Enterprise Care and our team of experts offer in-depth articles, commentary, opinion and analysis on a range of issues and topics affecting governance in Australia. Our articles provide up-to-date information on the latest industry developments and are a must-read for any governance professional.
SOUND GOVERNANCE IN A WORLD OF DISTORTER PULSES
Many of us can readily visualise ourselves as being a part of a world of myriad collisions.
These collisions are numerous pinball-like complexities, of greater frequency, more unpredictable actions and activities, highly random surprises, and coated with a sense of urgency and pressing immediacy.
In a nutshell our world is experiencing myriad 'Distorter Pulses'.
What is meant by 'Distorter Pulses'?
'Distorter Pulses' refer to those forces that alter the original nature or characteristic of our environment. These forces are more often well underway before they are noted and properly appreciated. When they are explained, it is often long after they have occurred and their effects commence to have a real impact.
Any impact maybe positive or negative; and it can have a significant effect on what the organisation is capable of doing and achieving into the future.
That is why having robust governance practices in place is so important. It is possible to at least minimise the full effect of the 'Distorter Pulses', and even turn them to an advantage.
EMBRACING THE FUTURE WITH CONFIDENCE
Farhad Manjoo wrote in Portfolio. “Do we have an inability to deal with ever-faster change?” Manjoo’s article is a wonderful reminder of Alvin Toffler’s book, “Future Shock” which was published in 1970.
It may be nearly 50 years on, but as each day passes, it seems there are further examples of “our collective inability to deal with ever-faster change”.
Farhad Manjoo reminds readers that “future shock wasn’t simply a metaphor for our difficulties in dealing with new things. It was a real psychological malady, the ‘dizzying disorientation brought on by the premature arrival of the future’. And ‘unless intelligent steps are taken to combat it’, he (Alvin Toffler) warned, ‘millions of human beings will find themselves increasingly disoriented, and progressively incompetent to deal rationally with their environments’.
The wonderful imagination of many writers and commentators have already provided great insights into possible, if not probable, future happenings. Alvin Toffler however seems to have most accurately articulated the challenge facing individuals and groups, when writing that “Change is avalanching upon our heads and most people are grotesquely unprepared to cope with it.”
continuing focus on culture and performance
Professionally it makes sense to take time out from busy schedules to share thoughts and ideas with colleagues and thought leaders. Recently I spent a few days in Sydney at the Governance Institute of Australia’s National Conference. Mention was made at the reception welcome that each of us in our own way can contribute to the “rising tide which will then lift all boats”. What a great thought this is both at year end and to lead off in the new year.
Sometimes it is easy to feel that professionally you are flying solo. It is great to speak and share our thoughts, challenges, and directions with colleagues. This often can place what happens in our workplaces in a new context or clarifies our views.
Knowing we are a part of a collective makes us feel that our boat along with others can be lifted by our continuing efforts contributing to the sector in which we operate.
Some of the highlights of the Conference included Dr Mike Briers, Chief Executive and Founder of The Knowledge Economy Institute, who discussed the impact of big data and how the latest technologies are challenging conventional business models and more generally economics. Some real-life examples challenged everyone’s current assumptions, and left one to think more about the nature of change and the importance of keeping up with trends and market forces.
CULTURE NEEDS NURTURING
We are familiar with the recent issues involving CommInsure, Commonwealth Bank, which have been splashed across the tabloids and in the media generally for weeks.
A fascinating article headed “Ethical culture should be nurtured” was written by Dr Benjamin Koh, the chief medical officer and whistle-blower at CommInsure, Commonwealth Bank.
One of Dr Koh’s key insights involved commenting that “It (corporate culture) adopts a passive view of culture and neglects the fact all employees are active players in shaping company culture (my emphasis).”
Dr Koh introduces the background and outcomes of an experiment conducted by Yale University psychologist Stanley Milgram.
The experiment was undertaken in the early 1960s to examine the conflict between obedience to authority and personal conscience.
Milgram’s experiment involved placing participants in a room and directing them to deliver electrical shocks to a "learner" located in another room. What the participant did not know was that the person receiving the “shocks” was actually in on the experiment. They simply were acting out responses to those so-called shocks. Milgram found that 65 percent of participants were willing to deliver the maximum shock level upon being ordered to do so.Although this study occurred many years ago, it seems that in essence a like result is consistently obtained when there is the influence of an authority despite the presence of causing potential harm to another person.
Responding to the Explosion of Uncertainty
Our governance work with Boards, Directors and senior executives continues to address the central challenge of how best to ensure that optimum use is being made of their time and contribution for the most valuable effect.
Too often, it is assumed that there is a magic touchstone of agreed actions which can constructively motivate and engage the Board and Directors.
Not surprisingly, this is far from the case. It is also not what is needed nor an approach subscribed to by Enterprise Care.
One major reason for adopting a different approach is our understanding of the emergent operating dynamics that now confront decision-makers.
Enterprise Care's approach is in response to the question of what enables Boards and Directors to handle in a confident manner the complex tasks facing their organisations today.
Four questions Board members should ask an auditor
`A good auditor helps us ask the right questions.` *
This simple, yet powerful comment rings true of the type of relationship an organisation should have with not only their internal audit department or audit committee, but with their external auditors.
Although the interaction between the auditors and the Board may be limited, it is important that both parties are involved in the audit process in order to achieve a positive and value-adding outcome. Below are four typical questions which a Board should ask the auditor.
What is the most important step we could take to further protect our organisation against fraud and improve our internal controls / processes?
The Board is responsible for ensuring that there are sufficient and adequate internal controls and processes in place. It is important for the Board to obtain feedback on the processes and controls currently in place and to obtain suggestions as to how they can be further improved as a benefit to the business. The auditor, being an independent judge of the business, is in a perfect position to provide honest and constructive feedback.
