Yesterday’s post provided some information as to the current average size of a nonprofit board.  Today we would like to shift your attention to the issue of board involvement, asking whether or not your organization’s board of directors is involved ENOUGH.

According to a recent article in the Savannah Morning News (found here), some groups believe that boards of nonprofit organizations have become too comfortable in their established roles and are, therefore, falling short of leading their respective organizations to the best of their abilities.  These groups argue that “nonprofit leaders on the boards of the future will need to do much more than raise funds, shepherd the organization’s assets and set policies.  The nonprofit board of the future must help the nonprofit to envision its future, decide on its viability, seek out deeper venture partnerships and perhaps decide to restructure, merging with other partners to more efficiently meet the needs of the community.”

Ask yourself these questions:

• Does your organization have an active board of directors?
• Does your board meet just once a year in order to vote on the larger issues of the organization OR are your board members really involved in the management of the organization?
• Is your current structure working effectively and for the betterment of the organization OR would the organization benefit from a restructure.

The IRS does not have the authority to directly regulate the governance of nonprofits, and has therefore merely made suggestions as to what they believe to be “Good Governance Practices for 501(c)(3) Organizations.”  As a bare minimum, following are the concepts that appear to be emerging:

• Governing boards that are very large or very small may be problematic.  (The Goldilocks rule applies: a board should not be too big, or too small, but just right.)
• The board must establish basic organizational and management policies and procedures for the nonprofit organization, and review any proposed deviations.
• The board must establish, review, and approve program objectives and performance measures.
• The board must review and approve the organization’s budget and financial objectives.
• The board must review and approve significant transactions, investments, and joint ventures.
• The board must oversee the conduct of the organization’s programs and evaluate whether the programs are being managed properly.
• The board must review and approve the auditing and accounting principles and practices used in preparing the organization’s financial statements (and must retain and replace the organization’s independent auditor).
• The board must establish and oversee a compliance program to address regulatory and liability concerns.
• The board must establish procedures to address complaints and prevent retaliation against whistleblowers.
• The board may be required to adopt a policy forbidding loans by the nonprofit organization to the board members and/or officers.
• The board may be required to adopt a policy pursuant to which a nonprofit organization’s lawyers are required to report breaches of fiduciary responsibility to the chief executive.

If the organization is required to file an annual information return (Form 990), many of these precepts will be reflected in this return in the form of questions as to whether the organization has prepared certain documents and developed certain policies and procedures.  That is, the foregoing and/or other requirements may have to be confirmed on the organization’s annual return.  Penalties for breach of board members’ duties may be introduced into federal law.

Tags: board of directors, good governance practices, Governance, IRS, nonprofit, Savannah Morning News