How to make governance change that sticks: Six secrets of success

By Randall Pearce - June 24, 2024

By Rebecca Lambert-Smith, GAICD and Randall Pearce, GAICD 

Rebecca Lambert-Smith and I have collaborated on several governance projects that have been truly transformative for the organisations involved.  This article discusses key principles for engaging members and stakeholders to achieve governance change that sticks in not-for-profit organisations.

Good governance is the soil in which healthy not-for-profits grow, but if organisations fail to renew their arrangements over time, they may fail to bloom and reach their full potential. Governance frameworks should be dynamic and responsive to organisational growth, best practice governance developments, and regulatory landscape changes.

The spectrum of potential governance reforms is broad. It can range from changes in board or member composition to constitutional reform, a change from a federated body to a single national body, or changes in the form of incorporation. If these important reforms are deferred, governance systems and processes may wither and hinder or impact organisational performance.

How a board implements governance change in a not-for-profit organisation can be transformative.  A meticulously planned and executed consultative process not only secures approval but also has the power to reshape organisational culture and enhance stakeholder relations.

Conversely, a poorly managed process is more likely to fail, potentially derailing the possibility of reform and straining relations among stakeholders. The lack of consultation is a significant reason why governance change often falters, particularly as the Corporations Act and State-based incorporated association legislation typically mandate the support of 75% of members for key changes.

1. Identify key decision-makers and stakeholders

One of the crucial steps in any governance reform is identifying the key decision-makers. The support of board members is the first and foremost requirement to sponsor the change project and approve funding for consultation and legal work.

The term of office of all board members, particularly the chair, should be carefully considered in the context of the project timeline to ensure that the process is not disrupted or derailed by a significant change in board composition. In cases where multiple organisations are involved, planning should consider the terms of office of all boards.

Although they may not be decision-makers, reforms may also impact volunteers, employees, service users, donors, funders, and regulators – the process should also allow for consultation with these stakeholders. Co-designing reforms in partnership with members and stakeholders can educate those who must understand and operate within the new arrangements before they come into effect.

2. Lead with purpose

Although being purpose-driven should be a defining feature of not-for-profit organisations, many allow their focus to drift from their purpose to their programs over time. Focusing on purpose requires organisations to articulate ‘why’ they exist rather than ‘what’ they do.

This should align with the purpose statement (sometimes called objects) set out in the organisation’s governing document. A clear, well-articulated purpose statement can motivate potential supporters, galvanise existing stakeholders and act as a lodestar for the organisation. In the context of governance change, it is important to:

• Ensure there is a focus on the organisation’s purpose. Is the purpose clearly articulated? Are the mission and vision aligned with the purpose? Does purpose underpin the strategic intent?

And

• Frame and name the governance change project in terms of purpose, how it is pursued and what is getting in the way of it being realised. Framing the exercise in the context of purpose will assist with building and aligning stakeholder support. Labelling a project as ‘governance’ will likely be a turn-off and make it harder to get stakeholder engagement.

3. Build trust step by step

The more significant the proposed change, the greater the importance of a well-designed consultation process. Presenting final legal documents to the members for voting without prior consultation can be a critical misstep.

An effective consultant will design an iterative process that begins with consultation with opinion leaders to identify key issues, leading to a co-design workshop and further consultation with members.

Language is important. For example, asking members to consider ’proposals for constitutional change’ sends a very different message to presenting ‘a new constitution’ to members. Similarly, the tone and language of consultation meetings should reflect genuine engagement and curiosity rather than selling a position or direction. If you are serious about listening to stakeholder views, you must ‘walk the talk’.

A collaborative relationship between the board, consultant and lawyer helps ensure an early opportunity to test the feasibility of potential legal solutions and explore alternatives before the legal drafting process begins.  The goal is to keep the focus on the ideas without participants getting bogged down in legal wording too early in the process.  The relationship developed between stakeholders and the consultant through this process also assists in building trust, which can be critical to the final vote.

4. Agree before drafting

The legal drafting process begins only once an agreement on key principles is reached.  One of the most common mistakes is creating legal documents before it’s time.  Legal language can create barriers to understanding the simple concepts that underlie legal clauses.  Introducing these lengthy documents too soon can also cause stakeholders to become disengaged.

Waiting has several benefits:

• ensures the lawyer is fully briefed on the concerns and priorities of all stakeholders;
• streamlines the legal drafting process;
• supports the development of bespoke solutions; and
• ensures that the final legal documents reflect the in-principle agreements reached between stakeholders and that they feel ownership over the outcomes.

Importantly, agreeing before drafting ensures better, more coherent governing documents, and it saves time and money.

5. Design a governance system, not just a board

While a healthy governance framework always starts with considering board structure and function (such as establishing a robust nomination process, ensuring appropriate board composition, and allowing for renewal on the board), it is important to look beyond the board and design a governance system.  A robust governance system integrates and connects the formal and informal bodies whose roles intersect with the organisation’s governance. This includes:

• Members – What are their eligibility criteria? Are membership categories appropriately considered? Do they have clear rights? Are there mechanisms for board accountability to and engagement with the members?
• Board sub-committees – Do they have clear terms of reference? Are there appropriate delegations in place? Does the scope and number of sub-committees properly support the work of the board?
• Advisory Committees – What is their purpose? How are they established? How and when do they engage with the board?

6. Keep all options open until the end

It is easy to lose decision-makers’ support by presenting them with a fait accompli too early. A consultation process will not be effective if it is or appears to be shaped around a predetermined outcome.

While stakeholder theory holds that stakeholder interests are linked, they need not compete.  Using a mutual gains approach will help the project team and sponsoring board strike the right balance between various stakeholder interests.  By insisting that ‘nothing is decided until everything is decided’, you keep the prospect of a comprehensive agreement alive until the end of the process.

Governance change can be transformative if it is inclusive, engaging and focused on an organisation’s purpose.  With robust consultation with members and stakeholders, boards can achieve more than they could on their own.  Nurture your governance system, and your organisation will flourish.

Ensure the continued relevance and effectiveness of the governance system. If you would like to know more about our services or how we may be able to advise you, contact us today.

 

Rebecca Lambert-Smith is the For-Purpose Practice Leader at Moores Legal and Randall Pearce is the Managing Director of for-purpose consultancy THINK: Insight & Advice.  A lawyer and a consultant, Rebecca and Randall are an unusual collaboration.  They work collaboratively to deliver integrated advice to their clients and maximise the transformative power of governance. A version of this article appeared in the 2024 edition of the Better Boards Magazine.