Nonprofit Boards in Australia:

A Distinctive Governance Approach

Peter D. Steane
Graduate School of Management
Macquarie University
Ryde, NSW, 2109
Australia
+ 61 2 9850 9136 [Telephone]
+ 61 2 9850 9019 [Facsimile]
[peter.steane@mq.edu.au]

and

Michael Christie

School of Management
Queensland University of Technology
Brisbane, Qld., 4000
+ 61 7 3864 2896[Telephone]
[m.christie@qut.edu.au]

The authors wish to thank the editor and reviewers for their insights and advice in the process of
refining this paper, along with the valuable assistance of Dr. Suzan Burton (MGSM) and Maria Appla
(La Trobe University).
 2

Nonprofit Boards in Australia:

A Distinctive Governance Approach

Abstract

This article reports the findings into patterns of governance on nonprofit boards in
Australia. The research surveys 118 boards, upon which serve a total of 1405
directors.

The findings indicate that nonprofit boards can mimic some aspects of a shareholder
approach to governance. But nonprofit boards, in the main, indicate priorities and
activities of a stakeholder approach to governance. The features of 'isomorphism' that
arise largely stem from legislative requirements in corporate governance. Generally,
nonprofit directors are influenced by agenda and motivations that can be
differentiated from the influences upon director activity in the corporate sector.

The study indicates that nonprofit boards prize knowledge and loyalty to the sector
when considering board composition. The survey suggests nonprofits “compensate”
for the demands placed upon it about fiduciary duty and due diligence responsibilities
with the diverse intellectual expertise of non-executive directors. Nonprofit boards
possess greater diversity than boards in the corporate sector; they include more
women as directors than corporate boards and nonprofits include a greater proportion
of directors from minority groups in society. While strategic issues feature
significantly as a task of the nonprofit board, they distinguish themselves from their
corporate counterparts by engaging in operational management.

The findings indicate that, in the main, directors on nonprofit boards deliberate and
operate in ways distinctive from their corporate counterparts. Such findings offer a
contribution to the reform of Corporations Law in other countries and the likely
consequence on boards outside the corporate sector.

Keywords:

Nonprofit, Governance, Boards, Australia

 3

Nonprofit Boards in Australia:

A Distinctive Governance Approach

Introduction

Nonprofit boards in Australia are increasingly expected to mimic their corporate

peers. In Australia this expectation is influenced structurally through changes in
government legislation and in new types of funding arrangements for nonprofit
welfare organizations. Recent studies (Harris 1994; Stone 1991; Stone and Crittenden
1993; Stone, Bigelow and Crittenden 1999) have outlined directions for research into
governance in the nonprofit sector. It is Stone, Bigelow and Crittenden’s (1999) study
in particular that concludes with a call for addressing noticeable gaps in the
theoretical literature about the strategic considerations of nonprofit organisations. One
part of the discussion about nonprofit governance is to understand the sectors in
different countries. This study contributes with a thorough descriptive analysis of
nonprofit boards in Australia: their structure, composition and value-base.

While overseas studies exist, there has been no Australian study of nonprofit boards to
the extent of the findings reported here. This paper reports the findings of a survey
conducted during 1997 and 1998. Australian nonprofits manifest features that are
alike in appearance to practices of the corporate sector, but with some differences.
Similarities can arise due to coercive or education forms of mimicking (Di Maggio
and Powell 1983; Talbert and Zucker 1999), but some features remain distinct despite
the influence of legislative and governmental changes on directors. Boards are being
increasingly required to be more accountable, more responsive, provide greater
choice, with diminishing resources. The aim of the research was to analyse areas such
as board composition, priority tasks, and skills of a strategic nature such as
networking, in order to provide a descriptive snap-shot of boards in this sector. The
study identified a number of areas where nonprofit board governance appears
confident, such as the concern to emphasise ideology and values, the involvement of
directors in operational management, and the inclusion of a broad representation of
member-interests at board level. The study also found that legislative and funding
 4

requirements of Australian nonprofit boards are creating changes in how strategies are
organised by this sector at the board level.

