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In addition to the primary legal standards of care, loyalty, and obedience, board members have always been expected to: Attend board meetings on a regular basis: Board members who do not attend meetings regularly have only a marginal understanding of the nonprofit s operational, financial, and governance issues These board members make poor representatives of the nonprofit, and in their lack of knowledge can make unwise decisions Understand their governance role: Board members, by the legal standards of care, loyalty, and obedience, are expected to put the welfare of the nonprofit ahead of any personal consideration, and certainly ahead of any personal gain Board members are not there to micromanage the nonprofit, nor are they simply window-dressing for senior management s agenda Read and understand (or ask questions until they obtain clarity) all materials sent in advance of a board meeting: The operative expectation is that board members come to board meetings prepared to ask questions or obtain clarity because they have carefully reviewed all of the materials in advance Review financial documents carefully and provide appropriate oversight: Board members are expected to either understand the financial documents, or seek assistance in learning how to read and interpret financial statements In the area of financial operations, board members need to ask the difficult questions and insist on appropriate financial materials Disclose any real or potential conflicts of interest: Board members, in order to adhere to the standard of loyalty, must disclose any real or potential conflicts of interest to the board The rest of the board needs to know about these real or potential conflicts of interest so steps can be taken to eliminate the impact of these conflicts on board deliberations and decisions Adhere to a Code of Ethics: Board members need to adhere to a Code of Ethics that spells out the nonprofit s values and principles Adherence to a Code of Ethics is another way in which board members put the interest and well-being of the nonprofit ahead of their own New Expectations for Board Oversight and Governance With the passage of SOX, the bar was raised on all organizations, not just publicly traded corporations and not just nonprofits All organizations that conduct business within the United States are subject to greater scrutiny Public trust is an important issue that all organizations public, private, and independent (nonprofit) need to address At issue is the level of competence and accountability within nonprofit boards Some nonprofit boards have been collections of friends, business acquaintances, and even family members Prior public scrutiny and expectations regarding nonprofit
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Legal Standard of Care Are board members furnished with financial statements and other materials well in advance of the board meetings Is an agenda prepared and followed for each board meeting Are minutes kept for each board meeting Do board members come to the meetings prepared to discuss the issues on the agenda Is there a specific decision-making process; ie, specific length of time for discussion followed by a vote If a topic needs to be deferred for a vote at a later date, are there specific steps and/or information that will be gathered so the board can take a vote when the topic is revisited Legal Standard of Loyalty Are board members required to complete a Conflict of Interest letter on an annual basis Does the board have specific protocols to handle conflicts of interest as they occur Are board members fully briefed (usually at an orientation) about their fiduciary obligations Are board members required to sign a Code of Ethics, and are they held accountable for conducting themselves in accordance with the code Legal Standard of Obedience Are board members briefed on the nonprofit s mission, and how that mission is affected by board decisions Are board members briefed on the correlation between their decision-making and their fiduciary obligations as these impact the nonprofit s mission Are board members briefed on the correlation between the quality of their performance and the nonprofit s mission
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boards was low as was noted by IRS Commissioner Mark Everson at the Grassley Hearings Federal agencies, such as the Internal Revenue Service (IRS), simply did not have the resources or the directive to pursue nonprofit compliance In the past, nonprofit board members were expected to provide a rubber stamp of approval for the Executive Director and raise money if necessary Often, the members personal checkbooks were the main source in the nonprofit s fundraising strategy All that has changed in the past decade The number of prominent nonprofits embroiled in financial scandals has increased dramatically With the enactment of SOX in relation to corporate scandal, the public is demanding that the nonprofit world be held to the same level of accountability to protect the billions of voluntary donations that pour into this sector each year New Expectations of Board Accountability Nonprofit boards will now be held accountable for: Properly preparing an annual IRS Form 990 that is submitted on time, is complete, and is accurate
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