The regulatory and legislative landscape continues to become more rigorous for nonprofit organizations. In an atmosphere of increasing calls for accountability, boards and senior staff need to take governance seriously.
Here is a 10-point checklist of some of the most important issues:
☑ Fiduciary Duty
Trustees must act in the best interests of their organization, separating their personal interests from those of the entity.
☑ Compensation of Executives and Key Staff
Appropriate compensation for executives and senior staff is important. The board’s fiduciary responsibility, however, includes the proper management of funds and it must avoid overpaying. A compensation consultant can review roles and suggest compensation packages; if this information is carefully considered by the board, it can serve as evidence of due care.
☑ Endowment Management
In every state except Pennsylvania, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) sets the rules by which donor-restricted endowed funds must be invested and spent. A good working knowledge of the principles behind this highly important law is essential for any trustee whose organization has an endowment that includes such funds.
☑ Fully Engaged Boards:
Board positions are not honorary or decorative. Members must be willing to participate in board and committee functions, donate within their capacity to do so, and uphold the mission of the organization.
☑ Diverse Boards:
A board composed of members who all share the same background and opinions may be unprepared for challenges and unable to analyze and anticipate changes. Diversity by gender and ethnicity is desirable, but it is equally important that a sufficient range of experience and strengths be present on the board to ensure that different perspectives are recognized and represented.
☑ Oversight of Chief Executive Officer:
The CEO is hired to run the organization. While the board must respect this individual’s role, there must also be oversight to ensure that the CEO is carrying out the mission of the organization appropriately and effectively.
☑ Stewardship of Assets in Troubled Times:
The ability to make difficult decisions during times of economic hardship is important to the long-term success of an organization. The board’s role should include planning for various scenarios, including those that may preclude expansion or even contemplate cuts in the ongoing funding of pre-existing programs.
☑ Conflicts of Interest and Duality of Interest:
Board members must identify actual and potential conflicts, both with each member’s private interests and between multiple organizations with which the member may be involved.
Transparency is increasingly recognized as a critical factor in the success of nonprofit organizations as they seek to win and maintain the trust of stakeholders, donors and the general public.
☑ Personal Liability of Directors:
Directors are protected from personal liability in connection with their role as long as they act in good faith and with prudence. This is another area where having strong policies regarding conflicts of interest can benefit the organization.