Updating Standards for the Sector

"The need for an overhaul of guiding principles written less than a decade ago illustrates the magnitude of transformation in the world around us."

“The need for an overhaul of guiding principles written less than a decade ago illustrates the magnitude of transformation in the world around us.”

Best Practices, Governance Principles Revised, The Nonprofit Times, Feb. 25, 2015  reports this week Independent Sector released an updated edition of its 33 Principles for Good Governance and Ethical Practices, marking the first major revisions since its original release in 2007. The event was marked by bi-partisan fanfare on Capitol Hill.

As one Senator noted, establishing best practices is important in every field, but especially in philanthropy, “where good governance makes it easier for charities to continue their work.”

Two key factors led to the revisions at this particular time: 1) new laws and regulations impact the principles and 2) the nonprofit sector itself has changed over the past eight years, particularly in the areas of data protection, transparency and privacy, and overhead costs.

Since 2007, the culture and practices around fundraising have shifted toward – and from — technology. Online fundraising, social media, and crowdsourcing have transformed philanthropy and the relevant principles needed to be updated to reflect donor intent and security.

Courtesy of campaigns like “the Overhead Myth,” beliefs about executive compensation and overhead costs also have evolved. While the Principles still recommend that nonprofits direct at least 65% of revenue toward programming, there now is more room for flexibility due to “extenuating circumstances.”

Given the widespread use of cloud-based software for donor management, nonprofits have assumed increased risk for cyber attacks and other breaches. According to the authors, the Principles now “recognize the importance of protecting an organization’s data along with its business records, property, program content, integrity and reputation.”

Other updated topics include: codes of ethics, whistleblower policies, new business and earned income, and transparency and privacy.

The Magnitude of Transformation

While the publication is news itself, I find myself more impressed by the significance of its revisions. The nonprofit sector is not known for adapting early to much of anything, as funding typically does not allow for cutting edge technology or innovation. Most organizations struggle just to stay current.

That said, the need for an overhaul of guiding principles written less than a decade ago illustrates the magnitude of transformation in the world around us. In less than a decade, concepts like crowdsourcing and social media have not only revolutionized how nonprofits raise money, but also shaped public opinion and redirected board attention.

Since we’ve previously mentioned The Overhead Myth in this blog, it seems worth noting the shift there, too. At last, there is sanctioned acknowledgement that running a business requires fluctuation in overhead. Also significant, to me at least, is that Independent Sector suggests that programs receive 65% of revenue, not the anecdotal 85-90% that many donors and nonprofits themselves believe necessary to show efficiency.

Finally, I’m left wondering how well received the revised version will be.  When the original document debuted, not every nonprofit thought leader supported its premises. The Philanthropy Roundtable, a network of charitable donors in the U.S., did not offer its endorsement at the time, citing three main concerns: 1) a “one-size-fits-all approach to setting standards for a diverse sector,” 2) the implication that foundations “act unethically or practice misgovernance unless their boards include members from diverse backgrounds,” and 3) the potential for some “problematic principles…to be written into law” if widespread consensus is perceived to be behind them.  (Read more in the original article in Philanthropy Magazine, Nov/Dec., 2007).

While I agree that one-size-fits-all does seem ambitious (given the diversity we see even among clients), but good business practice is good business practice and should not elude the nonprofit sector.  As I continue to digest the revised Principles, I’ll be watching the Philanthropy Roundtable for an update to their stance.

 

 

Sonia J. Stamm

Sonia J. Stamm is Governance Consultant at BoardEffect. Since almost our inception, she has shared a best practice perspective on governance with our team and clients, partnering to guide boards toward optimal implementation of our software. As founder and principal of a nonprofit leadership consulting firm, Sonia supports the evolution of mission-based organizations through her work in board development, leadership transition and succession, and organizational effectiveness. A seasoned facilitator, trainer, and consultant, she enjoys guiding boards and organizations through critical junctures in their development.