Gahanna CVB


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Gahanna CVB

  1. 1. Welcome to the Age of Corporate Governance Gahanna Convention & Visitors Bureau February 10, 2012
  2. 2. “Directors are like parsley on fish— decorative but useless.”Irving Olds, former board chair of U.S. Steel
  3. 3. “All over the world, people justlike us serve on all sorts of boards. Some work incredibly well. Some leave members shell shocked or numb with frustration.” The Montessori Foundation “Serving on a Nonprofit Board”
  4. 4. The days of “sitting” on anonprofit board are over.
  5. 5. “Many organizational leaders...come to the charitable sector motivated by the mission of the organization and may not always have the requisite governance and financial knowledge.”PANEL ON THENONPROFIT SECTOR
  6. 6. the top 10 thingsYour Nonprofit Board Needs to Know (plus One Bonus Tip)
  7. 7. No. 1 It’s a wholenew ballgame.
  8. 8. “You will be confrontedwith questions every daythat test your morals.Think carefully, and foryour sake, do the rightthing, not the easy thing.” Commencement Speaker St. Anselm College, 2002
  9. 9. “Ex-Tyco ChiefExecutive KozlowskiSentenced to 8 to 25 Years” Headline / / 09.19.2005
  10. 10. Strong Fundamental Values“We must demand of ourselvesand of each other the higheststandards of individual andcorporate integrity. We safeguardcompany assets. We comply withall company policies and laws.”Source: The Tyco Guide to Ethical Conduct
  11. 11.  Regency mahogany bookcase, c. 1810, $105,000 “We safeguard  George I walnut tallcase clock, $113,750company assets.”  Custom queen bed skirt, $4,995  Ascherberg grand piano, c. 1895, $77,000  Chandelier, Painted Iron, c. 1930, $32,500  Pair of Italian armchairs, c. 1780, $64,278  Persian rug, 20 feet by 14 feet, $191,250
  12. 12. “In corporateAmerica, crimepays. Handsomely.Grotesquely, even.”Arianna HuffingtonPigs at the Trough
  13. 13. “We’ve got this ideathat business means anything goes. ” R. Edward Freeman, Director Olsson Center for Applied Ethics
  14. 14. “It can be easy for non-profits to feel that the problems of the private sector don’t relate to them...” –Stephen D. Potts, Fellows Chairman Ethics Resource Center
  15. 15. “...that the ‘good people’ who populate the non-profit world are, by nature, more trustworthy.” –Stephen D. Potts, Fellows Chairman Ethics Resource Center
  16. 16. “This is a dangerous assumption.” Stephen D. Potts, Fellows Chairman Ethics Resource Center
  17. 17. “Anderson woman pleads guilty to Humane Society theft”Headline / The Herald Bulletin / 05.11.2009
  18. 18. “Her attorney...presentedthe court with severalcharacter letters fromacquaintances andco-workers, and saidSullivan provides live-incare for her sick mother.”Justin SchneiderThe Herald Bulletin
  19. 19. “We haven’t had a serious review of the tax-exemptlaws since 1969. The world has changed since then,and so has the charitablecommunity.” –Senator Chuck Grassley, Senate Committee on Finance
  20. 20. The New 990 (version 2.0)
  21. 21. This is yourWAKE UP call
  22. 22. 2. You have a duty of care.
  23. 23. Duty of CareBoard members havean obligation to makeinformed decisionsand to act with carein their actions.
  24. 24. Commonly describedas the “care that anordinarily prudentperson would exercisein a like position andunder similarcircumstances.”
  25. 25. New York’s Board ofRegents replacedeighteen of AdelphiUniversity’s 19trustees for acting“blindly, recklesslyand heedlessly” indetermining thecompensation of theuniversity’s president.
  26. 26. REMINDER The duty of care legally requires every board member to participate in meetings, provide operational and policy oversight, and exercise a reasonable level of care in making decisions on the organization’s behalf.
  27. 27. Where on theagenda does it say I get to speak?
  28. 28. The board chair is theconductor responsiblefor making sure everyperformer contributes.
  29. 29. Board members who regularlymiss meetings are neglecting the duty of care.
  30. 30. Come prepared!
  31. 31. THREE:You have a duty of loyalty.
