By Henry Broughton, Office of the Auditor-General Te Mana Arotake
Governance – from the Greek kuberman – “to steer”.
The work of governing boards is rarely visible to those visiting our museums and galleries, or to those who enjoy the performances of our talented musicians, dancers, and actors. But those who sit on the boards of our national and local institutions play a vital role in steering, overseeing, and taking care of some of our most treasured taonga.
Governors are the kaitiaki of our arts and culture sector. They serve to keep our arts organisations alive for us and future generations. Behind the scenes, they set strategies, build networks with benefactors, and oversee the work of management. Many board members do this work for free or, at best, for very little in the way of monetary reward. It is usually passion and personal interest that motivates people to join governing boards.
The Office of the Auditor-General has been exploring how governance works across the public sector in New Zealand. As part of our work programme, we published our report Effectiveness of governance arrangements in the arts, culture, and heritage sector. We chose to look at governance in this sector because of the important role that publicly funded organisations play in ensuring that all New Zealanders have access to the arts and their heritage, and in supporting artistic endeavour in our communities.
The Government makes a significant investment in the sector. It provides about $500 million in funding each year. Local authorities provide another $500 million. Organisations in this sector work in a challenging environment. In recent years, income across the sector has been steadily declining (11% when adjusted for inflation). The nature of demand has also changed rapidly with the growth of digital channels, social media, and the exposure to global arts and culture that those channels bring. Strong direction and leadership from boards is critical to ensuring that our cultural sector is sustained and flourishes into the future.
Case studies of governance
We took an in-depth look at the governance of six entities in the sector:
- Te Papa;
- Auckland Art Gallery;
- Govett-Brewster Art Gallery;
- Wellington Museums Trust;
- Creative New Zealand; and
- Te Māngai Pāho.
These entities play differing roles in the sector, and each has very specific challenges and risks. For example, the building that houses the Govett-Brewster Art Gallery was closed at the time of our audit while the construction of the new Len Lye Centre was completed; Creative New Zealand had a brand new board following legislative changes; and Te Papa was working to improve financial sustainability while operating under an interim senior management structure.
For our audit, we identified five aspects of effective governance and looked at how each of these entities performed against them:
– Strategic direction. We examined the role of the boards in setting the organisations’ direction, prioritisation, and agreeing budgets. We were looking for the boards to be contributing to, and challenging, the strategic planning process.
– Leadership and culture. This included assessing how the boards were setting the culture, values and ethics for their organisations. We also explored the relationship between the boards and management to see whether there was a clear distinction between their roles.
– Monitoring and review. We looked at how the boards were tracking the financial and operational performance of their organisations and how they were managing the performance of their chief executive. We also explored how the boards were engaging with stakeholders to help gain an external perspective on their organisations’ performance.
– Risk management. We examined how the boards were identifying, monitoring, and mitigating risks. We looked for evidence of the boards’ understanding of risk and for processes for identifying and managing risk.
– Internal controls. We were conscious that directors of cultural organisations are often very passionate about their interests. Passion is a value for governance, but it can also be a risk when passions and personal interests unduly influence decisions about funding and collecting. We looked at the controls the boards had in place to manage this risk, such as clear terms of reference that define segregation of duties.
Taken together, these six organisations act as guardians for some of New Zealand’s most important tangible and intangible heritage and creative output. It was comforting to find that there is an effective level of governance in each of them. The boards take their governance roles seriously and have the structures, policies, and practices necessary to help their organisations achieve their objectives and responsibilities.
In terms of areas for improvement, we found that each entity could strengthen how they engage with external stakeholders by formalising relationships to get external perspectives on performance, and also to explore funding opportunities. We also found that the boards could strengthen their understanding of risk and develop better processes for identifying and managing risks.
How well is your board performing?
“This above all: to thine own self be true.”
Whether you are involved in an art gallery, a local museum, or a performance arts organisation, the basic principles of good governance apply. But it can be hard to know how well your board is performing, or what you could do to make it work more effectively.
To complement our report, we have created a governance assessment framework to help you assess the effectiveness of your organisation’s governance arrangements. The framework is structured according to the five aspects of effective governance discussed in our report. It is simple to use and we hope it will provide some you some ideas of how you can keep improving the governance of your organisation.
Our report and the assessment framework are available at the Office of the Auditor-General’s website.