A matter of governance

Not for Profit organisations range from small bodies or local service providers in areas such as disability and transport, to significant enterprises registered as unlisted companies limited by guarantee, such as CPA Australia (CPAA). 

The matter of governance at CPA Australia has received much coverage of late in the Australian Financial Review. Your scribe is an FCPA and by virtue a member of some years standing at CPAA. Courtesy of the AFR Rear Window, the rather questionable governance at CPAA has been aired at length in the court of public opinion.

For the many WOB members who belong to CPAA, the AGM is coming up on 27th April in Singapore. Get your questions ready.

In many ways CPAA has followed an exemplary governance pathway as it evolved from a modest not-for-profit to a substantial player in the accounting profession, locally and globally. In 2007, it added two non- member directors to its board based on a skills assessment coincident with CPAA directors became remunerated.

Article 45 of the CPA Constitution, Remuneration and benefits of directors (2104 edition) provides that from 1 April 2010 onwards ‘the amount paid to the President … must not exceed 60% of the total annual salary package of the Auditor-General of Australia.’   Previously it was set at 60%.

The December 2016 Remuneration Tribunal determination sets the base salary of the Auditor General at $493,530 and total remuneration at $705,030. The Auditor General was not as well remunerated in the past. 

This means that the President is potentially earning $423,000, more than most ASX chairs.

Odd you might think but linking with the Auditor General’s remuneration was the benchmark CPA chose. It does mean that the CPA members do not have any direct input into the remuneration of directors.

What is the message here? 

Good intentions have been overtaken by events and the CPA board, it would seem, is now in a position where the directors are not in sync with (at least some) of their members and the market. Women on Boards is well informed about not for profit director remuneration and on any basis the CPAA is exceeding all – including community - standards.

Added to this the criticism is the large amount of member’s fees spent on marketing and promotional activities.

On top of this, the CPAA annual report, unlike listed companies, is not required to disclose the individual remuneration of Key Management Personnel.  Instead the CPAA discloses the aggregate, which was $5.508m for 12 directors, the CEO and his two direct reports.

The CPAA on its website reports that “as a leading advocate of sound corporate governance, it is a member of the Australian Stock Exchange Corporate Governance Council (ASXCGC) that developed the Corporate Governance Principles and Recommendations (CGPR). As an unlisted company limited by guarantee, CPA Australia is not required to report against the CGPR. However, CPA Australia uses the CGPR as a guide to best practice and as part of our commitment to preserving stakeholder confidence, as such has chosen to early adopt the third edition of the principles and recommendations.”

Under Principle 8: Remunerate fairly and responsibly, the CGPR recommends as follows:

“A listed entity should have a formal and transparent process for developing its remuneration policy and for fixing the remuneration packages of directors and senior executives. No individual director or senior executive should be involved in deciding his or her own remuneration.“

“A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives.”

It would seem that CPAA might need to review Principle 8.

The overriding message here is that not for profits must carefully monitor their evolving governance models.  Unintended consequences can bite at any time.

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