  32. 32. DUTY OF LOYALTY Directors are obligated to set aside personal concerns and make decisions that are in thebest interest of the organization.
  33. 33. Conflict of >> INTEREST
  34. 34. The Lucy Webb Hayes NationalTraining School for Deaconesses and Missionaries (Sibley Hospital)
  35. 35. BESTInterest
  36. 36. full disclosure
  37. 37. 4) You have a duty of obedience.
  39. 39. “mission drift”
  40. 40. DUTYOFOBEDIENCE Directors must remain faithful to the purpose of the organization, and operate within the stated bounds of its mission.
  42. 42. “The duty of obedience isoften overlooked...preciselybecause it is so basic as to be almost invisible.” Rob Atkinson Professor of Law, Florida State University
  43. 43. a.k.a. duty of compliance
  44. 44.  Articles of incorporationComply with:  By-laws and other governing documents  Local, state, and federal laws  Registration and reporting requirements  IRS regulations
  45. 45. 5. You have a duty to manage accounts.
  46. 46. Directors areresponsible for ensuring the organization’s financial soundness.
  47. 47. “One of the primary duties of the board of directors of a charitable organization is to ensure that all financial matters of the organization are conducted legally, ethically, and in accordance with proper accounting rules.” PANEL ON THE NONPROFIT SECTOR Report to Congress and the Nonprofit Sector on Governance, Transparency, and Accountability
  48. 48. Nonprofit boards need accounting geekswho understand financesthemselves and who can make the numbers meaningful to everyone else.
  49. 49. “Accountants aren’t just boring geeks anymore. We’re hot!”Eva Rosenberg, author of Small Business Taxes Made Easy
  50. 50. You haveone employee.
  52. 52. BEWAREof meddling by self-proclaimed experts
  53. 53. They think nothing of going around the executive director and crossing the sacred line that separates board members from employees.
  54. 54. 3000 vs. 36
  55. 55. D&OINSURANCE
  56. 56. “Most of the lawsuits filed against nonprofit directors and officers involve some form of employment practices liability. Insurers arebecoming more keenly aware of this exposure and some have made subtle policy changes that restrict coverage in these areas.” Alliance of Nonprofits “Key Facts About Insurance and Legal Liability”
  57. 57. “…while acting in an official capacity…”
  58. 58. Volunteer Protection Act of 1997
  59. 59. “A volunteer of a nonprofit organization generally will be relieved of liability forharm if the volunteer was acting within the scope of his responsibilities and if he was properly licensed, certified, or authorized for the activities.” Volunteer Protection Act of 1997 Section 4. Limitation on Liability for Volunteers
  60. 60. Is it really worth the risk?
  61. 61. 7. Althoughthey’re notyour employees,it’s yourresponsibility toensure that staffmembers behaveethically.
  62. 62. “People are basically honest. And they’re even more honest when you watch them.”attributed to Alan “Ace” GreenbergThe Bear Stearns Companies
  63. 63. United States Sentencing Commission “Criminal liability can attach to an organization whenever an employee of the organization commits an act within the apparent scope of his or her employment, even if the employee acted directly contrary to company policy and instructions.”Paula Desio, “An Overview of the Organizational Guidelines”
  64. 64. PROACT U.S. Federal Sentencing GuidelinesIVE Seven guidelines used to determine whether an organization shares responsibility for the misbehavior of its employees; adherence can mitigate penalties and fines.
  65. 65. Establish compliance standardsand procedures for employeesand other agents to follow that are reasonably capable of reducing the prospect of criminal conduct.
  67. 67. “Was that wrong? Should I have not done that? I tell you I gotta plead ignorance on this thing because if anyone had said anything to me at allwhen I first started here that that sort of thing was frowned upon, you know,cause I’ve worked in a lot of offices and I tell you people do that all the time.” George Costanza Seinfeld, Episode 29
  68. 68. • Board Member Agreement• Board Self-Assessment• Code of Ethics• Conflict of Interest• Confidentiality• Electronic Media• Equal Employment Opportunity• Executive Compensation• Financial Audits• Gift Acceptance• Investments• Lobbying and Political Activity• Mission Statement• Record Retention and Document Destruction• Whistleblower Protection• Workplace Environment
  69. 69. “One explanation that’s common inthe field of business ethics, and this may sound shocking, is that they just didn’t recognize the ethical issue for what it really was.” Thomas Dunfee, Wharton professor
  70. 70. Assign specific high-levelindividual(s) the responsibility for overseeing the overall compliance with standards and procedures.
