The Role of Boards inTODAY’S WORLD

Abbie J. von Schlegell, CFREPrincipal

Boys & Girls Clubs of AmericaMay 8, 2008

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Transparencythe new management

by-word

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Can we see clearly now?Are close looks clear looks?

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Why is Transparency So Important Now?

1. Sarbanes Oxley2. Government scrutiny 3. Public trust in the non profit

sector

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Transparency

Your organization is transparent when your stakeholders know or can readily learn what they think they need to know about you

Review will happen to us or we can use it to our advantage

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Sarbanes Oxley• 2002 legislation for public corporations• Two aspects apply by law to NP sector

– Whistle blower measures– Audit committee

• Expanded NP version is very probable– From Congress– From NP sector

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What is at stake?• More public regulation• Public trust

– What it means to be a nonprofit– Sector’s reputation with donors and

stakeholders• Yet, increasing reliance on

the Third Sector

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Sector’s Reputation• Increased press coverage of NPO missteps• Rising public mistrust of NPOs

– United Way of DC, Nature Conservancy, major universities, National Red Cross, American University

– NP executive compensation and loans– “Excessive” endowment

• Report from Independent Sector on transparency

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The Enron Effect• Triggered Sarbanes Oxley• Our bad press turned Enron attention to

non-profit sector• Congressional interest• Attorneys’ General interest

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Changing Philanthropic Environment

• Increasing competition for same dollars• Transfer of wealth begun (>$40 trillion)• Changes in political arena• Changing corporate donor base• Mergers, acquisitions, consolidations in

nonprofit arena• Public/private partnerships

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For-Profit Sector Non-profit Sector

CEO is sole boss

Measure

Leadership

Grow Market Capitalization through products and services

Deliver services tokey constituencies

Financial performancebalanced with other measures

CEO reports to non executive chair

Financial Performance

Characteristics for For-Profit vs. Non-profit Governance

Mission

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Characteristics of For-Profitvs. Non-Profit Governance

Board Composition

For-Profit Sector Non-Profit Sector● large● executive committee is

vital but can get out ofcontrol

● nominating committee constantly at work

● operations committee essential

● small● executive committee

relatively limited inscope

● nominating committee relatively inactive

● no operationscommittee

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Characteristics of For-Profit vs.Non-Profit Governance

BoardMembers

For-Profit Sector Non-Profit Sector

● often senior business executives

● predictable roles● predictable hours● long service● highly paid

● diverse profiles, oftenincluding potentialdonors

● diverse roles● antisocial hours● high turnover● expected to donate

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What is Transparency?•For Public Corporations

– Sarbanes Oxley: financial transparency•Accounting, auditing, reporting•Protect stockholders; focus on stock

values

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What is Transparency?•For the Non Profit Sector

– Financial transparency– Governance– Protection of donors; focus on

institutional integrity– Service to the public trust

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NP Transparency “Drivers”

• Donors• Watchdog groups• Congress• Attorneys General• Non profit sector associations• Consultants and “friends”

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Nonprofit Donors

• Donor’s Bill of Rights• Women Donors’ Network• Social Venture Partners• Philanthropy Venture Partners• The Philanthropic Initiative

among many

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Non profit Sector Associations

• If we don’t regulate ourselves. . . . Someone else will

• Let’s be sure we drive the discussion

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U. S. Congress

•July 2003 Senate aides’ interests•Currents of distrust of NP Sector•Fishing expeditions

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Senate Aides’ Ideas!

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Attorneys General

• Enron aftermath• Donor unrest• A weak non profit

counterforce

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Watchdog Groups• Self appointed• Varying criteria• Increasingly

heeded by donors and regulators

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Consultants and “Friends”

•Accounting firms– Don’t “comply” unnecessarily

•Pablo Eisenberg •McKinsey—Bill Bradley Report

– Efficiency and effectiveness

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Corporate vs NP Transparency Discussions

• Corporate– Financial focus for shareholder value– Management and governance in financial context– Whistleblower measure

• Nonprofit– Financial focus for donor rights– Fundamentally governance issues– Focus on non profit sector efficiency and

effectiveness– New 990 forms and procedures

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What’s ahead?• Comply now with Sarbanes Oxley

regs for non profits• Prepare or review your “corporate”

code of ethics• Practice prudence

– Better-than-transparent may not be good enough

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Downsides to Better-than-Transparent

• Measures cost money• Assumption of liability without legal

requirement• Measures can impact board members without

intent• The perfectly clean organization may not be able

to function• The perfectly clean sector may lose some of its

core values

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What can we expect from DC?

• Requirements to adopt audit procedures, conflict of interest, whistleblower, travel expenses

• New laws for donor advised funds, tax shelters, supporting organizations

• New rules for donated property• Gifts-in-kind a real target for review

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Basic Board Responsibilities● Determine mission and

purpose● Select Executive Director;

support and review performance

● Establish appropriate policies and practices

● Ensure effective planning ● Strive for adequate

resources

● Ensure effective resource management

● Determine and monitor programs and services

● Enhance the public image● Assess own performance● Gift support of the

organization● Governance

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What Potential Board Members Want

● Competent staff● A healthy, stable budget● High percentage of involvement from board

members, volunteer and staff● A clear understanding of the mission by board and

staff

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Challenges for Organizations

• BBB standards about donor information• BBB standards about endowment/reserve

size• Watch-dog criteria on expenses like Charity

Navigator’s sliding scales • The watch-dog agencies make fundamental

assumptions about NPO effectiveness

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Challenges for the Non profit Sector

• How do we define effectiveness?– There is very little benchmark data– Effectiveness at what?

• Assumptions that there are “too many NPOs”• A democracy of donors; a multitude of solutions

– Is democratic government efficient?– Does the sector exist for

• expression of perceived public good? • to solve the nation’s problems?

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In Truth we cannot see clearly now

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Thank You

Questions?

Abbie J. von Schlegell, CFREPrincipala von schlegell & co228 Main St, Suite 272Williamstown, MA 01267www.abbievonschlegell.com