Purpose Alone Does Not Guarantee Good Governance
Not-for-profit organisations are built around purpose. They exist to strengthen communities, address disadvantage, advance important causes, deliver services, and create social value. But a worthwhile purpose does not, by itself, create a well-governed organisation.
Indeed, one of the greatest risks for purpose-driven organisations is the assumption that good intentions somehow guarantee good decisions. They do not. For Australian charities, leadership and governance are not merely matters of organisational preference. They sit within a framework of regulatory, legal, and ethical responsibilities designed to ensure that organisations entrusted with charitable resources are properly governed.
The Australian Charities and Not-for-profits Commission describes its Governance Standards as the core minimum standards dealing with how registered charities are governed, including their processes, activities, and relationships. Charities must continue to comply with these standards to maintain their registration. This creates an important proposition for anyone leading a not-for-profit organisation. Purpose does not reduce the need for governance. It increases it.
What Ethical Leadership Really Means
Ethical leadership is more than simply being a good person. Ethical leadership is sometimes reduced to concepts such as honesty, integrity and doing the right thing. Those characteristics matter, but ethical leadership goes considerably further. It can be seen in how leaders exercise authority, make decisions, respond to challenge, deal with competing interests, and accept accountability for their actions. In the Australian charity environment, there is also a clear regulatory parallel.
Under ACNC Governance Standard 5, a charity must take reasonable steps to ensure that its Responsible People understand and comply with duties that include.
- acting with reasonable care and diligence.
- acting honestly and fairly in the best interests of the charity and for its charitable purposes.
- not misusing their position or information obtained through their position.
- disclosing actual or perceived conflicts of interest.
- ensuring the financial affairs of the charity are managed responsibly; and
- not allowing the charity to operate while insolvent.
These are legal governance obligations, but they are also fundamentally leadership behaviours. The regulations can require a director to understand a duty. They cannot, on their own, create an organisational culture in which people genuinely live by it. That is the role of leadership.
Culture Is Created by What Leaders Tolerate
Most organisations have values. They appear on websites, in strategic plans, on office walls and in induction materials. But organisational culture is not determined by what an organisation says it values. It is revealed by the behaviours it repeatedly rewards, ignores or accepts.
- If leaders encourage constructive disagreement, employees and fellow directors are more likely to speak up.
- If leaders demonstrate accountability for their own decisions, accountability becomes an organisational expectation.
- If leaders acknowledge mistakes, others become more willing to identify problems before they become crises. And
- If poor behaviour is tolerated because someone is influential, long-serving, commercially valuable or considered indispensable, that sends an equally powerful message.
This is where ethical leadership becomes inseparable from good governance. Governance systems may establish the rules, but leadership behaviour determines whether those rules become part of the organisational culture or simply another document sitting in a policy register.
Conflict of Interest Is a Leadership Issue, Not Merely a Declaration
One of the clearest examples is the management of conflicts of interest. Conflicts are not unusual in the not-for-profit sector. Directors, executives and volunteers often have extensive professional, community and commercial relationships. A conflict itself does not necessarily indicate wrongdoing. The question is how it is identified, disclosed, and managed.
The ACNC recognises that conflicts may be actual, potential, or perceived and warns that poorly managed conflicts can damage a charity’s reputation and, in serious cases, breach the law. It recommends practical governance mechanisms including a conflicts-of-interest policy, a register of interests and a culture that encourages disclosure. Governance Standard 5 requires Responsible People to disclose actual or perceived material conflicts. ACNC guidance also states that a Responsible Person should generally not participate in discussion or voting on a matter where that conflict exists.
That last point is particularly important.
Good governance is not achieved simply because somebody declares.
“I have a conflict.”
The organisation must then decide how that conflict will be managed so that the integrity and independence of its decision-making process are protected. That is as much a question of leadership maturity as regulatory compliance.
The Corporations Act Still Matters
For charities incorporated as companies, the relationship between the Corporations Act 2001 (Cth) and the ACNC framework can sometimes cause confusion. For companies registered with the ACNC, section 111L of the Corporations Act switches off a number of provisions that would ordinarily regulate companies, including the civil directors’ duties contained in sections 180–183 and the material personal interest provisions contained in sections 191–194. This does not mean charity directors have fewer responsibilities.
Instead, the duties contained within ACNC Governance Standard 5 largely replace these civil obligations for directors of registered charitable companies. Importantly, ASIC confirms that some Corporations Act obligations continue to apply. These include the criminal director and officer duties under section 184, as well as the duty to prevent insolvent trading under section 588G. Common-law obligations and duties contained within an organisation’s constitution may also continue to be relevant. The distinction matters because governance should never be approached as a search for the minimum legal requirement.