  71. 71. CEOChief Ethics Officer
  72. 72. Exercise “due care” not todelegate discretionary authority to individuals with a known propensity to engage in illegal activities.
  73. 73. “I look forward topursuing my newresponsibilities andcontinuing to make acontribution as part ofRite Aid’s world-classteam.” -Chris Hall Senior VP-Real Estate and Planning former Chief Financial Officer
  74. 74. 57 percent of jobapplicants believe thattelling lies during a jobinterview is acceptable SOURCE: SHL
  75. 75. “Marge, ittakes two to lie. One to lie and one to listen.” – Homer Simpson
  76. 76. Take steps to effectively communicate—to all levels of employees—the rules and expectations, such as holdingmandatory training programs and distributing written materials.
  77. 77. “Ethics programs are associated with higherperceptions that employees are held accountable for ethics violations.” Source: Ethics Resource Center
  78. 78. 78% vs. 39%
  79. 79. Take reasonable steps toachieve compliance, including the use of monitoring andauditing systems designed to detect criminal conduct and methods for employees toreport suspected wrongdoingwithout the fear of retaliation.
  80. 80. “More CompaniesSqueezing Employee Internet Use”Headline / / April 12, 2007
  81. 81. elp-line hhotline:Call our ethics1-800-VIO-LATE
  82. 82. Consistently enforce thestandards through appropriate disciplinary mechanisms,including punishing individuals responsible for failing to detect an offense.
  83. 83. WorldCom created “a negative culture for compliance. It emphasized making the numbers before all else.” – Deborah House, VP and Deputy General Counsel for Corporate Compliance, Fannie Mae
  84. 84. Once an offense has been detected, take allreasonable steps to respond appropriately and prevent further similar offenses.
  85. 85. “Fool me once, shame on you. ”Fool me twice, shame on me.
  86. 86. why bother?
  87. 87. THE softer SIDE OF SEARS
  88. 88. “This mitigating credit underthe guidelines is contingent uponprompt reporting to the authorities and the non-involvement of high level personnel in the actual offense conduct.” Paula Desio, “An Overview of the Organizational Guidelines”
  89. 89. 8. Although they’re not your employees, it’s your responsibility to ensure that staff members are treated fairly.
  90. 90. fairlaborpractices Fair Labor Standards Act of 1938 (FLSA) Stipulates minimum requirements forcompensation issues such as wages,overtime, and equal pay, and specifies those employee classes exempted from its provisions.
  91. 91. “In fiscal year 2008, more than 197,000 employees received a total of $140.2 million in minimum wage and overtime back wages as a result of Fair Labor Standards Act (FLSA) violations.” U.S. Department of Labor 2008 Statistics Fact Sheet
  92. 92. Are your employees “suffering” overtime? Non-exempt employees are prohibited from working more than 40 hours a week unless they are paid time and a half of their hourly rate. Example: An administrative assistant attends a board meeting one night to take minutes and the hours put the assistant over the 40-hour limitation. Did you pay the assistant overtime? Example: A bookkeeper attends your social fundraising event on Saturday evening to help count money. Is it overtime?
  93. 93. “New lawsuit claims back pay for somepart-time employees” Headline / / 04.17.2007
  94. 94. Donning, Doffing, Walking, & Waiting, L.P.A. Serious lawsuits only, please.
  95. 95. FMLA
  96. 96. “Termination of employees seeking FMLA leave continuesto be the primary reason that employees filed a complaint.”U.S. Department of Labor 2008 Statistics Fact Sheet
  97. 97. fundr aising <9. The watchdogs are watching.
  98. 98. NEWexpectations in fundraising
  99. 99. privacy
  100. 100. Ask your donors if you can publiclyrecognize their gifts or if they prefer toremain anonymous.
  101. 101. Organizations should establish policies that govern the acceptance and disposition of charitable GIFTS
  103. 103. “Potential donors seekmore information than ever before when determining whether to respond to a charitable appeal.” – Art Taylor, BBB Wise Giving Alliance
  104. 104. Spend at least 65 percent of totalexpenses on program activities.Spend no more than 35 percent ofrelated contributions on fundraising.Avoid accumulating funds that couldbe used for current program activities.
