Balance in Nonprofit Governance

From The Harvard Business Review, Achieving Balance in Nonprofit Governance.

From Marion R. Fremont-Smith

“The principal changes in nonprofit governance I would recommend relate to procedures and board participation, not legal structures or legal requirements. Many of the abuses that have come to light recently could have been prevented if charitable fiduciaries—directors, officers, and trustees—had been more attentive to their organization’s operations—its finances, its operating principles—and paid more attention to their proper role in society.

I am not advocating changes in the traditional division of the roles of a board and of management. A recent trend, however, has been to place greater responsibility on management and, by requiring independent audit committees, assume that this will be an effective way to policy an organization.

Instead of having the CEO and CFO sign off on financial statements (they are already required to sign and certify federal information returns), I would like it to be common practice for all board members to review these returns together with the organization’s financial statements, and in all events to act on compensation of management. I question whether an audit committee is the panacea for all charities. Such a structure may be appropriate for many, but certainly not for all, and may instill confidence in the remaining board members that may not be justified.

Finally, I believe too many charities ask only limited involvement from their board members, in some cases no more than attendance at one or two meetings a year, if that. Greater use should be made of advisory or honorary boards or committees, with board positions occupied only by those who will actively govern the organization. These are general precepts, however. If we want to protect the diversity of the sector, we must refrain from imposing limits that will constrain innovation and stifle experiment, even in the area of governance.

As to the issues that nonprofit boards should be advocating, I believe they should be supporting efforts to improve regulation, federal and state, with particular attention to assuring adequate funding for the regulators. The proposals from the Finance Committee staff appear to have mobilized many within the sector to revisit efforts at self-regulation. While these initiatives will not deter individuals who form and use nonprofit organizations for their private gain, they can provide assurance to the general public and the government as to the overall integrity of the sector, and thereby forestall efforts to increase regulation in ways that will constrain their freedom of operation.”

The ACS is working on these issues.But there is food for thought here, anyways.

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