The Australian nonprofit sector has not been studied as extensively as either the
public or corporate sectors. Even the task of defining the sector is an ongoing debate.
Theorists such as Hindle (1991) and Lyons (1991), together with the Industry
Commission (1995) [now named the Productivity Commission] illustrate the
pluralism within this debate. While these studies were not intended to offer a
prescriptive definition, they do reinforce the difficulty of claiming one definition that
encompasses the scope and complexity of nonprofit activity. For the purposes of this
paper, nonprofits engage in a variety of philanthropic works and can be described as
organisations neither established nor managed to make a profit for an owner or for
distribution to shareholders (Lyons 1991:2; Hansmann 1980).

Interest in the theory and practice of governance has changed. Table 11 outlines a
growing interest in issues pertaining to governance.

Table 1 Governance listings in ABI-Inform, PAIS and Uncover

Governance ABI-INFORM PAIS UNCOVER

1985-1991 105 46 237

1992-1997 512 117 1626

1998-1999 494 299 785

The research of Kang and Cnaan (1995) and Judge and Zeithaml (1992) into
charitable boards reveal characteristics that differentiate nonprofit from corporate
sector governance processes. Of these characteristics, two feature significantly. First,
there is the diverse nature of nonprofit boards where efforts are made to incorporate a
representative slice of the organisation’s members. Such diversity allows greater
involvement of board members and a broader, and sometimes diffuse, base of skills
necessary in board activities such as lobbying for funding or monitoring management.
This distinguishes nonprofit governance structures from the legal or functional
specialities evident among corporate sector boards (Kang and Cnaan 1995). The
second feature identified is the value or ideological foundation. Kang and Cnaan’s

1
Database searches using ABI-Inform, Periodic Australian Index Service, and Uncover over the past
decade reveal increases in articles on this topic.
 5

(1995) research draws a link between structure and mission, whereas Judge and
Zeithaml (1992) term this latter feature as commitment. Tricker's (1994:421) analysis
characterises the distinctive feature of nonprofit governance as the power legitimately
derived from its membership. These research projects relate these attributes to the
effectiveness of nonprofit activity. Such findings reinforce the primary importance of
values in decision making undertaken at a level reserved for strategic decisions, that
is, senior management and board level (McFarlan 1999; Jeavons 1993, 1992; Steane
1997; Fischer 1980).

This study builds upon the only earlier Australian research on nonprofit governance
(McDonald 1993) and attempts to identify director in the nonprofit boards surveyed.
The article takes a step toward the improving the general understanding of Australian
nonprofit governance by exploring the implications of legislative change upon boards.
This is particularly relevant in terms of the prioritization of tasks and the engagement
in strategic activity.

A Context of Reform

The size of the sector in Australia invites analysis, and suggests a history more of
informal stories of people gathering to contribute to members or local communities,
than conforming to some nonprofit theory (Lyons 1998). One of the characteristics of
the Australian sector is the influence of government in how nonprofit organisations
have evolved and now manage their activities (Lyons 1997; O’Neill and McGuire
1999). Historically, the nonprofit sector manifested courage and innovative responses
to assist the poor and disadvantaged. The origins of Mutual Benefit Societies,
Benevolent Trusts, and Building Societies attest to this. Charities and community
organisations began from grass-root desires to help others. During the latter half of the
twentieth century, the relationship between many nonprofits and government has been
characterised by dependency where nonprofits rely upon public subsidies, which has
resulted in coping strategies (Stone and Crittenden 1993) of year-to-year existence.
This relationship is experiencing dramatic change at the present.

