By Devaprakash Ramakrishnan
The Indian charity world is demanding creative solutions which have a better impact along with increased accountability towards results-based engagement. The industry is sitting on a steady stream of foreign money becoming a huge receptacle of local-giving, propped-up by High Net Worth Individuals’ (HNI) munificence. Of late, transparency and aid effectiveness has received increased attention in a sector riddled with poor accountability and mistrust.
Revamp corporate governance: High stakes for private sector
With the new Companies Act 2014 in place, many corporates have gone beyond the mandated 2% of profits to be invested in CSR activities. They are increasing their spend on civil societism calling it a journey towards community-giving.
Uday Kotak committee’s recommendations on revamping corporate governance and increased transparency are being considered not only by the listed-companies but other sectors too, with many takeaways for the charity world.
New delivery model demands inclusive governance
The NGO industry is jinxed by a convoluted value chain before it reaches the end-beneficiaries. This places increased onus on the governance structure to gauge efficiency and reposition the business model. The industry’s tryst on radical transformation is driven by an increased commitment to local organizations as part of the new humanitarian mandate and moving away from the cookie-cutter approach in development finance.
This has forced the industry to realign its delivery model along with emphasising the Kotak committee’s new commandments on corporate governance. The boardrooms of the charity world are becoming increasingly answerable on aid effectiveness, transparency of operations and commitment towards social change, apart from the woes of corporate governance.
Charities have been facing the demand for governance shake-up and soul searching through social scrutiny for a long time. Kotak committee’s recommendations were well-timed for drawing a new doctrine on self-governance.
The quick wins
Steep entry-norms for independent directors, minimum membership including at least half the board representing independent directors, an attendance threshold, increasing the number of board meetings to five per year with one of them exclusively dedicated for discussing corporate governance, well thought out succession planning, risk hedging, end-of-year board evaluation, gender and diversity beyond financial results, ending the image of old boys’ club by capping age and engendering the board are some of the quick-wins.
A corporate-heavy and an improper mix in the governance structure, multi-dip in board representation and lesser representation of local constituencies are some of the major pain points.
The charity world cries for second-line leadership but a project-based approach forces them to give up any long-term plans on honing succession. With project-based resources prescribed as ‘restricted grants’ for specific pre-agreed activities, figuring out how to gather funds for ‘extra-project activities’ is a major challenge.
There is very less support for any long-term investment unless the charities are smart to raise their own corpus. This is so because the donors want to see immediate results. The possibility of charities to be able to raise their own corpus is limited. There are just a few civil societies who have imbibed new ways of scaling and delivery with innovative business models.
The internal auditor must report to the board instead of the CEO, who is also a part of the management. This gives rise to a conflict of interest which can be overcome by exercising impartial audits only when the auditor reports to the governance structure. This will help the board to get tipped-off the impending risks in advance. At least five audit committee meetings must be held in a year.
Increasing the number of independent directors’ meetings will help charities to stave off risks arising out of non-compliance with local laws, poor labour standards and handle gender-based discrimination. The NGO world deserves to be cleansed of the auditors who only find flaws. It should move towards having a risk management team that will support the sector by ensuring a process of clean audits.
Role segregation for management
Towards providing balanced governance and enabling effective supervision of the management, it is important for charities to make a chief functionary report to the board. The recommendation on the effective functioning of board committees is particularly important for charities. The stakeholder relationship committee must adopt a bottoms-up approach to hear and engage with the ultimate beneficiaries and implementing partner agencies.
Opportunity to professionalize
There is a need for broad-basing governance to include primary constituents like the ultimate community, the implementing partner and the staff inducted into the board-room of charities. Value for taxpayers’ money demands close monitoring through effective governance.
Kotak’s recommendations are well-timed for the charity world which is looking for professionalism and a formal make-over. This can be achieved by framing a new governance-code including new norms for recruiting and evaluating the independent directory through merit-based filtering.
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