Governance Update (Part Two) – WCTEO

Continuing the post of the Governance Update presented by Michael Peregrine and James Schwartz, here is a list of ten trends in governance (for the most part, in their words):

Trend One:  The vitality and feasibility of traditional forms of nonprofit corporate structures and affiliations are evolving.

Trend Two:  As transactional activity in the nonprofit sector increases (particularly in health care), greater focus will be placed on the business judgment of governing boards and the reasonableness of the transaction process.

Trend Three:  Case law continues to support generous standards for director conduct, but this will not offer "bullet proof" protection in matters of significant controversy, e.g.: self dealing, waste of assets, compliance plan oversight, financial impropriety, financial insolvency, inattentiveness, breach of confidentiality, corporate opportunity.

Trend Four:  "Best practices" for nonprofit organization governance will be emerging with unavoidable force and considerable detail, prompting sophisticated organizations to revisit the scope of corporate responsibility-related policies and procedures.

Trend Five:  There will be no respite from close regulatory attention to executive compensation matters, at both the state and federal levels.  Emphasis on the role of the compensation committee will increase.

Trend Six:  Increasingly, organizational legal exposure on nonprofit/charity-type grounds is created when senior management/the governing board fails to address the fundamentals of corporate practice (i.e., "it’s always the little things that cause problems").

Trend Seven:  Consistent with the duty of oversight, boards will increasingly be expected to become more involved in confirming the effectiveness of the organization’s system of legal controls, including but not limited to corporate compliance.  This prompts debate concerning the proper role of the board:  compliance or guidance?

Trend Eight:  Boards will be under increased pressure to address and resolve issues related to director independence and conflicts of interest management, to address legislative/regulatory concerns and to protect the integrity of the decision-making process.

Trend Nine:  Reports on the Sarbanes-Oxley’s demise are greatly exaggerated.  Ongoing public debate regarding possible, limited, reforms will not affect the core of the law.  General counsel will, however, likely be obliged to advise the board and senior leadership on related developments to preserve momentum on corporate responsibility initiatives.

Trend Ten:  Instances of embezzlement, "revenue management," improper accounting entries, expense report abuse, improper management/allocation of restricted gifts and other financial improprieties are approaching epidemic levels in the nonprofit sector.

Some comments about these trends will follow in future posts.