Norms of Good Governance in the Voluntary Sector

The Context

The voluntary sector has been burgeoning at a furious pace in most parts of the world in recent decades. In India too, the sector has grown in size and profile very significantly, both as the preferred instrument for the delivery of social development services and as the champion of the concerns of marginalised sections of society.

The 2002 survey, carried out by PRIA, in collaboration with John Hopkins University of United States, put the number of NPIs, the non-profit institutions (broadly synonymous with voluntary organisations or NGOs) in India at 1.2 million, nearly one half of which were unregistered. Their annual revenue in the year 1999-2000 was estimated at Rupees 18,000 crores and the number of volunteers working in these organizations was put at 10 million. The Kelkar Committee on direct taxes computed the contribution of the voluntary sector to the national GDP as 2.5 per cent in 2004.

It is not surprising that a sector, so visible and so vocal, has attracted, from time to time, the attention of commentators who have raised questions about the credibility and accountability of several organisations. Now and then, reports have also appeared about the blacklisting of certain organisations by official agencies, based on deficiencies noticed in their functioning or reporting practices, and these have further dented the image of the sector.

There are indications that the growth of the voluntary sector will continue in the years ahead because of several developments, both national and international, despite the temporary blip in charity funding caused by the recessionary melt-down. Within India, one can expect massive investments in social development and the National Policy on the Voluntary Sector envisages a growing partnership between government departments and voluntary agencies at both federal and state levels. The business sector also is expanding its CSR (corporate social responsibility) portfolios to underline its commitment to alleviating social problems and to refurbish its credentials as a responsible social citizen. This is bound to see a further explosion in the size of the sector. As it is, the latest CSO survey is drastically revising the estimates of numbers of NPIs. The current tentative figures are in the neighbourhood of 3.5 million registered entities, a very far cry from the earlier estimate. With this number, estimates of annual revenue, employment and contribution to GDP will also see significant upward revisions.

At the same time, the new evolving debates in the globalising world on issues like climate change, human rights and equitable trade relations are going to see civil society organisations pitting themselves against state and corporate interests. Therefore one can only expect a further increase in the decibel levels of challenges to the legitimacy and accountability of such organisations, on the argument "physician, heal thyself".

The History

The voluntary sector has been alive to these questions concerning its own credibility. When you critique other sectors and institutions, government and corporate, you have to be ready for stones thrown at your own glasshouse. Attempts have been made in the past, therefore, to evolve certain codes of conduct to improve the image of the sector. Several federations of voluntary organisations, like VANI for example, have tried to formulate guiding principles for their member organisations. The most prominent effort on these lines was the attempt in the mid-80s by several leading lights of the sector to frame a bill to lay down a statutory framework for the operations of the sector. This, however, came to nought because of the intense hostility of many organisations to any such externally imposed code.

Around the year 2000 another initiative was taken by the Planning Commission in collaboration with Charities Aid Foundation (CAF) for devising a rating format for the voluntary sector. The so-called DIGI format relied on a comprehensive questionnaire covering four areas namely, Documents, Income, Governance and Impact, with specific weights for each of the areas and sub weights for micro points within each component, adding up to an aggregate score on a comparative scale. Since impact assessment ran into problems, both conceptual as well as methodological, another metric was substituted. But more importantly, despite the very wide canvassing of the questionnaire, the response was very modest. Further, the hostility to inter se rankings put paid to any ambition to institutionalize the system or update the survey findings in subsequent years.

Predictably, that has not been the end of the story. Private bills have been introduced in the Parliament from time to time with the aim of introducing some regulation in the working of the sector partly because of the large-scale funding that the sector receives both from abroad and at home where Government itself is the largest donor. The latest Administrative Reforms Commission has also made several recommendations directed at greater accountability and transparency of the voluntary sector.

The Task

There is thus a self-evident need to address this problem of credibility deficit for the voluntary sector. For any attempt at quality assurance there is an obvious need for standards. However, before we proceed to conceive of a framework of standards, it is necessary to remind ourselves about the distinguishing characteristics of this sector.

The voluntary sector is extremely atomistic, highly diverse and fiercely independent. As said already, the number of the voluntary organisations runs into millions, even when count is taken only of registered entities. Of course, the unregistered ones may even outnumber them. The diversity in size, form and function is even greater. From a small leprosy home to a famous Netralaya, from a society promoting Sanskrit to a federation of industries organised as a company and from a Durga puja committee to a major advocacy group like Narmada Bachao Andolan, the spectrum is mind-boggling. Also, as non-governmental organisations, many of these entities are highly assertive of their autonomy and very suspicious of any attempt at official regulation.

