EFFECTIVE TRUSTEESHIP: GOVERNING FOR EXCELLENCE Presentation for the East Bay Community Foundation...

EFFECTIVE TRUSTEESHIP:

GOVERNING FOR EXCELLENCE

Presentation for the East Bay Community Foundation

Mark Parnes, Assistant General CounselWilson Sonsini Goodrich & Rosati

January 28, 2009

3585300_1.PPT 2

Today’s Agenda1. Welcome & Introductions

2. Definition of Governance

3. Board Model for Governance & Support

4. Your Fiduciary Responsibilities

5. Governance Frameworks

6. Board Assessment

7. Board & CEO Relations

8. Practitioner Interview

9. Your Questions

3585300_1.PPT 3

Governance

Nonprofit governance is ……. the provision of guidance and direction to a nonprofit, so that it fulfills its vision and reflects its core values, and fulfills its responsibilities to the community, constituents and government.

3585300_1.PPT 4

BOARDROOM DANCING:©2008 COMPASSPOINT NONPROFIT SERVICES

The Board Model for Governance and SupportThe Board acts to govern the organization The board acts to support the organization

Objectives

To represent the community’s interests within the organization by making sure the organization is fulfilling its mission, meeting the needs of its constituencies, and operating legally, effectively, and efficiently.

To represent the organization’s interests in the community by providing necessary individual support to ensure that the organization has sufficient resources to fulfill its mission and is well known/respected.

Process for action

The board acts as a body (with the assistance of committees). Board members act as individuals or through committees.

Mandated or optional function

Governance fulfills a legal responsibility to the community and as such is a mandated function.

The level of support expected from individuals or committees is optional and will vary from organization to organization.

Responsibilities

Affirm mission and purpose. Legal: Ensure compliance with federal, state, and local

regulations and fulfillment of contractual obligations, including payment of payroll taxes and filing of required reports.

Financial: Safeguard assets from misuse, waste, and embezzlement.

E.D: Select the executive director and monitor and evaluate performance; delegate the day-to-day management to the, CEO. If necessary, fire the E.D.

Planning: Participate with staff in determining program and administrative strategies and overall long-term and short-term priorities.

Programs: Approve an annual operating plan, monitor implementation, and make sure there are program evaluations to measure impact.

Efficiency and Impact: Ensure a realistic budget that maximizes use of resources.

Financial Viability: Make sure the organization has an overall fundraising strategy to support the effective delivery of services, and monitor the implementation of the funding plan.

Policies: Approve personnel and other policies. Review periodically to ensure policies are up to date and relevant.

Evaluation: Assess whether the organization is achieving its purpose (effectiveness), at what cost (efficiency), and is meeting the needs of the community.

Board effectiveness: Ensure effective governance through evaluation of the board itself, committees, and board Ensure the board's own continuity.

Personal Commitment:

Fundraising: Participate with staff in raising adequate financial and other resources

Public Relations: Act as ambassadors to the community on behalf of the organization and its clients.

Volunteerism: As needed, volunteer to assist staff, recruit new volunteers.

Professional Expertise:

Advise staff in areas of expertise. Act as a sounding board for executive director and other executive staff.

Credibility:

Lend names and personal reputation to the organization to use in brochures, grant proposals, and other marketing materials.

3585300_1.PPT 5

Your Fiduciary Responsibilities

1. Duty of Care

2. Duty of Loyalty

3. Duty to further Charitable Purpose

4. Special Duties

3585300_1.PPT 6

Duty #1: Ensuring Care

• Be informed & exercise good judgment

• Perform duties in good faith, in a manner you believe to be in the organization’s best interest

• Take appropriate time and effort to consider decisions you are being asked to make

• “Reasonable person” standard

3585300_1.PPT 7

Duty #1: Ensuring Care (con’t)• Review mission

• Inspect all corporate governing documents (Articles, Bylaws, Policies)

• Review financials, compensation & employment arrangements, etc.

