Not-for-profit organizations are always seeking ways to preserve and strengthen the confidence of their donors and the public at large. Most often these organizations focus on increasing transparency, enhancing governance and ensuring compliance with the highest ethical standards. In other words, they seek to embody the principles that make them most attractive to donors. To meet this goal is not always a simple or easy task. Each organization faces unique operational and structural challenges which can make this a daunting task.
To help Not-for-profits, there are several guides available which provides comprehensive advice on how to enhance governance practices. Barnes Dennig’s Not-for-Profit team has provided a summary below of the most effective governance practices for implementation.
Key Governance Practices
- A charitable organization must have a governing body that is responsible for reviewing and approving the organization’s mission and strategic direction, annual budget and key financial transactions, compensation practices and policies, and fiscal and governance policies.
- The board of a charitable organization should establish its own size and structure and review these periodically. The board should have enough members to allow for full deliberation and diversity of thinking on governance and other organizational matters. Except for very small organizations, this generally means that the board should have at least five members.
- A substantial majority of the board of a public charity, usually meaning at least two-thirds of the members, should be independent. Independent members should not:
- be compensated by the organization as employees or independent contractors;
- have their compensation determined by individuals who are compensated by the organization;
- receive, directly or indirectly, material financial benefits from the organization except as a member of the charitable class served by the organization; or
- be related to anyone described above (as a spouse, sibling, parent or child), or reside with any person so described.
- The board should hire, oversee, and annually evaluate the performance of the chief executive officer of the organization, and should conduct such an evaluation prior to any change in that officer’s compensation, unless there is a multi-year contract in force or the change consists solely of routine adjustments for inflation or cost of living.
- The board should establish and review regularly the organization’s mission and goals and should evaluate, no less frequently than every five years, the organization’s programs, goals and activities to be sure they advance its mission and make prudent use of its resources.
- Board members are generally expected to serve without compensation, other than reimbursement for expenses incurred to fulfill their board duties. A charitable organization that provides compensation to its board members should use appropriate comparability data to determine the amount to be paid, document the decision and provide full disclosure to anyone, upon request, of the amount and rationale for the compensation.
Implementing the changes listed above will significantly improve the governance effectiveness of your Not-for-profit organization. The most compelling benefit is ensuring that donors will not be dissuaded from contributing due to governance concerns. If you have questions about these principles or need assistance with tax or audit services, Barnes Dennig can help. For additional information please call us at 513-241-8313, or click here to contact us. We look forward to speaking with you soon.