When attempting to set standards or define criteria for benchmarking, one has to be mindful of the past attempts and the special sensitivities of the organisations.

The approach has to be based on the following principles.

Firstly, the standards cannot be imposed externally; they must be evolved and adopted by the sector itself.

Secondly, they should be seen as empowering the organisations rather than as tools of inspection.

Thirdly, the methodology must be consultative and consensual, and

Fourthly, the approach must be gradual and evolutionary.

The last one of these prescriptions is the most important. The need for standards is in two areas. One relates to integrity and the other to efficiency. The first one is a reality check on the existence and raison d'etre of the organisation, the integrity of its governance and management processes and the credibility of its reporting practices. The second one is concerned with its performance in terms of outcomes and impact.

Let us face it, the immediate challenge is a fiduciary one because many detractors often question the existence and bona fides of these organisations and mock them for their internal processes even as they critique all other institutions. Therefore it is best to concentrate our efforts first on building the fundamental credentials of voluntary organisations. Performance evaluation should come next after careful deliberation.

Even in the basic reality check, it will be best to go slow, adopt a minimalist approach and raise the bar gradually. This is recommended for more than one reason.

Firstly, we are traversing an area which is largely untrodden. The corporate sector took decades to evolve its codes of conduct or governance and the so-called listing agreements. The voluntary sector cannot be expected to build its Rome in a day. The statutory framework for the voluntary sector is almost entirely blank. While section 25 companies do follow the guidelines and statutory prescriptions for corporate entities, their number is infinitesimal. The trust acts prescribe nothing by way of governance or reporting requirements except in states like Maharashtra where there is an elaborate Public Trust Act administered by the Charity Commissioner. The vast majority of organisations are registered under the Societies Act, which was enacted 150 years ago to provide a legal entity to groups organising themselves for some social and cultural activities. The Act requires only a memorandum and some rules to be filed for registration and an annual filing of the list of office bearers. Whatever accounting and auditing requirements are in vogue come from the income tax act for the purpose of tax exemption. A separate task force is working on the question of enacting a new central law more responsive to the needs of the sector in today's context. Thus, when the current statutory requirements are minimal, it will not be advisable to jump to an elaborate system of checks and balances all at once.

Secondly, requirements when enacted have to be complied with. Compliance has a cost in terms of financial and human resources, and even more so in terms of priorities. Corporate entities can afford to appoint compliance officers since they can pass on the cost to the customers of their goods and services. Voluntary organisations, living from hand to mouth, and that too on grants and donations, can ill afford the cost of elaborate rule compliance. Capacity building of their staff in these areas is another challenge. An even more important consideration applies to questions of the orientation of priorities of the organisation. Excessive emphasis on rule compliance is seen by many veterans of the voluntary field as a threat because it gives precedence to upward accountability to donors and governments at the cost of downward accountability to clients and beneficiaries.

With these caveats in mind, it is advisable to calibrate the standards for multistage introduction. At the outset, the standard should be fixed at a very elementary level so that the approach is inclusive and not elitist. After all, the attempt is not to pick up the "Golden Peacock Award" winners, but only to separate the acceptable from the unacceptable. These standards would be mandatory, for adoption here and now. The next set of standards would be recommendatory in nature to be adopted by organisations in course of time as capacities are built up. And then there can be a set of best practices which can only be advisory,to be adopted as and when found feasible.

The Standards

If we survey the field of guidelines and standards of codes of conduct for the voluntary sector, both nationally and internationally, there is a virtual consensus on the core content of the curriculum. Internationally, the Better Business Bureau’s Wise Giving Guide and the code of the Philippine Council of NGO certification are some of the better known charters, while at home, work done by VANI and the CAF-Planning Commission study provide useful reference points. Many multilateral international agencies have also helped the formulation of similar guidelines for the upcoming voluntary sector in many of the Asian and African countries. On a panoramic view of the reputed charters, the following three broad areas can be highlighted as the key elements of a base level check.

IDENTITY

GOVERNANCE

DISCLOSURES

IDENTITY: This relates to the questions—who , where and why. That is, name, address and basic objectives.