• Participate in meetings

• Request assistance

• Exercise independent judgment

• Investigate further

• Follow the money

3585300_1.PPT 8

Duty #2: Ensuring Loyalty

• Act in the best interest of the agency (not for individual gain)

• Avoid “self dealing” transactions (“material financial interest”)

• Deal with conflicts of interest (approve by disinterested majority)

• Safeguard confidential information

3585300_1.PPT 9

Duty #3:Charitable Purpose - Mission

• Duty to Manage– Oversee officers and ensure efficiency of

activities

• Duty to Safeguard– Protect agency’s assets and tax-exempt status by

ensuring that activities comply with nonprofit purpose

• The Law– http://caag.state.ca.us/charities– http://www.irs.gov/charities

3585300_1.PPT 10

Governance Reforms(American Bar Association Committee on Nonprofit Governance)

1. Role of Board

2. Importance of Independence

3. Audit Committee

4. Governance & Nominating Committees

5. Compensation Committee

6. Disclosure & Integrity of Institutional Information

7. Ethics & Business Conduct Codes

8. Executive Compensation

9. Monitor Compliance & Investigate Complaints (Whistleblower)

10.Document Retention

3585300_1.PPT 11

Liability Protection

Directors & Officers Insurance:

• Do you have it?

• Incorporation provides some protection

• Have indemnity provision in Bylaws?

• Insurance and indemnity do not protect against actions taken in bad faith, illegal acts, fraud, self-dealing

3585300_1.PPT 12

Common Liability Issues

1. Employment Matters(Discrimination/Wrongful Termination)

- Update policies & personnel handbook- Employment Practices Liability Insurance

2. Blatant Misconduct

- Remember Duties of Loyalty & Care

3. Financial Mismanagement

- Internal controls, financial oversight

1. Other critical issues

Exercise Due Care - CompensationExercise Due Diligence - InvestmentsFundraising requirements

3585300_1.PPT 13

Investments

• Courts focus on process

• Fiscal Reserves

– Liquidity and safety (money market, certificates of deposit, short-term U.S. Treasury Investment)

– Laddering (staggering the terms)

• Endowment

– Different time horizon

– Professional manager

– Diversification (cash, securities, debt, real estate, other)

• Rule of Review

– Reasonable care and diligence

3585300_1.PPT 14

Endowment Questions

• How much is the organization seeking in income for current program activities?

• What is the organization’s risk tolerance?

• Has the Board established an investment objective?

• How does the Board make investment decisions?

• How did the portfolio perform?

3585300_1.PPT 15

Liability Reduction Recommendations

• Prepare for Board meetings adequately

• Be curious and proactive in your organizational review; develop policies

• Avoid conflicts of interest

• Develop adequate internal controls (custody, record keeping, decision authority)

• Review financial documents & filings

• Other Policies relating to IRS Form 990

- Travel & Expense Reimbursement

- Gift Acceptance

- Investment

- Affiliate Policy

- Conservation Easement

- Grantmaking Procedures

3585300_1.PPT 16

High Impact GoverningAddresses 4 questions:

1. Strategy - Where to head & what to become long-term?

2. What/Now (Operations) - What do we want the organization to be now and over coming year?

3. Accountability/Effectiveness - How is performance programmatically, fiscally & administratively?

4. External Relations - How are we seen and how do we build ties with external partners?

3585300_1.PPT 17

CARVER MODEL

Assumption – Policy clarification is the central

feature of Board leadership

Four Categories of Board Policy 1. Ends to be achieved.

2. Means (defined simply as non-ends) to be avoided.

3. The interface of Board and management.

4. The practice of governance itself.

Policy-making does not constitute all of a Board’s job (e.g., linkage with external environment, assessment of executive performance, fund raising) but is the central role.

John Carver, Boards That Make A Difference

3585300_1.PPT 18

1. Ends To Be Achieved• How will our being in business affect the world.

• Ends are concerned with what human needs are to be satisfied, for whom, and at what cost.

• Ends are about what the organization is for, not about what it does.

A. The intended and actual results in people’s lives for which the organization exists.

B. The intended and actual persons or populations who experience the results.

C. Costs of those results.

Organizational activities are always means.

External outcomes, results and impacts are ends.

3585300_1.PPT 19

2. Means To Be AvoidedOnce you have dealt with where you want to go, you next address how we get there and how we behave in getting there.

