The International Journal
of Not-for-Profit Law

Volume 2, Issue 3, March 2000

Introduction

In the context of civil society development, the decade of the 1990s will be remembered as the decade of unprecedented growth and strengthening of civil society globally. The retreat of the state all over the globe has contributed to that growth, and as governments in every country reduce and redefine their role, new demands have been placed on nonprofit or non-governmental organizations in respect of public goods delivery.

As we approach the end of this decade and century, non-profit organizations face a rapidly changing environment. The characteristics of this environment are growing public awareness of their work, increased public scrutiny of their organizational practices, growing partnership with the for-profit private sector, declining resources to support their work, advances in information technologies, and increasing interest by governments and attendant tendencies towards fine-tuning regulatory mechanisms. Coping with this challenging environment will require greater attention to the governance of respective organizations as a strategy to ensure their survival into the coming millenium.

In United States and in a number of countries around the world, the credibility of the nonprofit sector has been tarnished by the actions of a very small number of organizations. These organizations, through their lack of commitment to address their overall governance, have found themselves betraying the public trust. Consequently, their behavior has cast a cloud of suspicion over the wider sector in many countries, and aroused the scrutinizing tentacles of governments who have become preoccupied with amending existing legislation to make regulatory mechanisms more stringent.

This paper seeks to provide some guidelines for how nonprofit/non-governmental organizations (NGOs) can enhance their governance. Given the differences within the sector, the standards being presented here for governance must be viewed more as guidelines. How these guidelines are applied will depend on an organization’s specific realities, history, needs and resources. It is recognized that many organizations already have in place effective governance practices; they must however constantly ensure adherence to these best practices. For smaller and emerging organizations, these guidelines should serve as standards for their evolution. Adherence to these guidelines, provide an opportunity for them to develop into institutions rather than the project or preserve of the visionary founders.

What do we Mean By Governance of Civil Society Organizations?

When we talk of governance of nonprofit organizations or NGOs we are basically focused on two important elements:

1. Authority or Stewardship
2. Accountability

Authority or Stewardship

This refers to active oversight of organizational governance, and policy-making by the board of directors. It is the duty of the board to oversee the conduct of the organization’s affairs, ensure that a qualified team carries out the day to day activities, manage and account for financial and other resources, and to be unwavering in the fulfillment of the mission.

There are 8 key tasks involved in board stewardship:

I. Steering Toward the Mission and Guiding Strategic Planning

Definition of fundamental goals and strategy is one the basic responsibilities of the board. If this responsibility is not fulfilled, the board will have no foundation to determine the appropriateness of its actions, the performance of management, or the success of the organization. It is the board’s duty to:

• Establish the mission, communicate with members or stakeholders, and periodically review its appropriateness;
• Identify the key elements to success in sustaining this mission and establishing a strategic planning process as how to get there;
• Approve a process for risk management to assist the board in anticipating risk, assessing it, and managing the outcome of risky actions;
• Oversee and monitor the achievement of the mission by setting measurable goals, defined in terms of desired outcomes or impacts on clients, rather than as inputs or activities.

II. Being Transparent, Including Communicating to Members, Stakeholders and the Public and Making Information Available Upon Request

Successful stewardship requires openness, transparency of activities to the public at large, and two-way communication between the organization and its members and constituencies. Meeting transparency and open communication requirements necessitate that a board:

• establish policies for communicating and receiving feedback from stakeholders;
• ensure, as part of a code of ethical conduct, that the complaints and grievance procedure works effectively;
• hold regular meetings that provide an opportunity for discussion;
• provide a collective memory of the organization by ensuring that appropriate minutes and documents are kept; and
• responds appropriately to request for information.

III. Developing Appropriate Structures

The structure of the board and organization should aim to contribute to effective stewardship. The basic elements necessary to meet this goal are:

• A board capable of providing objective oversight
• A mechanism to ensure the succession of the board;
• An audit committee, whose primary responsibility is to report whether the organization is in compliance with the laws, rules, regulations and contracts that govern it. This committee also reviews whether the management, information and control systems are organized and implemented to carry out these rules and regulations, and is responsible for supervising external financial reporting.

It is important to point out that other structures may facilitate good governance, but that is dependent on the specific reality or situation of the respective organization.