There are two levels of analysis in describing this recent change. At a macro level, for
example, new institutional economics has assumed the role of an "ideological driver"
 6

behind the introduction of competitive tendering into decisions on which

organisations receive funds and which do not (O’Neill and McGuire 1999; Steane
1999). The purchaser-provider splits have been a major part of public management
reforms generally (Hood 1991, OECD 1997, 1999), and have ushered in a range of
contractual arrangements, encouraging directors of nonprofit organisations to adopt
skills of an adversarial nature in vying for government tenders. OECD documents
(1997,1999) have been influential in the member states for outlining the new
regulatory principles of government, business, nonprofit interaction. Increasingly,
more and more legislation in Australia is adopting such principles. These
developments are not new, and were mooted in recommendations arising from the
Australian Industry Commission’s (1995) investigation of this country's charitable
sector. Board practice is scrutinised to the extent that the continued and therefore
affective operation of an organisation is linked to compliance to changed governance
practices more in line with the corporate and public sectors generally.

At a micro level, the analysis includes the impact of such public management reforms
in changing the way nonprofit organisations are expected to govern themselves. These
come from a variety of sources, but especially legislative changes. Legislation such as
the Aged Care Act 1997, the Retirement Village Act 2000 [NSW], and the
Cooperatives Act 1996 [Vic], are but three mechanisms of change designed to impact
on the governance of nonprofits. Generally, organisations that receive government
subsidies are expected to conform to structural and decision-making changes where
greater power is placed in the hand of recipients of care or service rather than the
provider. Such a shift conforms to the purchaser-provider splits that are part of public
management reforms generally.

It is the introduction of the compulsory nature of contracts that has most impacted of
late on nonprofit organisations in Australia (Muetzelfedt 1998). Previously tacit and
informal decision-making of nonprofit organisations, which were premised on more
informal and cooperative negotiations, has been replaced by adversarial tendering
processes more suited to the corporate sector. Such change reinforces the importance
for nonprofit boards to develop skills of a strategic nature in their relationship with
government (Stone 1991; Muetzelfedt 1998), as well as ensuring that they are
 7

effective in the way they organise themselves, manage their affairs and remain true to
their values.

In Australia, the Corporate Law Economic Reform Program (CLERP) of 1998

provides an overriding perspective for the practice of governance, albeit largely for
the corporate sector, but nevertheless influencing expectations about board
performance in nonprofit organisations. This reform package presents nonprofit
organisations with new expectations on board performance similar to the corporate
sector. Generally, the reforms are aimed at recognising that business people make
decisions every day and that there needs to be clearer fiduciary and due diligence
responsibilities. While the corporate sector can generally be described as a “world
away” from charitable organisations, the CLERP reforms are particularly relevant to
the day-to-day operational activities of charities such as: accounting standards,
fundraising and general governance procedures to name a few (McGregor-Lowndes
1998). To this extent, their tone and direction impacts on nonprofit board practices.

The Australian CLERP reforms (Treasury 1998: 60) characterise governance within a
shareholder (or outsider) approach to corporate control that is specifically focused on
efficiency and wealth maximisation. This governance process is in contrast to a
stakeholder (or insider) approach where organisations seek alignment between the
various interests of community stakeholders (Price Waterhouse 1997). This is one
area where the charitable sector is not wholly represented within the parameters of the
CLERP reform package. The distinction between the shareholder and stakeholder
approaches to governance is essentially a distinction between motivation. The former
favours a utilitarian view of what motivates a management or board directive; the
latter is based on a more affiliative motive in such matters. The motives are the
values, in this case, instrumental and expressive values respectively, which aligns
with comparative research between corporate and charitable groups elsewhere (Mason
1997; Steane 1997). Expressive values are explicitly concerned with structures and
decision-making processes that do unite and coalesce efforts that are aligned to some
vision or ideology. This incorporates yet subsumes other, however legitimate,
concerns of efficiency or profit. When nonprofits are forced to tender in adversarial
climates to comply with legislative reforms, they are forced to make decisions and act
outside the value-frame that characterises them. The hegemony of instrumental values
 8

in Australia, arising from the OECD (1997, 1999) and legislative reforms referred
earlier, assist in reinforcing the pressure to imitate this value-base. McFarlan (1999)
argues financial results are a poor means of measuring nonprofit performance. While
such results can be duplicated, an over-emphasis on instrumental values deprive
nonprofits of the strategic positioning value of differentiation which is built upon trust
and legitimacy (Frumkin and Andre-Clark 1999). Such developments appear to be
restricted to Australia. For example, the Blair government with its "Joined-Up
Government" (Osborne and Ross 1999) and the Clinton administrations' "National
Partnership for Reinventing Government" (NPR) (Adams 1999) are initiatives
designed to partner yet recognise differences across the sectors. In Australia, the
distinction of values and rhetoric of partnerships is embryonic, and the compliance
pressures upon nonprofit directors to mimic the corporate sector still dominates.

