Policy vs. Paper Clips

There's a lot of advice out there about governance structure.  Particularly when a board has always operated in a certain way, sorting through all the advice and finding the governance structure that fits your nonprofit can be difficult.  And it is more difficult when the board has acted as staff and now must transition to policy makers.  Dr. Eugene Fram sent me a copy of his book Policy vs. Paper Clips and I found it to be an interesting read.  One of the reasons it is actually a fun book to read is Dr. Fram tells the story of how to transition to a corporate model of governance through the fictional exchange of emails between friends.  Here are some of the things you can expect from the book:

From Dr. Fram...

Policy vs. Paper Clips is an unusual how-to book. It is a serious subject – improving nonprofit board governance while enhancing a management focus – but it is written in a highly user friendly way. Two old friends with ties to vastly different nonprofit organizations discuss via email what it takes to adopt the Corporate Model, an approach that can position your nonprofit to meet the demanding realities of the 21st century world.

Given today’s difficult times for nonprofits, hardly any can continue to operate as they have in the past. For most, it is no longer possible for a volunteer group of directors to be involved in day-to-day operations of the organization. The Corporate Model establishes a framework for separating policy development from operational activities. When customized appropriately to your own nonprofit, the Model promotes growth. This book shows you how to tap the creative energies of the board of directors to address critical issues about vision, direction, assessment of outcomes; how to adapt to new challenges and how to capture emerging opportunities – while turning over day-to-day operational matters to management.

The Corporate Model works best for nonprofits that have an annual budget of about $1 million or more and staffs of about 15 or more. However, anyone associated with a nonprofit group can benefit from reading this book. It provides an essential self-examination that can serve as a catalyst for becoming a more dynamic organization.

Your Board Members & Chief Executive Working Together Can More Effectively:

• Focus an organization on strategic issues over operational minutiae

• Encourage directors to bring their special expertise & cultural values to board discussions

• Understand the need for – and implement – rigorous assessment of operational outcomes

• Pinpoint management’s responsibility & clarify its responsibility

• Establish a system of organizational checks & balances

ALSO

• Allow for more management flexibility to develop a more entrepreneurial culture

• Increase focus on productivity at the expense of bureaucratic processes

• Improve the CEO’s fund raising capacity to drive development productivity

• Obtain greater efficiencies through lower costs

• Keep board involvement high when developing policies & strategies

• Create a partnership between board and staff that builds trust

Your Board Members Can More Effectively:

•  Provide an appropriate mission-focused board structure for growth

• Operate effectively with only three standing board committees

• Make major board structural changes with minimum disruption

• Evaluate the chief executive fairly despite only having imperfect metrics

ALSO

• Reduce or increase board size

• Develop effective audit committee & fraud protection procedures

You can contact Dr. Fram at

eugenefrm@yahoo.com

Principles for Good Governance and Ethical Practice

There are two things I really, really like!  Finding excellent nonprofit resource materials and then finding out they are free!  While the "Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations" was originally published by the Independent Sector in 2007, the "Priniciples" remain the same. 

There are four sections to the guide:

1. Legal Compliance and Public Disclosure
2. Effective Governance
3. Strong Financial Oversight
4. Responsible Fundraising

You can download the entire document for free at the Independent Sector website.  I urge you to download it and share it with your Board of Directors.  Consider it a check list for best practices.  The following is from the first section, Legal Compliance and Public Disclosure.  Enjoy!  Bunnie

• A charitable organization must comply with all applicable federal laws and regulations, as well as applicable laws and regulations of the states and the local jurisdictions in which it is based or operates. If the organization conducts programs outside the United States, it must also abide by applicable international laws, regulations and conventions that are legally binding on the United States.

• A charitable organization should have a formally adopted, written code of ethics with which all of its directors or trustees, staff and volunteers are familiar and to which they adhere.

• A charitable organization should adopt and implement policies and procedures to ensure that all conflicts of interest, or the appearance thereof, within the organization and the board are appropriately managed through disclosure, recusal, or other means.

• A charitable organization should establish and implement policies and procedures that enable individuals to come forward with information on illegal practices or violations of organizational policies. This “whistleblower” policy should specify that the organization will not retaliate against, and will protect the confidentiality of, individuals who make good-faith reports.

• A charitable organization should establish and implement policies and procedures to protect and preserve the organization’s important documents and business records.