IV. Ensuring the Board Understands Its Role and Avoids Conflicts of Interest

The most common complaint about board governance is that board members do not have a shared understanding of the role of the board. In many cases, board members have never been oriented to the demands of their position. Effective stewardship demands a shared understanding and clear expectations of the collective role of the board and of individual board members. It is the responsibility of every board to:

• decide and communicate its philosophy of governance, that is, whether it will govern by making policy and providing strategic direction, but keeping hands off management (“policy governance”), or by setting policy and also undertaking implementation (“administrative governance”);
• develop a code of conduct for board members to help directors understand, and ensure they agree to the obligations which they are undertaking;
• establish and enforce a written conflict of interest policy governing board members, staff or volunteers who have an independent decision making authority over the resources of the organization;
• provide job descriptions for board members that outline general duties and how the board’s work will be evaluated;
• invest in board members with orientation and ongoing information sessions;
• recognize the contribution of individual board members and provide feedback on the board’s performance;
• use the time of the board efficiently.

V. Maintaining Fiscal Responsibility

Ensuring that the finances of the organization are being allocated appropriately is one of the primary legal and moral obligations of any board of directors. The board of directors has ultimate responsibility to ensure that these requirements are met. In the exercise of its fiduciary responsibility, the board should:

• approve a budget that reflects the organization’s priorities and that is based on realistic assumptions;
• monitor and control expenditures, based on appropriate accounting procedures;
• oversee the stewardship of the organization’s assets and liabilities;
• provide oversight of the issuance and record keeping of receipts for charitable contributions;
• approve annual reports, including financial statements.

VI. Ensuring that an Effective Management Team is in Place, and Overseeing its Activities

In terms of management of staff, the board should:

• ensure that the organization complies with employment legislation, workplace safety regulations and reviews its employment arrangements periodically to ensure that they comply with good practice;
• ensure that staff are provided with job descriptions, orientation, management, training, and performance appraisals;
• recruit staff openly, fairly and systematically; and
• review periodically the staff structure and effectiveness of the working relationship between the board and staff

VII. Implementing Assessment and Control Systems

While systems for assessment and control closely resemble those that govern financial responsibility and oversight of management, they differ in the sense that their objective is to provide reasonable assurances that the organization will achieve its mission and objectives reliably, efficiently and in an ethical manner. It is recommended that boards should adopt assessment and control procedures that promote:

• a code of ethical conduct and an effective monitoring procedure
• a framework for internal regulations, including a constitution and bylaws (which are fine-tuned from time to time to ensure relevance to various stages of development)
• a compliance audit as an integral part of the annual evaluation cycle to regularly check that the rules governing the organization are followed and that control systems are functioning and adequate;

VIII. Planning for Succession and Diversity of the Board, as Well as Aassessing Its Performance

Maintaining the sustainability and health of the organization requires that the board develop a plan for its own succession and recruitment of new board members. This is an on-going activity which must not be overlooked. Representation of the constituents should be one of the elements in developing the diversity of the board’s membership.

Effective governance therefore requires each board to assume full responsibility for the stewardship of the organization which includes responsibility for each of the eight tasks outlined above.

Accountability

Essentially, it is a requirement to explain and accept responsibility for carrying out an assigned mandate in light of agreed upon expectations and it is particularly important in situations that involve the public trust. Accountability involves three elements:

1. Taking into consideration the public trust in the exercise of responsibilities;
2. Providing detailed information showing how responsibilities have been carried out and what outcomes have been achieved; and
3. Accepting the responsibility for outcomes, including problems created or not corrected by an organization or its officials and staff.

Accountability becomes complicated because it involves many layers of audiences for the variety of activities and outcomes which nonprofit organizations undertake. These layers of audiences gives a multidimensional nature to accountability of nonprofit organizations thereby contributing to its complexity.

At a minimum, boards of nonprofit organizations/NGOs are accountable for:

• Establishing an appropriate mission and/or policy priorities and ensuring their relevance;
• Sound management of funds received from donors and governments and of expenditures;
• Effective organizational governance (including structures and processes for managing human resources);
• The outcomes, quality and range of their program and services.

In conclusion, it is important to point out that attention to authority and accountability will be among the hallmarks of good governance. If nonprofit organizations fail to address these two issue areas, which have much to do with maintaining the public trust, they will forever remain underdeveloped projects that failed to advance from the founding stage of development towards institution-building. In a general sense, it is likely that they they will be appropriately categorized as private enterprises of the founder or founding group rather than as institutions serving the public good.