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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
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