Board’s only interest in staff means is that they be effective, prudent and ethical.

• Board concern about effectiveness manifests in the degree to which the staff fulfills the Board’s policies about ends.

• That leaves only one direct board interest in staff means: that staff operations be prudent and ethical.

Example — The chief executive may neither cause nor allow any organizational practice that is imprudent or unethical.

Can also define what is unethical or imprudent in the areas of financial condition, personnel, treatment of clients, compensation, asset protection and budgeting.

3585300_1.PPT 20

3. Interface of Board & Management

Policies about relating to staff include the Board’s approach to delegation and its manner of assessing performance.

CEO is accountable for no less than the entire product and behavior of the organization. Also, for (1) achieving Ends policies and (2) not violating Executive Limitation policies.

Problem areas - Board allow unstated expectations to be part of the evaluation.- Board judges against CEO’s criteria rather than Board’s.

Relevant questions: What did we charge the organization to accomplish?

What did we prohibit the organization from doing?

How did the organization do against only those criteria?

3585300_1.PPT 21

4. The Practice of Governance ItselfWhat is the Board’s job description and how is performance assessed?

Principle – Board responsible for its own development, its own job design, its own discipline and its own performance

→ How can we connect with even more integrity with those on whose behalf we serve?

→ Given new information, new wisdom, or new possibilities, what good for which people at which cost should we strive to achieve in the years ahead?

3585300_1.PPT 22

The Policy Circle

Decisions About the Board’s

Own Job

Decisions About

Organizational Ends

Decisions About Linking

Governance to Management

Decisions about

Management Means

3585300_1.PPT 23

CHAIT’S GOVERNANCE AS LEADERSHIP MODEL

General Principles

1. Nonprofit Managers Have Become Leaders

2. Trustees Are Acting More Like Managers

3. There Are Three Modes of Governance, All Created Equal

4. Three Modes Are Better Than Two or One

Chait/Ryan/Taylor - Reframing the Work of Nonprofit Boards

3585300_1.PPT 24

Type I Fiduciary

(Stewardship of Tangible Assets/Duties of Loyalty & Care)

Type IIStrategic

(Strategic Partnershipwith Management)

Type IIIGenerative

(Leadership Through Meaning)

Governance as Leadership

3585300_1.PPT 25

Type I Governance: Fiduciary

Interested in oversight, financial discipline, mission adherence, and upholding the interests of the organization. The law recognizes these duties as a board member’s duties of loyalty and care.

Typical questions asked while governing:

• What do we hold in trust and for whom?

• What are the fiduciary responsibilities of the board?

• How do we know the organization is fulfilling its mission?

• How do we describe our fiduciary performance to stakeholders?

• What is the evidence that we are trustworthy?

• How are we financially vulnerable?

• Are we in compliance with all local, state and national laws?

BOARDROOM DANCING©2008 COMPASSPOINT NONPROFIT SERVICES

3585300_1.PPT 26

Type II Governance: StrategicFocuses on purpose, performance and organizational impact. Its main activities are strategic thinking and Board takes on “big hairy audacious goals” (BHAGs). The board is concerned with envisioning and shaping an agency’s direction and future.

Typical questions asked while thinking strategically:• Is our business model sustainable? What needs to change?

• Do we want to be a social justice organization? How might that affect community and government support?

• Do we relocate our programs and services to be more accessible to our constituents, or do we re-tool our programs to meet the needs of our neighborhood?

• Where is our field headed? What are the new trends that we will need to consider?

• Are we competitive with our services? What is our competition doing?

3585300_1.PPT 27

Type III Governance: Generative Thinking

The process by which we choose which frameworks to use in our problem solving; how we conceive of ideas and how we ultimately make sense of things. In other words, we use frameworks to shape how we address issues and from those frames we ask entirely different questions.

Key characteristics of a generative board:• A different view of organizations – not linear.

• A different view of leadership – enables organizations to move forward with complex problems that defy the one right answer solution.

• A different mindset – beyond fiduciary and strategy.

• A different role – the board is an added value.

