The document provides an overview of corporate governance responsibilities for nonprofit boards. It discusses the fiduciary duties of care, loyalty, obedience, and managing accounts that boards must fulfill. It also notes that while nonprofits are not subject to Sarbanes-Oxley, the law served as a warning for all organizations to strengthen oversight of finances, ethics, and accountability. Overall, the document outlines best practices and increasing expectations for nonprofit boards to professionally govern organizations and protect their assets and missions.

1. Welcome to the Age of Corporate Governance
Gahanna Convention & Visitors Bureau
February 10, 2012

2. “Directors are like
parsley on fish—
decorative but
useless.”
Irving Olds, former board chair of U.S. Steel

3. “All over the world, people just
like 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. The days of “sitting” on a
nonprofit board are over.

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 THE
NONPROFIT SECTOR

6. the top
10 things
Your Nonprofit Board
Needs to Know
(plus One Bonus Tip)

7. No. 1
It’s a whole
new ballgame.

8. “You will be confronted
with questions every day
that test your morals.
Think carefully, and for
your sake, do the right
thing, not the easy thing.”
Commencement Speaker
St. Anselm College, 2002

9. “Ex-Tyco Chief
Executive Kozlowski
Sentenced to 8 to 25
Years”
Headline / Bloomberg.com / 09.19.2005

10. Strong Fundamental Values
“We must demand of ourselves
and of each other the highest
standards of individual and
corporate integrity. We safeguard
company assets. We comply with
all company policies and laws.”
Source: The Tyco Guide to Ethical Conduct

11.  Regency mahogany
bookcase, c. 1810, $105,000
“We safeguard  George I walnut tallcase
clock, $113,750
company 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. “In corporate
America, crime
pays. Handsomely.
Grotesquely, even.”
Arianna Huffington
Pigs at the Trough

13. “We’ve got this idea
that business means
anything goes. ”
R. Edward Freeman, Director
Olsson Center for Applied Ethics

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. “...that the ‘good
people’ who populate
the non-profit world
are, by nature, more
trustworthy.”
–Stephen D. Potts, Fellows Chairman
Ethics Resource Center

16. “This is a
dangerous
assumption.”
Stephen D. Potts, Fellows Chairman
Ethics Resource Center

17. “Anderson
woman pleads
guilty to Humane
Society theft”
Headline / The Herald Bulletin / 05.11.2009

18. “Her attorney...presented
the court with several
character letters from
acquaintances and
co-workers, and said
Sullivan provides live-in
care for her sick mother.”
Justin Schneider
The Herald Bulletin

19. “We haven’t had a serious
review of the tax-exempt
laws since 1969. The world
has changed since then,
and so has the charitable
community.” –Senator Chuck Grassley,
Senate Committee on Finance

20. The New 990
(version 2.0)

21. This is your
WAKE UP
call

22. 2. You have a duty of care.

23. Duty of Care
Board members have
an obligation to make
informed decisions
and to act with care
in their actions.

24. Commonly described
as the “care that an
ordinarily prudent
person would exercise
in a like position and
under similar
circumstances.”

25. New York’s Board of
Regents replaced
eighteen of Adelphi
University’s 19
trustees for acting
“blindly, recklessly
and heedlessly” in
determining the
compensation of the
university’s president.

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. Where on the
agenda does it
say I get to
speak?

28. The board chair is the
conductor responsible
for making sure every
performer contributes.

29. Board members who regularly
miss meetings are neglecting
the duty of care.

30. Come prepared!

31. THREE:
You have a duty
of loyalty.

32. DUTY OF LOYALTY
Directors are obligated to set
aside personal concerns and
make decisions that are in the
best interest of the organization.

33. Conflict of
>> INTEREST

34. The Lucy Webb Hayes National
Training School for Deaconesses
and Missionaries
(Sibley Hospital)

35. BEST
Interest

36. full disclosure

37. 4) You have a duty of obedience.

38. MEETH
MANHATTAN EYE, EAR & THROAT HOSPITAL

39. “mission drift”

40. DUTYOFOBEDIENCE
Directors must remain
faithful to the purpose
of the organization, and
operate within the stated
bounds of its mission.

41. DEADHANDCONTROL

42. “The duty of obedience is
often overlooked...precisely
because it is so basic as to
be almost invisible.”
Rob Atkinson
Professor of Law, Florida State University

43. a.k.a. duty of compliance

44.  Articles of
incorporation
Comply with:
 By-laws and other
governing documents
 Local, state, and
federal laws
 Registration and
reporting requirements
 IRS regulations

45. 5. You have a duty to
manage accounts.

