Non-Profit Questions
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6034-Session2-BoardResponsibilitiesandDutiesrev4-15-19.ppt
PPPA 6034
Managing Nonprofit Boards
Session 2
Legal and Functional Responsibilities
Of Nonprofit Boards
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Legal Responsibilities of Boards
- Care
- Loyalty
- Obedience
(Sibley Hospital case, 1974)
- Emerging new questions
(Hershey School, Barnes Foundation)
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Governance Documents
- Charter
- Bylaws
- Policies
- Minutes
- Resolutions
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Charter and Bylaws
Charter (Articles of incorporation)
From state government – states broad purposes
(mutual benefit, public benefit, religious)
Seldom changed
Bylaws
Developed by governing board – specifies governing principles and board operations
Easily amended by the board
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Typical Bylaws Content
- Members/no members
- Categories of members
- Size of board
- Method of election/removal
- Terms limits
- Officers and methods of election/removal
- Committees
- Meetings
- Process of voting/quorum
- Process for amendment
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Legal Considerations
- Private benefit and self inurement
(excess benefit transactions)
- Conflict of interest policies
- D&O insurance
- Separation of related entities
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Intermediate Sanctions
- Fly swatter, not atom bomb
- Personal liability of trustees
- Personal liability of staff
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Sarbanes-Oxley Act (2002)
- Protection for whistle-blowers*
- Audit committee and external auditors
Committee must have financial expert
Audit committee hires outside auditor
Audit firm cannot also consult
Firm must change partner every five years
- CEO must certify financial statements
- Conflict of interest
No loans to board or executives
Must disclose executive code of ethics
- Retention of documents used in investigation or bankruptcy*
*Required of nonprofits under Sarbanes-Oxley
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Form 990, Part VI
- Form 990
990N postcard if revenue < $50K
990EZ or 990 if revenue $50-200,000
990 if revenue >$200,000
- New form implemented in 2009 includes Part VI, governance questions
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Executive Compensation
- Standard of reasonableness
- 3 IRS questions for governing boards:
What governance is exercised over executive compensation?
What is the basis for the executive’s compensation
and benefits?
What internal controls exist for review and approval of executive travel and entertainment expenses?
(AU and Smithsonian cases)
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Board Best Practices on Executive Compensation
- Independent compensation committee
- Full board review of executive comp
- Rely on objective data, surveys, consultants
- Document data and discussion in board minutes
(Rebuttable presumption of reasonableness)
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Self-Regulation and Best Practices
- Independent Sector principles
- Standards for Excellence Institute
Board Functional Responsibilities
(What do boards actually do?)
- Appoint the CEO
- Assure good management, but stay focused on policy
- Approve the budget and assure adequate resources
- Raise money
- Oversee investment of the endowment, if any
- Approve strategic plans
- Represent community/advocate for organization
- Approve and oversee programs (but not manage)
- Assure focus on mission
- Provide sounding board for CEO
- Monitor performance, hold management accountable
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Board Life Cycle
- Start up
(founding board/ working board)
- Adolescent
(first executive director, growing staff,
struggles to define roles, founder syndrome)
- Mature
(differentiation of roles, board structure highly articulated,
may be questions about board’s purpose, board complacency)
Why Boards Underperform
(Chait, Holland, Taylor)
- Tension between watchdog and advocate roles
- Part-time amateurs, full-time professionals (staff controls information and agenda)
- Philosophical differences between board and staff
- All stars, no constellation (a huddle of quarterbacks)
- Low stakes
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