understanding not-for-profit governance

Keith Benson, MHA, Ph.D.10/13/08

Associate ProfessorWinthrop University

Governance◦ What are boards?◦ Why are there boards?◦ What do boards do?

Working with boards Getting the most from your board

Ph.D in Health Policy and Administration from Penn State University ◦ Cognate area management and organizational

theory Serving or served on 13 NFP/Public Boards

◦ From local to national boards Consultant to several NFP boards Married to an ED of a NFP!

In the beginning Start with a basic and thorough

understanding of board responsibilities, functions, duties, and obligations.

Why is understanding board governance like making macaroni and cheese from scratch?

It can lead to more effective outcomes Board is ultimate decision maker for the

NFP.

Has the ability to fulfill its mission through a blend of sound management, strong governance, and a persistent rededication to achieving results.

Has the ability to maximize shareholder wealth through a blend of sound management, strong governance, and a persistent rededication to achieving results.

Courts are looking at not for profits to determine if they have used best corporate governance practices.

This session is important in protecting the organization, the board, and yourself.

Public originate with legislature and are appointed by a public executive; they oversee the application of legislation and are custodians of the public trust – receive no additional $$$.

FP Corporate are self appointed and are expected to look after the best interests of the shareholders who seek profit and ROI. Receive additional $$$.

Not for profits are self appointed and have an obligation to honor the promise of the donors and supporters of the organization as expressed in the “mission.” They have an obligation to appear trustworthy to their constituents and receive no $$$.

Not for profits (NFP) are founded for a compelling purpose that serves the public benefit and operates to accomplish a well-defined mission.

Saves government money on a public good May be more effective and efficient in

service delivery.

The NFP Board sets the direction of the organization, ensures resources, and provides oversight.

As applied to any private entity, no part of the net earnings of such entity accrues or may lawfully accrue to the benefit of any private shareholder or individual.

A corporation that cannot issue shares and cannot pay dividends. In addition, under the Federal Tax Code Section 501 (c)(3), a non-profit corporation is eligible for certain Federal and State tax exemptions and, upon dissolution, must distribute its remaining assets to another not-for-profit group.

Not-for profit means not conducted or maintained for the purpose of making a profit. Instead, it operates to serve a public good. Any net earnings by a non-profit organization are used by the organization for the purposes of which it was established.

Not-for-profit◦ An incorporated organization which exists for educational or

charitable reasons, and from which its shareholders or trustees do not benefit financially.

◦ One of the tangible features is the requirement for public benefit. This essentially means that any profits or surpluses a charity makes must be used to further its charitable purposes. Such profits or surpluses must not be distributed to owners, members or any other individual or group of individuals.

Worldwide NFPs spend $1,300,000,000,000 per year.

7th largest GDP if a country (bigger than Canada, Italy, Brazil, and Russia).

NFPs employs 40 million people worldwide (virtually every country).

More than 1.4 NFPs in the US. Over 20,000 in South Carolina. NFPs employ 7% of the US workforce. NFPs contribute over 6% to the US GDP.

NFPs are big business. Business “rules” are very applicable to

NFPs.

The concise Oxford Dictionary defines ‘Governance’ as an act, manner, fact or function of governing, sway, control.

The processes and structures that an organization uses to direct and manage its general operations and program activities.

Good governance – achieving desired results and achieving them in the right way.

The Board of Directors/Trustees has the principal responsibility for fulfillment of the organization’s mission and the legal accountability for its operations.

Vision – envision the future Direction – setting goals Resources – securing resources Monitoring – reviewing periodically Accountability – ensuring the efficient use of

resources and reporting progress

Good governance is as or more important for not for profits.

For profits have◦ Accountability to shareholders◦ Are subject to takeovers

Not For Profits◦ Have tax privileges◦ Do not distribute profits◦ Do not have owners

Greater reliance for good governance on Board of Directors and CEO

Granted the AUTHORITY to make decisions on behalf of the organization.

Must be ACCOUNTABLE for the organizational performance.

“A board needs to know that it owns the organization. But it owns an organization not for its own sake-as a board-but for the sake of the mission which that organization is to perform.◦ Dr. David Hubbard

The board owns the NFP on behalf of the community.