• A different way of thinking – boards that are intellectually playful and inventive not just logical and linear.

• A different notion of work – frames higher-order problems in addition to other duties; asks catalytic questions not just operational.

• A different way to do business – retreat meetings, robust conversations, organizational learning.

3585300_1.PPT 28

Oakdale After-School Program“Helping Kids Learn, Keeping Kids Safe”Fiduciary governance meeting focus:

Topic Discussion leader

Call to Order and Welcome: 10 mins. Board Chair

Review of monthly financial statements and annual budget: 20 mins.

Intended action: approve budget fiscal year 2007

Treasurer

Fundraising Committee Report: Status of Major Donor Campaign: 20 mins.

Intended action: update on goals met

Development Chair

Recruitment Committee Report: Review list of possible board candidates: 20 mins.

Intended action: approve slate of candidates to pursue

Recruitment Chair

Program Review: New Art Program: 20 mins

Discussion – what are the costs of expanded personnel and art supplies and required facilities?

Can we afford it? Can we get additional funding or charge fees? Intended action: Approve new program plan

Executive Director

Check-out and Close: 10 mins Board Chair


3585300_1.PPT 29

Oakdale After-School Program“Helping Kids Learn, Keeping Kids Safe”Strategic governance meeting focus:


Call to Order and Welcome: 10 mins Board Chair

Program Review: Addition of Art Program:

1-1/2 hours

Discussion – what is the competition? How will this impact our other programs? How will we measure the impact or success of the new art program?

Intended action: Form committee to identify/scan local competitors and develop evaluation metrics.

Executive Director

Review of monthly financial statements and annual budget: 10 mins


Treasurer

Fundraising Committee Report: Status of Major Donor Campaign: 10 mins


Development Chair

Recruitment Committee Report: Review list of possible board candidates: 15 mins


Recruitment Chair

Meeting Evaluation: 10 mins Board Chair


3585300_1.PPT 30

Oakdale After-School Program“Helping Kids Learn, Keeping Kids Safe”Generative governance meeting focus:


Call to Order and Welcome: 10 mins Board Chair

Program Review: Addition of Art Program:

1-1/2 hours

Discussion – Is an arts program aligned with our mission? Is this the right programming or are there other programs that would be more aligned to our core values? Do we have the right skills, talent and understanding of arts education to succeed? Intended action: Form task force to interview community leaders, parents, local government and other service providers about this new idea. Research best practices of after-school programs across the state to learn about other innovative practices in youth violence prevention programs.

Executive Director

Review of monthly financial statements and annual budget: 10 mins


Treasurer

Fundraising Committee Report: Status of Major Donor Campaign: 10 mins


Development Chair

Recruitment Committee Report: Review list of possible board candidates: 15 mins


Recruitment Chair

Meeting Evaluation: 10 mins Board Chair


3585300_1.PPT 31

Overall, how well do you think your board does in fulfilling its governance responsibilities?

How does your board spend its time in Board meetings?

a. Policy making

b. Fiduciary issues

c. Strategic issues

d. Generative issues

What’s working well (what systems, processes, structures) are supporting the governance function?

What is getting in the way or acting as a barrier to smooth governance?


Group Exercise

3585300_1.PPT 32

Board Assessment

• Determining the criteria for the assessment is a good mechanism by which the board can develop its values and set standards for itself,

• By conducting a survey of all board members, the board can take a look at itself as a whole, including those who are quiet at meetings, and

• Over time, assessments provide feedback to the board officers and to the executive director on how well the board works together.


The Board must evaluate its own responsibilities and accomplishments. An annual board self-assessment has several important benefits:

3585300_1.PPT 33

Board Evaluation

• Linkage to “ownership”

• Establish governing policies

• Assure organizational performance

• Fundraising

• Legislative Action

3585300_1.PPT 34

Board Self-AssessmentPlease rate your assessment of the Board of Directors performance in each category asNot Satisfied, Somewhat Satisfied, Satisfied, or Very Satisfied.How satisfied are you that the Board as a whole fulfills its governance roles and responsibilities?

