Setting the pace: Getting started in NGO corporate governance Read online



  Setting the pace and getting started in NGO Corporate governance.

  An Assessment of corporate governance for Non Governmental Organizations in Zimbabwe

 

  By

  Lasford Flackson

 

  Table of contents

  Introduction

  Chapter one

  An overview of corporate governance

  The evolution of governance

  Development of corporate governance

  Approaches to corporate governance

  Chapter two

  Adaptation and adoption of corporate governance

  Ngo sector in Zimbabwe

  Requirements for NGO operation in Zimbabwe

  Guiding principles for good corporate governance

  Chapter three

  Conclusion and Recommendations

  Introduction

  The collective problem of business today is increasingly attributed to the failure of corporate governance. This means that far too many boards are failing to execute their duties responsibly, both collectively and individually. Despite increasing awareness, there is a general lack of understanding of the principles of effective corporate governance in most quarters.

  The study sought to assess corporate governance issues and challenges for non governmental organisations. The study takes a point of departure in explaining how non governmental organisations can adapt and adopt effective corporate governance practices viz- a- viz, how NGOs can adapt and adopt to corporate governance. Several non governmental organisations do not observe good corporate governance and this to the collapse of many. There are no set rules that are binding and which establish the ways in which organisations have to govern themselves. Most non governmental organisations pay less attention to mandatory conditions and frameworks for good corporate governance and they have found themselves collapsing and in some cases facing the dilemma of donor flight.

  Effective governance and accountability begins in one’s organisation, no matter how big or small. This means ensuring that the appropriate processes and structures are in place to direct and manage an organisation’s operations and activities, and to ensure the effectiveness, credibility and viability of the organisation.1Increasingly, revelations of deterioration, in quality and transparency have called for the adoption of internationally accepted best practices. Corporate governance encompasses commitment to values and to ethical business conduct to maximise shareholders values on a sustainable basis, while ensuring fairness to all stakeholders including customers or beneficiaries, employees and investors.2

  The harsh economic conditions that prevailed in the country since 2007 have given non governmental organisation a difficult time that required them to have good corporate governance practices. The period since 2007 witnessed many Donors withdrawing their funds and in fortunate cases they have delayed giving grants to carry out their activities and this has led to many NGOs failing to professionally deliver their services. NGOS have moved to the centre stage in development work and they are perceived as important actors who are expected to be more effective service providers, stepping in where the public has been unable to effectively provide services3

  The NGOs to be studied are mainly focused on HIV/AIDS as well as food security for poverty alleviation. As a result of the harsh environment that has been prevailing and still is prevailing, accountability on the part of non governmental organisations has been questioned. Some funds which have been intended to carry out development projects have been diverted for personal and other unaccountable purposes. Other NGOs have been caught up with the founder member syndrome which in many instances leads to conflicts between the management and the board.

  For non governmental organisations to effectively deliver services there is need for good corporate governance practices. Thus after the realisation that NGOs service delivery has deteriorated extensively, it is imperative to contribute and save the sinking ships and restore good corporate governance practices for the benefit of the public or beneficiaries which these NGOs intend to serve.

  A great number of NGOs have failed to effectively deliver services due to lack of good corporate governance systems. In a competitive environment, corporate governance has emerged as a tool to enhance professionalism and to ensure that development interventions are effective, sustainable and positively perceived by all stakeholders, and thus without effective governance structures, many NGOs have collapse. The major objectives of the research are to determine the current corporate governance status, to formulate strategies for consideration by NGOs for good corporate governance and identifying factors which are impediments to the application of principles of good corporate governance

  Good corporate governance is a vital subject for the survival and good service delivery of any organisation or institution. Organisations that fail to observe good corporate governance dispel development partners and loose confidence of the people they desire to serve. Some Non Governmental Organisations have been haunted by corruption and in turn lost credibility because of weak corporate governance. The research is very relevant as it will give a wide insight on the issues of corporate governance and articulates the major impediments that are encountered by NGOs in the quest to have good governance procedures in place.

  Many NGOs do not have clear roles of responsibilities and clearly defined roles between the management and the board, therefore, the research will enlighten on the issues that pertain to the responsibilities of the board and the management. Furthermore, suggestions on how to implement good corporate governance practice will be discussed. In this research, the researcher will put together strategies which are useful for the implementation of good corporate governance. Without good corporate governance it is very difficult for NGOs to deliver professionally services as well as to remain sustainable. Good corporate governance is also an engine to attracting donor funding and partnerships with other larger internationally recognised NGOs. Thus the research is very relevant.