• A charitable organization’s board should ensure that the organization has adequate plans to protect its assets—its property, financial and human resources, programmatic content and material, and its integrity and reputation—against damage or loss. The board should review regularly the organization’s need for general liability and directors’ and officers’ liability insurance, as well as take other actions necessary to mitigate risks.

• A charitable organization should make information about its operations, including its governance, finances, programs and activities, widely available to the public. Charitable organizations also should consider making information available on the methods they use to evaluate the outcomes of their work and sharing the results of those evaluations.

Deadly Fundraising Mistakes

Here's the latest from fundraising consultant extraordinaire Sandy Rees. Another valuable article to share with Board Members and Staff. The market for donor dollars is tough out there and you can't afford to make these mistakes! Bunnie

Deadly Fundraising Mistakes

by Sandy Rees, CFRE


Fundraising these days isn’t as easy as it once was. With the difficulties facing many organizations, now is the time to be on top of your game when it comes to raising money. The last thing you want to do is make mistakes, especially mistakes that can kill your capacity for fundraising.

Here are some mistakes that I have seen small nonprofit organizations make, either on purpose or out of ignorance, that have been devastating. Making just one of these errors can put your organization in a downward spiral faster than a jack rabbit on a hot summer’s day.

1. Lack of planning and strategy. If you don’t know where you are going, then any road will get you there. Having a plan is critical to the success of your organization. It doesn’t have to be a Pulitzer-prize winning document, but it does need to provide you some guidance and direction for your organization. I’ve seen lack of planning result in a good organization becoming lethargic and sort of stuck on a hamster wheel of day-to-day monotony. Remember, people don’t plan to fail. They fail to plan.

2. Lack of support and participation from organization leaders. Your CEO or Executive Director MUST be involved in fundraising. When it comes time to ask a donor for money or thank a donor for a gift, your top staff person must take the lead. Likewise, your Board of Directors MUST pull their weight. It’s one of their basic responsibilities. They should make a monetary gift themselves and they should support fundraising efforts by the staff.

3. Not allocating enough resources to fundraising. One truism of fundraising is that you must spend money to raise money. It can be done on a shoestring, but it’s tough. It’s a lot easier when there’s funding available to cover postage and basic supplies. Sometimes an organization cheats itself out of success by not committing the necessary money to hire a fundraising staff person.

4. Reinventing the wheel. There’s no need for anyone to start from scratch with fundraising. There are many resources out there that you can draw from. Take advantage of trainings and books. Network with other fundraisers. Attend professional association meetings.

5. Putting all your eggs in one basket. A basic principle of business that works in the nonprofit world is this: don’t have most of your business coming from one customer. Yet, too many nonprofit organizations get most of their funding from one grant or one customer (usually government reimbursement). If for some crazy reason that one goes away, you’re dead in the water. It makes the future of your organization terribly unsure.

Want to know more? Get a free copy of my special report “10 Deadly Fundraising Mistakes and How to Avoid Them” at http://www.deadlyfundraisingmistakes.com/.

Bad, Bad Board Members

by Bunnie Riedel, Host, Nonprofit Conversation

You know who they are.

They engage in side bar conversations with other board members or even the members, about what they think is wrong with the board or the executive director or the organization in general. They joined the board simply to promote themselves or their business and then come up with schemes to get the organization to buy their services or products. They ask for special favors such as upgraded airfare or free tickets to a fundraising event or free products from vendors.

They commandeer meetings and interrupt other board members or talk incessantly. They don’t show up for meetings. They don’t have their assigned tasks ready when asked or they drop the ball altogether. They never raise a single dime. They insist that money be spent on projects that are not in keeping with the mission or they come up with grandiose projects for which they will bear no responsibility. They over-scrutinize everything the CEO does and never find anything worth praising. They have unreal expectations of the CEO, often calling the CEO at home or while he/she is on vacation.

They are rude to volunteers or members. They have no comprehension of nonprofit governance and often make suggestions that are contrary to maintaining nonprofit status. They are willing to break the law, falsify tax documents or behave unethically. They date or have a romantic relationship with a staff member. They donate a large sum of money so they can blackmail the other board members or CEO or staff with their generosity. They go behind the CEO’s back and direct staff to perform certain tasks. They get their friends hired to the nonprofit.

I could go on. These are just a few of the things I (or my colleagues) have personally experienced. There is a “comment” section at the end of this article and I would love to hear your comments on behaviors of “bad board members.” The point of this article is: what is a CEO or board members to do with board members who misbehave?

