On October 18, 2007, in a significant corporate governance development, the influential Panel on the Nonprofit Sector released the publication Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations (Principles). In the Principles document, the Panel presents 33 concepts of “sound practice” recommended for consideration by every nonprofit, charitable organization as a guide for strengthening its effectiveness and accountability.
Of the 33 principles, six describe actions that all charitable organizations must take pursuant to applicable law. The remaining 27 principles describe actions that such organizations should strongly consider following, based upon their organizational and operational structure and charitable mission. In particular, the 33 principles are organized under four main categories:
- Legal Compliance and Public Disclosure: responsibilities and practices intended to assist charitable organizations with legal compliance and in effecting transparency with the public
- Effective Governance: policies and procedures to be adopted by boards in order to support oversight obligations and enhance efficient governance
- Strong Financial Oversight: policies and procedures designed to support the prudent oversight of charitable assets
- Responsible Fundraising: policies and procedures recommended as a means by which nonprofit organizations may develop donor support and confidence in their charitable solicitation activities
In so doing, the Principles suggest consideration of a governance framework for charitable organizations that goes beyond compliance with basic Sarbanes-Oxley concepts. This is particularly the case with respect to recommendations relating to board structure, independence, financial oversight, transparency and oversight of charitable solicitation activities.
It should be noted that the Principles are being introduced in an environment of increasing legislative and regulatory focus on the governance practices of charitable, nonprofit organizations. A significant example of this is the new commitment of the Internal Revenue Service to make nonprofit governance a “pillar” of its compliance activity for the tax-exempt nonprofit sector.
The Panel on the Nonprofit Sector recommends that charitable organizations examine the 33 separate principles and consider how best they may be applied to their own operations and governance processes. This is a process that may efficiently be conducted within the confines of a board committee (e.g., the governance committee), which could conduct the necessary analysis and report its related recommendations to the full board.
The Panel on the Nonprofit Sector is an independent activity created by leading charities and foundations to help assure a continuing role for the nonprofit community in American society. The Panel was convened by The Independent Sector in 2004, at the encouragement of the U.S. Senate Finance Committee. It is comprised of 24 nonprofit and philanthropic leaders, whose organizations reflect substantial diversity in size, scope and charitable purpose. Prior to the release of the Principles, the Panel published two separate reports (in 2005 and 2006) to Congress and the nonprofit sector, “Strengthening Transparency, Governance and Accountability of Charitable Organizations” (“Final” and “Supplemental” reports).
The prominence of the Panel’s individual membership, the breadth and depth of its work product, and the support it has received from Senate leadership combine to suggest that the Principles be regarded as a significant contribution to nonprofit corporate governance discourse. Indeed, for these and other reasons, it is conceivable that over time, the Principles may evolve into the state of de facto governance best practices for the nonprofit sector. Accordingly, the Principles are worthy of consideration by all nonprofit, charitable organizations, regardless of industry group, financial size or organizational sophistication.
The Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations may be accessed directly on the website of the Panel on the Nonprofit Sector.