The name of the organization, its physical address and the basic objectives of its existence really fix its identity. Though elementary, they constitute the bed rock of its credibility. Generally it should require no more than a check of the official registry which will most likely contain this information. Of course, this presupposes registration.

Registration: That does not mean that registered organizations are ipso facto superior to unregistered ones. Many of us have known groups of good Samaritans doing laudable social work without recognition from any official agency.

Many organisations spring up for disaster relief in times of natural calamities and many of them show exemplary dedication. These may be ad hoc associations which may fold up as soon as the need for their services is over. But an official registration, under any of the prevalent laws, gives the elementary guarantee that the organisation is not a sham and the people behind it can be recognized. The registration documents will provide basic information about the name, address, objects and the people incorporating the entity, apart from the date of birth.

Generally, schemes of accreditation require proof of registered existence for a given length of time which may be two to three years because past continuity gives some assurance of future sustainability. Also, if this scheme requires scrutiny of the annual reports or financial statements, it is obvious that a few years existence would most likely ensure availability of some such data.

Most voluntary organisations would also sport a few other registrations, namely, registration with the taxation authorities for tax exemption, registration for foreign contributions and the current requirements of PAN and TAN numbers. While all these official documents can give additional comfort about the credibility of an organisation, their absence need not, in all cases, signify any default on the part of the organisation or their management because the prevailing malpractices and procedural wrangles may result in denial of some of these certificates for no fault of the organisation except their refusal to compromise themselves. Therefore there is a need for some understanding and sensitivity in assessing voluntary organisations, particularly those which are small and are located in remote areas.

Address: Another useful check about physical existence relates to the address of the organisation which merits verification for an assurance that the organisation does exist at its purported address and is not an airy, fictional entity existing in the virtual world. Instances are not unknown where some foreign donors, after years of patronage to an orphanage or a village school, landed in the country and could not trace the donee organisation. However it may be mentioned that just as a company can have its plants, its administrative headquarters and its registered office all in different places, a voluntary organisation also may not necessarily be rooted in its registered address because operational requirements may move its working offices away from its domicile and the recorded address may not be changed because of procedural hassles.

Activity: An organisation's identity is fixed as much in its name as in the focus of its programmes. This is to be distinguished, though, from the objects recorded in the registration documents, namely, the memorandum etc. These latter are usually couched in the most general terms so as to include practically everything under the sun and are not of much use in determining the focus area or the raison d'etre of the organisation. It is necessary that the organisation should be clear about its core objective. Often there is a tendency to employ management jargon and insist on a statement of vision, mission, strategies etc. But that is not a healthy practice. Importing the jargon of the corporate world into the voluntary sector really does disservice to this field because it diverts attention from the spirit and core agenda and only helps a management consultancy industry which can dish out fancy and florid statements which can decorate the brochures and the websites without contributing anything to the pith and substance of its programmes and activities.

It should be enough if the organisation can state clearly what it is about and it does not matter whether that is called a vision, a mission, an objective or aim, whatever. After that it is for the academics to fix that activity in any of the standard categories for ease of national and/or international schemes of classifications.

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GOVERNANCE: Governance is concerned with the higher level direction of the organisation. We have to identify the people who frame its policies and direct its affairs through the chief executive and his managerial team.

Direction: The directors or governors represent the organization to the world outside, set the tone for the management inside and take responsibility for its acts of omission and commission.

The most important issues relating to the governing body, by whatever name called, are about their commitment, compensation and rotation.

The prevalent practices with regard to meetings ( frequency, preparation, records etc ) give adequate indication of the involvement and dedication of the directors. It may happen that some of the governors are ornamental figures, some others are like ambassadors representing the organization in public for a or on platforms, but there must be a core that oversees management processes, supervises programmes and helps in fundraising.

The frequency of meetings may vary with the needs of an organization, and the degree of delegation of authority to the executive team. Trusts, for example, very often vest most of their powers in the managing trustee and provide for an annual meeting of the board of trustees. But it is to be desired that most of the governors attend the meetings when called and the management ensures that they are properly briefed about the subjects and the decisions taken at the board meetings are properly recorded and followed up.

