Introducing The KPMG Directors’ Toolkit and how it will benefit the NFP director 2 August 2014

1. Board Advisory Services Introducing The KPMG Directors’ Toolkit and how it will benefit the NFP director 2 August 2014

2. Challenges for the Australian Not-for-Profit Sector

3. Key challenges for the Australian Not-for-Profit Sector Fundraising for the Future Attracting the right people Regulation and Compliance Relevance and Recognition Obtaining assistance and the right tools

4. Introducing the Directors’ Toolkit The Directors’ Toolkit is an important tool for today’s NFP boardroom. Designed in an interactive iPad / tablet-friendly format It is an essential resource for today’s NFP director. Updates, new sections and version releases We will with your approval keep your details on our Board Advisory Services database to keep you informed of any updates to the toolkit

5. Better practice in the NFP Board Room

6. Effective NFP boards Taking the boardroom to a ‘better practice’ level Expert Ticking the boxes

7. Effective NFP boards Taking the boardroom to a ‘better practice’ level Governance, strategy, risk and assurance all aligned Expert Ticking the boxes

8. Effective NFP boards Corporations Act (2001) Better practice in the boardroom effective, strategic governance ASX Listing Rules Governance, strategy, risk and assurance all aligned Australian Accounting Standards ISO31000 Risk Management Standard Expert Ticking the boxes Financial Management Act 1994 (Vic Govt.) Industry better practice standards

9. Structuring an effective board and sub-committees Directors’ Toolkit Chapter 5 & 7

10. Structuring an effective board • Red Flags • Board appointments are decided by the chairman with little input from other directors. • Directors do not receive a letter setting out the terms and conditions of their appointment. • No formal (or insufficient) board induction is provided to new board members. • Unreasonable demands are placed on the directors’ time. • The board is too large compared to similar organisations. • There is a lack of ongoing board succession planning.

11. Structuring an effective board Effective boards possess varied experience, diversity and have a sound understanding of their roles and responsibilities My background is in financial services and I provide the board with strong financial literacy I am responsible for our board instruments, meeting agendas and documentation $ I have 20 years experience in the business and understand our business cycle I am an independent director with experience in change management

12. Board committees = legally required = Recommended by ASX Corporate Governance Principles = optional (encouraged by better practice guidance)

13. Supporting key executive and director appointments Directors’ Toolkit Chapter 6

14. Company leadership Questions That Company Directors Should Ask Does the board have complete confidence in the CEO and the senior management team? Does the CEO, through attitude and behaviour, reinforce the appropriate ‘tone at the top’? Has the board developed a CEO and senior management succession plan that is periodically reviewed? Do the CEO’s responsibilities include attracting, developing and retaining high performers in the organisation? Does the board have a transparent process for determining management remuneration?

15. Company leadership Select and empower Conduct a robust selection process, utilising external search firms where necessary Develop and retain Develop key management, rewarding and encouraging effective management practices Review and improve Perform thorough review processes, utilising independent providers where appropriate

16. Duties and responsibilities of a NFP director Directors’ Toolkit Chapter 1

17. Directors’ legal duties NFP Company directors have significant legal responsibilities. It is critical that directors understand their duties and keep abreast of any changes to legislation affecting them. Corporations Act (2001) Australian Accounting Standards Australian Charities and Not-for-profits Act 2012 (Cth) (the ACNC Act). Financial Management Act 1994 (Vic Govt.) Australian Taxation Office (ATO) Commonwealth taxation law ISO31000 Risk Management Standard Industry better practice standards ASX Listing Rules

18. Directors’ capacity There is a need for directors to be able to give sufficient time and effort to their board role.

19. Financial literacy Financial literacy is a combination of financial knowledge, skills, attitudes and behaviours necessary to make sound financial decisions, based on personal circumstances, to improve financial wellbeing.

20. Oversight of strategy and governance Directors’ Toolkit Chapter 2, 10 & 13

21. Governance roles Questions That Company Directors Should Ask Is the composition of the board appropriately diverse for it to perform effectively? Is there an annual agenda, approved by the board, that is linked to the board’s key responsibilities as detailed in the board charter? Is the board clearly setting out the roles and authority of the CEO and directors in writing? Are delegations to management, including the delegations policy, set out in a single document? Is the board monitoring that directors allocate sufficient time to discharge their responsibilities?

22. Insightful strategy • Red Flags • The board accepts management’s strategy without in-depth probing or questioning. • The board does not fully understand the nature and implications of the proposed strategy. • The external environment is not fully considered in strategy development. • Not all directors attend the meeting where strategy is discussed and approved. • Risks inherent in the strategy are not identified or managed. • Board meetings are not strategically focused.

23. Governance roles There are many instruments, roles and responsibilities required for a NFP board to deliver its governance function effectively. Enablement & embedding • Enablers Oversight & monitoring • Inputs • Outcomes Constitution Policies and procedures Code of conduct Board charter Code of conduct • Simple • efficient • minimum • standards • Clear • accountability • for decision- • making • Corporate • mission Governance charters Delegations of authority Values Risk appetite Board duties

24. Role in strategy The NFP board plays an important role in setting the vision, purpose and strategies of the organisation.

25. Insightful strategy Plan and develop Communicate and enact Respond and reassess

26. Board Roles and Responsibilities Board vs Management

27. Engaging effectively with stakeholders Directors’ Toolkit Chapter 4

28. Stakeholder engagement • Red Flags • The NFP maintains no stakeholder mapping, tiering or profiling information. • The risk of not engaging stakeholders is not discussed or is often dismissed quickly by some board members. • Online coverage of the NFP is mostly negative. • Unclear executive and board accountabilities for stakeholder engagement. • The NFP is unaware or unprepared for the impact of social media activism.

