Good Governance Principles: If Not Why Not?

Published
14 November 2019

The requirement for schools to be properly governed is an almost universal requirement for school governing bodies around Australia.

 

Good Governance in School Registration-Regulatory Requirements

New South Wales independent schools are required to have policies, procedures and systems in place for the “proper governance” of the school. In Western Australia the School Education Act 1999 (WA) requires the Director General to be satisfied that a school is, or will be, well governed. In Victoria the proprietor must structure the governance of a school to enable the effective development of the strategic direction of the school, the effective management of the finances of the school, and to ensure the school fulfils its legal obligations.

In Queensland the governing body must be suitable and it must have a governance structure to enable it to carry out the functions of the governing body in the governance of the school. In Tasmania the governing body has responsibility for the standard of education to be delivered at the school, the strategic direction of the school and the overall management of the school’s finances and the management of the school’s principal.

In South Australia the school is accountable for a safe, legal and financially viable operation and must have corporate governance arrangements in place to meet these accountability requirements. In the Northern Territory schools must have governing bodies that are bodies corporate, whose directors are persons of good character and between them possess the skills and experience necessary for the proper administration of the school. The school’s methods of governance must be appropriate to its education programs and its students.

The Australian Capital Territory is the only state or territory not to specify governance-related requirements for its non-government schools.

The NSW Education Standards Authority is more explicit as to what it calls ‘the proper governance requirement’. The NESA Individual and Systems Schools Manuals say:

 

Proper governance requires the ‘responsible persons’ for a school to have in place structures, policies and procedures for governance, leadership, authority, decision-making, accountability and transparency.

 

The NESA Manuals then go on to say:

 

In general terms, the requisite policies and procedures for proper governance must be consistent with properly accepted community norms for school governance. A number of widely accepted standards and authorities exist in this regard, such as the Australian Securities and Investments Commission (ASIC) and the Australian Securities Exchange.

 

NESA also suggests the Australian Charities and Non for Profits Commission (ACNC) as another source of information regarding ‘community standards for proper governance’.

Set out below are broadly the key points from the Corporations Act 2001 (Cth) (Corporations Act), the ASX Corporate Governance Principles and the ACNC in relation to proper governance applicable to the school context.

 

ASIC and the Corporations Act

Our previous article outlines in detail the members of not-for-profit governing bodies’ fiduciary and statutory duties under the general law and the Corporations Act or the Associations Incorporation Act in their state or territory.

How do these duties apply in the school context?

The duty to act with reasonable care and diligence

This sounds obvious enough, however, it highlights the requirement for careful decision-making. In many cases this includes undertaking ‘due diligence’ in key areas of operations and responsibility rather than just accepting representations from others or in documentation at face value.

The duty to act honestly and fairly in the best interests of the school and for its purposes

While you might expect all school leaders to act in this way, there are numerous examples of school leaders acting dishonestly or acting with an undisclosed conflict of interest. The role of a school leader is to put the best interests of the school before their own interests – ALWAYS.

The duty of a person to not misuse their position or information they gain

School leaders are privy to a wide range of highly sensitive information for example, in relation to students, staff and commercial contracts. They must not misuse this information or their position within a school.

The duty of a person to disclose actual or potential conflicts of interest

This is an area that should be the subject of both good policy and good practice. Understanding the principles of conflict of interest and disclosure and how school leaders should deal with conflicts or potential conflicts in practice is critical.

The duty to ensure that the financial affairs of the school are managed responsibly and not allow the school to operate while it is insolvent

One of the major areas of responsibility for school leaders is the management of the school’s finances. Issues to address include processes for prevention of fraud and corruption, and a wide range of financial controls and reporting systems. One of the key aspects is making sure that there is a range of high-quality financial reporting available to leaders so that they are aware of the school’s financial position and can make good decisions regarding the management of the school’s finances.

 

ASX Corporate Governance Principles

In February this year the ASX published the fourth edition of their “Corporate Governance Principles and Recommendations” (ASX Fourth Edition). We mentioned above that NESA has referenced the ASX Principles as a source of information of community standards for good governance. The ASX Fourth Edition also states that, although specifically developed for listed entities, the Principles may have a wider application because “as they reflect a contemporary view of appropriate corporate governance standards, other bodies may find them helpful in formulating their governance rules or practices(the application of the Principles and Recommendations page 2).

