One of the first duties of nonprofit board directors is to quickly get indoctrinated in the matters of governance, risk and compliance (GRC). GRC implies that boards should have strategies in place for managing nonprofit governance, risk management, and compliance with laws and regulations. To effectively fulfill their duties, board directors need information, tools and resources, including the implementation of a board portal system.
The Internal Revenue Service (IRS), the Better Business Bureau, Charity Navigator and other organizations are increasing their pressure on nonprofits to be more transparent and accountable. By nature of their definition, nonprofit board directors bear the ultimate legal responsibility for mastering governance, risk and compliance. One of the intentions of GRC is to align board policies with business objectives and the organization’s mission.
Mastering governance, risk and compliance helps nonprofit boards avoid many of the pitfalls and scandals that leave nonprofits vulnerable to reputational risk and dissolution.
Mastering Governance for Nonprofit Boards
The main responsibilities of nonprofit boards are strategic planning and oversight. Boards are responsible to ensure that their organization operates in a fair, ethical and prosperous manner. One of the many ways that nonprofit boards carry out their duties is to codify them by developing policies.
Typical GRC policies include a code of ethics, a conflict of interest policy and a whistleblower policy.
Conflicts of interest are an easy area for board directors to overlook. The reason that conflicts of interest are so easy to overlook is because they’re quite common. It’s crucial that all board directors be aware of potential conflicts of interest and be willing to face them directly and responsibly if they should arise. A formal conflict of interest policy spells out what constitutes a conflict of interest and how the board should handle one when it happens.
A conflict of interest pertains to any transaction or agreement that might benefit the private interest of a board director, officer, manager or board member. When conflicts of interest are looming, boards can take responsible action by disclosing them and documenting how they handled them. It’s never a good idea to avoid dealing with a conflict of interest. However, if it’s possible to prevent a conflict of interest from becoming a reality, that’s generally the best course of action.
Good nonprofit governance also entails strong financial and investment oversight. In recent decades, the corporate world has been rocked by investor fraud scandals and volatile economic times. These issues have had a strong, but indirect, impact on nonprofit organizations.
The role of nonprofit board directors requires them to oversee investment and financial matters without getting directly involved in managing them. Nonprofit board oversight over finances and investments usually originates with a finance or investment committee. Investment committees are usually responsible for developing an initial investment policy that clearly states the nonprofit’s investment objectives, its expectations for performance and any other extenuating provisions. A board of directors provides many sets of eyes on financial investments and prosperity.
Another crucial board policy is the code of ethics, which should get its roots from the values, vision and mission statement. Adopting a formal code of ethics is an important board activity because it sets out clear guidelines for the staff, board directors, volunteers and stakeholders on how they need to make ethical choices.
Mastering Risk Management for Nonprofit Boards
Board directors bear the sole responsibility for mastering risk management. While boards of directors are accountable for mastering risk management, the task is essentially everyone’s responsibility.
In 2007, the Urban Institute produced a study that showed that only 52% of nonprofit organizations stated that they felt their boards were actively engaged in developing policies and overseeing finances for their organization.
Best practices for mastering risk management is for boards to proactively identify risks and find ways to alleviate or mitigate them. One of the many ways that boards accomplish this is by transferring certain risks to insurance companies. Nonprofit boards that fail to manage risks proactively may jeopardize their tax-exempt status.
Mastering Compliance Activities for Nonprofit Boards
Nonprofit organizations don’t have to pay taxes, but that doesn’t mean they can act totally of their own free will. Compliance is a governance term that refers to the fact that nonprofit organizations are legally bound to comply with all applicable laws and regulations. The law requires board directors to know what the laws and regulations are and to be proactive about ensuring that the board is abiding by them.
Compliance also relates to how well boards work toward fulfilling their stated missions. Goals and objectives should always align with the organization’s mission. Mastering compliance means that boards are accountable to stakeholders for producing measurable outcomes. Transparency and accountability in outcomes demonstrate to stakeholders that the organization is sustainable over the long term.
In fact, Form 990, which is required by the IRS, specifically asks nonprofit boards if they have a conflict of interest policy and how they manage it.
Telling the many positive stories about how a nonprofit helps members of the community is a good way of engaging with stakeholders about how the organization is making a difference. Storytelling is a good way of demonstrating a nonprofit’s impact and data helps to affirm that the nonprofit is truly making a difference.
Another activity that nonprofit boards can participate in to demonstrate compliance is to conduct an annual board assessment. This activity helps board directors learn how to improve themselves and stands as a benchmark against similar types of organizations.
Having poor standards for nonprofit governance, risk and compliance can easily devastate a nonprofit organization. The result may involve reputational risk, lack of trust or worse.
A board portal by BoardEffect is a nonprofit’s best defense for upholding good nonprofit governance. BoardEffect developed its portal as a secure online space where boards can work on developing policies for ethics, conflicts of interest and whistleblowers. A board portal provides a secure platform where directors can work on their goals and objectives and store an unlimited number of documents securely in the cloud.
In addition to storing documents, board portals help boards manage their agendas and minutes, which will also prove the board’s diligence on sound decision-making.
Nonprofit boards have a lot at stake, personally and professionally. A board portal system will help board directors to do more than follow nonprofit governance, risk and compliance principles. With BoardEffect, they’ll have the time and resources to master them.