The South African Institute for Advancement
MEDIA STATEMENT BY INYATHELO
For immediate release: 14 MAY 2009
KING III URGED TO ADDRESS NON PROFITS’ NEEDS
The King III report on Governance Principles for South Africa might cause more harm than good to the country’s non-profit sector since it “inadvertently ignores the distinctive values on which the South African non-profit is based”.
So says Inyathelo –The South African Institute for Advancement, an NGO charged with building a sustainable South African civil society, in a memorandum in which it notes that the King III Report has concentrated on commercial entities in its findings and recommendations.
“While there is no doubt that King III can add significant value to non-profit organisations (NPOs), it may once again lose the opportunity to inspire effective governance in the non-profit sector.”
The memorandum has been prepared with the view to encourage a deeper scrutiny of non-profit governance in the final version of King III. To this end Inyathelo’s comments on King III and its call for the establishment of a sub-committee to develop a chapter within the King III Code that will specifically address governance matters in respect of NPOs ,was endorsed by 57 organisations and 17 individuals. Some of the organisations also represent various constituencies.
The memorandum points out that NPOs have historically played a significant role in South Africa, not least in the struggle against apartheid: “It is these entrenched values that contributed towards the democratic dispensation in which markets operate freely. Introducing a commercial governance model for NPOs will inevitably lead to suppression of the non-profit sector’s distinctive values. NPOs and orprofit entities are formed and governed on different ideologies”, Inyathelo says.
The organisation points out that since the publication in 2004 of its Guidelines for Corporate Law Reform, the Department of Trade and Industry has made a notable effort to take into account the views of the non-profit sector on corporate law reform.
The department had set an example by taking into account the views and submissions of the non-profit sector and by producing legislation that reflects that process. King III could further build on that process and give more dedicated attention to NPOs.
The memorandum points out that the main objective of a for-profit entity is to run a profitable commercial business. This is the antithesis of the objective of a NPO which “can never be to generate profits”.
Consequently, Inyathelo argues, a NPO’s success cannot be measured against its ability to generate profits since its main objective is to promote some sort of social change, such as the promotion of religion, the arts, science, education, charity, recreation, or any other cultural social activity or communal or group interests.
It is also impossible for a NPO to measure performance based on the profit principle for the simple reason that it does not seek profits per se. Boards of NPOs and for-profits cannot therefore, appropriately, be measured according to the same standards.
The issue of ownership is also germane. King III is based on the premise that shareholders and directors have vested private interests in commercial entities. NPOs are not constituted on this premise, however, as members and office bearers ordinarily do not have ownership rights to property in a NPO.
Consequently the governance of NPOs should not be based on the premise of ownership or vested private interests.
Turning to the role and composition of boards of NPOs, Inyathelo notes that while board members of for-profits typically get remunerated for their services, this does not apply in the main to NPOs. Indeed, the motivation for serving on a board of a NPO is usually found within the objectives and activities of the rganisation. Non-commercial values are therefore indispensible motivating factors for members of NPO boards.
In addition, such boards usually consist almost entirely of non-executive directors.
The memorandum says it is questionable whether superficial changes will sufficiently address the shortcomings of King III in respect of NPOs. King III has an ideal opportunity to give special consideration to the governance of NPOs in order to make a long lasting beneficial impact on the non-profit sector.
The South African Institute of Advancement, colloquially known as Inyathelo (advancement in isiXhosa) is a world recognised organisation dedicated to building a sustainable South African civil society. Its core work is to advance social change by working with key institutions and non-profit organisations to ensure their long-term sustainability. This is done by developing their own capacity to raise private investment towards advancing their objectives. Whilst working with organisations to develop their resource mobilisation skills. The Institute promotes social responsibility, personal philanthropy, voluntarism and self-reliance.