The issue of compensation or remuneration is a tricky one. Ideally, members of the Board or Governing Body of a voluntary organization should not draw any remuneration from the coffers of the organization. Their free service is what makes it a voluntary organization: a set of people who have come together of their own free will to pursue a common goal for the public good. But all non-profit institutions are not voluntary organizations. There are non-government organizations, there are government -sponsored autonomous organizations or service organizations set up by industrial houses with board members drawn from the ranks of the parent organization and drawing salaries from the parent. But so long as the salaries don’t come from the budget of the service entitiy, there may be no violence done to the principle.

There may be situations where some governors are compensated for their professional services, say legal or engineering, and these can be distinguished from mere Board related services. Then there are organizations set up largely to implement government sponsored programmes for social or economic development or awareness building ( the ‘contractor’ or ‘agency’ type organizations) where project funding schemes provide for a management component which is used by the promoters for remunerating themselves. These may be individuals who may be working full time for these projects and would need to maintain themselves. Then there are also instances where senior executives are given seats on the board, much like the executive directors on the boards of companies, as a motivational practice. They would naturally draw salaries.

The best arrangement may be to separate the directive role from the managerial roles and to keep the directors above such remunerative positions in order to underline the philanthropic basis of voluntary work.

Needless to say what has been said about remuneration applies equally to devices like sitting fees, though reimbursements of travel costs etc may

not be taboo so long as these are reasonable and genuine and not a subterfuge.

In the alternative, one may accept a certain coarsening of the ideal and recognize that a certain percentage of the Board strength might be eligible for compensation so long as the majority render voluntary service.

Rotation of the board is an even more contentious issue. As a democratic principle, it is unexceptionable, because it ensures opportunities for self-expression and growth for other members and also an opportunity for fresh ideas for the organization. But often there are problems in getting suitable people to work in difficult areas like working with the handicapped or the sex workers. Some individuals acquire iconic status and become irreplaceable like an Anna Hazare. Equally there are instances where some individuals having devoted themselves to an institution for a long time are reluctant to let go. Trusts very often provide for a life time tenure and lay down a line of succession since the corpus is generally provided by the founder trustee/s and they naturally like to retain charge of the affairs.

The solution lies as usual in a compromise where one or two members may be given a life time position while other positions may be made subject to election, incumbents being given the option to re-contest.

Management: The integrity and openness of internal management processes are also very vital to the credibility of voluntary organizations. Seen as a counterpoint to the prevailing management cultures of both the governmental and corprate organizations, the non-profit sector positions itself as a more humane universe in which individuals can find greater self- esteem and fulfilment. As such, one would look for flatter hierarchies, more informal processes and a more democratic working environment. As a more concrete check point, one would expect to see a more participative style of management as seen through joint exercises in planning and review of operations.

As a value driven sector , the voluntary sphere would display greater sensitivity to principles of diversity, conservation and pluralism. At the minimum, personnel policies, howsoever informal and elementary, would be fair and open. Similarly other operational areas would be governed by clear and objective guidelines.

DISCLOSURES: These are required to ensure accountability and transparency in the working of the organization and constitute the very heart of its credibility.

Accountability: Since voluntary organizations typically work with resources provided by the community or other donors, they are accountable to them for the use of these resources, apart from their answerability to the clients among whom they work and the world at large whom these organizations purport to serve. The first tool of accountability is the financial records of the organization’s affairs. As mentioned earlier, there may be no statutory prescription in respect of accounting procedures, the income tax code may not provide for any fixed format for the annual financial statements and there may be no generally accepted accounting standards for the sector. But it is incumbent on a well-governed non-profit institution to account for the resources entrusted to it, keep its account books in the customary format and have its accounts audited by qualified professionals. The complete financial statements would include at least the income and expenditure statement for the accounting period and the balance sheet as at the end of this period, along with the relative explanatory schedules and the auditor’s notes and report. It is also of the greatest importance that these statements and the report are readied within a reasonable period after the close of the accounting period. Nothing dents the legitimacy and credibility of an organization more than the spectacle of arrears in the preparation and presentation of its accounts and the financial statements based thereon. A charitable view of delay in finalizing the accounts can be taken where the organization can demonstrate that it has a history of punctual completion of its accounting exercises except in a given year due to exceptional circumstances.

Trasnparency: Whereas accountability is concerned with the timely preparation of an organization’s financial documents, the related question of transparency concerns baring it all to the stakeholders. The law’s requirements may be met by submitting the audited statements to the tax or registering authorities, or even to the donors, but the obligation to society is not discharged unless and until all other stakeholders, internal and external, are also given the information they may need or desire.