  105. 105. FLATRATE (Not commissioned.)
  106. 106. 10. SOx is coming.
  107. 107. Sarbanes-Oxley Act of 2002Public Company Accounting Reformand Investor Protection Act
  108. 108. CORPORATEGOVERNANCE Requirement of boards and auditors to oversee, direct, and report the organization’s practices on behalf of its shareholders.
  110. 110. AAudit-related functions should be performed only by independent, financially literate directors.
  111. 111. in·de·pend·ent Adjective. Free from the authority,control, domination, or influence of somebody or something else.
  112. 112. “All nonprofit organizations that conduct outside audits, particularly medium to large organizations, should consider forming an audit committee and should separate the audit committee from the finance committee.” –BoardSource, “The Sarbanes-Oxley Act and Implications for Nonprofit Organizations”
  113. 113. financialEXPERT
  114. 114. I Independent auditorsmust be rotated and may not provide consultingservices unrelated to the organization’s audit.
  115. 115. Changing auditors every five years ensures fresh scrutiny. If that’s not practical, an option isto ask the auditing firm to assign a different reviewing partner every five years.
  116. 116. “Nonprofit organizations would be well served to adopt the Sarbanes-Oxley rule of preventing auditing firms from providing non- auditing services.” BoardSource
  118. 118. M Management’s compensation should be determined based onachievement of objective, predetermined goals.
  119. 119. “Senators critical of salary expenses atBoys & Girls Clubs of America”Headline / The Washington Post / 03.13.2010
  120. 120. Without specific,WARNING measurable, and well- communicated grading criteria, outsiders will assume the worst about how evaluation decisions are determined.
  121. 121. QUESTION: Could you defend it?
  122. 122. DDevelop procedures for handling confidential and anonymous complaints.
  123. 123. “Employees who learned aboutimproper corporate adjustments appear to have feared senior management’s criticism or even the loss of their jobs. It was common for employees to be denigrated in public about their work.” Source: Report of Investigation by the Special Investigative Committee of the Board of Directors of WorldCom
  124. 124. SAFETY FIRST Organizations must focus on identifying and removing problems, not on shooting the messenger.
  125. 125. M Monitor, justify, and carefully administerintentional document destruction.
  126. 126. I said, “Ship the documents to the feds.”She heard, “Rip the documents to shreds.”
  127. 127. LLoans to directors and executive officers are prohibited.
  128. 128. At best, insider loans raise conflict-of-interest questions. At worst, they could qualify asillegal executive compensation.
  129. 129. bonus tip:avoid groupthink!
  130. 130. COHESIONA demonstrated tendency for a group to stay together and remain united inthe pursuit of its goals and objectives.
  131. 131.  More personal job satisfaction  Higher team tolerance forGood Cohesion disruptions results in higher  Less turnover individual effort  Greater adherence to group norms
  132. 132. Cohesion canalso have negativeeffects on groupperformance. Andwhen it’s bad, it’sreally, really bad.
  133. 133. “Because people value their membership in cohesive groups, they are willing toadjust their behavior to group standards.” SUSAN CAROL LOSH, Ph.D. FLORIDA STATE UNIVERSITY
  134. 134. GROUPTHINKoccurs when the pressure to conform within a group interferes with the group’s decision making ability.
  135. 135. A B CExhibit 1 Exhibit 2
  136. 136. Solomon Asch Subjects went along with the clearlyerroneous majority 33 percent of the time 74 percent conformed to the majority at least once 28 percent conformed more than half the time
  137. 137. “The tendency to conformity in our society is so strong that reasonably intelligent and well-meaning young people are willing to call white black.” Solomon Asch 1951
  138. 138. Groupthink stops members from suggesting ideas that might deviate from the collective opinion, causing a deceptive appearance ofgroup consensus when, in fact, only one approach is considered.
  139. 139. the top 10 thingsYour Nonprofit Board Needs to Know (plus One Bonus Tip)
  140. 140. Welcome to the Age of Corporate Governance Gahanna Convention & Visitors Bureau February 10, 2012