Understanding Not-For-Profit Governance

1. Understanding Not-For-Profit Governance Keith Benson, MHA, Ph.D. 10/13/08 Associate Professor Winthrop University

2. Presentation Overview • Governance • What are boards? • Why are there boards? • What do boards do? • Working with boards • Getting the most from your board

3. Keith’s Experience • 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!

4. Where to Start • In the beginning • Start with a basic and thorough understanding of board responsibilities, functions, duties, and obligations.

5. Question of the Day • Why is understanding board governance like making macaroni and cheese from scratch?

6. Where to Start • It can lead to more effective outcomes • Board is ultimate decision maker for the NFP.

7. An Effective Not-For-Profit Organization • Has the ability to fulfill its mission through a blend of sound management, strong governance, and a persistent rededication to achieving results.

8. An Effective For-Profit Organization • Has the ability to maximize shareholder wealth through a blend of sound management, strong governance, and a persistent rededication to achieving results.

9. Key Point • 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.

10. Difference Between Public Board, FP Board, NFP Board • 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 $$$.

11. Difference Between Public Board,FPBoard, NFP Board • FP Corporate are self appointed and are expected to look after the best interests of the shareholders who seek profit and ROI. Receive additional $$$. • Not for profits are self appointed and have an obligation to honor the promise of the donors and supporters of the organization as expressed in the “mission.” They have an obligation to appear trustworthy to their constituents and receive no $$$.

12. What Is A Not For Profit • Not for profits (NFP) are founded for a compelling purpose that serves the public benefit and operates to accomplish a well-defined mission.

13. Why NFPs Granted Tax-Exempt Status • Saves government money on a public good • May be more effective and efficient in service delivery.

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

15. What is a Not-for-profit(Non-profit) • 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.

16. What is a Not-for-profit(Non-profit) • 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.

17. Governance • 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.

18. The Not For Profit Numbers Game • 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).

19. The Not For Profit Numbers Game • 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.

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

21. Governance • 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.

22. Governance • 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.

23. Elements of Good Governance • Vision – envision the future • Direction – setting goals • Resources – securing resources • Monitoring – reviewing periodically • Accountability – ensuring the efficient use of resources and reporting progress

24. Governance • Good governance is as or more important for not for profits. • For profits have • Accountability to shareholders • Are subject to takeovers

25. Governance • 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

26. Boards = Legal Guardians of the Organization • Granted the AUTHORITY to make decisions on behalf of the organization. • Must be ACCOUNTABLE for the organizational performance.

27. Boards = Legal Guardians of the Organization • “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.

28. Make Mission Matter • What’s Your Bumper Sticker? • Save the Whales • Feed the Children • Marking Time

29. Board Roles and Responsibilities • Set Policy and Direction • Legal • Financial/Accountability • Fundraising • Futuring • Evaluation

30. Responsibilities of Not for Profit Boards (Duties) • 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

31. Business Judgment Rule • 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

32. Board Culture = Organizational Culture • 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

33. Board Duties • Duty of Care • Duty of Loyalty • Duty of Obedience • Duty of Compliance • Duty of Fiduciary • Duty to Disclose

34. Common Sense Steps to Meeting A Board Member’s Duties • Be informed • Be active • Ask questions • Exercise independent judgment • Discharge duties appropriately • Perform duties diligently

35. Top Five Best Practices in Board Governance • Focus on what matters most - mission • Build a deep knowledge of the organization • Promote honest, open dialogue • Formally evaluate performance • Insist on good practices

37. Board – Executive Director Relationship • “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

38. Governance and Management • 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

39. Governance • 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

40. Management • 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

41. Effective Board/Staff Partnership • Support • Trust • Honesty • Forthrightness • Respect • Understanding

42. Examples of Board and Staff Roles • 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

43. Examples of Board and Staff Roles • Chief Executive takes the lead: • Develops and proposes policy questions for the board’s consideration • Hires, supervises and motivates staff • Develops and implements programs

44. Examples of Board and Staff Roles • 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

45. Six Rules for Leading By and To Follow: • Make Mission Matter • Know the Organization • Cultivate Relationships • Inform & Communicate • Facilitate Balance in the Partnership • Structure the Board’s Work

46. Board Member Job Description • 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

47. Board Member Job Description • 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

48. Individual Board Member Description • Do your duties • Be informed • Participate • Contribute financially • Raise funds • Be an ambassador

49. Ten Responsibilities of Not for Profit Boards • 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

50. Ten Responsibilities of Not for Profit Boards • 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