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GOVERNANCE IN NONPROFIT ORGANIZATIONS AND THE "FUNDER SYNDROME"

The term "funder syndrome" expresses the tendency of funding members of a nonprofit organization to treat it as a privately owned enterprise. Members who have the funder syndrome justify their attitude by the fact that they have invested their time, money, and effort to start the nonprofit entity, and thus are entitled to special rights and privileges. The funder syndrome can affect any nonprofit organization whose major funders are still serving on the board or in an executive capacity. The funder syndrome can hinder proper governance in a nonprofit organization. This is because the funder may have a case to make regarding all the troubles that he/she has overcome, or all the pains that she/he has endured before the organization reached an actual position of success. While the other board members have to acknowledge the roles and contributions of funders, they should also put more emphasis on the vision and mission of the organization. For example, an organization might adopt a policy that makes it mandatory to screen every decision in a grid that justifies in writing how the decision will further the vision or the mission of the organization. This may seem obvious, but in the heat of the moment organizations do not always think about specific links with the vision when they make strategic decisions. Keeping constant focus on vision and mission can be an effective strategy to neutralize the funder syndrome.

NONPROFIT BOARD POLICIES

Nonprofit board policies are developed to advance the vision and mission of an organization, make systematic decisions, and guide the activities and behaviors of board members, executives, managers, staff, and volunteers. The Internal Revenue Service indicates some key board policies that a nonprofit organization should maintain (Box 3.4).

THE COMMITTEES

In a nonprofit organization that is made of board members, committees are smaller units with special assignments, as determined by the bylaws and the board. The committee helps the board or the organization stay focused on specific goals, projects, or objectives. A nonprofit organization can include standing and ad hoc committees (Box 3.5). Standing committees are statutory, thus they exist as part of the bylaws adopted by an organization. On the other hand, a board can form ad hoc committees to work on special short-term assignments.

GOVERNANCE AND FINANCIAL SUSTAINABILITY

Effective governance is indispensable for an organization to maintain the financial resources necessary to continue to provide services over time. Board members have responsibilities to perform community outreach to ensure that external stakeholders buy into the vision

Item

Source

Minutes of all board and committee meetings

Part VI, Section A, line 8

Copy of completed Form 990

Part VI, Section B, line 11

Conflict-of-interest policy

Part VI, Section B, Line 12

Written whistleblower policy

Part VI, Section B, line 13

Written document retention/destruction policy

Part VI, Section B, line 14

Compensation and benefits policy

Part VI, Section B, line 15

Gift acceptance policy

Partnership and joint venture policy

Part VI, Section B, line 16

Source: Internal Revenue Service (2014).

BOX 3.5 EXAMPLES OF STANDING AND ADHOC COMMITTEES IN NONPROFIT ORGANIZATIONS

Standing Committees

Committee

Description

Executive

Includes the officers of the organization. In some cases, it may also encompass the committee chairs or board members at large. The executive committee acts on behalf of the board between meetings and in case of organizational emergencies that cannot wait for a board meeting. Independent actions of the executive committees are usually reviewed and ratified by the board.

Finance

This committee reviews budget proposals and is responsible for planning, monitoring, and overseeing the organization's use of its financial resources. The finance committee develops financial policies, and recommends them to be approved by the board. This committee also oversees long-term investment, in the absence of an investment committee. In many cases, this committee oversees and reviews the organization's independent audit or financial review. However, some organizations have a separate audit committee.

Membership and board development

This committee is responsible for the general affairs of the board. The specific roles vary from one organization to the other. Overall, this committee develops guidelines for board composition and committees, meets and recommends new board members to the board, and conducts the orientation of new board members.

Fund-raising

The fund-raising committee is responsible for working with managers and the board to develop fund-raising proposals and organize fund-raising events, as well as the submission of grant proposals and the solicitation of major gifts.

Program

The program committee contributes to the development of needs assessment reports, and strategic and implementation plans. This committee helps develop systems for quality service delivery. In the absence of a public or community relations committee, the program committee may be involved in developing relationships with community leaders and other interest groups.

Ad Hoc Committees

Committee

Description

Compensation committee

Determines and reviews the compensation of the CEO and other senior executives to ensure not only fairness, but also competitiveness with other organizations of similar size. Ensures that compensation is tied to the achievement of predetermined performance goals.

Search committee

Created with the mission to recommend guidelines and a search process to hire a new executive. Depending on the organization and the mission, a search committee may select candidates to be recommended to the board.

Special Event

Created to coordinate a particular event, such as an annual dinner.

and mission of a nonprofit organization, and turn such outreach into monetary and nonmonetary contributions.

Board members have the final word in approving the strategic plan and budget of a nonprofit organization. They must work with organizational executives, managers, and staff to ensure that anticipated programs, projects, and plans are cost-effective. Board members may not have the appropriate expertise, but should educate themselves enough to assume their oversight responsibility over planning and budgeting.

Board members should ensure that (a) financial plans are consistent with strategic and implementation plans, (b) financial resources exist to implement the strategic plan, (c) financial risks and risk-management strategies are carefully planned, (d) appropriate revenue-generating activities are included in the plan in order to balance the organizational budget, and (e) the organization plans for sufficient reserves that can continue to provide services in case of financial hardship of loss of a major funder.

Effective governance is a key to good stewardship and organizational accountability. Board members have the ultimate fiduciary responsibility for the financial viability of a nonprofit organization. The board is responsible not only to help generate revenues, but also to protect organizational assets and ensure that appropriate internal control procedures are in place. This requires board members to acquire a basic understanding of financial and accounting language. They should be able to read financial statements and audit reports, which will enable them to notice red flags and distinguish minor issues from other problems that have the potential to lead to a major financial crisis for the organization.

 
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