1. Mission: The board understands the mission and purpose of the organization.

NS SS S VS

2. Legal: The board ensures compliance with federal, state, and local regulations and fulfillment of contractual obligations, including payment of payroll taxes and filing of required reports.

NS SS S VS

3. Financial: The board safeguards assets from misuse, waste, and embezzlement through financial oversight and making sur3e that effe3ctive internal controls are in place.

NS SS S VS

4. CEO: The board monitors and evaluates the performance of the CEO on a regular basis, and delegates the day-to-day management to the CEO

NS SS S VS

5. Planning: The board participates with staff in determining program and administrative strategies and overall long-term priorities.

NS SS S VS

6. Programs: The board approves an annual operating plan, monitors implementation, and makes sure there are program evaluations to measure impact.

NS SS S VS

7. Efficiency and Impact: The board ensures a realistic budget that maximizes use of resources.

NS SS S VS


3585300_1.PPT 35

Board Self-Assessment (con’t)8. Financial Viability: The board makes sure that organization has an

overall fundraising strategy to support the effective delivery of services, and monitors the implementation of the funding plan.

NS SS S VS

9. Policies: The board approves personnel and other policies. Review periodically to ensure policies are up to date and relevant.

NS SS S VS

10. Evaluation: The board regularly assesses whether the organization is achieving its purpose (effectiveness), at what cost (efficiency), and is meeting the needs of the community.

NS SS S VS

11. Board effectiveness: The board ensures effective governance through evaluation of the board itself, committees, and its leadership, and ensures the board’s own continuity.

NS SS S VS


What recommendations and/or comments do you have regarding any of your ratings above in terms of BOARD GOVERNANCE?How satisfied are you regarding board composition and processes in place that support board effectiveness?

12. Board members clearly understand their board responsibilities, and fulfill them

NS SS S VS

13. The board has a clear policy on the responsibilities of board members in fundraising.

NS SS S VS

14. The board currently contains an appropriate range of expertise and diversity to make it an effective governing body.

NS SS S VS

15. The board regularly assesses its own work. NS SS S VS

16. The board actively recruits, orients and trains new board members, and removes those members who are not fulfilling their agreed upon responsibilities.

NS SS S VS

3585300_1.PPT 36

Board Self-Assessment (con’t)17. The board encourages and supports individuals to treat fellow board

members and staff with trust, respect, and understandingNS SS S VS

18. Board and committee meetings are interesting, well run, and effective. NS SS S VS

19. The board has the necessary effective board leadership – an individual and/or group of individuals who are willing and able to help the board fulfill its governance and support functions.

NS SS S VS

Overall, how well do you think the board is in terms of clarity of roles, board composition, leadership, and encouraging meeting and decision-making processes that ensure that the board’s work gets done?

What recommendations and/or comments do you have regarding any of your ratings above in terms of BOARD PROCESSES AND STRUCTURES?

How satisfied are you regarding the fulfillment of YOUR SUPPORT RESPONSIBILITIES?


20. Fundraising: I participate with staff in raising adequate financial and other resources.

NS SS S VS

21. Public Relations: I act as an ambassador to the community on behalf of the organization and its clients.

NS SS S VS

22. Volunteerism: As needed, I volunteer to assist staff and/or recruit new volunteers.

NS SS S VS

3585300_1.PPT 37

Board Self-Assessment (con’t)23. Advises staff in areas of expertise: I act as a sounding board for the

executive director and other executive staff.NS SS S VS

24. Credibility: I lend my name and personal reputation to the organization to use in brochures, grant proposals, and other marketing materials.

NS SS S VS

25. I understand and fulfill my governance and support responsibilities as a member of the board.

NS SS S VS

26. I am knowledgeable about organization’s mission, programs and services.

NS SS S VS

27. I come prepared to board and committees members and follow through on commitments.

NS SS S VS

Overall, HOW WELL DO YOU THINK YOUR BOARD COLLEAGUES DO in fulfilling their support responsibilities? (fundraising, public relations, volunteerism, advising as needed, advising as needed, adding credibility, understanding roles, knowledgeable about programs and services, and following through on commitments?)

What recommendations and/or comments do you have regarding any of your ratings above in terms of either your or your board colleagues’ fulfillment of support responsibilities?