Not all the ASX Principles are relevant to schools but those that are relevant are set out below.

Principle 1: Lay solid foundations for management and oversight

Clearly this means that governance must be planned and well thought out with clear lines of accountability, meaningful reporting up to the governing body and regular reviews of the performance of the school governing body and the school leadership. School governing bodies should approve a statement of values and code of conduct that underpin the desired culture.

Principle 2: Structure the board to be effective and add value

Effective governing bodies and school leadership groups don’t just happen but require a careful mix of skills and experience if the school is to achieve its objectives. Schools should have in place a program for inducting new governing body members.

Principle 3: Instil a culture of acting lawfully, ethically and responsibly

In the previous version of the ASX Principles this Principle was “Act ethically and responsibly”. The addition of “culture” highlights the fact, which was very clear from the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and the Royal Commission into Institutional Responses to Child Sexual Abuse, that an organisational culture that is consistent with the organisation’s values is equal to if not greater than any other factor in driving ethical and child safe behaviour throughout the organisation. Leaders must ensure that they act in a way that influences organisational culture positively and lead by example. What they ‘do’ is arguably much more important than what they ‘say’. At the heart of the Framework for Managing Risk in the International Risk Management Standard ISO31000 (2018) is Leadership and Commitment.

Principle 4: Safeguard integrity in corporate reporting

There needs to be internal audits or other checking and verification systems and accountability and review mechanisms to ensure that what is being provided in reports is accurate.

Principle 7: Recognise and manage risk

There needs to be a deliberate, planned and effective system of risk oversight and reporting to the leadership in relation to risk.

Principle 8: Remunerate fairly and responsibly

While the entirety of this Principle is not necessarily relevant to schools, it does raise issues for consideration such as what should be considered fair remuneration for school staff including school leadership, and also, from a religious and ethical point of view, addressing issues in relation to stewardship and effective use of resources.

 

Australian Charities and Not for Profits Commission

The ACNC has five governance standards and also publishes a guide for governance of charities “Governance for Good: the ACNC’s Guide for Charity Board Members”.

Standard 1: Purposes and not‐for‐profit nature of a registered entity

Schools, if they are charities registered with the ACNC, must operate on a not‐for‐profit basis and work towards their charitable purpose. A school must be able to demonstrate this to the ACNC and provide information about its purpose to the public (for example, by having a copy of its rules on the ACNC Charity Register).

Standard 2: Accountability to members

Schools must take reasonable steps to be accountable to their members and provide their members with adequate opportunity to raise concerns about how the school is governed. This Standard only applies to schools that have members.

Standard 3: Compliance with Australian laws

A school must not commit a serious offence (such as fraud) under any Australian law or breach a law that may result in a civil penalty.

Standard 4: Suitability of board members (‘Responsible Persons’)

Schools must take reasonable steps to ensure that their board members are not disqualified from managing a corporation (under the Corporations Act) or currently disqualified from being a board member for a registered charity by the ACNC Commissioner. Schools must take reasonable steps to remove board members who do not meet these requirements.

Standard 5: Duties of board members (‘Responsible Persons’)

Schools must take reasonable steps to make sure that their board understands and carries out the duties set out in this Standard.

 

If Not Why Not?

School leaders need to understand their legal obligations as members of their school’s governing body and how these obligations apply in practice.

No state or territory mandates that school leaders or school boards follow any particular set of governance principles. However, the ASX Principles and Recommendations explicitly state that listed entities should take an ‘if not, why not’ approach to the ASX Principles. This ‘if not why not’ approach could equally be applied to all of the governance standards and principles that have been summarised above. In other words, if a school chooses to depart from accepted community standards for good governance, they should have clearly articulated reasons why they are doing so.

Jonathan Oliver

Jonathan is a Senior Consultant working with CompliSpace education clients. He has more than 10 years experience in the school sector as a teacher, compliance and legal adviser and more recently as a Business Manager. Jonathan has been a solicitor for nearly 30 years and worked in both private practice and community legal centres.