Connect with the Alliance:


Connect with
the CEO:

Boards of Directors Should Adopt Governance Best Practices

Readily available sets of principles can serve as a foundation

While resources to assist nonprofit board directors in fulfilling their fiduciary and strategic duties often seem elusive, just the opposite is true. This column will guide boards of directors in finding and adopting sets of guiding principles.

Without access to standards, nonprofit board members have only their good judgment to guide them. All too often in this scenario, board discussions come down to issues of personalities and politics. Such elements may never be eliminated entirely, but they can be kept to a minimum. We suggest each nonprofit board adopt a set of principles and use it to guide board practices. This, if done well, will move the board from analysis to compliance with the standards.

One of the first sets of standards emerged from work done by a national committee for Independent Sector following the passage of the Sarbanes–Oxley Act. These standards reflect the needs of the entire sector.(1) The list contains 33 principles in four broad areas:

  • facilitating legal compliance,
  • effective governance,
  • strong financial oversight, and
  • responsible fundraising.

Independent Sector originally published 29 principles, and later, added four others. In the following sections of the column, we will identify one principle from each of the four sections and comment on their practicality. We provide additional information on the original 29 principles in our book Nonprofit Governance: The Why, What, and How of Nonprofit Boardship.(2)

Facilitating Legal Compliance

The first of six principles in this section states, “A charitable organization should be knowledgeable about and must comply with all applicable laws and regulations and international conventions.” While this statement is seemingly quite obvious, it is amazing how often such laws are not considered.

Nonprofit legal experts list three duties for every director. The first is the duty of care. In complex situations, the courts will attempt to assess whether a director acted as any objective person would have acted. The second involves the duty of loyalty, which means that personal good must give way to the organization’s good if conflict surfaces. The third duty is that of obedience, which includes this principle. The obligation to observe all laws and regulations includes knowledge of and compliance with the organization’s documents such as its charter of incorporation and bylaws. This principle is a reminder not just to have all board members in compliance, but also identifies the need to keep up-to-date documents.

Effective Governance

The first principle in this section simply states that, “The board of a charitable organization must meet regularly enough to conduct its business and fulfill its duties. The board should hold at least three meetings per year.” In a previous column in Issue 1–2010, we addressed this concern by reporting on a New York agency whose board met, but without a quorum.(3) The board documented its lack of compliance in its minutes, and you may remember the result. When the agency went bankrupt and was sued by vendors, the court held them guilty both corporately and individually.

Strong Financial Oversight

Let’s consider the first principle in this section, “The board of a charitable organization must institute policies and procedures to ensure that the organization and, if applicable, its subsidiaries, manages and invests its funds responsibly and prudently. The full board must review and approve the organization’s annual budget and should monitor actual performance against the budget.” We could comment at length on this principle because it treats one of the most important areas of accountability for a board, financial accountability. Note in the second sentence the principle warns that the whole board is accountable. This task cannot be delegated to a few members who may serve on the finance committee.

Responsible Fundraising

This final section opens with this principle, “Solicitation materials and other communications with donors and the public must clearly identify the organization and be accurate and truthful.” This principle goes to the heart of a common failure of nonprofits that designate a use for needed funds, but try to divert it to other causes. This leaves them vulnerable to lawsuits or to the firing of culpable staff.

Board Involvement in Principles

We list these few, not to be exhaustive, but rather to be illustrative of the type of quality discussions that boards have when adopting these principles. These are the types of issues that most board directors welcome so that they can perform at a high level.

Another resource that is particularly helpful for human service boards is the set of standards published by the Council on Accreditation for private and public agencies. Over the decades, these standards of best practice have been constantly improved by actual leaders in the field. Though they are used to guide the accreditation process, these standards are available to the public, so all agencies can assess them and decide if they choose to follow the standards.(4)

There may be other organized sets of such standards that boards might find relevant. Even Groucho Marx is quoted as saying, “If you don’t like my principles, I have others!” However, we recommend that organizations use discretion and only follow principles set forth by organizations that have proven expertise in nonprofit guidance.

This column will be Tom Harvey and John Tropman’s last on a regular basis. Other duties and responsibilities mean that their authorship will shift to occasional status.


ENDNOTES:

1. Access the set of standards online.
2. See appendix 1.6 of Nonprofit Governance: The Why, What, and How of Nonprofit Boardship by Tom Harvey and John Tropman, published by Corby Books/University of Scranton Press July 15, 2009.
3. Read the full article “Ensure Your Board Isn’t ‘Asleep at the Wheel,” which was published in Issue 1–2010 of the Alliance for Children and Families’ Nonprofit Director.
4. Standards are available on the Council on Accreditation’s home page.

Post new comment

Refresh Type the characters you see in this picture.
Type the characters you see in the picture; if you can't read them, submit the form and a new image will be generated. Not case sensitive.  Switch to audio verification.
To prevent automated spam submissions leave this field empty.
©2015 Alliance for Strong Families and Communities. All Rights Reserved