3585300_1.PPT 38

Sample Board Member “Contract”I, ________, understand that as a member of the board of directors of ______________, I have a legal and ethical responsibility to ensure that the organization does the best work possible in pursuit of its goals. I believe in the purpose and the mission of the organization, and I will act responsibly and prudently as its steward.

1. Interpret the organization’s work and values to the community: talk to people about the organization and the work that it does.

2. Attend at least _ of board meetings, committee meetings, special events.

3. Make a personal financial contribution at a level that is meaningful to me, and ask others to join me in contributing to the organization.

4. Act in the best interests of the organization, and excuse myself from discussions where I have a conflict of interest.

5. Stay informed about the organization’s activities: ask questions and request information; participate in and take responsibility for making decisions on issues, policies, and other board matters.

6. Work with staff and other board members as partners toward achievement of our goals.

7. Attend special board trainings, planning sessions, and other special events.

8. Other:Signed:______________________________________ Date ____________________Member, Board of Directors______________________________________ Date ____________________President, Board of DirectorsTerm of Office for Fulfillment of This Contract: __________________________


As part of my responsibilities as a board member, I will:

3585300_1.PPT 39

Sample Table of Contents for a Board Handbook

1. Welcome letter from Board President & and Executive Director - offer tour, intoduction to staff and formal Board orientation.

2. Corporate and historical documents:• description of programs and constituencies;• annual report; mission statement, strategic and annual plan• bylaws and amendments; articles of incorporation• history of the organization and recent press clippings• brochures and other descriptive materials

3. Rosters:• Board members (occupations and other information)• List of committees and membership• Resume of the executive director• Names, titles and telephone extensions of staff• Organization chart

4. Calendar of meetings for upcoming year and special events


3585300_1.PPT 40

Sample Table of Contents for a Board Handbook

5. Responsibilities• Board member contract and/or job description for board members

• Conflict of interest policy

• Conflict of interest statement (two copies pre-signed by the board president, one copy to be signed by the new board member and returned)

6. Financial information• Current budget

• Current financial statements

• Audit report from previous year

• Copy of insurance policy certificate for D&O insurance

• List of funders and individual contributors

7. Working tools• Membership application forms for membership organization

• Contribution response envelope

• Some letterhead and envelopes (in a plastic sheet holder with holes

punched on the left side, or in a pocket of the binder)

• Case statement and “talking notes” for donor solicitation

• Other promotional material


3585300_1.PPT 41

Board & CEO RelationsGood governance requires that healthy

relationships among staff members and board

members exists. Creating a culture of openness,

respect, partnership, and knowledge sharing are

critical components of organizational success.

3 dimensions to the board-staff relationship:

1. The lines of authority and processes that keep board and staff roles distinct, respectful, and mutually supportive.

2. The special relationship between the board and the executive director/CEO.

3. A shared accountability for ensuring the organization achieves its mission.

7 Leadership Lost: A Study on Executive Director Tenure and Experience, CompassPoint Nonprofit Services (1999)

3585300_1.PPT 42

CEO Compensation

• Compensation Committee

• Establish Results, Recipients and Acceptable Costs

• Monitor Data

• Reasonable Compensation

• Use Appropriate Comparability Data

3585300_1.PPT 43


Type I

Fiduciary

Type II

Strategic

Type IIIGenerative

Board’s role

Steward Strategic Sense maker

Key question

What’s wrong?

What’s the plan?

What’s the key question?

Problems are to be

Spotted Solved Framed

Way of deciding

Reach resolution

Reach consensus

Reach understanding

3585300_1.PPT 44

Board Resources andYour Questions

• Board Source– www.BoardSource.org

• CompassPoint Nonprofit Services– www.Compasspoint.org

• Center for Excellence in Nonprofits– www.cen.org

THANK YOU!

EFFECTIVE TRUSTEESHIP: GOVERNING FOR EXCELLENCE Presentation for the East Bay Community Foundation...

Documents

Transcript of EFFECTIVE TRUSTEESHIP: GOVERNING FOR EXCELLENCE Presentation for the East Bay Community Foundation...