Federated Risk

A federation is ‘a formal, enduring, coalition of largely independent non-profit groups established to realise such advantages as coordination of activities, development of collective strategies, and sharing of facilities or resources. A federation is itself an organisation with a clear membership, leadership structure and unique name.’ (Smith, A Dictionary of Non-profit Terms and Concepts, 2006)

This definition doesn’t mention the use of a coordinated strategy and risk governance arrangement as a defining characteristic of a federated association, but perhaps it should. Were this to be an expectation of all participating entities, then perhaps they would bend more of their efforts to identifying matters they agree on, rather than points of difference or disputation. Where such differences arise, they can often be attributed to variations in legal and cultural environments between the jurisdictions. Regrettably, they can also arise due to biases and ignorance.

Federation Beginnings

Many Australian associations were initiated at State level, and chose to federate later as a way of coordinating national services, while maintaning sovereignty and control over their assets. Some had their roots in English professional bodies, and indeed, some were even formed as remote Branches of English parent bodies.

For some federated associations established around a century ago, constitutions were developed which required members of a State entity to become members of the federal body. Once the professions became subject to competition law in the 1990s, an ‘authorisation’ was required from the ACCC to permit this ‘third line forcing’ breach of competition law by associations structured in this way.

In Australia, State bodies seeking to provide services outside their borders must register with ASIC as a Company Limited by Guarantee, or obtain an Australian Registered Business Number (ARBN) from the ATO. They cannot use their registration as an incorporated association under a State law as a legitimate basis for operation beyond that State’s jurisdiction without an ARBN, at minimum. This is a legitimate solution to such problems as a Victorian entity arranging to provide support to Tasmanian members. In other instances however, their national registration appears to have encouraged some State entities to contest the authority and status of their own federal body. This is an unsustainable position, and can only lead to further problems.

Unified structures

Over the last 20 years in Australia, many federated associations have ‘migrated’ to unified national structures. Reasons for this include seeking to rationalise use of member resources, and to achieve more effective advocacy outcomes through use of ‘one voice’. The header image above illustrates the complexity of federated relationships compared with the more streamlined operation of a unified (idealised) national structure.

More recently, with COVID-19 travel and social distancing restrictions, some will have been motivated to seek unification having recognised that all members are relying on online facilities, and that they are all digitally equidistant from their association or peak body. Declining revenues may also have forced the situation for some, so that core services are retained nationally, even if State or Territory functions have had to be reduced.

With the rise of social enterprises and ‘the fourth sector’, new business models are being established to replace the subscription based membership model. This has legal and tax implications of course, and a different governance focus is also necessitated. While these entities are still ‘for purpose’, they are no longer purely non-profit. They are something of a hybrid, combining elements of the traditional third sector association with those of a commercial business. Care must be taken to adjust the risk model employed by such hybrid entities, as there are quite different legal and tax implications of operating as a profit-for-purpose organisation or social enterprise.

Strategic risks

Some federations have experienced independent State-based bodies contradicting each other, or their federal body. Other federation members have merely advocated different solutions to the same problem, while evidently not conferring with each other. Regrettably this invites governments to ignore all representations from these entities, as they have not resolved a ‘coherent’ position. This situation might be considered a form of ‘reputational risk’, but it is essentially a strategic risk, as it undermines the effectiveness of advocacy by all entities involved.

Federated bodies usually manage these risks by means of policies negotiated by representatives of the participating entities. One of those policies will usually divide representational responsibilities so that the Federal Body deals with the Commonwealth Government, while State and Territory bodies deal with their local State or Territory Government. Such a policy would also normally require that State and Territory entities seek to ensure the consistency of their representational activities with federation policies on the issues known to apply across multiple jurisdictions. Where no such policies have yet been developed on a particular issue, there should at least be a commitment to consultation between the federation partners, to identify a set of principles or high level positions that all can agree on.

RACI to the rescue

The RACI tool mentioned in my previous post as a useful method of clarifying roles and responsibilities in shared risk situations, is also a solution worthy of consideration by federations seeking to coordinate strategy and risk roles and responsibilities among their members.

The chart below is an adaptation of the one used in the earlier post, with the Federal and State entities each allocated column space in the table. The message here is not that one entity wins in a competition over who has control, but rather that effectiveness depends on clarifying who is Responsible, Accountable, Consulted and Informed.

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