46. Directors are
responsible for
ensuring the
organization’s
financial
soundness.

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. Nonprofit boards
need accounting geeks
who understand finances
themselves and who can
make the numbers
meaningful to
everyone else.

49. “Accountants aren’t
just boring geeks
anymore. We’re hot!”
Eva Rosenberg, author of Small Business Taxes Made Easy

50. You have
one employee.

51. only one
THE EXECUTIVE DIRECTOR IS THE SOLE
EMPLOYEE OF THE BOARD OF DIRECTORS

52. BEWARE
of meddling by self-proclaimed experts

53. They think nothing of going
around the executive
director and crossing the
sacred line that separates
board members from
employees.

54. 3000 vs. 36

55. D&O
INSURANCE

56. “Most of the lawsuits filed against nonprofit
directors and officers involve some form of
employment practices liability. Insurers are
becoming 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. “…while acting in an official capacity…”

58. Volunteer Protection Act of 1997

59. “A volunteer of a nonprofit organization
generally will be relieved of liability for
harm 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. Is it really worth the risk?

61. 7. Although
they’re not
your employees,
it’s your
responsibility to
ensure that staff
members behave
ethically.

62. “People are
basically honest.
And they’re even
more honest when
you watch them.”
attributed to Alan “Ace” Greenberg
The Bear Stearns Companies

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. PRO
ACT U.S. Federal
Sentencing Guidelines
IVE Seven guidelines used
to determine whether
an organization shares
responsibility for the
misbehavior of its
employees; adherence
can mitigate penalties
and fines.

65. Establish compliance standards
and procedures for employees
and other agents to follow that
are reasonably capable of
reducing the prospect of
criminal conduct.

66. codeofconduct:
POLICY COVERING THE ORGANIZATION’S
STANCE ON—AND EACH EMPLOYEE’S
RESPONSIBILITY FOR—WORKPLACE
ISSUES, INCLUDING HARASSMENT,
DIVERSITY, CONFLICTS OF INTEREST,
VIOLENCE, CONFIDENTIALITY, AND
EQUAL OPPORTUNITY.

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 all
when 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. • 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. “One explanation that’s common in
the 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. Assign specific high-level
individual(s) the responsibility
for overseeing the overall
compliance with standards
and procedures.

71. CEO
Chief Ethics Officer

72. Exercise “due care” not to
delegate discretionary authority
to individuals with a known
propensity to engage in
illegal activities.

73. “I look forward to
pursuing my new
responsibilities and
continuing to make a
contribution as part of
Rite Aid’s world-class
team.”
-Chris Hall
Senior VP-Real Estate and Planning
former Chief Financial Officer

74. 57 percent of job
applicants believe that
telling lies during a job
interview is acceptable
SOURCE: SHL

75. “Marge, it
takes two to lie.
One to lie and
one to listen.”
– Homer Simpson

76. Take steps to effectively
communicate—to all levels
of employees—the rules and
expectations, such as holding
mandatory training programs and
distributing written materials.

77. “Ethics programs are
associated with higher
perceptions that employees
are held accountable for
ethics violations.”
Source: Ethics Resource Center

78. 78% vs. 39%

79. Take reasonable steps to
achieve compliance, including
the use of monitoring and
auditing systems designed to
detect criminal conduct and
methods for employees to
report suspected wrongdoing
without the fear of retaliation.

80. “More Companies
Squeezing Employee
Internet Use”
Headline / AccountingWEB.com / April 12, 2007

81. elp-line
hhotline:
Call our ethics
1-800-VIO-LATE

82. Consistently enforce the
standards through appropriate
disciplinary mechanisms,
including punishing individuals
responsible for failing to
detect an offense.

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. Once an offense has
been detected, take all
reasonable steps to respond
appropriately and prevent
further similar offenses.

85. “
Fool me once, shame on you.
”
Fool me twice, shame on me.

86. why bother?

87. THE softer SIDE OF SEARS

88. “This mitigating credit under
the guidelines is contingent upon
prompt 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. 8. Although they’re not your employees,
it’s your responsibility to ensure that
staff members are treated fairly.

90. fairlaborpractices
Fair Labor Standards Act of
1938 (FLSA)
Stipulates minimum requirements for
compensation issues such as wages,
overtime, and equal pay, and specifies
those employee classes exempted
from its provisions.

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. 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. “New lawsuit claims
back pay for some
part-time employees”
Headline / FederalTimes.com / 04.17.2007

94. Donning, Doffing, Walking, & Waiting, L.P.A.
Serious lawsuits only, please.

95. FMLA

96. “Termination of
employees seeking
FMLA leave continues
to be the primary reason
that employees filed a
complaint.”
U.S. Department of Labor
2008 Statistics Fact Sheet

97. fundr aising
<
9. The watchdogs are watching.

