Over the years, there have been ongoing discussions about the differences and the responsibilities and accountabilities between 'incorporated boards' and advisory boards. Sometimes the differences between the two types can be clouded by rhetoric. This article aims to provide clarity in relation to the definition and delineation of these two important school bodies.
According to the Australian Institute of Company Directors (AICD) a board “is the group of individuals (howsoever described or called) in whom the governance, control, direction and management of the organisation is vested in accordance with its constituent documents or by legislation”.
Boards of an incorporated body ('incorporated boards') and advisory boards are both tasked with enabling a school to achieve the best outcomes for its students and staff, and the school.
Boards usually do this by identifying the school’s priorities through strategic planning and enterprise risk management, capital works and master planning, having accountability for the finances and overall resourcing, ensuring that the school vision and mission are met and that the total educational package of the school reflects the needs of students. Above all, school boards are responsible and accountable for the culture of the school and must make sure that the principal embodies and leads the school’s culture.
One other absolute for all boards is that they should confer with the principal in order to make a particular decision in conjunction with the principal; the principal then must put the decision into effect based on the legislative, registration and school policy requirements. Boards should not intervene in the management of the school. This is the role of the principal.
It states in the White Paper: 12 Key Risks for School Boards in 2019 that there are three crucial governance risks, relating to school boards, that will have a significant impact on school operations:
- failure to develop and maintain a high-performance school board
- failure to provide robust, data-based school board reports
- failure of boards and school leadership to spend sufficient time on strategy.
The AICD, in its article, “Should Directors Brave a School Board?” quotes Libby Prell FAICD, who has been involved with school boards for 16 years. She says “The responsibilities of school boards have elevated enormously… “School boards have a huge responsibility today. Expectations of parents, the community and government have heightened — it’s a serious governance business”.
In order to receive Commonwealth funding under section 75 of the Australian Education Act 2013 (Cth) (Education Act), the “approved authority” for any non-government school must be a body corporate and operate the school on a not-for-profit basis. This means that if a school has an advisory board the governing board of directors that sits above the advisory board must be a registered body corporate.
The not-for-profit component aligns with the requirements of the Australian Charities and Not-for- profits Commission Act 2012 (Cth) (ACNC Act). Non-government schools are usually registered charities, therefore the governance standards created under the ACNC Act and set out in the Australian Charities and Not-for-profits Commission Regulations 2013 (Cth) replace what would have otherwise been their governance requirements under the Corporations Act 2001 (Cth) (Corporations Act). More information on the Australian Charities and Not-for-profits Commission (ACNC) governance standards can be found here. The ACNC has also produced Governance for Good, a guide for charity board members.
The registered body corporate’s constitution gives the board of directors the power, among other things, to perform its obligations under the Education Act including receiving and accounting for funding.
What is an “Incorporated Board”?
Most independent schools are companies limited by guarantee which are public companies incorporated under the Corporations Act and therefore have a board of directors (i.e. 'an incorporated board'). This has the following significant advantages:
- the individual board members limit their exposure to personal legal liability
- bank accounts can be opened in the name of the association or corporation
- the association or corporation can apply for government funding and hold property.
Some schools are set up under the Associations Incorporation Act in the relevant state or territory, which provides similar powers and protections to “members of the committee of management”, who perform the equivalent role of a board directors for a school that is a registered incorporated association.
Better Boards provides links for organisations to access information on the conditions of incorporation and the government bodies that administer to incorporated associations in each state/territory.
Directors of incorporated boards have fiduciary and statutory duties to their school that arise under the general law and the Corporations Act or the Associations Incorporation Act in their state or territory.
Directors’ duties include:
- a duty to act in good faith in the best interests of the organisation
- a duty of care and diligence
- a duty not to disclose or make improper use of confidential information
- a duty not to make improper use of the position of director
- a duty not to trade while insolvent.
What is an Advisory (Unincorporated) Board?
