Nonprofit Governance Reform:

Interesting article in the National Law Journal on governance reform of nonprofits (HT: Peoples Republic of). Most of the reforms appear to be well overdue and really little more than common sense, such as: (1) reducing conflicts of interest (many boards have made their presidents nonvoting members, for instance), (2) greater separation of governance from fundraising so that board members are appointed for their expertise and engagement on governance, not merely as a reward for their largesse, (3) increasing transparency to stakeholders through greater disclosure of finances and the like, (4) reducing board size to enable better deliberation and accountability, and (5) eliminating or reducing the power of the executive committee of the board to ensure greater transparency and accountability:

Transparency model

The old model of nonprofit organizations’ being satisfied with minimum legal requirements is giving way to a new paradigm of nonprofits that want to be viewed by outsiders as a model of transparency, Silk said.

Nonprofit board members who are also public company executives have lived through their corporation’s governance overhauls, and they are realizing that the organizations they volunteer for need to make changes, he said.

“There’s a demand from organizations with sophisticated board members,” Silk said.

One of Silk’s clients, the San Francisco Opera, has been moving toward the new model starting with adopting a conflict of interest policy a couple of years ago. In July, the opera amended its bylaws to create a governor’s board that handles business and governance issues such as finance and compliance. A larger board of directors, including some members who are more interested in fund raising than governance, don’t need to attend the governor’s board meetings, Silk said.

The opera has also become more transparent by posting its audited financial statements, its code of ethics and conflict of interest policy on its Web site.

Silk wrote an opinion letter for the opera and they adopted some of his suggested changes.

ASAE & The Center for Association Leadership also recently overhauled its governance structure, with help from Jerry Jacobs, a Washington-based partner who heads Pillsbury Winthrop Shaw Pittman’s nonprofit practice team.

“He clarified for us what was typically best practices,” said society President and Chief Executive 0fficer John Graham. “He [also] did the heavy lifting in terms of the total rewrite of our bylaws.”

The Washington-based center, an advocacy and membership group for other associations, is trimming a 38-member elected board to 15 as members’ terms expire. It also eliminated an executive committee and shifted its duties to the board and altered the bylaws to boost the board’s authority to make future changes.

Under the previous structure, some board members felt like they were a “rubber stamp” for the executive committee, while the new board has a stronger governance structure and is more transparent, Graham said.

“We’re operating in an atmosphere now, and an environment right now, where increased transparency is important,” Graham said. “Because of the type of organization we are, we should be a model of good governance.”

All nonprofits pay far more attention to governance issues since Sarbanes-Oxley, and congressional oversight activity has only highlighted the importance of governance for many organizations, Jacobs said.

“All of this has added up to raise the awareness, of those who sit on the boards of nonprofits, of governance issues,” he said.

Despite these trends, I understand that other nonprofit institutions have been moving in a different direction, toward less board independence, less accountability, less transparency, larger board size, and a more powerful executive committee. Amazingly, these developments sometimes are even justified under the rubric that they constitute “best practices” of board practice.


Michael Schrage calls my attention to an interesting column he penned for the Financial Times a few months back alohng the same lines.

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