INFO CENTRAL: Governance

A nonprofit’s board of directors is responsible for defining the organization’s mission and for providing overall leadership and strategic direction to the organization. Each nonprofit board should: 1) actively set policy and ensure that the organization has adequate resources to carry out its mission; 2) provide direct oversight and direction for the executive director and be responsible for evaluating his/her performance; and 3) evaluate its own effectiveness as a governing body, as a group of volunteers, and as representatives of the community in upholding the public interest served by the organization.

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Featured Article:  Governance Background and Introduction     

General 990 Governance Background

The IRS form 990’s Part VI on governance has been described as the “crown jewel” of the new form 990. It asks about the responding organization’s board size, structure, management and policies. In a February, 2008 IRS publication, the service wrote, “the Internal Revenue Service believes that a well-governed charity is more likely to obey the tax laws, safeguard charitable assets, and serve charitable interests than one with poor or lax governance.” As a result, Part VI is all about governance. It requests information about policies not required by the Internal Revenue Code, but related to governance, management and disclosure. Section A seeks specific information about the filing organization’s governing body, its independence and interactions. Section B asks whether an organization has adopted and complies with certain policies, including conflict of interest, whistleblower, and document and retention policies. While is no legal obligation that requires such policies and as a result should not have a legal consequence for the lack of such a policy; IRS requested information suggests “behavior modification.” Section C inquires about how an organization makes governance and other organizational information available to the public.

Board Fiduciary Obligations

Generally, directors owe a fiduciary duty to the organization. A Board Director’s fiduciary responsibilities are characterized by a duty of care, loyalty and obedience. Written organizational governance policies often serve as a mechanism to satisfy these fiduciary duties.

Duty of Care

Board directors have of a duty of care to the organization they serve. Generally this means that a director must make decisions in good faith, with a certain amount of information and attention in the best interest of the organization.

Duty of Obedience

Directors have a duty to obey federal and state laws, as well as, the organization’s governing documents. This duty requires Directors to contemplate an organization’s mission and purpose and make decisions in line with that purpose.

Duty of Loyalty

Directors owe a duty of loyalty to the organization which they serve. A duty of loyalty requires that directors act in a manner that does not cause harm to the organization and requires directors to avoid leveraging their position to obtain improper personal benefit or usurp an organizational opportunity. In fact, the duty of loyalty requires directors to look out for the best interest of the organization, rather than the director’s personal interest, and make decisions objectively.

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Templates and Samples

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Principles and Practices for Nonprofit Excellence

Newly revised in 2005, the Principles and Practices for Nonprofit Excellence are based on the fundamental values of quality, responsibility and accountability. The ten characteristic accountability principles distinguish the nonprofit sector from government and business. The 133 management practices provide specific guidelines for individual organizations to evaluate and improve their management

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