Mission Forward: Year-End Governance Review for Charitable Orgs
Many charitable organizations are conducting year-end wrap-ups including assessments of key accomplishments and metrics, annual reporting and board meetings. Given the complexity of IRS and state charitable org regulations for public charities and private foundations, governance is often seen as checklist when it is in practice dimensional as it must be incorporated into organizational strategy and operations to be effective.
An effectual governance framework is necessary for directors to execute their fiduciary duties of care and loyalty, which include good faith, oversight and disclosure. It is also reflective of the org’s state of affairs and one of the first items regulators ask about when they knock on the proverbial door.
Charitable orgs achieve significant societal impact and there are approximately 1.2M public charities and 120,000 private foundations in the U.S. Public charitiesare funded by donations and grants, while private foundations are funded by endowment. Public charities typically are operating orgs and administer programs. Private foundations primarily are grantmaking orgs, and are most often independent foundations, family foundations, corporate foundations or community foundations.
While there are differences in the regs pertaining to public charities and private foundations, there are established best practices for corporate governance. Year-end is a good time to benchmark governance and develop a plan to address gaps. Good governance considerations for charitable boards and leaders include:
1. Assessing Mission Alignment: Current Activities & Charitable Purpose
It is critical that the mission statement is appropriate and relevant to the organization’s current activities – and that the mission and activities line up with the organization’s stated charitable purpose, as identified in its organizational documents and registration filings. This has occurred in recent years as orgs expand their vision to incorporate pressing environmental and social issues but fail to reflect changes in corporate documents. A strategic plan can serve as a roadmap to maintain alignment, to achieve mission priorities and as a tool for identifying KPIs and tracking progress.
2. Reviewing Corporate Governance: Key Guidance & Policies
An annual review of by-laws, key policies and procedures is paramount. This includes internal governing documents such as the investment policy, conflicts of interest policy and grantmaking policy as well as external policies such as the suite of insurance policies. This minimizes risk and enables the update of outdated mechanisms and processes. Another best practice for orgs depending on asset threshold is to conduct an independent audit on an annual or biennial basis – and some states require it.
3. Refreshing Your Roster: Board Composition
The composition of the board – in both expertise and diversity – is integral to mission success. Foundational expertise is typically sought in the finance, legal and investment disciplines and, most relevant to public charities, the development field. The importance of and value that diversity brings to decision-making, representation and impact cannot be underscored enough in benefit to the org and to the communities served. Board evaluations and self-assessments can also be useful tools to determine board effectiveness and areas for improvement.
4. Supporting Your Board: Expectations & Training
Setting written expectations and requirements for board members, officer roles and committee responsibilities is the norm. At a minimum, an orientation should be offered to new board members and a training session conducted on an annual refresher basis. Moreover, processes and procedures such as meeting process and voting procedures should be well-communicated to board members and adhered to by all. There must also be clear delegation of duties for directors and managers as well as demarcation of any shared services and affiliated entities, such as a sponsoring corporation of a corporate foundation.
5. Leading the Way: Accountability, Oversight & Transparency
It is important that the board and relevant committees thereof have insight into and oversight of the year-end (calendar or fiscal) preparation of financial statements, audit materials, tax forms, state charitable filings, annual budgeting and compliance reporting. Maintaining proper books and records is a key component of nonprofit governance, as is transparency around how charitable funds are being spent. Public disclosure by way of website posting of governance documents such as by-laws, select polices and annual reports proffers transparency and good will with stakeholders including donors and grant recipients – as well as serving as another avenue to share the org’s good works and impact.
