Structures

Organisational Structures

'One size does not fit all. Boards are most likely to be effective if their structures are designed to fit the circumstances of their company and the role the board has elected to play.' Colin Carter and Jay Lorsch. Back to the Drawing Board. Boston, Massachusetts: Harvard Business School Press, 2004

Incorporation

Sports organisations, like most not-for-profit organisations, are typically incorporated as either an incorporated association or a company limited by guarantee. Each state has its own incorporated associations legislation. While there may be minor differences in the various state and territory Acts, there is little significant difference between these. A sporting organisation formed as an incorporated association is limited to conduct its operations within the state of incorporation unless it is also registered in another state in which it intends to operate, or it is registered with the Australian Securities and Investments Commission as a registered body under the Corporations Act.

A company limited by guarantee is a public company as defined in the Corporations Act, which is a federal statute. Company status under federal law provides national sporting organisations with greater flexibility in that they can locate anywhere in Australia and be subject to one set of legislative requirements.

Board members of incorporated associations and companies limited by guarantee should expect to apply the same set of duties and standards to their role. Companies limited by guarantee have certain reporting requirements that do not apply to incorporated associations, such as more stringent financial reporting and listing the directors of the company and any changes to that listing.

Governance structure

The organisation's governance structure is defined in its constitution. This reflects the organisation's purpose, role and membership.

Most governance structures include:

• a board of directors (company) or a committee of management (association) whose job is to govern the organisation on behalf of the members
• governance documents that define the rules and regulations for operation, such as the rights of members, and members' power to alter the constitution or rules within the bounds of legislation (for example, members cannot change the percentage of votes required to bring about constitutional changes)
• the conduct of annual general meetings at which members:
• receive reports from the board on organisational performance for the preceding 12 months
• elect or appoint members to the board
• approve changes to the organisation's rules or constitution
• a board committee structure
• specialist office holders for such positions as chairperson or president, company secretary or public officer and committee chairs.

There is no single best structure for boards, that is, 'one size does not fit all'. The organisation's members should determine which structure and composition best fit their needs and, with awareness of general principles of good governance, create a board that meets the challenges facing the organisation and the sport.

Current governance thinking indicates that smaller boards of around seven members are
likely to be most effective. Where it is deemed necessary that the board should have regular access to a broad range of members' or stakeholders' views, this should be provided for by forming advisory forums or committees.

It is relatively uncommon in the not-for-profit sector for the chief executive officer to be an executive director, that is, a board member with full voting rights. This is not to say, however, that this should not be the case. Indeed, in terms of legal accountability, the chief executive officer can be equally liable for decisions of the board even though they do not exercise a vote (a 'shadow director'). This is a matter for the members to determine and reflect in the constitution.

The role of the chairperson is a critical element in the structure of the board. While most boards regard their chairperson as a first among equals, a servant leader, nonetheless this role provides essential leadership to the board and organisation.

Councils

Note: At times sporting organisations refer to their annual general meeting as a council meeting or annual meeting of members. The comments made about councils in this section do not relate to annual meetings of members, but to prescribed, intervening meetings of members e.g. quarterly, half-yearly where the council meets in order to give directions to the board.

Some governance structures also include a council that operates in between annual general meetings and gives directions to the board. These types of councils typically have historical significance rather than practical relevance and often duplicate the board's governance functions, responsibilities and accountabilities.

Councils are most common where an organisation comprises state or regional membership and the membership (at some stage in the past) has deemed it appropriate that there should be additional controls on the board's activities and freedoms.

In most modern governance structures, councils are an anachronism that typically result in:

• unnecessary and confused duplication of governance responsibilities
• council members having unrealistic and often unreasonable expectations of their actual power
• council members being equally legally liable for the decisions made by the board yet not being a part of the decision-making process, nor realising the extent of their liabilities
• a greater risk of conflicts of interest occurring due to perceived loyalties or duties to constituencies or nominating bodies rather than acting in the interests of the sport as a whole.

Some councils are formally constituted, others are the result of a practice that has become normalised over the years. Modern governance structures, well designed and well carried out, do not require nor benefit from the existence of a formally constituted council of members' representatives with decision-making capacity. When a sporting organisation wishes to retain a council-type structure without the duplication of governance arrangements mentioned above, the following recommendations are offered:

• councils can be used to good effect as communication channels but should not serve in a decision-making or directing capacity
• where a council is formally constituted, check to see that it does not duplicate the board's responsibilities or duties as defined in the rules or constitution. (It is often wise to seek legal advice when interpreting governance documentation.)
• with the help of your legal adviser and using the principles espoused in this guide, ensure that the board has all the appropriate authorities necessary to enable it to effectively govern the organisation
• with the agreement of members to restructure the governance bodies, remove all references to the council from the constitution or rules. (This will require special constitutional remit to be passed at a members' meeting.)
• redesign the council as a strategic forum, meeting once or twice a year to carry out one or more of the following functions:
• informing the board of significant membership issues
• assisting the board to review the organisation's strategic direction
• meeting to discuss state-wide or nationwide issues
• providing feedback to the board on the results of its governance decisions in practice at the member level.

Make provision in your constitution or rules for this newly designed member forum (or whatever name is chosen -- do not retain the name council). Take care not to design governance or any other responsibilities that will or could conflict with or duplicate the board's role or any part of it.

Directors' and officers' insurance

Directors' and officers' insurance is designed to protect the director or officer in respect of personal liability they incur for wrongful acts committed by them while acting as directors or officers of the organisation. A wrongful act is usually defined as:

• 'any error, mis-statement or misleading statement, act or omission, or neglect or breach of duty made, committed or attempted in the course of performing duties as a director/officer'.

A person may be regarded as an officer of an organisation if:

• they are a member of a committee
• they are the public officer, secretary, treasurer or executive officer
• they take part in the management of the organisation
• they are an employee of the organisation.

The organisation should confirm with the insurer which officers are covered by a particular policy. Claims brought about or contributed to by any dishonest, fraudulent, criminal, malicious, wilful or reckless acts or omissions are not covered.

Directors' and officers' liability policies usually provide cover in respect of legal costs associated with any claim covered by the policy, but this should be confirmed with the insurer.

Risk coverage should not be restricted to directors' and officers' insurance. The organisation, in developing its risk management plan, should examine what other types of cover are required. These may include public liability (to an appropriate level), professional indemnity, player accident and injury cover, workers' compensation (Workcover), voluntary workers' insurance, occupational health and safety cover, property insurance and so on.

In a climate of increasing insurance costs, boards should seek appropriate advice to ensure the maximum risk mitigation at the best price.