What’s Your Bumper Sticker? Save the Whales Feed the Children Marking Time

Set Policy and Direction Legal Financial/Accountability Fundraising Futuring Evaluation

Mission/Purpose Support Executive Officer and Review

Performance Effective Planning Adequate Resources Manage Resources Effectively Determine and Monitor the Organization's

Programs and Services Enhance the Organization's Public Image Serve as a Court of Appeal Assess Its Own Performance

Many courts hold NFP Board Members to this rule

Board members act: On an informed basis In good faith In an honest belief the action taken is in the

best interest of the organization Protection – D & O insurance

Board members take role seriously Act professionally and ethically at all times Have interests of organization above their

own Rotate off when terms are up Read support materials, come prepared

and make attendance at meetings a priority

Duty of Care Duty of Loyalty Duty of Obedience Duty of Compliance Duty of Fiduciary Duty to Disclose

Be informed Be active Ask questions Exercise independent judgment Discharge duties appropriately Perform duties diligently

Focus on what matters most - mission Build a deep knowledge of the

organization Promote honest, open dialogue Formally evaluate performance Insist on good practices

“No single relationship in the organization is as important as that between the board and its chief executive officer.” ◦ John Carver, Boards that Make a Difference

In simplest terms a board governs, while staff, led by the Executive Director manages

Board sets policy and establishes mission and agenda

Staff implements policy, delivers services and manages day-to-day operations

Defines the organizations needs and ensures its success

Board selects and evaluates the ED. Encourages a respectful, harmonious partnership

Communicates strategic plan, goals and benchmarks as well as expectations

Authorizes all expenditures

The Executive Director hires, trains, and supervises staff

Reports to board on operations, services, personnel, and finances

Evaluates needs, presents solutions and options

Develops position descriptions and operational procedures

Support Trust Honesty Forthrightness Respect Understanding

Board takes the lead:◦ Articulates the guiding values through policies

that put the mission into action◦ Hires, supports, and evaluates the chief

executive ◦ Monitors fiscal management, approves budget,

and hires annual auditor◦ Selects, recruits, and orients new board

members

Chief Executive takes the lead:◦ Develops and proposes policy questions for the

board’s consideration◦ Hires, supervises and motivates staff◦ Develops and implements programs

Board, Chief Executive, and Staff Share the lead:◦ Develop a strategic plan◦ Create a fundraising plan and strategies◦ Initiate and implement periodic organizational

evaluations◦ Prepare for Board meetings

Make Mission Matter Know the Organization Cultivate Relationships Inform & Communicate Facilitate Balance in the Partnership Structure the Board’s Work

Regularly attends board meetings and important related meetings

Makes a serious commitment to participate actively in committee work

Volunteers for and willingly accepts assignments and completes them thoroughly and on time

Stays informs about committee matters, prepares themselves well for meetings, and reviews and comments on minutes and reports

Gets to know other committee members and builds a collegial working relationship that contributes to consensus

Is an active participant in the committee’s evaluation and planning efforts

Participates in fund raising for the organization

Do your duties Be informed Participate Contribute financially Raise funds Be an ambassador

Determine the Organization’s Mission and Purpose

Select the Chief Executive Support the Chief Executive and Assess His/Her

Performance Ensure Effective Organizational Planning Ensure Adequate Resources

Manage Resources Effectively Determine, Monitor, and Strengthen the

Organization’s Programs and Services Enhance the Organization’s Public Standing Ensure Legal and Ethical Integrity and Maintain

Accountability Recruit and Orient New Board Members and

Assess Board Performance

Board sets goals for its own activity Board identifies progress indicators Board monitors progress indicators

quarterly

DOER – an active participant DONOR – a person who believes in the

mission and organization, but is able, at the present time to contribute monetarily

DOOR OPENER – a person who does not have a lot of time or income to contribute to the association. However, they are willing to share their network and/or rolodex to help identify other potential leaders.

DEAD WOOD - warming a seat but not much else

Attribute #1: Board members have a basic understanding of the organization’s vision, mission, operations and history

Attribute #2: The Board has a clear understanding of the organization’s primary beneficiaries and the Board’s responsibility to them as moral owners of the organization

Attribute #3: Board members ensure adequate resources for the long term

Attribute #4: The work of the Board is well organized and managed

Attribute #5: The role of the Board is clear and distinct from the role of the staff◦ Board = Governance◦ Staff = Management

Attribute #6: each board member is able to positive answer the value question. What value do I bring to the organization?