NFP directors to continue innovating and evolving

By: Phil Butler   |   Australian Institute of Company Directors, NFP Sector Lead   |

For the past 12 years the Australian Institute of Company Directors (AICD) has undertaken an NFP Governance and Performance Study to highlight and better understand the key themes, challenges, and opportunities the not-for-profit sector is facing.

Phil Butler

Compiled from focus groups, one-on-one interviews and a survey of NFP directors and executives, it is the most up-to-date snapshot of governance across the sector and it is the world’s largest study in NFP governance.

Unsurprisingly, the most recent iterations of the study painted a worrying picture, with COVID-19 in 2020 dealing a huge financial blow to the sector which was already facing considerable financial challenges, in part due to the summer bushfires of 2019/20.

This year the study notes the fine line between an optimistic future for the sector while recognising the enormous challenges faced by leaders over the last two years.

Almost 2,000 directors and executives took part in the 2021 survey which points to the many issues that Australian NFPs have dealt with during the COVID era and gave an indication of what the future may hold for organisations post-pandemic.

It revealed that while COVID-19’s impact, so far, was not yet as financially damaging as initially predicted, many organisations could still take years to recover.

In the years previous, profitability for the NFP sector was falling. In 2017, 61 per cent of respondents reported making a profit, but that fell to 48 per cent in the 2020 study.

This year’s study paints a more optimistic picture as 84 per cent of respondents reported making a profit or breaking even in the 2020/21 financial year.

One surprising result out of the study was that 40 per cent said that their organisation had not been financially impacted by COVID-19 or had in fact improved financially.

Government stimulus support, like JobKeeper, would have played a part in this but the study also indicates that there was a very considered effort on the part of many NFPs to innovate, to use technology in different ways, and engage creatively with the people who need their services and support.

The report also reveals that 95 per cent of organisations changed their business model to deliver services to clients.

Heading into a post-pandemic world this report shows a commitment by NFP directors to continue innovating and evolving their operational models.

Key priorities for the next twelve months for NFPs included responding to post-pandemic opportunities, as well as dealing with workforce issues and a greater focus on innovation.

This will serve to ensure the continued survival of NFPs that are willing to adapt and innovate.

While the NFP community survived better than initially feared, the study recognised that there have been enormous financial hurdles and the recovery period for many is far from over.

A large cohort, 40 per cent, said it will take at least two years to fully recover from the effects of the pandemic.

Broadly there were also ongoing economic concerns, with 81 per cent of NFP directors and executives worried about the strength of the Australian economy.

Despite this, mergers and merger discussions are at an all-time low.

Only 18 per cent of directors expected that they would be having merger discussions over the next 12 months and only about 50 per cent of those were expected to end up with a merger happening.

Merger activity was expected to rise after 2020 but based on these findings it may be 2023 before mergers are on the radar again.

Although there are several indicators that point to organisations being better positioned to deal with the expected demand in services, there are very real concerns about a lack of available workforce.

This concern is particularly felt in sectors who are dealing with vulnerable people, such as aged and disability care, and early childhood learning, there are already major shortages of staff and this pressure is expected to intensify.

The study noted that the quality of governance has continued to grow across the sector, for the first time, remuneration of directors had reached 20 per cent of respondents and the time commitment of directors has also continued to increase.

While it would appear that responding to the pandemic had caused an increase in directors being closer to the operations, there may also be a growing expectation that directors will be more “hands on” than ever before. The Royal Commission into Aged Care Quality and Safety also played a role here.

It is hoped that this intensified focus on the quality of governance will continue to translate into greater effectiveness of Australian NFPs.

Overall, the outlook post 2021 is upbeat with a view that despite the on-going challenges, innovation and evolving operational models will mean that clients will be served even better over coming years.

More on the 2021 NFP Governance and Performance Study can be found here.

Nov. 25, 2021

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