Welcome to the Age of Corporate Governance Gahanna Convention & Visitors Bureau February 10, 2012
“Directors are like parsley on fish— decorative but useless.”Irving Olds, former board chair of U.S. Steel
“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”
The days of “sitting” on anonprofit board are over.
“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
the top 10 thingsYour Nonprofit Board Needs to Know (plus One Bonus Tip)
“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
“Ex-Tyco ChiefExecutive KozlowskiSentenced to 8 to 25 Years” Headline / Bloomberg.com / 09.19.2005
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
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
“In corporateAmerica, crimepays. Handsomely.Grotesquely, even.”Arianna HuffingtonPigs at the Trough
“We’ve got this ideathat business means anything goes. ” R. Edward Freeman, Director Olsson Center for Applied Ethics
“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
“...that the ‘good people’ who populate the non-profit world are, by nature, more trustworthy.” –Stephen D. Potts, Fellows Chairman Ethics Resource Center
“This is a dangerous assumption.” Stephen D. Potts, Fellows Chairman Ethics Resource Center
“Anderson woman pleads guilty to Humane Society theft”Headline / The Herald Bulletin / 05.11.2009
“Her attorney...presentedthe court with severalcharacter letters fromacquaintances andco-workers, and saidSullivan provides live-incare for her sick mother.”Justin SchneiderThe Herald Bulletin
“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
Duty of CareBoard members havean obligation to makeinformed decisionsand to act with carein their actions.
Commonly describedas the “care that anordinarily prudentperson would exercisein a like position andunder similarcircumstances.”
New York’s Board ofRegents replacedeighteen of AdelphiUniversity’s 19trustees for acting“blindly, recklesslyand heedlessly” indetermining thecompensation of theuniversity’s president.
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.
Where on theagenda does it say I get to speak?
The board chair is theconductor responsiblefor making sure everyperformer contributes.
Board members who regularlymiss meetings are neglecting the duty of care.
Directors areresponsible for ensuring the organization’s financial soundness.
“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
Nonprofit boards need accounting geekswho understand financesthemselves and who can make the numbers meaningful to everyone else.
“Accountants aren’t just boring geeks anymore. We’re hot!”Eva Rosenberg, author of Small Business Taxes Made Easy
“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”
“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
7. Althoughthey’re notyour employees,it’s yourresponsibility toensure that staffmembers behaveethically.
“People are basically honest. And they’re even more honest when you watch them.”attributed to Alan “Ace” GreenbergThe Bear Stearns Companies
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”
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.
Establish compliance standardsand procedures for employeesand other agents to follow that are reasonably capable of reducing the prospect of criminal conduct.
codeofconduct:POLICY COVERING THE ORGANIZATION’SSTANCE ON—AND EACH EMPLOYEE’SRESPONSIBILITY FOR—WORKPLACEISSUES, INCLUDING HARASSMENT,DIVERSITY, CONFLICTS OF INTEREST,VIOLENCE, CONFIDENTIALITY, ANDEQUAL OPPORTUNITY.
“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
• 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
“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
Assign specific high-levelindividual(s) the responsibility for overseeing the overall compliance with standards and procedures.
Exercise “due care” not todelegate discretionary authority to individuals with a known propensity to engage in illegal activities.
“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
57 percent of jobapplicants believe thattelling lies during a jobinterview is acceptable SOURCE: SHL
“Marge, ittakes two to lie. One to lie and one to listen.” – Homer Simpson
Take steps to effectively communicate—to all levels of employees—the rules and expectations, such as holdingmandatory training programs and distributing written materials.
“Ethics programs are associated with higherperceptions that employees are held accountable for ethics violations.” Source: Ethics Resource Center
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.
“More CompaniesSqueezing Employee Internet Use”Headline / AccountingWEB.com / April 12, 2007
“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”
8. Although they’re not your employees, it’s your responsibility to ensure that staff members are treated fairly.
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.
“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
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?
“New lawsuit claims back pay for somepart-time employees” Headline / FederalTimes.com / 04.17.2007
“Potential donors seekmore information than ever before when determining whether to respond to a charitable appeal.” – Art Taylor, BBB Wise Giving Alliance
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.
Sarbanes-Oxley Act of 2002Public Company Accounting Reformand Investor Protection Act
CORPORATEGOVERNANCE Requirement of boards and auditors to oversee, direct, and report the organization’s practices on behalf of its shareholders.
“ WHILE NEARLY ALL OF THE PROVISIONS OF THE ACT APPLY ONLY TO PUBLICLY TRADEDBoardSource CORPORATIONS, THE PASSAGE OF THE BILL SERVED AS A WAKE-UP CALL TO THE ENTIRE NONPROFIT COMMUNITY.”
AAudit-related functions should be performed only by independent, financially literate directors.
in·de·pend·ent Adjective. Free from the authority,control, domination, or influence of somebody or something else.
“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”
DDevelop procedures for handling confidential and anonymous complaints.
“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
SAFETY FIRST Organizations must focus on identifying and removing problems, not on shooting the messenger.
M Monitor, justify, and carefully administerintentional document destruction.
I said, “Ship the documents to the feds.”She heard, “Rip the documents to shreds.”
LLoans to directors and executive officers are prohibited.
At best, insider loans raise conflict-of-interest questions. At worst, they could qualify asillegal executive compensation.