The foundations of CLERP are economic, and include: reviewing cost-benefits,

providing a consistent and flexible regulatory framework, reducing costs, and striking
greater balance between regulation and industry self-regulation (Treasury 1998: 4).
But the package is framed for the corporate sector. The CLERP reform package
specifically argues that directors have previously been "too comfortable with
compliance to regulation [than] in wealth creation"(Treasury 1998:9-10). These
reforms are designed to facilitate measures to "properly assess governance from an
economic [wealth creation] perspective". While such sentiments may be properly
suited to organisations primarily based on a profit motive, they are arguably ill-suited
to organisations that are not concerned with wealth creation per se. There are
disadvantages for nonprofits coerced into adopting practices aligned to the market
environment. First, there are financial and political limits concerned with nonprofit
organizations not adept at raising capital and asiduously assessing the political risk of
capital flows during the course of a year. Second, nonprofits generally possess
cultures that idealise the mission or ideological base to the detriment of pragmatism
expected in the marketplace. Furthermore, such coercion could well prove useless
(Tricker in Coulson-Thomas 1993:143) given the diversity of nonprofit governance.

Furthermore, studies to link corporate board composition to performance remain

equivocal (Ezzamel and Watson 1993; Hermalin and Weisbach 1991). Zahra and
Stanton (1988) argue no performance improvement derives from board composition,
 9

while Schellenger et.al. (1989) claim the link is positive. All these studies, however,
focus on measuring profit growth, shareholder returns or dividend gains in
ascertaining performance. The CLERP reforms suggest a preference for the
shareholder, where the director’s responsibility is primarily to govern with the vested
interests of shareholders in mind.. Such measurements are quite acceptable for
corporate sector organisations or incorporated public organisations. But the benefits
or appropriateness of using profit or returns on investment as assessment standards for
nonprofit or charitable organisations is debatable. But other dimensions such as board
composition, the role and impact of non-executive directors and priority of board
tasks all provide some insight into activities deemed effective or not. This is
supported in research, albeit of the corporate sector, by Ezzamel and Watson (1993),
Pearce and Zahra (1992) and Byrd and Hickman (1992) who conclude that non-
executive directors impact positively on performance due to their independence,
monitoring and influence over management. The descriptive findings arising from this
project reinforce such research in valuing the role of non-executive directors, who
comprise the majority of director positions on nonprofit boards.

Sample and method

A list of about 350 nonprofit organisations was compiled from different sources:
submissions to the Industry Commission Report (1995), from organisations visited by
the Commission in the process of their investigations, from member organisations
subsumed under various peak bodies, and from charitable groups selected at random.
We deleted the obvious government and corporate organisations and added others
where judicious. The questionnaires were mailed to the “Chairperson” of the
organisation. Questionnaires returned totalled 118, indicating a 34% response rate.
These 118 organisations encompasses a total of 1405 directors. The survey
questionnaire was anonymous and covered 7 areas: board structure and composition,
board membership, ideology and motivation, board effectiveness, network activity,
resourcing, and demographic data. The answers to questions were a mix of forced
choice, Likert scales, rankings, and written clarifications.
 10

Findings

This section reports the findings with brief explanation, in preparation for more
detailed discussion to follow.