  Good corporate governance is a topical issue in the donor community. Those organisations that fail to observe good corporate governance dispel development partners. Such organisations find themselves crumbling, staff members frustrated and ultimately failing to professionally deliver services. Some NGOs have fallen in the corruption trap and have lost credibility and accountability. Others are haunted by the founder member syndrome that has led to conflicts between the founder member(s) and the young professionals as well as have expanded to denying the board and the management the independence they deserve.

  In an attempt to answer the questions surrounding the studied concepts, a number of research questions were of greater importance. What is the current corporate governance status among non governmental organisations? What are the challenges that are faced by non governmental organisations in implementing good corporate governance and what have been done in implementing or adapting and adopting good corporate governance by NGOs? These research questions are useful in unravelling the corporate governance status and issues that surround the subject.

  Literature review

  The literature on corporate governance was reviewed from NGO manuals, constitutions and what other researchers in the field have researched. Literature review is important in order to contribute to the current research on the subject as well as identifying the gaps that has been left so as to fill those gaps.

  In the literature that has been reviewed, there is evidence that the issues of corporate governance are mainly focused on profit making firms and the researchers do not particularly pay more
attention to the need for NGOs to practise good corporate governance. Many researchers have focused also in defining the major models that surround the concept of corporate governance in relation to private companies which are for profit making. There are other authors who dwelt much on the banking sector as the one in urgent need of implementation of good corporate governance or change of corporate governance institutions.

  The failure to take into consideration the importance of good corporate for NGOs has left many emerging NGOs paying little attention to the guiding principles of good corporate governance.

  Corporate governance has been defined as a set of principles and practises adopted by the private or social welfare sector that assure its stakeholders that the organisation is being managed effectively.4 The corporate governance framework should ensure the strategic guidance of the NGO, the effective monitoring of the NGO management by the board and the Board’s accountability to its stakeholders, the government and the community.

  Many researchers have dwelt much on what NGO corporate governance should encompass and giving specific guidelines for the principles of good corporate governance ignoring the fact that NGOs are at different levels of developing, others have materialized a long time ago and others are reaching what can be termed a mature level whilst others are still emerging. Thus there is need to identify the major impediments in corporate governance paying particular attention to such factors as the size of the organisation. Thus this has been a gap many researchers have not actually considered but have however, deplorable repercussions.

  Shleifer and Vishny have defined corporate governance by stating that it deals with the ways in which suppliers of finance assure themselves of getting returns on their returns. A similar concept is suggested by Carramanolis Cottelli who regards corporate governance as being determined by the equity allocation among insiders that is directors, executives and individuals and outside investors.5

  John and Selbet , propose the more comprehensive definition that corporate governance deals with mechanism by which stakeholders have control over corporate insiders and management such that their interests are protected.6 Thus despite the wide literature on corporate governance, there has been starkly literature on its relevance to NGOs but NGOs are major development players who, if good corporate governance practises are ignored has a major impediment to sustainable development.

  According to the Zimbabwe NGO corporate Governance Manual, The main characteristics of an NGO include participation, transparency and good governance.7 The manual did not elaborate on the impediments on implementing the practices at different level of NGO development. The Cadbury report was one of the major enquiries into corporate governance. It also emphasised on the structures and systems that ensure adherence and respect of corporate governance.8 It also failed to identify the different level of NGO development and it failed to identify the major obstacles of corporate governance.

  The recent growth in corporate governance literature has focused on ways that corporations work. The foundational argument of corporate governance can be traced back to the pioneering work of Berle and Means. They observed that modern corporations, having acquired a very large size can create the possibility of the separation of control of the firm from its direct ownership. Still they focused on Profit making Companies at the exclusion on NGOs. 9Thus the research will gap fill where the other researchers did not pay much attention on. The research will give a better understanding on the issues and challenges of corporate governance for non governmental organisations in Zimbabwe.

