What’s Governance Got to Do with It? EVERYTHING!

For grantmakers, understanding and navigating through the board leadership practices and dynamics of a nonprofit organization can be challenging, and often raises a lot of important questions. BoardSource has identified, through conversations with foundation staff, that it would be helpful to have a forum for grantmakers to tackle these questions and build a foundation of governance knowledge to help them become more informed and strategic in their grantmaking.  Based on this identified need, BoardSource has developed a new governance education program specifically designed to help grantmakers:

  • Gain insights, tools, and materials to develop an understanding of effective nonprofit board governance practices
  • Examine approaches, assumptions, questions, and practices regarding effective governance
  • Build confidence in engaging grantees in dialogue regarding their governance practices 

Guest Post by Expert, Vernetta L. Walker, JD of BoardSource

Several years ago I was asked to conduct a review of an executive leadership transition that imploded. I think forensic autopsy would have more accurately described the assignment, because what we were dealing with was the sudden death of a nonprofit organization.

The request came from the program officer of a foundation that had invested in the nonprofit’s capacity and programs over a number of years. Thus, the foundation was absolutely confounded when, about a week after taking the reins, the new executive director closed the doors to the organization because it did not have the resources to continue operating for even one more day. I know what you’re thinking, “How does this happen? Surely someone knew the organization was in dire straits.” At least that’s what I thought.

So I began the task of sifting through the paperwork and contacting board and senior staff members for interviews.  I learned that no one had personally run off with the funds, but there were serious red flags that could have been detected. These included the fact that the organization had not paid payroll taxes, but instead was using employee withholdings to meet expenses.  Also, financial reports were misleading, as they did not properly distinguish between “projections” and actual contributed revenue.

The truth is many nonprofits operate on budgets that leave little, if any, wiggle room. They may, or may not, have reserves. If they are heavily dependent on government contracts, they may, or may not, get paid in a timely manner.  A long-term funder might decide to go in a different direction and discontinue funding the organization.  All of these things are the reality of operating in the nonprofit environment, but that’s no excuse for poor oversight.

It could have been different.

Nonprofit governing boards have three fundamental roles: establish strategic direction, ensure resources and provide oversight.  All three are implicated in the above scenario, but none more blatantly than oversight.

Board members are responsible for the financial viability of the organization. They rely upon the executive director to provide appropriate information, but the board itself needs to understand the issues important to financial integrity and solvency and implement safeguards and procedures to protect the organization. They can start by asking:

  • Are our cash-flow projections objective and adequate?
  • Do we have sufficient reserves?
  • Do we regularly compare our financial activity with what we have budgeted?
  • What key financial indicators and we monitoring?
  • Are we receiving accurate, timely financial reports?
  • Do we have an annual external audit?
  • Does the board or audit committee have a private session each year with the auditor?
  • Do we have the proper staff or our financial activities?
  • Do most board members feel they can reasonably understand the financial statements?

And what about that program officer? Fortunately, the program officer and foundation were very interested in the lessons learned, which is easy when you have the benefit of 20/20 hindsight. It also led to a larger conversation about what program officers should look for in the governance of their grantees.

During my tenure with BoardSource, we’ve conducted governance reviews at the request of funders that want peace of mind that they are investing in organizations with effective and engaged leadership. Our work in this area led to the development of “What’s Governance Got to Do with It? A Day of Learning and Sharing for Program Officers.”  We’re excited to shine a spotlight on the importance of governance and the critical role it plays in stewarding financial resources and advancing the mission.  Just as important, though, understanding what good governance looks like can help foundations mitigate risks on the front end and work more effectively with their grantees.

You can join and learn more with BoardSource live at “What's Governance Got to Do with It? - A Day of Learning and Sharing for Program Officers” on November 11, 2015, 8:30 AM Central Time at the Sheraton New Orleans Hotel. Learn more here.

Vernetta L. Walker, JD is the Vice President of Programs and Chief Governance Officer at BoardSource.