Good boards ask a different question. What decision best protects the organisation, advances its charitable purpose, and preserves the trust placed in us?
Governance Is More Than Compliance
There can be a temptation to reduce governance to policies, board papers, registers, declarations, and meeting minutes. These things matter.
But they are evidence of governance. They are not governance itself. An organisation can have a sophisticated governance framework and still be poorly governed if directors do not challenge information, conflicts are inadequately managed, financial information is poorly understood, difficult conversations are avoided or the distinction between governance and management becomes blurred.
The ACNC specifically encourages charities to provide Responsible People with regular information and training about their duties, ensure they prepare for and participate in meetings, maintain processes for responsible financial management and act where Responsible People fail to meet their duties. That has an important implication. Board development should not finish when someone is appointed as a director. Appointment is where the responsibility begins.
Boards Need to Govern, Executives Need to Lead
Healthy organisations also understand the distinction between governance and management. Boards govern the organisation. Executives manage and lead its operations. The board should establish strategic direction, oversee organisational performance and risk, hold management accountable and ensure the organisation continues to pursue its charitable purposes. Management needs sufficient authority to manage. When these roles become confused, governance can quickly deteriorate. A passive board can fail to provide sufficient oversight. An overly operational board can undermine executive accountability and create multiple centres of authority within the organisation. Neither represents good governance.
Effective governance therefore requires both oversight and restraint. Strong directors know when to ask difficult questions. They also understand when their role is to govern rather than manage.
Responsible People Must Also Be Suitable
Governance begins before someone reaches the boardroom. Under ACNC Governance Standard 4, charities must take reasonable steps to ensure that their Responsible People are not disqualified from managing a corporation under the Corporations Act or disqualified by the ACNC Commissioner.
But regulatory eligibility should be regarded as the starting point rather than the benchmark for board appointment. A strong board should also consider.
- skills and experience.
- independence of judgement.
- diversity of perspective.
- understanding of the organisation’s purpose.
- willingness to challenge constructively.
- capacity to understand financial and organisational risk.
- potential conflicts of interest; and
- whether the individual has sufficient time and commitment to properly discharge the role.
Governance improves when board composition is considered deliberately rather than historically.
This matters particularly in the NFP sector because charities operate largely on trust.
Trust Is an Organisational Asset
- Stakeholders trust organisations to use funds responsibly.
- Governments trust them to deliver funded programs.
- Employees and volunteers trust their leaders.
- Beneficiaries trust organisations to act in their interests, and
- the broader community trusts charities to behave consistently with the purposes for which they were established.
That trust can take decades to build and remarkably little time to damage. The ACNC’s governance framework reflects this broader expectation that charities operate lawfully, responsibly, and accountably. Good governance therefore should not be viewed as an administrative burden imposed upon an organisation. It is one of the mechanisms through which an organisation protects its purpose.
Leaders Need Development Too
We invest considerable effort developing employees, yet directors and senior executives are sometimes expected to simply know how to lead because they have reached a particular position. Experience is valuable. But experience alone does not guarantee good leadership, ethical decision-making, or effective governance. Leadership development should provide opportunities for reflection, challenge, and growth. It should help leaders understand not only what decisions they make, but how and why they make them. For boards, that should include continuing education around directors’ responsibilities, conflicts of interest, financial literacy, risk, strategy, organisational culture, and the changing regulatory environment.
The ACNC itself identifies ongoing training and refreshing Responsible People’s knowledge of their duties as practical ways charities can support compliance with Governance Standard 5. In other words, continuing leadership and governance development is not evidence that a board lacks capability. It is evidence that a board takes its responsibilities seriously.
Purpose Deserves Good Leadership
Australia’s not-for-profit sector makes an extraordinary contribution to society. The people who work and volunteer within it are often deeply committed to the organisations and communities they serve. That commitment deserves leadership and governance of an equally high standard. The question for every NFP board and executive team should therefore not simply be.
“Are we achieving our mission?”
It should also be.
“Are we governing and leading this organisation in a way that is worthy of that mission?”
Because sustainable social impact requires more than good intentions.
1. It requires ethical leadership.
2. It requires accountability.
3. It requires good governance, and ultimately,
Purpose without governance places the very purpose we are trying to protect at risk.
Dr Michael Wentworth
Leadership Advocates
Disclaimer: This article is general commentary on leadership and governance and does not constitute legal advice.