Board composition

The study indicates that Australian nonprofit boards have a broader representation of
their members than their corporate equivalents. The study revealed nonprofit boards

Table 2 Areas of expertise represented on boards

Expertise Percentage
Marketing 45%
Information Technology 24%
Human Resource Management 50%
Financial Management 87%
Fundraising 30%
Law 52%
Management 79%
Trade Skills 14%
Education 51%
Psychology 33%
Other 41%

are comprised of directors from a variety of disciplinary backgrounds, of which

finance, management, law and education feature predominantly [Table 2], and where
58% of chairs indicated such experience came from work in the nonprofit sector.
Table 3 Minority groups represented on nonprofit boards
Minority Representation Percentage
Indigenous people 6%
People with disabilities 25%
People from non-English 18%
speaking backgrounds

Boards comprised of directors from groups characterised as minority (indigenous,

disability, non-English speaking) [Table 3] indicate that nonprofit boards manifest a
broad cross-section of the Australian community. Fifty three percent (53%) of the
sample possess directors from minority groups, with 8% of boards possessing more
than one director from such groups. The average age of all respondents was 47 years
[range 29-73], with a mean of 15 [range .5-50] years experience in the sector.

Priority tasks of the board

 11

The study was concerned with the priority given to tasks and how time was spent
[Table 4]. Interest in this area contributes to the history and theory of Australian
nonprofit management practice alluded to earlier, where tacit and informal decision-
making and more expressive values characterised many organisations.

Table 4 Mean overall ranking of priority tasks of boards

Tasks Mean SD
Strategic Planning 3.534 0.245
Government and Public Policy 3.534 0.245
Existing Program Management 3.568 0.264
Human Resources/ 3.78 0.359
Industrial Relations
Ideology, Belief & Values 4.39 0.274
Managing the Board Itself 5.144 0.316
Networks and Associations 5.432 0.293
Founding Affiliations 5.661 0.4
(eg. Church body)
Joint/Collaborative Programs 5.695 0.293
Funding Applications 5.746 0.359

Within the context of public management reforms and changes to the corporate
environment, Muetzefedt (1998) argues that new skills are required of a more
strategic nature in any organization. Similarly, Tricker (1994:149) proposes that
performance is linked to directors skilled in strategy and policy making.

Skills of boards

The ranking of skills deemed crucial for board members revealed strategic thinking,
knowledge of the sector and ideology as the three most important [Table 5].
Table 5 Priorities of director skills deemed crucial for effectiveness
Director skills Mean SD
Strategic 2.203 0.131
Thinking
Knowledge of the 2.771 0.153
Sector
Ideology (values) 3.017 0.159
Interpersonal 3.483 0.175
Financial 3.607 0.16
Legal 4.847 0.174
Computing 6.161 0.209

The project sought to correlate the priority of skills deemed crucial to director
effectiveness [Table 5] as perceived by those respondents who claimed their boards
regularly undertook a review of board effectiveness. However, a chi-square test
revealed no significant association.

Networking on boards
 12

Table 6 Mean ranking of most important networking activities

Networking Activities Mean SD Range
Family Relationships 0.763 0.176 7
Social Contacts 0.831 0.156 6
Introductions via Third 0.89 0.16 7
Party
Formal Events 1.161 0.153 6
Personal Contacts 1.356 0.095 5
Meetings 1.483 0.082 4
(eg. Peak Bodies)
Conferences 1.492 0.143 7

Table 6 reveals a mean ranking of the most important networking activities carried
out among nonprofit boards. Formal activity such as meetings dominate, but after
that, a variety of informal processes characterise most of what constitutes networking.

Funding

The sample organisations were placed into three budget categorises as in Table 7
showing the mix of financial sources.

