Governance and Management
Owners corporations are ultimately responsible for the governance and management of the units plan.
Section 7 of the Unit Titles (Management) Act 2011 ("Management Act") sets out that the owners corporation for a units plan is responsible for managing the units plan. Helpfully, notes have been provided by the legislature to the effect that an owners corporation may be helped by one or more of the following:
- The Executive Committee of the Owners Corporation;
- The Manager engaged under s.50; and/or
- The Service Contractor engaged under s.60
While governance and management are intricately connected, these terms should not be considered interchangeable.
Governance and Management – what’s the difference?
The Management Act does not specifically mention the term governance however, as we can see a close reading of the Act suggests that some parts do impose governance obligations for those who are also given management responsibilities, see for example s 35(2)(a)(ii) of the Management Act, which provides that the executive committee's functions include "developing matters in relation to… the strategic affairs of the corporation". Governance can be defined as the structures, processes and practices that determine how decisions are made in the system and what actions are taken within that system.
In contrast, when we speak of management, we are referring to the operational implementation of those decisions. Participants in a units plan have different responsibilities with regard to governance and management. For example, while an owners corporation might delegate some of its management responsibilities to a managing agent, it is generally inappropriate for the owners corporation to delegate its governance responsibilities to their managing agent. While a managing agent can help to practically implement the decisions of the owners corporation they should not normally make those decisions for the owners corporation.
Good governance and management are facilitated by an understanding of the processes of each, either formal (for example the hiring of a management agent), or informal such as good working relationships and alliances within the owners corporation.
A Governance Model for 2 Schemes
The key feature of good governance is ensuring that the roles of governance and management remain segregated. In simple terms this means ensuring that management related matters are not dealt with at Executive Committee level. Other aspects of governance include the appointment of key executive officers, the delegation of powers and functions to those persons, the supervision of their performance and the monitoring of progress against previously agreed goals.
One example given recently* was that the governance model for a large, mixed use scheme might involve:
- An Executive Committee comprising 5 – 7 members;
- Three subcommittees reporting to the Executive Committee – the Audit & Risk Management Subcommittee, the Building Subcommittee and the Social Subcommittee – each comprising of at least one committee member and unit owner volunteers;
- A Chief Executive Officer (could also be a ex-officio member of the subcommittees)
- Corporations Secretary, responsible for the operational side of the committee and subcommittees, as well as regulatory compliance;
- Corporation Treasurer, responsible for the financial management of the corporation and an ex-officio member of the Audit & Risk Management Subcommittee;
- A Building Manager; and
- A Concierge, reporting to the Building Manager.
The roles of Chief Executive Officer, Corporations Secretary and Treasurer would be performed by the staff of a managing agent. While the roles of Chief Executive Officer and Corporations Secretary can be combined, the role of Treasurer (equivalent to Chief Financial Officer) should remain as a separate role.
In the case of smaller schemes the model might look like:
- An Executive Committee of say four unit owners, responsible for the strategic governance of the owners corporation but having little or no involvement in management;
- An Executive Officer responsible for the roles of Chief Executive Officer, Corporations Secretary and Treasurer; and
- The Executive Officer being delegated all the power and function necessary to enable him or her implement the strategy to attend to the day to day operation of the owners corporation. The role of Executive Officer could be performed by the normal scheme manager within the manager's office.
* Gary Bugden: 'Corporate Governance and Owners Corporations', Inside Strata, September 2012, Inside Strata
This article is a summary of a presentation delivered in March 2013 by Greg Brackenreg of Meyer Vandenberg Lawyers.