98. NEW
expectations
in fundraising

99. privacy

100. Ask your donors
if you can publicly
recognize their gifts
or if they prefer to
remain anonymous.

101. Organizations should establish policies
that govern the acceptance and
disposition of charitable
GIFTS

102. RESTRICTED vs.
UNRESTRICTED

103. “Potential donors seek
more information than ever
before when determining
whether to respond to a
charitable appeal.”
– Art Taylor, BBB Wise Giving Alliance

104. Spend at least 65 percent of total
expenses on program activities.
Spend no more than 35 percent of
related contributions on fundraising.
Avoid accumulating funds that could
be used for current program activities.

105. FLATRATE
(Not commissioned.)

106. 10. SOx is coming.

107. Sarbanes-Oxley Act of 2002
Public Company Accounting Reform
and Investor Protection Act

108. CORPORATEGOVERNANCE
Requirement of boards and
auditors to oversee, direct, and
report the organization’s practices
on behalf of its shareholders.

109. “
WHILE NEARLY ALL OF
THE PROVISIONS OF THE
ACT APPLY ONLY TO
PUBLICLY TRADED
BoardSource CORPORATIONS, THE
PASSAGE OF THE BILL
SERVED AS A WAKE-UP
CALL TO THE ENTIRE
NONPROFIT COMMUNITY.”

110. A
Audit-related functions
should be performed
only by independent,
financially literate
directors.

111. in·de·pend·ent
Adjective. Free from the authority,
control, domination, or influence of
somebody or something else.

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. financial
EXPERT

114. I
Independent auditors
must be rotated and may
not provide consulting
services unrelated to the
organization’s audit.

115. Changing auditors every five
years ensures fresh scrutiny. If
that’s not practical, an option is
to ask the auditing firm to assign
a different reviewing partner
every five years.

116. “Nonprofit organizations
would be well served to
adopt the Sarbanes-Oxley
rule of preventing auditing
firms from providing non-
auditing services.”
BoardSource

117. exceptions:
AUDITING FIRMS OFTEN PROVIDE
TAX SERVICES AND PREPARE
FORM 990 FOR THEIR NONPROFIT
CLIENTS. SUCH ARRANGEMENTS
MAY ACTUALLY REDUCE A
NONPROFIT’S EXPENSES.

118. M
Management’s
compensation should
be determined based on
achievement of objective,
predetermined goals.

119. “Senators critical of
salary expenses at
Boys & Girls Clubs
of America”
Headline / The Washington Post / 03.13.2010

120. Without specific,
WARNING
measurable, and well-
communicated grading
criteria, outsiders will
assume the worst about
how evaluation decisions
are determined.

121. QUESTION:
Could you defend it?

122. D
Develop procedures for
handling confidential
and anonymous
complaints.

123. “Employees who learned about
improper 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. SAFETY FIRST
Organizations
must focus on
identifying and
removing problems,
not on shooting
the messenger.

125. M Monitor, justify, and
carefully administer
intentional document
destruction.

126. I said, “Ship the documents to the feds.”
She heard, “Rip the documents to shreds.”

127. L
Loans to directors and
executive officers are
prohibited.

128. At best, insider loans raise
conflict-of-interest questions.
At worst, they could qualify as
illegal executive compensation.

129. bonus tip:
avoid groupthink!

130. COHESION
A demonstrated tendency for a group
to stay together and remain united in
the pursuit of its goals and objectives.

131.  More personal job satisfaction
 Higher team tolerance for
Good Cohesion disruptions
results in higher  Less turnover
individual effort
 Greater adherence to group
norms

132. Cohesion can
also have negative
effects on group
performance. And
when it’s bad, it’s
really, really bad.

133. “Because people value their membership
in cohesive groups, they are willing to
adjust their behavior to group standards.”
SUSAN CAROL LOSH, Ph.D.
FLORIDA STATE UNIVERSITY

134. GROUPTHINK
occurs when the pressure to
conform within a group
interferes with the group’s
decision making ability.

135. A B C
Exhibit 1 Exhibit 2

136. Solomon Asch
Subjects went along with the clearly
erroneous majority 33 percent of the time
74 percent conformed to the
majority at least once
28 percent conformed more
than half the time

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. Groupthink stops members
from suggesting ideas that
might deviate from the
collective opinion, causing
a deceptive appearance of
group consensus
when, in fact, only one
approach is considered.

139. the top
10 things
Your Nonprofit Board
Needs to Know
(plus One Bonus Tip)

140. Welcome to the Age of Corporate Governance
Gahanna Convention & Visitors Bureau
February 10, 2012