The adoption of codes such as the ASX Best Practice Corporate Governance Principles (outlined below) can assist Third Sector organisations to build an ethical culture. They will have a strong ethical culture when board and management lead with integrity, managers reinforce ethical conduct, peers display a commitment to ethics and the organisation integrates its values in day-to-day decision-making. The integration of Codes of Conduct and Ethics into the practice of the organisation, the use of an ethical decision-making tool, a commitment to sound HR policies and procedures including a complaints mechanism for staff can also assist in developing an ethical culture.
Lay solid foundation for management and oversight
A key issue for some third sector organisations is to delineate the responsibilities of the Board and Management. The Board is responsible for corporate governance. This includes compliance with the objects for which the organisation was established; appointing and removing the CEO; ratifying the appointment of the CFO, COO and Company Secretary; and approving major capital expenditure. The CEO is accountable to the Board for management and performance of the organisation. The budget should be approved annually and the Strategic Plan is reviewed and approved.
Structure the board to add value
The Board should be composed of some independent Non- Executive Directors. It should also be balanced in its composition and diversity with each director bringing a range of complementary skills and experience. It also should establish committees such as Audit and Compliance Committee (ACC), Remuneration and Nominations Committees.
Promote ethical and responsible decision-making
The organisation should have Codes of Ethics and Conduct to guide directors, executives and staff. Its policy is to conduct business according to the highest standards of honesty, integrity, respect and fairness when dealing with its clients, donors, funding bodies, suppliers, employees and other stakeholders. It also complies with all laws and regulations and requires all employees to do the same.
Safeguard integrity in financial reporting
The CEO and CFO report to the Board Audit and Compliance Committee and the external auditors in relation to the financial statements as a true and fair view of the organisation’s financial condition and operational results.
Make timely and balanced disclosure
While Third Sector organisations are not subject to ASX Listing Rule disclosure requirements, they should report, dependent on their legal structure, to members in a form that complies with relevant laws and regulations.
Respect the rights of shareholders
Third Sector organisations do not have shareholders but have members. The communication policy should advocate communication with members and other stakeholders in an open, regular and timely manner through an Annual Financial Report and the Annual General Meeting.
Recognise and manage risk
The Board is responsible for the oversight of the organisation’s risk management policies.
Encourage enhanced performance
The Board should regularly evaluate the performance of it committees and the organisation’s executives against both measurable and qualitative indicators. The Chairperson has the responsibility for facilitating the evaluation of the Board’s performance.
Remunerate fairly and responsibly
The Board Remuneration Committee’s function is to review and approve the organisation’s remuneration policy, and the remuneration of senior executives. Directors do not receive remuneration but are entitled to be paid all travelling and other expenses incurred in connection with the affairs of the organisation. The organisation also pays premiums to insure the Directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Director other than conduct involving a wilful breach of duty.
Recognise the legitimate interests of shareholders
The organisation conducts its business within the Code of Conduct and its Statement of Values.