Years ago I was speaking to a peer explaining a particular problem I was having with a board member. He gave me a piece of advice that was golden. “Put a board member between you and the problem.” In other words, it is the responsibility of the board to manage its membership and even the most talented CEO must turn to the board for assistance in dealing with bad board members.

This isn’t always easy because frequently board members don’t want to be confrontational or they hope that a problem will eventually work itself out. Most often though, problems do not go away on their own and ignoring them can cause them to grow. Problems are best avoided through written policies, governance structure and organizational culture.

A clear set of guidelines such as a “Conflict of Interest” statement that each board member must agree to and sign, can help organizations fend off attempts at hijacking the organization for personal gain. Conflict of Interest statements can also define what board members are free to discuss with non-board members or the public at large. The National Council of Nonprofits has an excellent sample conflict of interest policy that can be tailored to your organization at http://www.councilofnonprofits.org/?q=conflict-of-interest

Board members who don’t attend meetings can be dealt with by establishing a policy for meeting attendance. I’ve always favored the policy that requires a board member who misses two meetings in a row be automatically removed and must be affirmatively voted back on the board. This saves the board from having to vote members off the board, which so often boards are reluctant to do.

Establishing clear guidelines for fundraising expectations can also save the board headaches. After talking with CEO’s for many years, I would hazard a guess that well over eighty percent of all board members do not raise money for the organization they serve. This is contrary to one of the essential responsibilities of being a board member, fundraising.

How a board handles an obnoxious person is a reflection of organizational culture. Ideally the president or chair of the board should manage meetings in such a way that no one person can dominate the agenda or bully the other members. However, if board behavior is out of hand, it might be time to call in a consultant to conduct board training.

And speaking of board training, does your organization have a board handbook and are new board members provided with training? This is an area that often gets overlooked or dismissed. And while organizational expectations might seem obvious, it should be remembered that people aren’t born “board members” and many people who find their way into board service are well meaning volunteers not governance experts.

The functionality and health of the board of directors is a direct reflection of the health of the nonprofit. If a board is dysfunctional, the organization will be dysfunctional. If a board is focused, healthy and mission driven, the organization will be the same. If you are dealing with bad, bad board members, it’s time to take action, delaying will only cause the problems to grow.

Earlier this year, Angela Newman wrote an article on the “Key to Motivating Board Members.” It is worth another read: http://nonprofitconversation.blogspot.com/2009/04/key-to-motivating-board-members.html

A Not-for-Profit Director's Checklist

The last few weeks have carried a theme of "due diligence." Due diligence when considering taking a job as an Executive Director. Due diligence when seeking Board Members. And now, Janet Bandera offers a detailed list of the kind of due diligence prospective Board Members should conduct when considering serving on a Nonprofit Board. This should be required reading for all potential Board Members, regardless of the size of the organization. Remember, as a Board Member you carry liability and responsibility for the organization. Bunnie

A Not-for-Profit Director's Checklist

by Janet Nava Bandera, Managing Principal, Bandera Law Firm

The question is: What does a good board member do? Raise money? Stuff envelopes?

In seeking to answer that question for others, I have begun to answer it for myself. A good board member helps the organization stay focused on its mission. Thus, the most important job of all board members is to be informed and to govern. So, what do we need to know? The search for this answer has resulted in the following work-in-progress.

The Checklist

Before undertaking his or her role, each potential board member must review the background, history and related details of a nonprofit organization (“NFP”). The following are some issues to consider prior to accepting a position and during your term.

Exempt Purpose

In order to qualify under Code Sec. 501(c)(3), the NFP’s exempt purpose must be stated in the organizing document. A director is measured by the success or failure of the pursuit of accomplishing this exempt purpose. A director is also measured by the course taken by the organization in getting there. Thus, it is important to review the NFP’s activities to determine whether they are consistent with the purpose set out in its organizing documents.

Organizational Details and Documentation

After you find that the mission of the organization resonates with you, you’ll want to know whether it can accomplish the mission. The first questions are who are the people guiding the way; what skills and experience does each contribute; and is the foundation for effectively accomplishing the mission in place? The devil is in the details: So what are the details? The following is not an exhaustive list; it is meant to alert the conscientious prospective board member that he or she has a duty to the organization that goes beyond lending a name and/or raising money or having fun.

What is the organization’s stated purpose?

