Duty of care, skill and diligence. Part 3. Governance capability development

 (Part 1 and 2 - https://cutt.ly/G04R1JA)

“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

Abraham Maslow

While it may seem obvious that non-profit directors require a set of skills to perform their duties, elections or appointments to these roles rarely involve scrutiny of the skill profiles or levels of individual candidates, or indeed the mix of skills across the board.

Associations are frequently bound by their constitutions to elect only members, with no guarantee that the members who succeed at the ballot possess any of the skills that might be objectively described as ‘sufficient’. To that extent, they can be at risk of being governed by boards that view everything through the relatively narrow lens of members’ business needs. These constraints don’t apply to commercial boards, which are obliged to appoint directors with the range and depth of skills required to effectively govern their organisation.

Charities more often tend to appoint or elect directors with an eye to their qualifications and skills (beyond being interested in the cause, or being a donor). From my observations, they are usually more careful than associations, despite which the ACNC reports of poor governance in various charities provide evidence that director skills were often lacking.

As noted in Part 1 of this series on the ‘Duty of care, skill and diligence‘, common law (determined by courts) dictates that in performing the ‘duty of care and diligence’, a reasonable person will exercise a level of skill or expertise commensurate with their responsibilities.

Competency frameworks

While various competency frameworks have been devised to describe the skills required of directors (see links below), I found the governance capability framework for community organisations developed by the Victorian Department of Health and Human Services offered the most relevant reference for the non-profits I deal with.

This framework is supported by resource materials which help explain the skills required for effective governance, and ways they may be utilised.

The header image above blends this governance capability framework with the prism of clinical competence developed by Dr G. E. Miller (slightly modified by me to separate ‘attitudes’ into ‘attitudes and beliefs’). Under Miller’s model, it is only in the ‘Does’ triangle that the doctor truly performs, and of course, that is just as true for non-profit directors.

The framework referenced by the AICD was devised by Prof. Geoffrey Kiel et al, and highlighted in their valuable reference Directors at Work. In that model, the key areas of competence are listed as:
• Industry: Experience in and knowledge of the industry in which the organisation operates.
• Technical: Technical/professional skills and specialist knowledge to assist with ongoing aspects of the board’s role.
• Governance: The essential governance knowledge and understanding all directors should possess or develop if they are to be effective board members. Includes some
specific technical competencies as applied at board level.
• Behavioural: The attributes and competencies enabling individual board members to use their knowledge and skills to function well as team members and to interact with key stakeholders.

Kiel G, Nicholson G, Tunny J A, Beck J, Directors at Work: A Practical Guide for Boards, Thomson Reuters Australia, 2012, p 203-4

Director development policy

A board comprised of directors who only possessed ‘industry’ skill sets would be like a tradesman with only a hammer at his disposal – everything would look like a nail. Decisions made by such a board would be more likely to serve ‘narrow sectional interests‘ than to take broader compliance, social and environmental considerations into account. Such a board may therefore be at risk if it failed to develop the directors’ skills in the other key domains.

Director development is therefore an essential aspect of good governance. Recognising that non-profit directors will have a range of governance experience and expertise, the developmental programs you offer your directors will desirably be calibrated to their individual needs. When framing your Director Development Policy, as well as outlining the competency framework applicable in your organisation, you may want to consider where each of your directors sits on the scale from novice to expert, and choose programs likely to promote skills beyond the foundation level for those with some experience. (As an aside – in my opinion, some of the competency frameworks promoted in the marketplace are designed as much to promote revenue generation from recommended course fees as they are an objective analysis of skills required for effective governance).

The ‘sledgehammer‘ of novice-level skills will not help your board to make complex strategic and risk management decisions, which require the ‘scalpel‘ of high level judgment and governance insight.

https://cutt.ly/B4BfFuz