Association Executive - January/February 2008 - (Page 8)

Good Governance Practices for to help demonstrate the application of corporate good governance principles to charities and to help ensure that directors understand their responsibilities and promote good governance in their organizations. A charity that adopts these nine recommendations is more likely to enjoy continued success in pursuing its mission. Mission Statement A charity’s mission statement guides its work. The IRS recommends that charities adopt a well-articulated, written mission statement that sets forth its purpose, the group it seeks to benefit, and the activities which it will pursue in order to achieve its goals. 501(c)(3) Organizations By Susan A. Cobb and Megan A. Gajewski Code of Ethics The public’s perception of a charity is guided by its expectation that charities exist for the public good. For a charity to best meet these expectations, the IRS suggests that the Board of Directors set ethical standards that govern the behavior of its personnel and permeate the practices of the organization. These standards should describe behavior that the charity encourages, as well as behavior that the charity discourages. In addition, the IRS recommends that the board adopt effective whistleblower policies. I n his remarks at the City Club of Cleveland on February 24, 2006, Mark W. Everson, former IRS commissioner, stressed the importance of protecting against abuse and manipulation by charities and other tax-exempt organizations, warning that “if Americans lose faith in charities because of abuses, they will stop giving and those in need will suffer.” His remarks suggest the increased importance of charities and other not-for-profits acting in an open manner with both the IRS and the public. They also stress the importance of ensuring that organizations professing to act for the public good meet their responsibilities and act in a way that encourages public faith in their missions and activities. A preliminary staff discussion draft of good governance practices for Section 501(c)(3) organizations also suggests the IRS’s desire to ensure that charities are providing necessary disclosures and acting on behalf of their stated purpose. Although still preliminary, and not approved at any official level, the guidelines are worthy of review nonetheless. They come in the wake of Sarbanes-Oxley, numerous state legislative efforts to improve corporate governance practices, and Congressional and media concern with the practices of some ASSOCIAT IO N EX EC U T IV E JANUARY/FEBRUARY 2008 not-for-profit boards. Moreover, although the guidelines are directed at Section 501(c)(3) organizations, they are applicable in many respects to other tax-exempt organizations as well. The apparent goal of the good governance guidelines is to discourage the climate of secrecy and neglect and the negative consequences that can result from such climates, including the use of an organization’s funds to advance impermissible private interests. Another apparent goal of the guidelines is to encourage charities to hire directors who are “knowledgeable and passionate” about the programs of the organization and who possess expertise in accounting, finance, compensation, and ethics. Interestingly, the IRS believes that an organization’s governing board should neither be too small (as it would not represent the public interest) nor too large (as it may pay less attention to oversight duties). The preliminary guidelines strongly recommend that charities review and adopt practices for nine aspects of their operations, including: 1) mission statement; 2) code of ethics; 3) due diligence; 4) duty of loyalty; 5) transparency; 6) fundraising policy; 7) financial audits; 8) compensation practices; and 9) document retention policy. These recommendations are intended Duty of Loyalty Directors also have a responsibility to act in the not-for-profit’s interest rather than their own or another’s personal interest. Specifically, this responsibility requires that directors adopt and evaluate a policy addressing conflicts of interest that are detrimental to the charity. The IRS recommends that this policy include: requirements that directors and staff act on behalf of the organization without regard to personal interests; written procedures for determining what amounts to a conflict of interest; and specific actions to take when conflicts of interest are identified. The IRS also recommends that not-for-profits implement annual disclosure requirements that list any financial or business interests that directors, staff, or their families have with entities that do business with the charity. 8

Table of Contents Feed for the Digital Edition of Association Executive - January/February 2008

Association Executive - January/February 2008 Contents From the CEO Good Governance Practices for 501(c)(3) Organizations A New Model: Helping Smaller Not-For-Profits with Their Endowment Management Inside NYSAE Book Beat Too Much of a Good Thing? Enhanced Form 990 Disclosures and Their Impact 7 Myths about Financial Planners An Executive's Guide to Responding to Third-Party Subpoenas Relationship Selling: Maximize Your Talk, Time & Tech to Keep Your Connection Strong Save the Dates Index of Advertisers

Association Executive - January/February 2008

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