  Definition of relevant terms

  In carrying out the research the following concepts were occasionally referred to. Governance refers to the system by which organisations are directed, controlled and held to account. Simply put "governance" means the process of decision-making and the process by which decisions are implemented (or not implemented). 10 An NGO is an organisation that is not profit oriented. The term leadership has also been occasionally referred to in the study. This refers to the process of establishing direction and influencing others to follow that direction. Good leadership seeks to develop a clear vision and mission for an organisation and conducts planning that determines the goals needed to achieve the vision and mission.11

  Further more Management has been used and this refers to the decisions and actions by staff working in an NGO that is necessary to implement decisions made by the leadership. The term management refers to activities in functions which include planning and organising resources.12Accountability on the other end refers to the ability of the organisation to adequately account for its time and resources using appropriate systems and mechanisms and procedures. It also refers to final responsibility for the success and failures of an organisation.13 More so, the term independence in the study refers, to the extent to which mechanisms have been put in place to minimise or avoid potential conflict of interest that may exist, such as dominance by a strong C.E.O or founder member.14

  Chapter one

  An overview of corporate governance

  Recently the terms governance and good governance are being increasingly used in development literature. Bad governance is being increasingly regarded as one of the root causes of all evil within societies. Major donors and international financial institutions are increasingly basing their aid and loans on the condition that reforms that ensure "good governance" are undertaken15. Poor governance has led to many cases of fraud and corruption, which if no action is taken to improve governance in NGOs, the results may prove disastrous as funds for the vulnerable will be used to sustain and enrich NGO staff.

  Effective governance and accountability begins in one’s organisation, no matter how big or small. This means ensuring that the appropriate processes and structures are in place to direct and manage an organisation’s operations and activities, and to ensure the effectiveness, credibility and viability of the organisation.16 It is very crucial to begin by an overview and background of the concept and practice of corporate governance. The chapter gives an overview of corporate governance, the evolution of corporate governance, definitions, development and approaches to corporate governance.

  The evolution of governance

  Early on antiquity, the hard labor of subsistence living was transformed progressively by the invention of tools and the beginnings of technology. The evolutionary driver from one stage of development to another has been the advent of universal education. As widespread literacy initiated education that has driven technology, and there has been a comparable development in how affairs should be governed.

  From the outset, humankind has sought to discover the best ways to govern so as to resolve disputes, control destructive behavior and achieve goals that advance the mutual welfare of the members of the society. The effectiveness of the given approach to governance has determined, to a larger extent, the survival and prosperity of that society17. In the beginning, groups lived in simple and small clusters and their governance system was simple. As they became larger and complex their governance system changed.

  The concept of "governance" is not new. It is as old as human civilization. Simply put "governance" means, the process of decision-making and the process by which decisions are implemented (or not implemented).18 Governance can be used in several contexts such as corporate governance, international governance, national governance and local governance.

  Since governance is the process of decision-making and the process by which decisions are implemented, an analysis of governance focuses on the formal and informal actors involved in decision-making and implementing the decisions made and the formal and informal structures that have been set in place to arrive at and implement the decision.19

  Thus as organizations move from being small to large, their decision making becomes mature and they reflect more complex governance issues. For centuries, governance was exercised by the few who had gained power over the majority. However, the nature of the society changed, it was a case of a monarchy or dictatorship repl
acing one another. Some leaders were competent and benevolent and the people benefited. But more characteristically, there was incompetence, corruption and oppression of the citizens. The prevailing system of governance resulted from the actions of individuals and not from the evolution of legal principles.20 As individuals gained power, they increasingly ruled oppressively, in many cases creating a hostile response of revolution. Out of the revolutions that took place, came the modern concept of democracy that is the rule of the people by the people and for the people. Thus, this was how the concept of governance evolved.

  What is corporate governance?

  Corporate governance has been defined as the system by which organizations, including Non-Governmental Organizations, are directed, controlled and held to account. It focuses on policy, systems and direction, which is the primary role of the Board.21 The Board is accountable and responsible to many stakeholders, including members, society, beneficiaries, regulatory authorities, local authorities, donors, employees and financial institutions.

  The very definition of corporate governance stems from its organic link with the entire scope of activities having a direct or indirect influence on the financial health of corporate entities. The Cadbury Report of 1992 simply describes corporate governance as ‘the system by which companies are directed and controlled’22. So far as corporate governance is concerned, it is financial integrity that assumes tremendous importance. This would mean that the directors and all concerned should be open about issues where there is conflict of interest involved in financial decision making.