Governance Systems

Principle 3: Governance systems

The board is ultimately responsible for the success of the organisation it governs. Each board
should clearly define its role in discharging this responsibility. An effective organisation should have the following systems:

• a strategic planning framework identifying core organisational values, goals and performance management indicators
• clearly documented board/management interaction, including appropriate delegations and authority of all parties
• a thorough process for identifying and monitoring legal, compliance and risk management requirements
• a thorough system of audit, including internal and external processes
• a performance management system to provide evidence and ensure monitoring of legal compliance and performance against plans.

Principle 3.1:

That the board should determine the process by which it will develop the strategic direction, key objectives and performance measures as well as core values and ethical framework for the organisation.

Commentary and guidance

It is important that a board regularly reviews its strategic priorities to ensure it maintains its competitive advantage and is clear about what it wants management to focus on. The ASC considers it important that all key stakeholders are consulted through the strategic planning framework to ensure future strategies address the most pressing issues within the industry.

Principle 3.2:

That the board should develop a protocol outlining expectations for board-management interactions. This will normally include:

• expectations regarding the use of a board member's networks/contacts
• expectations regarding provision of advice to the chief executive officer and management
• a protocol for individual directors to acquire all information required for decision making and control (see Principle 4).

Commentary and guidance

The relationship between management and the board is critical and must be supported by a clear
segregation of responsibilities. At all times the board must be in control, however management
must be accountable, operate with delegated authorities, have appropriate levels of skills, and
perform against the established key performance indicators.

Directors should not approach management directly, but rather should channel all additional
information requests through the chair and chief executive officer, unless specifically approved
within the protocols.

Principle 3.3:

That the board should have in place an effective and efficient monitoring and evaluation system. This will include financial and non-financial monitoring. In particular, each board should monitor outcomes of the implementation of the strategies as the basis for the evaluation of overall performance and reporting to members (see Principle 5).

Commentary and guidance

It is essential that the performance indicators are clear and concise and, more importantly, can
actually be measured. It is also imperative that an organisation understand where they currently stand in relation to key performance indicators so a comparison can be achieved between past, current and future result targets.

Principle 3.4:

That the board should have in place an effective risk management strategy and process. This will require the board to take actions to identify key risks facing the organisation and ensure that risk management strategies are developed and actioned. The risk management system should comply with the Australian Risk Management Standard AS/NZS 4360:2004.

Commentary and guidance

It is essential that an organisation regularly reviews its risk exposure across all facets of the organisation. In line with AS/NZS 4360:2004 an organisation should review the likelihood and impact of all possible incidents and assess the actions required to minimise, avoid or eliminate potential risks. An organisation should ensure it also assesses the opportunities forgone as part of its risk assessment and evaluation process, as risk is not only a negative element; the opportunity cost of not doing activities should also be considered. In addition, some events or activities often need a specific and comprehensive risk assessment to be done (for example, the hosting of a large sporting event). In this situation a business case should be developed as part of normal risk management processes to assess the impact and potential outcomes, negative or positive, of such an event.

Principle 3.5:

That the board should implement an effective compliance system. It is recommended that this system comply with Australian Standard AS3806:2006 and require, at a minimum, that:

• the organisation complies with all relevant statutes, regulations and other requirements placed on it by external bodies
• effective internal controls exist and there is full and accurate reporting to the board in all areas of compliance
• the organisation is financially secure and is able to meet all its financial obligations when they fall due, in the normal process of business.

Principle 3.6:

That the board should develop and document a regular (annual/six-monthly) performance review process for the chief executive officer.

Commentary and guidance

While the detail of the performance review may be undertaken by a board committee, at some
point in the process all directors should have an opportunity to review and comment on chief
executive officer performance. The performance indicators for the chief executive officer should be clearly linked to the strategic goals and objectives set by the board and should be measurable. In addition the chief executive officer should have performance measures linked to staff performance and
key stakeholder relationships.

Principle 3.7:

That the board must ensure an effective audit system and process is in place. The audit process may include internal and external processes and systems.

Commentary and guidance

An effective audit process should ensure there are adequate controls and systems in place to alert management and the board to potential financial risks associated with the operation of the sport. Given the heavy financial focus on audit processes, management and board directors should have basic financial literacy that enables them to understand and actively challenge information presented.

Principle 3.8:

That the board should establish an audit committee and that its role be set
out by formal charter/terms of reference.

Commentary and guidance

The existence of an audit committee is recognised as an important feature of good corporate
governance. The committee should be structured with at least three people who should be
financially literate, and include at least one who has financial expertise (that is, a qualified
accountant). The audit committee should only comprise persons who are not directly involved in
the management of the organisation. The chair of the audit committee should be independent from the chair of the board. The audit committee should take prime responsibility for, but not be limited to:

• reviewing the organisation's annual financial accounts and recommending them to the board for approval
• overseeing the relationship, appointment and work of external and internal auditors
• reviewing compliance-related matters
• overseeing the organisation's risk management framework
• regularly reviewing the organisation's ongoing financial accounts, systems and delegations.

The audit committee charter should clearly set out the committee's role, responsibilities, composition, structure and membership requirements. The committee should be given the necessary power and resources to meet its charter. This includes rights of access to management, and to auditors without management being present, and rights to seek explanations and additional information. If approved by the board, an audit committee can extend their mandate beyond purely financial and audit matters to include compliance and risk management as areas of focus.

Principle 3.9:

That since ultimate decision-making power rests with the board, the board should clearly document all delegations of authority to the chief executive officer and other individuals, committees or groups. This document, or delegations register, should be regularly reviewed and updated. It should be the subject of a formal board resolution.

Commentary and guidance

To ensure the delegations document is not limiting and restrictive on the operations of the organisation, it is often better to articulate the limits of management authority as opposed to trying to articulate every possible approval item. This approach will provide a framework in which management can operate, without unnecessarily burdening the board with items management should clearly deal with.