with your approval keep your details on our Board Advisory Services database to keep you informed of any updates to the toolkit
Better practice in the NFP Board Room
6© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Ticking the boxes
Effective NFP boards
Expert
Taking the boardroom to a ‘better practice’ level
7© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Effective NFP boards
Expert
Ticking the boxes
Governance, strategy, risk and assurance
all aligned
Taking the boardroom to a ‘better practice’ level
8© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Effective NFP boards
Expert
Ticking the boxes
Governance, strategy, risk and assurance
all aligned
Corporations Act (2001)
ASX Listing Rules
ISO31000 Risk
Management Standard
Australian Accounting
Standards
Industry better practice
standards
Better practice in the boardroom
effective, strategic governance
Financial Management
Act 1994(Vic Govt.)
Structuring an effective board and sub-committees
Directors’ ToolkitChapter 5 & 7
10© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Structuring an effective board
Red Flags
• Board appointments are decided by the chairman with little input from other directors.
• Directors do not receive a letter setting out the terms and conditions of their appointment.
• No formal (or insufficient) board induction is provided to new board members.
• Unreasonable demands are placed on the directors’ time.
• The board is too large compared to similar organisations.
• There is a lack of ongoing board succession planning.
11© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
I am responsible for our board
instruments, meeting agendas
and documentation
I have 20 years experience in the
business and understand
our business cycle
I am an independent director with experience in
change management
My background is in financial services and I provide the board with strong financial literacy
Structuring an effective board
Effective boards possess varied experience, diversity and have a sound understanding of their roles and responsibilities
$
12© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Board
Audit & Risk Committee
Remuneration Committee
Nomination Committee
Other special purpose
committees
Audit / assurance providers
Board committees
= legally required
= Recommended by ASX Corporate Governance Principles
= optional (encouraged by better practice guidance)
Supporting key executive and director appointments
Directors’ ToolkitChapter 6
14© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Company leadership
Questions That Company Directors Should Ask
Does the board have complete confidence in the CEO and the senior
management team?
Does the CEO, through attitude and behaviour, reinforce the appropriate
‘tone at the top’?
Has the board developed a CEO and senior management succession plan
that is periodically reviewed?
Do the CEO’s responsibilities include attracting, developing and retaining high
performers in the organisation?
Does the board have a transparent process for determining management
remuneration?
15© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Company leadership
Develop and retainDevelop key management, rewarding and
encouraging effective management practices
Review and improvePerform thorough review processes, utilising
independent providers where appropriate
Select and empowerConduct a robust selection process, utilising
external search firms where necessary
Duties and responsibilities of a NFP director
Directors’ ToolkitChapter 1
17© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Directors’ legal duties
Australian Taxation
Office (ATO)
Commonweal
th taxation law
ASX Listing Rules
ISO31000 Risk
Management
Standard
Australian AccountingStandards
Industry better
practice standards
Australian Charities and
Not-for-profits
Act 2012 (Cth)
(the ACNC Act).Financial
Management
Act 1994(Vic Govt.)
Corporations
Act (2001)
NFP Company directors have significant legal responsibilities. It is critical that directors understand their duties and keep abreast of any changes to legislation affecting them.
18© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Directors’ capacity
There is a need for
directors to be able to
give sufficient time and
effort to their board role.
19© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Financial literacy
Financial literacy is a combination of financial
knowledge, skills, attitudes and behaviours
necessary to make sound financial decisions,
based on personal circumstances, to improve
financial wellbeing.
Oversight of strategy and governance
Directors’ ToolkitChapter 2, 10 & 13
21© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Questions That Company Directors Should Ask
Is the composition of the board appropriately diverse for it to perform
effectively?
Is there an annual agenda, approved by the board, that is linked to the board’s
key responsibilities as detailed in the board charter?
Is the board clearly setting out the roles and authority of the CEO and
directors in writing?
Are delegations to management, including the delegations policy, set out in a
single document?
Is the board monitoring that directors allocate sufficient time to discharge
their responsibilities?
Governance roles
22© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Insightful strategy
Red Flags
• The board accepts management’s strategy without in-depth probing or questioning.
• The board does not fully understand the nature and implications of the proposed strategy.
• The external environment is not fully considered in strategy development.
• Not all directors attend the meeting where strategy is discussed and approved.
• Risks inherent in the strategy are not identified or managed.
• Board meetings are not strategically focused.
23© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Governance roles
Constitution
Board charter
Governancecharters
Risk appetite
Board duties
Simpleefficientminimumstandards
Clearaccountabilityfor decision-making
Co
rpo
rate m
ission
OutcomesInputs
Enablers
Values
There are many instruments, roles and responsibilities required for a NFP board to deliver its governance function effectively.
24© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Role in strategy
The NFP board plays an
important role in setting the
vision, purpose and strategies of
the organisation.
25© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Insightful strategy
Communicate and enact
Respond and reassess
Plan and develop
26© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Board Roles and Responsibilities
Board vs Management
Engaging effectively with stakeholders
Directors’ ToolkitChapter 4
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Stakeholder engagement
Red Flags
• The NFP maintains no stakeholder mapping, tiering or profiling information.
• The risk of not engaging stakeholders is not discussed or is often dismissed quickly by some board members.
• Online coverage of the NFP is mostly negative.
• Unclear executive and board accountabilities for stakeholder engagement.
• The NFP is unaware or unprepared for the impact of social media activism.
29© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Stakeholder engagement
A good reputation is a prized
corporate asset. NFP’s that can
mobilise their stakeholder base
are able to present a positive
public image and reap the
rewards that follow.
30© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Stakeholder engagement
Review
• Monitor and respond to risk on an ongoing basis
• Evaluate performance
• Report progress through a formal annual report statement
Engage
• Initiate contact with board-level stakeholders
• Focus on the issues that matter
• Proactive not reactive
• Drive mutual relationships and outcomes
Plan
• Profile and map stakeholders
• Conduct risk assessment and set priorities
• Set roles and accountabilities
• Establish monitoring indicators
• Prepare training where appropriate
31© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Accountability to community
When dealing with the
community NFP should be:• Accountable• Transparent• Consultative
Managing productive meetings
Directors’ ToolkitChapter 8
33© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Productive meetings
Document and distribute
• Distribution of minutes to board members
• Secure board portals
• Leverage technology
Attend
• Regular attendance
• Accurate minuting, in line with Corporations Act 2001
• Physical sign-off of previous meeting’s minutes
Prepare
• Annual rolling agenda
• Easy access
• Defined roles and responsibilities
• Timely distribution
Risk Management
Directors’ ToolkitChapter 11
35© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Risk management
Red Flags
• Risk management is not connected to corporate strategy.
• Leadership from the top is lacking.
• Risk management is positioned as a compliance and backroom exercise.
• Risk reporting and risk management plans are not challenged at board level.
• A healthy risk culture is not embedded throughout the organisation.
36© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Lack of internal controls
Inefficient record
retention
Inexperienced staff or
volunteers
Lack of financing
Fraud
Risk management
Sources of risk
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Risk management
Strategy &Risk Appetite
Defining a risk appetite suitableto your organisation
Structuring risk governance, with clear roles and accountabilities
Identifying your key risks and facilitating thinking around the likelihood and consequence of materialisation
Embedding monitoring systems with actions and timetables
Designing a reporting structure to
keep the Board informed
Setting a culture of risk awareness and good risk management practices
Better practice terms of reference, charters and agendas
Directors’ ToolkitChapter 9, 12 & 15-17
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Ethical culture
Code of ethics Whistle-blower
policy
Sustainability policyAnti-corruption
policy
Strong and
consistent
tone from the
top
Sharing of bad
news
encouraged
Incentive-
based
accountability
structure
Standard
behaviour
across
business lines
Guiding policies Guiding behaviours
40© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Receiving assurance
2nd LINE – Internal oversight functions
Finance, HR, Quality, Risk Management
Bo
ard
, E
xCo
mm
& A
ud
it C
om
mit
tee1st LINE – Business functions
Embedded risk and control environment
3rd LINE – Independent assurance
External Audit, Internal Audit, other assurance services
3 LINES OF DEFENCE
3 LINES OF DEFENCE
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Corporate Sustainability
The key drivers of the increasing
focus on Environmental, Social
and Governance are the
increasing:• power of stakeholders;• value of intangibles; and • regulation.
42© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Work Health & Safety
Organisations have a duty
of care to ensure that any
person affected by the
company’s undertakings
remain safe at all times and
that their work activities
are not prejudicial to
health.
43© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Work Health & Safety
Best practice framework for Health and Safety governance (Source: ‘Defining best practice in corporate occupational health and safety governance’, Health and Safety Executive, 2006)
Best Practice Framework for OHS Governance
• Director Competence
• Director Roles and Responsibilities
• Culture, Standards and Values
• Strategic Implications
• Performance Management
• Internal Controls
Organisational Structures
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Government
• often they don’t have the authority to determine leadership of the organisation and appoint the CEOOrganisational Leadership
• stakeholders are wide and varied, with expectations from the community heightened for government agencies
Community Expectations
• agencies are not profit motivated and are guided by strategic direction set by governmentNot-for-profit motives
• challenges that present governance in a political environment with influence and decision-makingPolitical Influence
• government agencies don’t have continuous disclosure requirements but must work within the funding constraints and timelines of government budget processes
Funding Constraints
Establishing new boards
Directors’ ToolkitChapter 18
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Establishing a new board
Establishing a new board is a challenging undertaking. Our ‘first 100 days’ model provides a roadmap of the key activities and deliverables needed to establish an effective board within a target timeframe of 100 days.
Leadership & strategy
Agree priorities
• Terms of reference• Charter and annual
agenda• Sub-committees• Financial compliance• Legal and compliance
duties• Delegations / CEO limits• Code of conduct• Strategic plan
Performance & monitoring
Operating model*
• Policies:‒ conflicts of interest‒ regulatory compliance‒ Privacy‒ whistleblower & fraud‒ media/crisis/incident ‒ Recruitment &
remuneration‒ continuous disclosure
• Target operating model• Key appointments CEO /
CFO
Stakeholder engagement
Stakeholder framework
• Communication policy• Internal / shareholders /
community / government• Shareholder relations• Mapping and tiering• Engagement plan• Consultation model• Stakeholder and
consumer participation forums
Compliance
• Compliance framework• Internal & external auditor
appointment• Audit & risk committee• Consequence and breach
policy• Reporting & oversight• Board performance
assessments
Accountability & audit
Risk profile*
• Risk management policy• Risk workshop• Agree and validate
critical risks• Risk register• Risk monitoring and
mitigation• Risk reporting framework
Risk management
Informed discussions and decisions, not an endless
stream of surprises
Proactive, strategic tool, not a reactive function
Healthy culture supported by strong policies, not an
inconsistent ‘tone at the top’
Active stakeholder consultation, not
disengagement from the process
Tailored assurance and reporting, not a ‘one size fits
all’ approach
*Note – in practice, it is common for these phases to run in parallel
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Risk management
Red Flags
• There is limited understanding on what is required in the first 100 days
• The board composition has mainly inexperienced directors
• No advice is sought from experts or directors who have experience in establishing boards
• No time has been planned for discussing risks, strategy and corporate governance
• Accountabilities and delegations are unclear and not documented
• No board instruments have been presented for endorsement
Directors’ Toolkitwalkthrough
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Introducing the Directors’ Toolkit
Smartphone and tablet users
To view the PDF it is recommended you use the free Adobe Reader app that is available for your device. When launching the document, select
Adobe Reader to view the document.
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Navigating the Directors’ Toolkit
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Navigating the Directors’ Toolkit
Easy topic navigation
Click on chapter title to take you
directly to a topic of interest
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Navigating the Directors’ Toolkit
Icons to click
Easy to use icons to print, search and
navigate
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Navigating the Directors’ Toolkit
Questions to ask?
We have provided for key boardroom topics questions to ask to prompt right
discussions
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Navigating the Directors’ Toolkit
Red flags
Every chapter includes a list of warning signs of
potential issues of concern for
company directors
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Navigating the Directors’ Toolkit
Case studies to inform
The toolkit provides recent case studies on insider trading convictions, HIH
insurance, James Hardie and Centro
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Navigating the Directors’ Toolkit
Example better practice templates to leverage
TemplatesWe have include
Board committee charters
2012Annual assurance plan
2012Annual assurance plan
Group Risk
Policy
Policy
Co
ns
eq
uen
ce
Moderate
Minor
Extreme
Major
Rare AlwaysPossibleUnlikely Likely
Insignificant
Likelihood
23
2
1
1
4
5
67
9 9
8
Risk mapping
Board risk reporting
Board and board committee minutes /
documentation
Risk treatment plans
Forward looking meeting agendas
Audit and Board Committee annual
agendas
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Toolkit content
58© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Key contacts
Sally FreemanRisk Consulting National
Partner-In-Charge
Carmel MortellBoard Advisory Services
Partner
Kylie MaherBoard Advisory Services
Director
KPMG National Board Advisory Service
The Directors’ Toolkit is an important tool for today’s boardroom. Designed in an iPad-friendly format, it is an essential resource for today’s director.