An advisory board is group of people who provide advice and support to an organisation. An advisory board uses approved terms of reference to define its way of working. Advisory board members are not directors under the Corporations Act.
“There are no specific general law duties for advisors on an advisory board. Advisors on an advisory board do not have the same duties [as directors]… You can impose contractual obligations on advisers, in an advisory board agreement.” (LegalVision)
Therefore, one key attribute of any advisory board is its lack of authority to make decisions which direct or bind an organisation, unless this was delegated to it by an incorporated board. This would still leave the incorporated board as the body ultimately responsible.
However, calling a board an ‘advisory board’ where it actually has decision-making powers will not avoid its members from being subject to some legal duties if in fact the board acts as a “decision- making board”. The fact that the directors or members have not been appointed correctly or formally would also not preclude them from legal responsibilities.
In many systemic school groups there is an overarching “incorporated board” and advisory boards are appointed below it to each school by the incorporated board. Although advisory board members may not be appointed as directors, they are recognised as officers and therefore are required to comply with obligations under the Corporations Act/ACNC Act and other key legislation such as workplace health and safety laws
The terms “director” and “officer” are both defined in the Corporations Act. The definition of an “officer” of an entity that is neither an individual nor a corporation is:
a) a partner in the partnership if the entity is a partnership; or
b) an office holder of the unincorporated association if the entity is an unincorporated association; or
c) a person:
i. who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the entity; or
ii. who has the capacity to affect significantly the entity's financial standing.
Directors and officers however described are required under all of the relevant legislation to act with care and diligence and in good faith in the best interests of the organisation.
In this regard it is important to also note that volunteer directors and officers have immunity from criminal prosecution or fines under the Model WHS Laws (NSW, Qld, SA, ACT, NT) in their capacity as directors or officers, as well as under the ACNC Act.
Advisory board members are not directors. As they are not defined as directors, they are not exposed to board directors’ duties, risks and liabilities.
Directors of a body corporate face personal liability if they breach their duties, and in situations where the school trades while insolvent. It is common for businesses to take out directors’ and officers’ (D&O) insurance to help manage directors’ risk.
Advisors face less risk than directors, in particular, because they do not have ultimate decision-making powers. And where they do have specific duties at law, potentially in their capacity as “officers", they are likely to be exempt from a number of penalties because of their volunteer status.
To an outsider, an advisory board may look very similar to the board of directors /“incorporated board” because its members attend “board” meetings, set agendas and keep minutes, supporting the principal in his or her role (but not appointing or dismissing the principal) and it is usually composed of important stakeholders of the school.
However, an advisory board is not synonymous with the type of board that constitutes the board of directors as it does not have the significant level of decision-making powers which distinguish it from a ‘real’ board. It can be argued that it is, in reality, a committee created by the board of directors for advisory purposes but has a title that includes the word "board".
Therefore, an advisory board is not the legal governing body of a school and does not carry the same legal responsibilities and fiduciary duties as the board of directors.
About the Authors
With 37 years of educational experience, Craig D’cruz is the National Education Lead at CompliSpace. Craig provides direction on education matters including new products, program/module content and training. Previously Craig held the roles of Industrial Officer at the Association of Independent Schools of WA, he was the Principal of a K-12 non-government school, Deputy Principal of a systemic non-government school and he has had teaching and leadership experience in both the independent and Catholic school sectors. Craig currently sits on the board of a large non-government school and is a regular presenter on behalf of CompliSpace and other educational bodies on issues relating to school governance, school culture and leadership.
Svetlana is a Senior Consultant at CompliSpace. She has over 20 years of experience in strategic and operational human resource management, occupational health and safety, and design and implementation of policies and change management programs.
She has held national people management responsibility positions in the public and private sectors, and is now the content specialist at CompliSpace for harmonised WHS (and OHS/OSH in the other two states), HR, Privacy and general compliance matters for Not-for-profits.
She holds a LLB , Masters in Management (MBA), Master of Arts in Journalism, and a Certificate in Governance for Not-for-profits.