After a two-year inquiry into the quality of aged care services within Australia, the Royal Commission into Aged Care Quality and Safety released its final report in March 2021 (Final Report).

With 15 June marking the United Nations internationally recognised World Elder Abuse Awareness Day, we take a moment to consider some key takeaways from the Final Report. Whilst the Commission’s findings were broad ranging and provide valuable lessons to various sectors beyond aged care, with the majority of aged care providers being not-for-profits (including religious, public community-based and charitable organisations), our focus is on the governance lessons applicable to charities and not-for-profits arising from the Final Report.

Good governance is fundamental for aged care providers to deliver high quality aged care, and has a crucial impact on the ability of any charity or not-for-profit to carry out its mission and purpose effectively. Sound governance processes and structures have the ability to cement an organisation’s ability to identify, address and mitigate issues and risks, which is vital for any organisation in the current financial climate and in light of increasing community expectations.

Aged Care Royal Commission

The Aged Care Royal Commission was established in 2018 to investigate the quality of aged care services within Australian and whether they meet the needs of the community. Amongst the 148 recommendations in the Final Report, system and provider governance was one of the key focus areas for the Commission. In particular, Recommendations 88 – 91 centred on provider governance, including leadership responsibilities and accountabilities.

The Commission noted:

“Provider governance and management directly impact on all aspects of aged care. Deficiencies in the governance and leadership of some approved providers have resulted in shortfalls in the quality and safety of care.”

In its Final Report, the Commission found improved governance arrangements would have significantly reduced the level of substandard care. In light of this, we reflect on some of the lessons for charities and not-for-profits in relation to their own governance, regardless of the industry in which they operate.

Good Governance Considerations

Good governance starts with those who govern the organisation (often called directors, the board or management committee), who ensure the organisation is operating in a legal, efficient, transparent and ethical way.

These principles reiterate that for not-for-profits and charities, not just those who are aged care providers, the organisation’s key objective should be to fulfil its purpose.

1. Consider your board makeup

In reviewing the performance of providers and their governing bodies, the Commission stressed the importance of not only having knowledge of governance responsibilities but also a mix of skills, knowledge and experience to ensure care is delivered safely and to a quality standard (Recommendation 90(a)). This includes an understanding and professional knowledge of the actual services delivered or activities undertaken, in this case – aged care.

The Commission also suggested that aged care legislation should be amended to ensure aged care providers have a majority of directors independent of an organisation (Recommendation 88(1)(a)). Independent directors should be free of any interests that might influence or reasonably be perceived to influence their judgement and ability to act in the best interests of the organisation.

For small and regional organisations and not-for-profits, there can be additional hurdles to achieving the right level of independence, skill, experience and professional knowledge – particularly when directors are volunteers.

While board makeup and director eligibility are largely set by the governing document of the organisation, other documents such as board policies, charters and skills matrixes can be useful tools to implement and influence board succession and direction. Robust conflict of interests policies and procedures must not only exist, but must also be adhered to. Any perceived or actual conflicts needs to be identified, disclosed and managed appropriately and conflict registers updated regularly to ensure transparency and scrutiny around decision making, including where directors are also employed by the organisation or are involved in other ‘competing’ organisations.

2. Be accountable

In the Final Report, the Commission confirmed that “accountability and transparency are critical features of good governance”. Within the aged care sector, this is particularly important for aged care providers who receive their funding from taxpayers and provide care to vulnerable people. However, beyond aged care, all charities and not-for-profits should ensure they have sound practices and processes to facilitate accountability and transparency. In particular, charities registered with the  Australian Charities and Not-for-profit Commission (ACNC) need to adhere to the ACNC Governance Standards. This includes Governance Standard 2, which requires organisations to be accountable to members. As noted by the Commission, accountability to stakeholders, whether it be patients or members, begins and ends with the board and senior management of an organisation.

Effective reporting, strong communication lines and clear mechanisms for the provision and receipt of feedback (including complaints) are vital in ensuring an organisation is accountable to all stakeholders, not only financially but through the services they deliver. The Commission recommended aged care providers implement feedback mechanisms and complaints systems that feed into board reporting to ensure directors are aware of the experiences of those receiving aged care (Recommendations 90(c) and 90(d)).