Table 7 Sources of Income

Sources of Govt Sales Don- Memb Asset Invest Paym Beque Found Other Total
Income by ation ership ment ent in sts ations Vari
Number & Funds Sales Kind ables
Percentages

$20 million per n17 n8 n14 n2 n1 n9 n2 n11 n2 n5 71

year
(14%) (7%) (12%) (2%) (1%) (8%) (2%) (9%) (2%) (4%)
[19 Orgs; 16%]

$1-$20 million n40 n22 n33 n8 n2 n23 n2 n18 n4 n13 165

per year
(34% (19%) (28%) (7%) (2%) (19%) (2%) (15%) (3%) (11%)
[46 Orgs; 39%]

< $1 million per n42 n20 n29 n35 n3 n18 n7 n3 n10 n21 188
year
(36%) (17%) (25%) (30%) (3%) (15%) (6%) (3%) (8%) (18%)
[53 Orgs; 45%]

Total in Sample n99 n50 n76 n45 n6 n50 n11 n32 n16 n39

[118 Orgs] (84%) (42%) (64%) (38%) (5%) (43%) (9%) (27%) (14%) (33%)

[Key: n = number of responses from each questionnaire]

 13

Discussion

In Australia, the composition of a corporate sector board is generally different from

the composition of corporate boards in the United States or the United Kingdom
(Korn-Ferry 1998). Australian boards are typically smaller than UK and US boards
and are comprised of 8 directors on average with 80% non-executive directors. In the
United States, the average number of directors on a board is 11 comprising an average
of 2 non-executive directors. In contrast, in the United Kingdom, the average number
of directors is 10 with a roughly 50% mix of executive directors and non-executive
directors. In the UK, about 20% of companies combine the CEO’s role with that of
the chair, whereas in the US, only about 20% separate the roles (Korn/Ferry 1998).
The call for more non-executive directors on boards in both the US and UK appears to
be somewhat grounded in concerns about enhancing the objectivity and decision-
making of boards. Non-executive directors would be expected to add a voice that is
divested of the day-to-day agendas of senior management. The issue of board
composition arises in the literature (Kesner et.al.1986) where it can impact on
organisational performance.

As Table 2 shows, nonprofit directors come from a diverse background. Most

directors appear to volunteer their time, with only 6 chairs indicating that any sort of
remuneration was paid for services. The average number of directors was 12.5, which
is more than for boards in the corporate sector. Non-executive directors feature
significantly in nonprofit boards, with 55% of chairs indicating that boards were
comprised exclusively by non-executive directors. Only 53 of the organisations in the
sample indicated that they had one or more executive directors, and of these there was
an average number of 3 non-executive directors.

All but 8 of the sample have serving female directors [Table 3]. Of the 118
respondents completing this survey, 43% were women, as "chair" or "CEO". Of the
total number of directors encompassed in the analysis of this project (n=1405),
exactly 40% were women. Nonprofit board composition as outlined in Table 3
indicates that this pattern represents a significant departure from similar leadership
positions represented on corporate boards. Similarly, the representation of indigenous
people and people with disabilities (6% and 25% respectively), suggests nonprofit
 14

boards reflect stakeholder concerns such as participation over other shareholder

concerns evident in the corporate sector.

The areas of service that nonprofit organisations engage in are varied. Responses
indicate that education, welfare, health care and advocacy are the prime areas.
Advocacy, featured significantly in 37% of the sample, suggesting a link with
nonprofit concerns for legitimacy as emphasised in the literature (Chaffee 1985;
Jeavons 1994; Judge and Zeithaml 1992; Gibelman et.al. 1997). Similarly, over 82%
of respondents indicated strong agreement to the "welfare of recipients" as being the
raison d’etre for the organisation. Management theories, such as the multiple
constituency approaches to organisational effectiveness (Tsui 1990; McDonald 1993),
argue that effectiveness derives from balancing contesting interests more than other
(positivist) goal-setting approaches. Boards that overtly express an interest in
advocacy suggest motivations other than financial success. In this way, nonprofit
organisations diverge from the prevailing economic logic by building support based
upon trust and reputation. The survival and continued growth of nonprofit service
reinforces the value of intangible phenomena, such as trust and legitimacy, as a core
asset (Rose-Ackerman 1996; Gibelman et.al. 1997).

