be_ixf;ym_201911 d_18; ct_150

10 Point Checklist to Get Governance Right

October 1, 2013  | by Commonfund Institute, Thomas L. Hyatt, Esq.

Governance and Policy | Industry Knowledge

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:

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.

This 10-point checklist is only a summary. For a more complete discussion of these factors, download the detailed checklist.

Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.

Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.