The Henry Tax Review for the NFP sector
There was great news for the Not for Profit (NFP) sector in the Federal Government's release of the final report of the Australia's Future Tax System Review and their initial response recently. The Government ruled out removing the benefit of tax concessions for the NFP sector, which was one of the recommendations by the Review Panel. Some of the announcements in relation to superannuation are also of interest to the NFP sector.
Review Panel's NFP recommendations and Federal Government response
According to the joint media release from (then) Prime Minister, The Hon Kevin Rudd MP, and Treasurer, The Hon Wayne Swan MP:
In the interests of business and community certainty, the Government advises that it will not implement the following policies at any stage ..... Do any changes to the tax system that harm the not-for-profit sector, including removing the benefit of tax concessions, raising the gift deductibility threshold or changing income tax arrangements for clubs.
Important changes to the law: taxation of foreign earnings
In a major shakeup of the foreign earnings tax exemption that was previously in place, from 1 July 2009 foreign employment income earned by Australian resident taxpayers will in most cases no longer be exempt. Under the measures in the new legislation, the general exemption from income tax on foreign employment income will only be available if the foreign service of the employee is directly attributable to any of the following activities:
For all others, foreign employment income will be fully taxable in Australia at resident tax rates. Individuals will be able to claim a non-refundable tax offset for foreign income tax paid in the foreign jurisdiction.
Being a Referee: What are Your Obligations?
Do you remember the last employment reference you gave? Do you remember what you claimed to be true about that individual? Were your statements accurate? Now, the crucial question: have you ever considered that you can be liable for the contents of your reference?
When giving a reference, being a referee or providing testimonial as an employer, colleague, academic, friend or the like, you should be aware of your obligations in providing a reference for an individual. Under common law, a referee owes a duty of care to an individual to ensure that the reference they provide is fair, accurate and true.
In the situation where a new employer has hired a person based on a reference that misrepresents the capabilities and qualities of the person, it is possible for the new employer to bring a claim against the referee for damages as a result of misrepresentation. However, it is difficult to determine the extent of the referee's liability as the case law in this area is fairly undecided.
Notwithstanding the hurdles of bringing a claim, one should always be vigilant about any statements they make in the capacity of referee.
Is Your Organisation a Constitutional Corporation?
The 1st of July 2009 saw the introduction of the Federal Government's Fair Work Act. This legislation is applicable to all Federal System employers, and may apply to your organisation if you are a constitutional corporation.
A constitutional corporation is defined as a foreign corporation, or a trading or financial corporation formed within Australia. The two questions that therefore arise to determine if this applies to you are:
Where an organisation operates through a series of related bodies or entities or a trust, then the question is whether that body or trust is, or is not, a constitutional corporation.
What is a Corporation?
A corporation includes:
Impairment of Assets
For the first time in many years, the value of an organisation's assets may have fallen below the market value, and in some cases, below cost. Thus, it is essential that consideration is given to calculating the impairment of your organisation's assets.
Accounting Standard AASB 136 Impairment of Assets prescribes the procedures that any organisation should apply to ensure that its assets are carried at no more than their recoverable amount. This standard applies to all reporting entities that prepare General Purpose financial statements. However, guidance is given throughout this standard specifically for Not for Profits in the 'Aus' paragraphs.
At reporting date, it is advised that you assess whether there is any indication of impairment of your assets. AASB 136 states that, where there is an indication of impairment, you need to estimate the recoverable amount of the asset.
The recoverable amount of an asset is the higher of its fair value, less costs to sell and its value in use. In the case of a Not for Profit organisation, the value in use is the depreciated replacement cost of an asset when the future economic benefits of the asset are not primarily dependent on the asset's ability to generate net cash inflows, and where the entity would, if deprived of the asset, replace its remaining future economic benefits.
INTELLECTUAL PROPERTY - COPYRIGHT
Last month, we discussed the merits of registering trade marks and the role of trade marks in protecting an organisation's name and reputation. Besides trade marks, the type of Intellectual Property (IP) that organisations are most likely to encounter is copyright. This may include organisations protecting their own copyright and ensuring that they do not infringe the copyright of others.
Copyright protects the form in which ideas and information are expressed and not the ideas or concepts themselves. Examples of tangible works protected by copyright include literary, dramatic, musical and artistic works, as well as sound recordings, films, broadcasts and performances. Products such as computer programs typically fall within the ambit of literary works. Copyright typically lasts for the life of the author plus 70 years.
Copyright is protected in Australia pursuant to the Copyright Act 1968 (Cth). In Australia, copyright is not recorded or registered in any way - there is an automatic right to protection upon creation of a copyrightable work. This is commonly misunderstood, in no small part because there is a form of copyright registration in the United States. The © copyright symbol may be applied to works, and it is often useful as a deterrent to potential infringers, but its use is not obligatory to protect works.
Intellectual Property ®Trademarks - Protection for Not for Profits
`IP` is one of those buzz words that constantly gets used in conversation, with everyone agreeing that their IP is valuable and must be protected but what is it really? And how is it relevant to Not for Profit organisations?
Intellectual Property (IP) is a broad term for intangible property rights, which afford protection to creative, inventive and intellectual effort. The types of IP that most people are familiar with are trade marks, copyright, patents, designs and confidential information, all of which are the product of intellectual activity. Because inventive thought is not tangible it is often more vulnerable to attack and misuse than the more traditional kinds of 'property' such as land and goods. IP laws in Australia, as in many other countries, are not absolute, but they go a long way to protect the exclusive rights of creators, which in turn provides incentive for individuals to develop and share information.
Despite all of this, why would an organisation need to register a trade mark? The answer is easy - to protect itself and one of its most valuable assets - its reputation. A registered trade mark is key to protecting an organisation's name.