Good Governance -- Friend or Foe?

What is good governance and how does it relate to the nonprofit world, and specifically, to your organization?  Lets think of your organization as a car, and governance involves all the different parts of the car.  Each part has to work for the car to run efficiently and effectively.  It’s the same concept for a nonprofit organization.   

The beginning point is the mission – the organization’s purpose and goals it hopes to accomplish.  A clearly described mission that the Board of Directors approves may serve the organization well.  Along with a defined mission, the organization is required to file organizing documents with the IRS, such as Articles of Incorporation, to provide an organizational structure as well as fulfill specific tax requirements.  It may also develop bylaws that provide an in-depth management and operational framework, which helps run a well-tuned organization.

Now that we know the organization’s mission and organizing documents are important to good governance, what about the Board of Directors?  You may think of the Board as the engine of the organization.  An actively engaged Board of Directors with a duty of care to look out for the best interests of the organization is crucial.  Each Board has a fundamental responsibility to ensure the organization furthers its charitable mission, safeguards charitable assets, and complies with the applicable tax laws.  Meeting minutes of the Board should be maintained to show transparency as to how decisions are made.  A conflict of interest policy is recommended to ensure a director or officer avoids a conflict that is detrimental to the charity. 

Other policies the Board may consider implementing to establish a well-governed organization involve the following:

·      reviewing financial matters (i.e. operating budgets, Form 990, and end-of-year financial statements);

·      approving an executive compensation policy to ensure the charity does not pay more than what is reasonable; and

·      putting grant-making procedures in place and ensure they are followed so the charity awards grants to organizations furthering a tax-exempt purpose.

These are just a few of the items that I have reviewed as an IRS official to determine good governance and whether the organization meets the requirements for tax-exempt status.  However, some policies and procedures will be more appropriate than others, depending on an organization’s specific situation and operations.

So, is good governance a friend or foe?  I would say it is your friend.  It requires some work to develop a healthy and lasting friendship, and it also requires some work to establish a strong and well-governed organization that furthers its mission while safeguarding its charitable assets.