All eyes on governance More and more, “governance” crops up in discussions about the nonprofit sector. So, why is the spotlight shining on how nonprofits govern, or manage, themselves — as opposed to, say, what they do for their communities? And what does this mean for your organization? Reform changed the focus This is a relatively recent development. In the late 1980s, a nonprofit board’s responsibility to its constituency became better defined. In the 1990s and early 2000s, several high-profile scandals involving accusations of misspent funds, fraud and other wrongdoings led to demands for greater accountability and transparency. Organizations and businesses whose purpose is to assist nonprofits in defining good management practices developed more tools to help boards implement good governance. Among these were guides outlining board, chief executive and staff responsibility for establishing policies. Organizations such as boardsource were founded to help build effective nonprofit boards by providing relevant information to the nonprofits and their boards. Such efforts were capped last year when the irs issued revised form 990, which places significant focus on governance issues through the questions that nonprofits are required to answer. For example, part vi of the core form is exclusively devoted to governance and policy questions. Many other areas of the form require policy-related information such as procedures for setting compensation levels, gift acceptance policies, procedures for tracking the use of grants, and much more. Accountability Donors want to know that the contributions they make are used appropriately. They assume that, if an organization is well governed, it’s also handling its resources responsibly. Donors, thus, are paying more attention to how the nonprofits they support are managed, as are lenders. This has led states and the federal government to pay more attention to how organizations govern themselves. In 2004, the panel on the nonprofit sector was formed by independent sector, a nonpartisan leadership forum for charities, foundations and corporate giving programs. The panel was created at the encouragement of the u.s. senate finance committee so that it could make recommendations to congress to improve the oversight of charitable organizations. Through the efforts of 24 nonprofit and philanthropic leaders, as well as several advisory groups, the panel has produced a series of recommendations for congress to improve the oversight and governance of charitable organizations. Strong governance In response to the added stress on governance, some organizations have taken measures to strengthen management by their boards, staffs and others. For example, in 2001 the Red Cross formed a Governance Task Force composed of board members, management and outside experts to review that organization’s governance practices. The resulting report, American Red Cross Governance for the 21st Century, asserted that a nonprofit’s governance must be considered in light of its mission, size, operation and culture, among other factors. The report recommended that nonprofits: • Strengthen their board’s focus on strategy, policy, resources and general oversight, • Place more detailed oversight responsibility on the executive committee, • Put greater emphasis on skills and experience when selecting new board members, and • Establish a governance committee. The Red Cross defines “governance committee” as one that is responsible for overseeing executive compensation and board leadership. The board’s responsibility for governance is “to provide objective oversight of operations, set policy, monitor the organization’s plans, and delegate to management responsibility for running operations and executing policies and plans.” Governance vs. Fundraising This level of responsibility may be different from the duties many nonprofit board members are accustomed to — in particular, fundraising. As organizations establish separate governance committees, many are finding that board members with fundraising talents may lack governance skills. If this is true of your organization, consider establishing committees to address governance and fundraising separately. Some nonprofits establish fundraising advisory committees made up of nonboard members. This allows the board to maintain more independent oversight of fundraising activities because it’s not directly involved with them. Board responsibility As a result of the increased emphasis on governance, nonprofit boards can no longer be just a “rubber stamp” for the decisions of the organization. Board members need to understand good governance and take the responsibility to ensure that their organization is adhering to best governance practices. This also may mean reorganizing the board so that representatives have the expertise to make sure good governance is in place. As an alternative, the board can engage outside experts to advise them in this area. • |