If you think your nonprofit organization’s board of directors is held to an incredibly high set of expectations and ethical standards, you’re right – and for good reason. Your organization has been entrusted with the responsibility of being good stewards of donor funds while maintaining policies and procedures that guarantee high performance standards. That’s no small task; particularly when current events continue to make long-term financial planning next to impossible.
Already, in the United Kingdom, nonprofits are beginning to implement governance that directly addresses concerns resulting from a society in constant flux. The guidelines outlined in Good Governance: A Code For The Voluntary And Community Sector, were written to help promote greater organizational purpose and direction while further emphasizing the roles and responsibilities of nonprofit directors. Perhaps the recommendations found within the document will prove effective for organizations on our side of the pond as well.
Consider how the following governance recommendations could position your nonprofit organization to effectively meet the changing expectations of your donors and other stakeholders while meeting the overarching fiduciary responsibility expected of nonprofit board members.
Key Guidance For Nonprofits
First and foremost, it’s important to remember that the board of directors is ultimately responsible for the organization’s success. To retain responsibility and oversight of the organization, the board should:
- Promote prudence while understanding that being risk averse is itself a risk.
- Regularly assess whether the charity’s work is still relevant in a world that is constantly in a state of change.
- Identify stringent guidelines with regard to board composition, ethical standards and terms of office.
- Increase transparency with regard to your organization’s work, results and stakeholder interests.
- Regularly articulate the steps your board is taking to adhere to strict ethical standards to key stakeholders and other audiences.
Additionally, a recent article in Crain’s Cleveland Business draws attention to the fiduciary duties by which the organization’s board is expected adhere. The four duties presented – duty of care, duty of loyalty, duty of compliance and duty to maintain accounts – speak to a board’s legal responsibilities – an important consideration, given the fact that “most, if not all, successful lawsuits against an individual nonprofit director involve allegations that the director breached one or more of the director’s fiduciary duties.”
To meet their fiduciary responsibility, board members must:
- Be active participants in the board’s activities, ask questions and make informed decisions.
- Always put the organization’s interests above their own and understanding how and when to disclose and address situations where there might be a conflict of interest.
- Understand and follow the law and the organization’s governing documents.
- Work to develop and follow policies and procedures that govern the organization’s affairs, develop annual budgets and maintain accurate financial records.
Protect Your Organization With Good Governance
In addition to working with a team of trusted advisors and regularly reviewing and updating the organization’s compliance with its legal obligations, the board should ensure that the policies and procedures that govern the organization are in place and adhered to – especially those pertaining to the orientation and regular training of board members. And where paid staff are concerned, the board should take care to ensure that the organization’s employment practices are thorough and up to date and that all employment decisions are documented to avoid any potential legal ramifications. Finally, while excellent policies and procedures are the cornerstone of your nonprofit’s system of governance, the board should consider purchasing general liability insurance and directors and officers (D&O) liability insurance for added protection.
Email Rea & Associates to learn more about nonprofit governance and to find out if your board is currently meeting its fiduciary responsibility or check out the articles listed below for additional insight.
By Maribeth Wright, CPA (Retired))