Table 4 shows the priority tasks of boards in the sample. The ranking of the areas that
consumed most of the time of directors (government and public policy, program
management, and strategic thinking), suggests a mixed interest in strategic and
operational issues. While the literature (Muetzefedt 1998; Tricker 1994:149)
encourages directors to focus on strategic and policy areas, this sample also shows a
priority for "program management". Such diversity indicates nonprofit directors
engage in the day-to-day issues as well as strategic issues. This practice reinforces the
strategy literature (Stone 1989; Koteen 1989) where strategic intentions can give way
to tactical or operational responses.

Director involvement in operational management can be a coping response (Stone and

Crittenden 1992:12). For example, both Koteen (1989) and Stone (1989) suggest that
the resource dependency of nonprofits can reinforce habitual “coping” of government
policy or fund-raising, so that some organisations mimic uncritically the management
practices of others perceived as more successful. This is reinforced in latter work by
 15

Talbert and Zacker (1999) who suggest isomorphic patterns of "habitualization" and
"objectification" can occur as routine ways of social consensus and adaptation.

The findings in this survey [Table 4] reveal a mix of priorities where issues of a
strategic or policy nature feature significantly, but also where operational concerns fit
comfortably. Determinations about whether the inclusion of operational priorities
suggest coping strategies or isomorphic patterns are inconclusive, suffice to say that
shareholder approaches to governance, that dominate in legislative reforms and the
corporate sector, discourage operational involvement over policy priorities. In this
matter, nonprofit boards appear to be dissonant from practice expected of directors in
the corporate sector.

The project sought to investigate correlations between the nominated expertise of

board members [Table 2] and the priority given to tasks [Table 4]. In terms of the top
three priorities for the sample (strategic thinking, program management, and
government and public policy), there was some slight variation in the order of these
priorities. Boards with expertise in “fundraising” and “other” placed existing program
management ahead of strategic planning [Table 4]. There is of course a lot of overlap
within the expertise groups, so statistical methods relying on independence were not
appropriate. Thus some analysis of major areas of expertise were taken separately.

• There were 102 responses with “financial management” given as an area of

expertise represented on their boards. These boards also had “law” and
“management” expertise. They were less inclined to spend time on funding
applications than those without “financial management” expertise [mean ranking
7.12 vs 5.27, Wilcoxon p-value 0.041].

• There were 93 boards with “Management” expertise. Management expertise was

also associated with “Other” expertise (as well as “Marketing”, “Financial
Management” and “Law”, as above). It had similar associations with strategic
planning and joint / collaborative programs as the boards with “marketing”
expertise, that is, a higher mean ranking for strategic planning (3.39 vs 4.63,
Wilcoxon p-value 0.045) and lower mean ranking for joint / collaborative
programs (6.96 vs 5.36, Wilcoxon p-value 0.005). They also ranked human
resources / industrial relations lower than those without “management” expertise
[mean ranking 6.30 vs 4.90, Wilcoxon p-value 0.027].

• There were 61 boards with “law” expertise. Law expertise was also associated
with “management” and “other” expertise. They ranked Government and public
policy lower than those without “law” expertise (mean ranking 4.52 vs 3.69.
Wilcoxon p-value 0.021). They also ranked funding applications as a lower
priority of board time [mean ranking 7.60 vs 6.10, Wilcoxon p-value 0.029].
 16

• There were 53 respondents who indicated "marketing" as an area of expertise

represented on their board. These respondents tended to also have “information
technology”, “financial management”, “law” and “management” listed as areas of
expertise, where strategic planning was generally ranked higher than those
without “marketing” expertise (mean ranking 2.9 vs 4.25, Wilcoxon p-value
0.025). They also tended to rank joint / collaborative programs lower [mean
ranking 7.15 vs 6.18, Wilcoxon p-value 0.044].

This mix of priority tasks and expertise can help explain the divergence between
governance on nonprofit and corporate boards. Those directors with management, law
or marketing expertise appear to favour board activities that are more policy and
strategic in nature, and less likely to prioritize program management issues. It
suggests the inclusion of directors with these areas of (corporate) expertise in the
composition of the board can affect a preference in the prioritization of tasks that
mimics a shareholder view of governance. This is dissonant with other aspects of
board composition, such as representation, that suggests a stakeholder approach to
governance. It may indicate the power of legislative regimes in influencing directors
with corporate experience to mimic governance priorities and behaviour expected in
the corporate sector.

