On July 26, 2007, Cherie Evans, of Evans & Rosen, and I presented a program on nonprofit corporate governance sponsored by the Taxation Section and the Pro Bono Issues Committee of the Barristers Club of the Bar Association of San Francisco. Cherie led off with a very informative overview of a director’s fiduciary duties, areas of potential liability, mitigating such exposure, and applicable federal tax laws.
The first half of my portion of the program focused on identifying some of the issues that Cherie discussed as they relate to the following case scenarios:
- Founder’s syndrome – where a founder or long-time executive director or chairperson dominates organizational decision-making.
- Social board – where meetings are unproductive and directors are not motivated to engage in true governance.
- Micromanagement – where a board intrudes in the day-to-day management of an organization, undermining the authority and discretion of the executive director.
- Consensus-seeking board – where the board’s culture places too much emphasis on achieving a consensus on all organizational decisions.
- Bonuses to executives without full board review and approval.
- Membership in a coalition – where an organization’s participation may expose it to liability or jeopardize its exempt status even where the wrongful act was committed by another member.
- Complaint from a staff member about the executive director.
The following is a list of general steps a board may find useful in addressing such issues:
- Educate the board. Make use of competent and motivational management or legal consultants. Retain such consultants to address the board at a board meeting about their duties and best practices. Reinforce this education by periodically distributing articles or books to the directors.
- Educate the executive director. Ensure that the E.D. understands his or her role in developing and supporting the board.
- Develop and adopt appropriate policies that are included in every board member’s packet (which should be given at the outset of a director’s service and updated as necessary):
- Conflict of interest.
- Internal controls.
- Document retention/destruction.
- Gift acceptance.
- Calendar and take regular board actions:
- Preparing and adopting the annual budget.
- Reviewing and approving the organization’s annual information return (e.g., Form 990).
- Reviewing the organization’s mission, vision and values (perhaps every 5 years).
- Reviewing the organization’s articles of incorporation (perhaps every 5 years).
- Reviewing the organization’s bylaws (perhaps every 3 years).
- Reviewing the executive director’s performance and total compensation (annually).