Beyond baseline compliance with reporting obligations, charities and not-for-profits should ensure there are systems in place for monitoring accountability of services provided. Organisations should regularly review their processes for record keeping and reporting, as well as policies and procedures related to delegations, whistle blowers and the like. The effectiveness of such systems and processes should also be monitored in practice to ensure they facilitate a robust culture of accountability and transparency both within the organisation and for relevant stakeholders.

3. Look beyond financial risks

Whilst financial performance and associated risk is an important consideration for directors (particularly in the current climate), it is essential that organisations look beyond profit and loss to consider the broader spectrum of risks to an organisation’s operations and ability to fulfil its purpose. This was recommended by the Commission (Recommendation 90(e)).

For aged care providers and other health based not-for-profits and charities, this includes ensuring the quality and safety of care provided (known as ‘care governance’ or ‘clinical governance’). Care governance considerations should not be left solely to the executive and management and can be facilitated through systems and practices that hold the directors accountable. This can involve directors looking beyond whether a service makes money to matters such as whether the service provides quality and safe care and what indicators should be used to determine whether the desired effect of such care is achieved. The Final Report recommended that this be achieved through the establishment of care committees to monitor care and quality accountability (Recommendation 90(b)).

At a broader level, committees can assist in facilitating good governance through the review and monitoring of specific issues within the organisation, as well as addressing risks. Common committees include finance and audit, human resources, board nominations and succession and services or activity specific committees. When establishing such committees, it is also necessary to consider the organisation’s governing document, which may have rules for the establishment of committees.

Beyond committees, it is essential that organisations have a sound risk management framework, which is regularly monitored and updated. Whilst the development of such frameworks often falls to management, directors should be engaged with questions of risk and regularly consider these as part of their deliberations.

4. Know your responsibilities

Good governance is also underpinned by director knowledge of, and compliance with, their duties and responsibilities. The nature and source of such duties will vary depending on the type of entity, its governing document and its relevant registrations (including whether it is registered as a charity), with these factors generally imposing a range of personal and organisational duties and responsibilities. Beyond more standard directors duties, including those set out in ACNC Governance Standard 5, directors may also be required to ensure organisational compliance with industry or sector specific regulations, such as the Aged Care Quality Standards.

As part of its inquiry, the Commission expressed concern that many governing bodies did not demonstrate their duty to act, first and foremost, in the best interests of the people receiving care. This requirement does not just apply to the aged care sector and it is essential that all directors have a sound understanding of their organisation’s purpose and what it means to act in that organisation’s best interests.

5. Values and culture are key

For charities and not-for-profits, where success is not determined by profit, values and culture play an important role in determining whether or not an organisation will succeed. Such organisations act to fulfil a purpose and therefore the true measure of success is the organisation’s furtherance of this purpose. In its Final Report, the Commission stressed that culture is the key determinant of an organisation’s performance and ability to meet its objectives and in turn governance arrangements will reflect and promote the culture of an organisation. In the aged care system this impacted the quality of care provided. In its Final Report the Commission commented:

“Good leadership and culture provide a necessary foundation for workforce development and growth—to being an employer of choice… To support and drive the reforms we envisage, consistent and confident leadership at all levels of aged care organisations is essential. While this is reinforced through strategies, policies, practices and behaviours, it begins with a genuine commitment to the core values and philosophies on which high quality and safe care are built.”

The Commission recommended that providers implement plans to support staff training, professional development and continuous learning, staff feedback and team building (Recommendation 89(c)), to support engagement throughout the organisation. Such measures also have value within charities and not-for-profits more generally.

In terms of culture, boards and organisations are often mirrors of one another. In order to achieve its purpose, a charity or not-for-profit must have a genuine commitment to the core values that drive its activities, throughout all levels of the organisation. This involves having a clear understanding of why the organisation exists.

How can we help?

The ability to run a successful charity or not-for-profit organisation is underpinned by good governance practices. It provides more than processes and systems of operations – it is the mechanism by which the organisation and its people are held accountable, ensuring an organisation has a positive and ethical reputation in the eyes of the community. Good governance can help your organisation thrive and assist in ensuring it is providing the highest possible level of service.

If your organisation requires assistance with its internal governance frameworks, or if you need some general governance advice and guidance, please get in touch with our specialist Charities + Social Sector lawyers.