Like everything else in the world, concepts about governance in nonprofit organizations are evolving. In the US corporate world, The Sarbanes-Oxley Act (SOX) represented an attempt to legislate some basic principles designed to protect the interests of stakeholders by directing that the Board is composed of individuals with suitable skills, promotes transparency and ethical behavior, and provides appropriate communication about organization structure and controls.
Although nonprofit organizations do not have the same legislative oversight, SOX has guided their best practices. With the impact on additional stakeholders in nonprofit organizations such as workers, customers and the community at-large, this means that nonprofit governance needs broader objectives. Here are 5 issues nonprofit organizations need to constantly evaluate to ensure they remain successful and accountable.
Is the work of this nonprofit still relevant in a changing world? Are the exempt purposes and programs described in its organizational document and IRS exemption application still appropriate?
Is the Board composition diverse enough to best represent all its stakeholders? Is Organization management and workforce diverse enough to best serve its customers and its public purpose?
Has the Board evaluated all the risks it is exposed to and prepared for them? Does the Board promote prudence in its business practices while recognizing that being risk averse is itself a risk?
Ethics and Transparency
Is the Board promoting high ethical standards and appropriate transparency throughout all levels and functions of the Organization? Is the Board appropriately balancing organizational transparency with its duty of confidentiality?
Are the Organization programs effective? Are resources utilized in accordance with Board and management objectives and expectations? Are enough controls in place to ensure that resources are used properly?
Volunteer Board members have the responsibility to act with good faith, due care and loyalty. It is not sufficient to rubber-stamp management recommendations, let founders or staff drive their personal agenda, avoid uncomfortable discussions, or abstain from difficult decisions. Board service comes with real responsibilities. Boards with actively engaged members from diverse backgrounds with the ability to navigate respectful and vigorous discussions are more likely than others to remain successful and accountable in their public purpose.
Article contributed by Donna Buzby, CPA