“Nonprofit Governance in the United States” – Urban Institute (Part One)

Late last month, the Urban Institute, a nonpartisan economic and social policy research organization, released a study conducted by Francie Ostrower – "Nonprofit Governance in the United States:  Findings on Performance and Accountability from the First National Representative Study."  The study, based on a survey of over 5,100 public charities of varied size, type and location, included a special focus on practices related to current policy proposals and debates.  Because participants to the survey were voluntary respondents that self-reported their answers, Ostrower cautioned readers of the upward bias of the percentage reporting positively on their board practices.

The three purposes of the study were:

  1. To draw attention to the links between public policy and nonprofit governance.
  2. To identify factors associated with promoting or impeding boards’ performance of basic stewardship responsibilities related to overseeing and supporting the organization and its mission.
  3. To draw greater attention to board composition and recruitment processes.

Among the many interesting observations in the study:

  • The climate of increased scrutiny on corporate governance and nonprofits highlighted by passage of the Sarbanes-Oxley Act and well-publicized scandals within the nonprofit sector is prompting nonprofits to revisit and reassess policies.
  • Having the CEO/executive director as a voting board member was negatively associated with having an outside audit, a conflict of interest policy, a document retention policy, and a whistleblower policy.
  • The percentage of board members from ethnic and minority groups was positively associated with having  an outside audit, a separate audit committee, a conflict of interest policy, and a whistleblower policy.
  • 21 percent of nonprofits reported buying or renting goods, services, or property from a board member or affiliated company during the previous two years.  Among nonprofits with more than $10 million in annual expenses, the figure climbs to more than 41 percent.
  • Over 70 percent of nonprofits that engaged in financial transactions with their board members received goods or services at market value.  While over 45 percent of nonprofits with annual expenses under $10 million received goods or services at below market rates, the figure was only 24 percent for nonprofits with annual expenses over $40 million.
  • Only half the nonprofits had a written conflict of interest policy, and only 29 percent required board members to disclose their financial interests in entities doing business with the nonprofit.  The percentage of nonprofits observing either of these practices was positively correlated to the size of the organization as measured by annual expenses.
  • Only 2 percent of nonprofits compensated board members.  Boards that compensate were no more likely to be actively engaged in financial oversight, setting policy, planning, monitoring programs, or evaluating the CEO/executive director.

More observations regarding board performance and board composition to follow in tomorrow’s post.

Read the full publication here.