The Spotlight on Nonprofit Boards

On December 9, 2011, Martin Lipton's post The Spotlight on Boards was published in The Harvard Law School Forum on Corporate Governance and Financial Regulation blog.  Lipton lists 15 expectations of corporate boards and 5 requirements for meeting such expectations.  While the post focused on major public companies, much of the information on "best practices" is equally applicable to nonprofits and well-worth a read.



Among the expections (with tweaks for charitable nonprofits):

  • Establish the appropriate “Tone at the Top” to actively cultivate an organizational culture that gives high priority to ethical standards, professionalism, integrity, mission-compatibililty, and full compliance with legal requirements.
  • Choose the executive, monitor his or her performance and have a succession plan.
  • Work with management to navigate the dramatic changes in economic, social and political conditions.
  • Plan for and deal with crises [see, for example, our Opinion pieces in The Chronicle of Philanthropy on the Sandusky-Second Mile and 'Three Cups of Tea' scandals].
  • Determine executive compensation to achieve the delicate balance of enabling the organization to recruit, retain and incentivize the most talented executives, while avoiding violating the prohibition against excessive compensation (consider using the rebuttable presumption of reasonableness procedures).
  • Interview and nominate director candidates, monitor and evaluate the board’s own performance and seek continuous improvement in board performance.
  • Approve the organization’s annual operating plan (including the budget) and long-term strategy, monitor performance (including comparisons of actual to budgeted figures), and provide advice to management as a strategic partner.
  • Determine the organization’s reasonable risk appetite (financial, safety, reputation, etc.), set appropriate standards for managing risk and monitor the management of those risks.
  • Set high standards for compliance with legal and regulatory requirements, monitor compliance and respond appropriately to “red flags.”
  • Work with the executive to encourage entrepreneurship, appropriate risk-taking, and investment to appropriately further the organization's mission with consideration of both long-term and short-term impact (intergenerational equity).