29. Stakeholder engagement A good reputation is a prized corporate asset. NFP’s that can mobilise their stakeholder base are able to present a positive public image and reap the rewards that follow.

30. Stakeholder engagement • Plan • Profile and map stakeholders • Conduct risk assessment and set priorities • Set roles and accountabilities • Establish monitoring indicators • Prepare training where appropriate • Engage • Initiate contact with board-level stakeholders • Focus on the issues that matter • Proactive not reactive • Drive mutual relationships and outcomes • Review • Monitor and respond to risk on an ongoing basis • Evaluate performance • Report progress through a formal annual report statement

31. Accountability to community • When dealing with the community NFP should be: • Accountable • Transparent • Consultative

32. Managing productive meetings Directors’ Toolkit Chapter 8

33. Productive meetings • Prepare • Annual rolling agenda • Easy access • Defined roles and responsibilities • Timely distribution • Attend • Regular attendance • Accurate minuting, in line with Corporations Act 2001 • Physical sign-off of previous meeting’s minutes • Document and distribute • Distribution of minutes to board members • Secure board portals • Leverage technology

34. Risk Management Directors’ Toolkit Chapter 11

35. Risk management • Red Flags • Risk management is not connected to corporate strategy. • Leadership from the top is lacking. • Risk management is positioned as a compliance and backroom exercise. • Risk reporting and risk management plans are not challenged at board level. • A healthy risk culture is not embedded throughout the organisation.

36. Risk management Sources of risk

37. Risk management Defining a risk appetite suitableto your organisation ENTERPRISE RISK MANAGEMENT FRAMEWORK Setting a culture of risk awareness and good risk management practices DATA & TECHNOLOGY RISK GOVERNANCE Risk Assessment & Measurement Risk Reporting Risk Management, Monitoring & Assurance Structuring risk governance, with clear roles and accountabilities Strategy & Risk Appetite Identifying your key risks and facilitating thinking around the likelihood and consequence of materialisation RISK CULTURE Embedding monitoring systems with actions and timetables Designing a reporting structure to keep the Board informed

38. Better practice terms of reference, charters and agendas Directors’ Toolkit Chapter 9, 12 & 15-17

39. Ethical culture Guiding policies Guiding behaviours Strong and consistent tone from the top Sharing of bad news encouraged Sustainability policy Whistle-blower policy Anti-corruption policy Code of ethics Incentive-based accountability structure Standard behaviour across business lines

40. Receiving assurance Board, ExComm & Audit Committee 3 LINES OF DEFENCE 3 LINES OF DEFENCE 1st LINE – Business functions Embedded risk and control environment 2nd LINE – Internal oversight functions Finance, HR, Quality, Risk Management 3rd LINE – Independent assurance External Audit, Internal Audit, other assurance services

41. Corporate Sustainability • The key drivers of the increasing focus on Environmental, Social and Governance are the increasing: • power of stakeholders; • value of intangibles; and • regulation.

42. Work Health & Safety Organisations have a duty of care to ensure that any person affected by the company’s undertakings remain safe at all times and that their work activities are not prejudicial to health.

43. Work Health & Safety Best Practice Framework for OHS Governance • Director Competence • Director Roles and Responsibilities • Culture, Standards and Values • Strategic Implications • Performance Management • Internal Controls Organisational Structures Best practice framework for Health and Safety governance (Source: ‘Defining best practice in corporate occupational health and safety governance’, Health and Safety Executive, 2006)

44. Government

45. Establishing new boards Directors’ Toolkit Chapter 18

46. Establishing a new board Establishing a new board is a challenging undertaking. Our ‘first 100 days’ model provides a roadmap of the key activities and deliverables needed to establish an effective board within a target timeframe of 100 days. • Terms of reference • Charter and annual agenda • Sub-committees • Financial compliance • Legal and compliance duties • Delegations / CEO limits • Code of conduct • Strategic plan • Risk management policy • Risk workshop • Agree and validate critical risks • Risk register • Risk monitoring and mitigation • Risk reporting framework • Policies: • conflicts of interest • regulatory compliance • Privacy • whistleblower& fraud • media/crisis/incident • Recruitment & remuneration • continuous disclosure • Target operating model • Key appointments CEO / CFO • Compliance framework • Internal & external auditor appointment • Audit & risk committee • Consequence and breach policy • Reporting & oversight • Board performance assessments Agree priorities Risk profile* Operating model* Stakeholder framework Compliance • Communication policy • Internal / shareholders / community / government • Shareholder relations • Mapping and tiering • Engagement plan • Consultation model • Stakeholder and consumer participation forums Leadership & strategy Risk management Performance & monitoring Stakeholder engagement Accountability & audit Informed discussions and decisions, not an endless stream of surprises Proactive, strategic tool, not a reactive function Healthy culture supported by strong policies, not an inconsistent ‘tone at the top’ Active stakeholder consultation, not disengagement from the process Tailored assurance and reporting, not a ‘one size fits all’ approach *Note – in practice, it is common for these phases to run in parallel

47. Risk management • Red Flags • There is limited understanding on what is required in the first 100 days • The board composition has mainly inexperienced directors • No advice is sought from experts or directors who have experience in establishing boards • No time has been planned for discussing risks, strategy and corporate governance • Accountabilities and delegations are unclear and not documented • No board instruments have been presented for endorsement

48. Directors’ Toolkitwalkthrough

49. Introducing the Directors’ Toolkit

50. Navigating the Directors’ Toolkit