A new guidance note issued by the HKICS gives a practical introduction to the governance issues relating to non-governmental organisations (NGOs).

A director on your board wants to become involved in an NGO. He comes to you, as the company secretary, and wants to know the differences between the governance of a business and that of an NGO. Also, he wants to know what he needs to watch out for in terms of the big picture. How do you respond? This scenario is considered by a new guidance note issued by the HKICS on NGO governance. Hong Kong has a sizeable NGO sector but the all-important issue of how organisations in this sector are governed receives nothing like the attention it does for commercial enterprises. The new HKICS guidance seeks to shine some light on the issues that directors and managers of NGOs need to be aware of and to help company secretaries to fulfill their advisory role in this area. The topic of NGO governance is, of course, a very broad one. It involves high-level issues such as the obligations of those in control of the NGO; technical issues such as which structures to adopt when establishing an NGO and how to call meetings, prepare reports and accounts; as well as the regulations and best practice procedures relating to NGOs. The new HKICS guidance does not attempt to address all of these issues, it intends to serve as an introduction to the topic and will be the first in a series of guidance notes looking at NGO governance.

Understanding NGO governance

Are NGOs subject to different corporate governance concerns from commercial enterprises? While many of the key governance concerns are the same for both types of organisations, one salient feature of NGOs is their relationships with stakeholders. The stakeholders of an NGO tend to be a wider community than those for commercial enterprises and they require:

• the delivery of services
• proper use of funds
• defensible selection criteria, and
• no evasion of responsibility.

‘Anyone taking up a directorship in an NGO needs to understand that stakeholders’ concerns are much wider than those for a commercial enterprise,’ the guidance states. The guidance also quotes a 2001 study by the International Federation of Accountants, Study 13 – Governance in the Public Sector, (see end note for the web address) which states that 'public sector entities have to satisfy a complex range of… economic and social objectives, which subject them to a different set of external constraints. They are also subject to forms of accountability to various stakeholders, which are different to those that a company in the private sector has to its shareholders, customers, etc.’ The guidance makes it clear that NGOs must:

• have systems, principles and processes in place to ensure checks and balances on those in control
• be aware of the complex socio-economic environment they operate in
• add value to their stakeholders, and
• deliver 'public good’.

Advising on NGO governance

As set out in the case scenario mentioned at the beginning of this article, advising directors on NGO governance will be a likely scenario for governance professionals to become involved in this field. In particular, company secretaries will find useful the section detailing the issues that such a company secretary would need to draw to the attention of the director interested in getting involved in an NGO. The decision to get involved with NGO work should not be undertaken lightly. Directors of NGOs will be held to the same high standards as their counterparts in the for-profit sector, and they should be aware of the qualities required of persons acting as part of the board and management of an NGO. The Nolan Committee in its The Seven Principles of Public Life (see end note for the web address), sets out the personal qualities required for those in public office. These principles could be used in relation to decision makers of NGOs. These are:

1. selflessness
2. integrity
3. objectivity
4. accountability – including for the use and stewardship of public funds and assets
5. openness
6. honesty, and leadership.

The guidance points out that directors may find themselves in difficult situations – for example where they are confronted by incompatible demands from different groups of stakeholders, or faced with potential conflicts of interest. It emphasises that, in such scenarios, directors will need to exercise judgement and no small amount of diplomatic skill. Most important of all, however, they should not lose sight of the ultimate objective of the NGO – that is, to serve the public good.

The new HKICS Interest Groups

Members of the HKICS, and their professional network both locally and internationally, collectively represents a significant body of expertise in corporate governance and corporate secretaryship. The guidance note on NGO governance reviewed here represents the first fruits of a new initiative launched by the Institute to focus this expertise for the benefit of HKICS members and the wider profession and community. The Institute has set up seven interest groups looking at key issues for governance professionals. They are:

1. Company Law (Chair: Benita Yu, Partner, Slaughter and May)
2. Competition Law (Chair: David Simmonds, Group General Counsel, Chief Administrative Officer and Company Secretary, CLP Holdings Ltd)
3. Ethics, Bribery and Corruption (Chair: Dr Brian Lo FCIS FCS, Vice-President & Company Secretary, APT Satellite Holdings Ltd)
4. Public Governance (Chair: April Chan FCIS FCS(PE) Past President and Chairman of Technical Consultation Panel, HKICS)
5. Securities Law and Regulation (Chair: Daniel Wan, Partner, Francis & Co, in association with Addleshaw Goddard (Hong Kong) LLP)
6. Takeovers, Mergers and Acquisitions (Chair: Michelle Hung General Counsel & Company Secretary, COSCO Pacific Ltd)
7. Innovation (Chair: Gillian Meller,
8. Legal Director & Secretary, MTR Corporation Ltd)

The guidance produced by these interest groups will be published on the HKICS website and reviewed in CSj. As mentioned above, this first guidance note will be followed by further guidance from the Institute's newly formed Public Governance Interest Group looking at other aspects of NGO governance. ‘Doing Public Good – Public Governance Interest Group Guidance Note 1’ is available on the HKICS website (www.hkics.org.hk). The International Federation of Accountants (IFA) publication, 'Study 13 – Governance in the Public Sector’, is available on the IFA website: www.ifac.org. The Nolan Committee's publication: 'The Seven Principles of Public Life', is available online at: www.gov.uk.