Culture is the root of misconduct – and how the NFP sector should respond

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By Vera Visevic, Partner

The recent string of Royal Commissions into institutional misconduct have highlighted the need for a new customer-centric approach in the NFP sector.

The past four years have seen four Royal Commissions into institutional misconduct. What was unearthed at those Commissions shocked the public and undermined confidence in a number of our key institutions. The NFP sector needs to heed the lessons of those enquiries and find a new path forward, putting culture and customer at the core of everything we do.

That’s the common theme which emerges from all four enquiries – the Child Sexual Abuse Royal Commission (2017), the Banking Royal Commission (2019), the Aged Care Royal Commission (2019) and the Disability Royal Commission (2020). The lesson which stands out from all of these enquiries is a simple one: culture is the root of misconduct.

One particular aspect of institutional culture came in for particular scrutiny: the prioritisation of organisational interest over the interests of the customer. This culture was characterised by the making of decisions from both senior and front-line decision-makers which ignored proper governance standards, suppressed complaints and incentivised self-interested behaviour.

Within the NFP sector, it is easy to understand the origins of this slippery slope. NFPs often face the tricky task of maximising their limited resources to reach their beneficiaries whilst simultaneously reinvesting funds into the growth of their organisations.

Because many NFPs concentrate their efforts on their operational purpose (applying funds to beneficiaries), attending to the culture of their organisation and governance of their systems, procedures, employees, management and volunteers is given scant critical regard or may even be overlooked altogether.

The recent Royal Commissions should therefore serve as a warning and a reminder to NFPs of the heightened risk to their reputations and to the beneficiaries they serve, if they ignore their own culture and governance. It is time for a new, customer-centric approach to come to the fore.

Customer-centricity involves shifting the lens through which the organisation is understood. The “customer” for every organisation is different. Whilst the “customer” is often defined as the recipient of the service that an organisation provides, this is not always necessarily the case. It could be other key stakeholders that the organisation is established to benefit, such as funders, paying customers, members or beneficiaries.

Instead of viewing the organisation through the lens of the goods or services it provides, a customer-centric model shifts this focal point to identifying the organisation’s target customers, and the problem the organisation is seeking to solve for them. It involves taking the customer perspective into the very architecture of an organisation, such as the organisation’s constitution, governance structures and remuneration models.

For an NFP, the objects, purposes, mission and values of an organisation should be customer-centric and be demonstrated throughout its key documents and in internal cultural rhetoric. This means that every organisation should have an effective constitution. It should have effective systems for risk management, complaints handling, and defensible records handling.

NFPs must actively hold their senior management to such standards, and be quick to implement practical measures. This can be done by using remuneration packages to incentivise risk compliance and robust governance structures, or by disciplinary mechanisms such as removing board members if they do not meet the legal and ethical standards that their beneficiaries and contributors expect of them.

Above all, organisational reputation must be secondary to care and justice for the beneficiary, and this must be reflected in how decisions are made. This is the core of a new customer-centric model which will transform the culture of NFP institutions.

Vera Visevic is an expert in Not-for-Profit & Social Enterprise law at Mills Oakley. Further commentary on the implications of recent Royal Commissions for the NFP sector can be found in her White Paper on the topic which can be accessed here.

For further information, please do not hesitate to contact us.

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    NFPs, Human Rights & Social Impact

    Case Note: Pearce v Missionaries of the Sacred Heart [2022] VSC 697