Good governance is one of the hottest topics in the nonprofit world these days. Although the Sarbanes-Oxley Act of 2002 (SOX) was passed to regulate for-profit businesses, nonprofits have been strongly encouraged to adopt certain SOX regulations, including a conflict-of-interest policy and financial statement review guidelines. More recently, the IRS has revised Form 990 to include several questions regarding governance policies and board members roles in performing fiduciary activities. The increasing power of charity watchdog groups means that nonprofits must effectively communicate their efforts to the public.
Some states mandate that nonprofits adopt practices such as forming an audit committee, but most good-governance guidelines are only suggestions. It is no surprise, then, that many charities have trouble defining the term good and putting it into practice.
As a nonprofit executive, you may already be aware of your board’s basic responsibilities of having a strategic plan and overseeing its implementation; monitoring activities to ensure they contribute to the organization s larger mission; hiring and evaluating the chief executive; ensuring adequate financial resources; and performing essential fiduciary duties of care, loyalty, and confidentiality.
Following that general task list, however, does not necessarily make a board effective. Good governance requires nonprofit boards and executives to put forth additional effort and do some or all of the following:
- Write policies, including conflict-of-interest, whistleblower, document retention and destruction, gift acceptance, Form 990 review, and related-party transactions.
- Form an audit committee made up of financially knowledgeable members to oversee regular internal and external audits.
- Ensure that executive compensation is reasonable, which generally means setting it at market level based on current data.
- Develop emergency plans, including a leadership succession plan, procedures for handling urgent matters that require board input, and a communications plan.
- Assemble a board that is demographically diverse, including diversity of gender, ethnicity, economic status, disability, profession, and expertise.
- Maintain an annual calendar of board meetings and require members to attend a certain percentage of them. Be sure to prepare agendas and any materials relevant to discussions and actionable items before board meetings. When meetings are well-attended and run smoothly, the board can focus on what is truly important.
There are, of course, many other practices you can adopt to strengthen your organization s governance depending on the type of nonprofit, the board s composition, local and state regulations, and other factors. As you strive to make good governance a top priority, discuss the specific steps you should take with your financial and legal advisors.
We welcome the opportunity to discuss with you further any of the information provided above. Please contact the expert listed below at PYA, (800) 270-9629.
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