The role of a national regulator in developing solutions to governance challenges in the not-for-profit sector

Abstract

This article presents empirical evidence of the governance challenges faced by not-for-profit (NFP) organisations. Drawing on interviews and survey data, the paper explores perceptions of NFP leaders concerning governance challenges, drawing implications for theory and practice. The research shows that NFPs face internal and external contingencies that determine effectiveness of governance systems. The study finds that considerable variation in the roles of boards exists. This has theoretical consequences, as the usefulness of stewardship, agency, resource-dependence and stakeholder theory varies according to the directives of NFP boards, and provides empirical evidence in favour of taking a contingency approach towards theories concerning NFP boards. The study further shows that director recruitment is challenging, particularly for NFPs with membership-based board models, as the constitution often determines a pool from which must be sourced. This often leads to directors not being recruited based on skills, which in turn increases the importance of skills development. While many respondents state they provide training, interviewees indicate that lack of time and resources pose practical obstacles. We contend that this lack of resources represents a contingency that can negatively impact board functioning. The findings furthermore suggest that funding dynamics can negatively impact accountability and governance. Specifically the fact that government is the largest donor in the sample, while the recipients of services are the most important stakeholders. While donor and stakeholder representation on boards may help to mitigate donor dependency and asymmetric accountability, the study finds that NFPs are often unable to recruit directors with appropriate skills. As it is also challenging to facilitate training due to the lack of resources, the result is a conflicting dynamic between the demand for skills and stakeholder representation on governance bodies. Respondents decribed the Australian charities regulator, the Australian Charities and Not-for-Profit Commission (ACNC), as a potential advisory and ‘go-to’ body that can help establish basic regulation and increase public confidence in the sector. The study suggests a role for the ACNC in assisting NFPs to reflect on contingencies and establish optimal governance configurations.