Since the introduction of the revised Form 990 in 2008, the IRS has focused its attention on the governance policies and structures of not-for-profit organizations. Now, more than ever, directors must be involved in ensuring their organizations are well-governed. The revised Form 990 has a core form that is 11 pages long and may include up to 16 schedules – most of which inquire about an organization’s policies (conflict of interest, whistleblower, and document retention policies), compensation policy and practice, chapters and affiliates, gift acceptance, expense payments, fundraising, financial information regarding endowment funds and general procedures relating to meetings.
The goal of the revision of the Form 990 is to increase transparency, encourage compliance, and emphasize the importance of ethics within a not-for-profit organization. Given that so much emphasis has now been placed on “good” governance, it is increasingly important for not-for-profit boards to draft, adopt, and implement relevant governance policies – meant to be “living” documents reflecting the organization itself, and changing as an organization grows and develops.
Below are some important drafting tips for governance policies to help a not-for-profit organization survive and thrive in this new regulatory environment.
1.) Introduce Your Organization
Governance policies are the face of the board to the CEO, staff, and the general public. From the outset, before addressing the substance of the policies, governance policies should contain introductions that address an organization’s vision, mission, desired outcomes, and internal and external values that define its character. This introduction should also address an organization’s functions, the percentage of its time devoted to each function, its strategies, and its goals.
2.) Describe the Role of the Board
The most important part of governance policies deals with board structure and policies; specifically, these provisions address the “job description” of the board; disciplinary action against board members; accountability, self-monitoring, and evaluation; and how policy changes may be initiated. The board’s responsibilities should include:
§ Maintaining, reviewing, and updating the governance policies as times change;
§ Ensuring the financial solvency and integrity of the organization, which requires regular external audits and internal checks and balances; and
§ Selecting the CEO and reviewing his or her performance.
3.) Who Is Responsible for CEO Oversight?
Board policies should address the selection and evaluation process and compensation of a CEO (whether the CEO is to be compensated and, if so, how compensation levels are determined). The board should provide regular performance reviews and an annual performance report to the CEO based on his or her performance, and the governance policies should address precisely how such evaluation is carried out and delivered.
4.) What Every Candidate Should Know Before Joining Your Board
Governance policies should detail what can be expected of board members – including the criteria to become a member of the board and training for new and seasoned members. These provisions should provide enough information to serve as a self-explanatory “orientation” for new board members who inquire about their responsibilities. The role of the chairman of the board should also be detailed, as should meeting rules, agenda-setting, and the evaluation process for determining if meetings are actually effective. The policies should outline a code of conduct so that board members are fully aware of what is expected of them, and what kind of behavior warrants discipline. Included in a code of conduct should be a comprehensive conflict of interest policy.
5.) How All the Moving Pieces Fit Together
Policies should also address how the board, the CEO, and staff – and their varying responsibilities – are interrelated. To avoid confusion, duplication of efforts, and finger-pointing, responsibilities should be clearly assigned among the various parties. Policies should also include the CEO’s job description and how the CEO and the board should communicate with each other. Staff hiring, termination, treatment, and compensation should be documented, and a whistleblower policy should also be adopted. Including a whistleblower policy indicates that an organization is committed to complying with the law, and encourages a culture of transparency.
6.) Establish Standing Committees
Governance policies should provide for subgroups of the board, which are tasked with more specific agendas, depending on an organization’s needs. The typical standing committees include committees focused on governance, finance, audit and compliance, advancement, programming, and executive responsibilities. Advisory groups and task forces, consisting of both board members and outsiders, may be created to assist with particular projects that require more specialized knowledge and expertise.
7.) Budgeting and Finances
Policies should address budgeting and financial controls, as well as asset protection and investment principles, since every organization that plans to be fiscally healthy must develop a comprehensive, long-term plan to achieve and maintain good fiscal health.
8.) Programming and Fundraising
A comprehensive policy includes a description of the programs an organization will offer, and how new programs will be developed. It should also include advancement parameters, such as fundraising principles and a donor bill of rights, which ensure prospective donors that an organization is trustworthy, and that donors can have full confidence in the organization and the causes it asks donors to support.
9.) Handling the Media
A provision should be included detailing how public affairs and communications will be managed, as well as the role and responsibilities of spokespersons.
10.) Develop a Theme
Overarching themes in any well-respected governance document should be transparency and accountability. Accordingly, provisions should be included which specifically address audit and compliance parameters and document retention. Most importantly, information about operations and methods of self and outside evaluation should be widely available to the public.
Developing effective governance policies will take time and require full commitment at the highest level of an organization. A coordinator should be assigned to oversee the adopting and implementation of the various policies. Many governance policy models are available, and can be tailored for each organization. And they can implemented after a vote by the board. In most cases, the board should seek legal review of these policies to ensure that they are both sound in their governance structure and tax compliant. Because a governance policy is meant to be the voice of the board, it must reflect the board members’ vast differences in experience and perspectives and help make the organization’s infrastructure stronger.