Review the Application for Exemption (IRS Form 1023) and the Mission Statement. Is the organization a corporation or a trust; who formed it and when? Review the Articles of Incorporation or trust agreement. Have Bylaws been adopted? Review the Bylaw and any amendments. How many directors are there and what do they do? Have there been changes in the directors; how are they appointed; how often do they meet; how many are a quorum; how many are required to approve actions; are adequate records of their actions kept? Review the Bylaws, resolutions and minutes.

Have the required state and federal annual reports been filed?

Check with the Secretary of State and ask to see copies of both the state annual report and the federally mandated annual report.

Have the tax returns been filed and any taxes paid?

Who prepares/reviews the tax returns; are you prepared to review them; is there someone other than the person in charge of payroll verifying that all withholdings are deducted and forwarded to state and federal authorities?

Where are the organization's records kept?

Each director should have a general knowledge of the books and records. Are independent audits performed to ensure accuracy? If not, is someone charged with oversight of the record keeper? Ask where they are and who is overseeing this function.

Does the organization provide insurance to directors?

What are the policy limits; what is the deductible; who pays the deductible; do the bylaws include indemnity provisions? Ask to see the insurance policy.

Does the organization have other necessary insurance?

This includes property insurance; what about acts or injuries to third parties, riders for large events, appropriate environmental indemnities if property is or was purchased? Ask to see the insurance policy.

Has the board adopted a Conflict of Interest Policy?

An NFP must adopt and review on an annual basis its conflict of interest policy. Our state law defines a conflict of interest transaction as “a transaction with the corporation in which a director of the corporation has a material interest” each state will have its own definition. Ask for a copy of the Policy.

Has the board adopted a Code of Ethics?

Although not required, a Code of Ethics Policy is a sign that the board and its members have carefully considered their responsibilities, wish to ensure compliance with all laws and regulations and promote the organization’s purpose with the highest integrity. Ask for a copy of the Policy.

Is there a budget? How is the budget determined?

Are directors expected to actively participate in budgeting or merely review the budget annually? Ask to see the budget. Who is managing the organization’s money? When considering the board appointment, be aware of whether directors participate in reviewing financial statements. Consider how much experience this will require. Will you understand if the organization has made poor investment choices or has excess business holdings? Do you understand issues such as the meaning of unrelated business taxable income (UBIT) which may subject the organization to additional tax? If not, is there someone who does charged with this responsibility? Ask who this person is and their qualifications.

Who reviews distributions and expenses?

Each director should be prepared to actively review any grants, loans and distributions to outside organizations to ensure that such distributions further the organization’s exempt purpose and that adequate records are kept.

Are there employees, and who sets their compensation?

Employee compensation is an important issue. The organization should follow the recommended practices provided in IRS Form 1023 when setting compensation. The amount paid by similarly situated organizations for similar services, current salary surveys compiled by independent firms and written offers from other organizations are all general guidelines in setting
compensation. The individuals responsible for setting the compensation level should also follow the organization’s confl ict of interest policy. It is advisable that the compensation be approved in advance and documented in writing when it is approved. It is also advisable to document in writing the identity of the directors who voted on the compensation. Review the minutes as to how compensation was determined.

Does the organization strive to comply with Sarbanes-Oxley?

Sarbanes-Oxley says that it applies to companies that have registered equity or debt securities with the U.S. Securities and Exchange Commission in order for the securities to be publicly traded. Most nonprofit organizations have never issued registered securities and since no nonprofit ever issues publicly traded equity securities, one would tend to think that nonprofits are exempt. However, it is important that an NFP recognize the implications and understand how it will be affected. New GAO independence standards are similar to parts of Sarbanes-Oxley. These apply to, and were recently implemented for, the auditors of organizations that receive federal funding. These regulations already require many firms to comply with quite restrictive independence requirements.

That’s the end of my basic checklist for now. Stay tuned for refinements, lessons learned, mistakes overcome and triumphs. In the interim, the Internet is full of free information for and about the governance of NFPs.

Janet Nava Bandera, J.D., is the Managing Principal of the Bandera Law Firm, P.C. Ms. Bandera is engaged in the practice of law specializing in estate planning, charitable giving and asset protection for high–net-worth individuals. She serves on the boards of several charitable organizations and is a regular speaker for local and national financial planning fi rms. She can be reached in St. Louis, Missouri at (314) 691-4386 and in Lake Ozark, Missouri at (573) 365-9779, or at http://www.banderalawfirm.com/. This article appeared in the Journal of Practical Estate Planning and is provided here with the author's permission.