The ranking of skills, by the respondent "Chair", perceived to be crucial for director
effectiveness [Table 5], reveals a low place for financial management. While the
majority of boards had someone with financial expertise, it is ranked fifth in the mean
ranking, with 29% of respondents placing it even lower in the raw ranking list. What
is also interesting is the value given to knowledge of the sector and ideology and
values as crucial competencies. The prominence given to the latter two attributes
reinforce the nonprofit studies prizing values (Mason 1996; Jeavons 1993; Steane
1997; McFarlan 1999), commitment and mission (Kang and Cnaan 1995; Judge and
Zeithaml 1992) and legitimacy (Tsui 1990; Gibelman et.al. 1997). The relative low
mean given to Legal skills suggests that nonprofit directors value fiduciary duty and
due diligence responsibilities in a broad sense than the legal prescriptions emanating
from the Australian CLERP reforms and legislative changes. These findings reinforce
a preference in nonprofit boards for attributes associated with a stakeholder approach
to governance.
 17

The study also sought to gauge the practice of networking as a strategic competency.
Table 6 indicates that, apart from peak body gatherings, the main networking activity
is informal, which is consistent with the nonprofit literature (Lyons 1998; Muetzelfedt
1998) and strategy literature (Mintzberg 1987, 1994). There were a total of 46%
respondents who ranked strategic planning as first or second as a competency for
director effectiveness [Table 5]. The analysis attempted to find correlations between
those ranking strategic planning higher or lower and other networking activity. There
was some difference in the order of mean rankings, most notably that the ‘lower’
strategic thinking group gave a higher mean ranking to family relationships, but actual
numbers are small. A chi-square test revealed no significant association (p-value
0.55).

Budget groups of more than $50m. per year and $20-$50m. per year were combined
[Table 7] due to small numbers in their respective categories to attempt to find
correlations between such organisations and the priority given to networking activity.
A chi-square test revealed no significant difference between the budget groups with
respect to the priority of networking activity ( p-value 0.329), however it was only
possible to use this test on first preferences to comply with the independence
requirement. Forty five percent of respondents indicated revenues of less than $1
million per year, and 16% indicated that revenue exceeded $20 million yearly. The
survey sought to rank the income source of nonprofit organisations. The clear
majority of organisations (84%) identified government as the primary source, with
foundations (14%) and (informal) payment in kind (9%) as “poor second cousins”.
This reflects the shape of the nonprofit sector in Australia, and differentiates it from
the United States. It suggests that efforts to stimulate nonprofit organisations to
establish fundraising programs and philanthropic links with the corporate sector, and
move to less reliance upon government funding, will demand a radical rethink on the
part of nonprofit directors. The mediocre placing of funding source categories such as
sales, foundations, membership, and bequests suggest different skills such as
entreprenuerialism and networking for alliances are likely be needed by directors.

Conclusion

This study indicates mixed findings. While some 'mimicking' occurs, there are other
areas where nonprofit governance is quite distinctive from practices in the corporate
 18

sector. The findings indicate that nonprofit boards can mimic some aspects of a
shareholder approach to governance. But nonprofit boards, in the main, indicate
priorities and activities of a stakeholder approach to governance.

In general terms, the survey reveals a culture whereby notions of knowledge of (or
loyalty to) the sector is prized higher than the functional expertise expected of
directors. This invites further research on the implications for fiduciary or due
diligence standards expected in governance. The survey suggests that nonprofits
“compensate” for the demands placed upon it with the diverse intellectual expertise of
non-executive directors. Nonprofit boards are likely to be more representative of their
members. They include more women than directors on corporate boards and include a
greater proportion of directors from minority groups in society. While strategic issues
feature significantly as a task of the board, nonprofit directors also engage in
operational management.
 19

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