This does not mean that the organization’s financial statements along with all the schedules must be sent to everyone in the community. It means something more than that and something less than that. It means that the Board or governing body should make or approve a report containing information on the organization’s activities, its successes and failures, and if possible its future plans, along with a brief summary of its financials and some details regarding those concerned with its direction

and management, and key disclosures concerning them, and make it available to those interested. The key element is access. The report does not have to be printed; it can even be a computer generated document or even a web report. It does not have to be posted to all and sundry; it’s enough if it is available to anyone (who can be considered entitled to know ) asking for it.

This then is the framework of basic norms or standards that may be used in an elementary approach to accreditation of voluntary organizations. Admittedly, the standards appear to be primitive and will most likely run into the criticism that they are too lenient to serve the purpose of enhancing the credibility of the sector. However, experience indicates that even at this minimal level, they will exclude nearly 50 per cent of the universe. Any thing higher would become a no-no land. At this stage standards must match the carrying capacity of the sector and may be raised only gradually following stabilization of the concept and provision of capacity building inputs.

The standards can be re-grouped into four to six categories and individual test questions can be compiled into a kind of catechism to determine whether a candidate organization makes the grade or needs guidance for compliance.

Accreditation vs. Rating

The evaluation of organizations with reference to the prescribed norms can follow one of the two approaches i.e scalar or sortal. In the former, the candidate is given individual marks for each of the norms or sub-norms that it conforms to, and the aggregate score gives it a comparative ranking relative to other competing candidates. This is usually called rating which can also be called grading when ranks are compressed into a few grades or classes. In the alternative sortal approach, the candidates are sorted into two categories—those making the grade and those found wanting. This is accreditation.

As mentioned earlier when dealing with the history of evaluation efforts rating has aroused hostility in the past because comparisons between social organizations become invidious. Secondly, methodologically also, there is considerable subjectivity in the selection of criteria, which would be further enhanced in the process of articulating sub-criteria. Any attempt at assigning weights to these elements and sub-elements or the criteria and sub-criteria will add to the load of subjectivity and undermine the credibility of the whole process. Therefore it is strongly felt that a simple accreditation system according to a binary classification on a ‘go-no go’ basis should be adopted at this early stage of compliance assessment in preference to a computational model of rating.

Programmatic Evaluation

We have earlier mentioned that beyond fiduciary checking of the credibility of voluntary organizations is the complex issue of performance evaluation. It is true that donors want to look at the efficiency credentials of these organizations as much as they want to check on their genuineness. Here there are both conceptual and operational problems. Performance measures can relate to input utilization or to output measurement. Again, output can be assessed in terms of outcomes or in terms of impact which have their own definitional problems. The corporate sector measures everything in terms of ‘top line’ or ‘bottom line’. But the social sector has no such facile measures. How do we compare the impact-performance of an organization engaged in empowerment of tribal communities with another focussing on environmental degradation?

While admitting the importance of performance measurement in profiling voluntary bodies, it is suggested that here too we should take a gradualist approach. One can begin with a simple input analysis, in terms of percentage allocation to different components of expenditure. For example, the percentage of resources spent on administration or on fund-raising, and the percentage devoted to program objectives. That can be one comparative way of looking at the way organizations use resources entrusted to them.

If one decides to jump on to the output/outcome bandwagon, it would be best to confine oneself to an analysis of the systems installed for progamme delivery through its complete cycle beginning with need assessment, planning, implementation, monitoring and impact assessment and hope that if proper systems have been put in place, then in all probability results will follow. Accreditation could in that event focus on assessment of the systems. This will remain a halfway house, no doubt. Anything more will, however, require a rather individualized approach to each sector of socio-economic development since the outputs will be distinctly different for , say, a school and a rehab group.

Back to the fiduciary norms, the question of differentiation of the norms to fit the variety of organizations will arise here too. However, at the level of basic norms of the kind we have dealt with it can be safely said they have near universal validity. A clear identity, a robust governance and

candid disclosures should be the hall mark of any organization, irrespective of the sector it operates in. Only size could be a differentiating factor since very small organizations may find it difficult, financially or otherwise, to comply with some of the norms with the same degree of rigour as the larger well-established and well-endowed organizations do. So a certain measure of understanding may be required in dealing with the tiny organizations and a certain kind of peer support may be called for.