Holacracy Community of Practice Archive, 2015-2019 Community Holacracy Web Site

Accounting Standards / Financial Controls / Audit / Compliance

For Holacracy organizations that are also corporations, what recommendations are out there for satisfying the type of financial due diligence items above?

Your input / suggestions appreciated!

14 Replies
Bernard Marie Chiquet
01/21/2018

[@mention:454478741268114544] Happy to help here! Could you be a little more specific, and may be frame the tension(s) you sense?

Joris
01/22/2018

 

Do you mean to satisfy authorities and/or shareholders? We have found most authorities to be impressed by the explicit accountabilities in our org.

Keith Jarvis
02/13/2018

OKAY it took me a while because my Tension-bringer went on a long overdue vacation, but I have a better idea of the question.

We're a nonprofit, but much of the need here should apply to for-profit corporations as well - which is that external auditors will require meeting minutes / record of the vote for any board resolutions that occur during the year.

We do have a Board legal structure that has a now-much-simpler set of bylaws, but which still exists in a space outside / alongside Holacracy and our Holacracy organization.

So, how do Holacracy organizations that are also corporations address this 'business need'? Where/how might we establish this requirement-to-record meeting minutes of the 'external Board' and/or to provide to the Role within the Holacracy organization who must provide in turn to auditors?

Have I explained it adequately?

Keith Jarvis
04/17/2018

Still no response to the February 13 detail, but finally a few months later, here's one specific use case re: Financial Controls: Expense Reimbursement and Lead Link.

In Holacracy, Lead Link gets to make decisions regarding distribution of resources, right?

Meanwhile, another Finance-type role has purpose, domain, accountability etc all around budget.

What happens when the two don't jive?

Lead Link incurs expense A, a cost that is not budgeted for, submits reimbursement to Finance, expects there to be no problem.

  • No restrictions about responsible expense planning (booking advance travel, limitations on per diem, etc)
  • No qualifiers about dollar amount thresholds, advance approval, alignment with role purpose, etc
  • No differentiation between budgeted v unbudgeted expenses, break-evens, go/no-go or similar operational decisions

 

But the Lead Link decides on resource allocation.

How do Holacracy organizations establish responsible Financial Controls given the its constitution?

 

Rachel Hunt
04/18/2018

I just read this article that seems to address your questions. The first half is about common criticisms of holacracy, the second half is a system for integrating existing legal entities with holacratic governance. 

Keith Jarvis
04/24/2018

Thanks Rachel. 

Nothing from Brian Robertson or Chris Cowan?

C'mon H1 help a Holacrat out here 

Brian Robertson
04/25/2018

Sorry Keith, more complex than I want to try to answer by typing; maybe try asking a coach real-time in the next GlassFrog Office Hours?

Xavier Boëmare
04/25/2018

Hi Keith, The way I understand your specific case, it looks like you have an authority conflict between two roles. Yes one of the LL's accountabilities is allocating circle's resources, but you can change that. For instance if you want the expenses to be validated by another role, you could remove this authority from the LL and give it to that specific role, through a policy.

But maybe I did not understand your issue. Does it help ?

 

Keith Jarvis
04/25/2018

Perhaps the need for strict configuration and policies regarding financial controls / audits / conflict-of-interest, etc is simply more important in nonprofit organizations than in most of the orgs who have taken on Holacracy.

These things are critically important to external auditors, donors, and to maintenance of 501(c)3 status - and they typically require a fair amount of bureacracy in most nonprofits.

Struggling a bit to both/and these important issues around ethical standards and common business operations while not circumventing or being hampered by Holacracy.

Xavier Boëmare
04/25/2018

Hi Keith, I work in Finance environments for 20 years now, believe me I do understand what strict processes means. I don't think nonprofit organizations are more strict than the others, not all of them at least. I'm convince you could find a way, through appropriate governance, to stick to the requirements. I join Brian's advice as you should maybe have a few workshops with a coach to help you out with this "translation".

 

 

Keith Jarvis
04/26/2018

Yeah.

The other thing with nonprofits (at least ours) is we lack the financial resources to hire such an expert. I'm the best we have in-house, we're boot-strapping all of our internal study of Holacracy in combination with free H1 resources and notes from the two trainings I attended.

Some organization templates about these things - legal agreements, human resources (hire/fire/compensation), financial controls/audit/standards - I think would go a long way towards helping new organizations take Holacracy on, and to do so with more success and less pain.

They might be more likely to stick to it beyond the 'trough of suck'.

Tyler Danke
04/27/2018

We have a few roles that are relevant to your conversation here. Auditor, Accountant, "Financial Peace", Legal, that solve for us some of the problems you are encountering. https://app.glassfrog.com/organizations/1184

Sam Burnett
04/27/2018

We are working through this in our non-profit.  How to allocate resoruces to circles (i.e. is it a lump sum for a quarter or on a project by project basis). What activities are part of our monthly burn rate and what are outside of it and "discretionary".  Who decides on discretionary spending and at what thresholds.  Does the lead link of a circle control internal budgets or are they assigned by a central financial role.    I guess I would be surprised if the Holacracy folks had any input aroudn this beyond "this is how we do it" becuase I imagine (perhaps naively) that this structure will be unique to the roles and structures we all build inside of our own organizations.  

For us--we are working towards having audited financial statements as an aspirational goal and have an accountant helping us to build systems that match our development and stage.  

[@mention:454478741268114544]--do my additional questions (no answers unfortunately) resonate with you? 

Keith Jarvis
04/27/2018

Sam, yes the do - and I'm generally inquiring on forums in support of other partners in role as in-house coach. I don't sit in any of our finance-related roles with the bulk of my roles living in the other side of the infrastructure realm of administration & implementation.

BUT I know that some of these financial controls issues were handled reasonably well in our previous board of directors / bylaws structure. In many ways we're back to square one with things as bureacratic as the financial controls and other seeming functional conflicts of annual budget vs lead link making resource allocation.

Fun, fun, fun.