Governance & Leadership Toolkit

Transcription

1 Governance & Leadership Toolkit Part 1 of 3 Online resources to support Principles & Practices for Nonprofit Excellence in Colorado second edition

2 TABLE OF CONTENTS Introduction... 2 Principles... 5 Board Roles... 8 Board Responsibilities: Oversight & Evaluation... 9 Board Responsibilities: Fundraising & Development Board Responsibilities: Independence Board Procedures Board Composition Conclusion Samples And Resources Organizational Assessment: Governance & Leadership Further Resources FAQs Index FAQ: How Many Members Should We Have? FAQ: Good Board Practices Prevent Lawsuits FAQ: Board Handbook and Board Orientation Checklist FAQ: Board Nomination Process FAQ: Committee Do s and Don ts FAQ: Nonprofit Champions: Your Board Members Play a Critical Role in the Fundraising Effort Samples Index SAMPLE: Board Composition Analysis SAMPLE: The David and Lucile Packard Foundation Commitment to Inclusiveness and Diversity SAMPLE: Board Assessment SAMPLE: Whistleblower Policy SAMPLE: Conflict of Interest Policy COLORADO NONPROFIT ASSOCIATION -1- P&P GOVERNANCE TOOLKIT

3 INTRODUCTION PRINCIPLES AND PRACTICES With help and guidance from many leaders of Colorado s nonprofit, government, and private sectors, the Colorado Nonprofit Association has developed Principles and Practices for Nonprofit Excellence in Colorado (P&P) to assist Colorado s charitable organizations in building their capacity while enabling them to demonstrate their accountability and transparency. P&P is designed to promote excellence in management practices, ethical conduct, legal compliance, and public accountability for Colorado s nonprofit organizations as they perform their crucial community services. Some practices reflect legal requirements and/or steps that all nonprofits should take, while others are idealistic in nature. Although many of the principles and practices detailed herein will be helpful to all nonprofits, they are specifically written for Colorado nonprofit corporations that are tax-exempt under 501(c)(3) of the Internal Revenue Code and that are public charities (not private foundations). Many of the more stringent requirements placed upon private foundations are not addressed here. EDUCATIONAL RESOURCE P&P recognizes that good organizational practices are primarily implemented through education and self-regulation. Thus, this toolkit and all P&P related resources are intended to serve as an educational resource to improve the efficiency, transparency, and accountability of Colorado charitable organizations. FLEXIBILITY Colorado is enriched by the great diversity of its many charitable nonprofit organizations and it is recognized that the implementation of these principles and practices will take different forms and occur at different levels given the nature, resources, and life cycle of each nonprofit organization. P&P is designed to be flexible enough to allow for differences between large and small organizations. It is important to note that some organizations will have acceptable reasons to deviate from some of the specified practices. Such exceptions need not imply a lack of transparency and accountability, but may warrant conversation among the organization s leadership. Many nonprofit organizations already adhere to strict best practices programs, and there are numerous programs in specific nonprofit subsectors. For that reason, P&P should be considered as another tool to increase transparency and accountability, to be utilized alongside other programs that may already exist for specific types of nonprofits. BUILDING A PLAN FOR IMPLEMENTATION While Colorado has a diverse community of charitable organizations, it is also important to note the great diversity of best practices in the nonprofit sector and to acknowledge that no one set will fit all organizations. Each nonprofit organization should conduct a careful organizational assessment (27 31), including evaluating its own nonprofit life cycle, to establish where it is, and where it wants to be. Most charitable organizations will not be able to fully adhere to all of these principles immediately, nor will every Practice be reflected in their current operations. P&P is intended as a basis for each COLORADO NONPROFIT ASSOCIATION -2- P&P GOVERNANCE TOOLKIT

4 organization (board, staff, and other constituents) to make a conscious determination of what will best move it forward and ensure that its programs and services are of high quality. PURPOSES HOW TO USE THIS TOOLKIT The first is to provide individual charitable organizations striving for excellence with a Colorado-specific tool for governing nonprofit organizations. The second is to support the growth and quality of the sector. The third is to increase public understanding of the role and contributions of the charitable nonprofit sector in Colorado. P&P is designed to serve as a guideline for all charitable nonprofits to implement practices that are legal, ethical, and effective. They are not meant to be used by funders or government as a litmus test to evaluate charitable organizations, nor are they intended as a substitute for the wisdom of directors, staff, and advisors of individual organizations. Note that this guidebook is not meant to be construed as legal advice, and is not a substitute for individualized consultation with an attorney. This guide is intended to provide additional information on many, but not all of principles and practices outlined in P&P. DEFINITIONS A Principle is a broad statement that defines a suggested ethical or managerial direction for a nonprofit organization. A Practice is a suggested method to achieve the principles. All key terms will be highlighted in green, bold print and listed in the Key Terminology section at the end of this toolkit. Whenever the term must is used, federal or Colorado state laws exist that require all 501(c)(3) charitable nonprofit organizations to conform to that practice. In these circumstances, a reference to the federal or state law is given (e.g., CRS for Colorado Revised Statutes, IRC for Internal Revenue Code, USC for United States Code, and CFR for Code of Federal Regulations), and a citation is made to the specific section of the law. Practices that are required by law are indicated by italic type and the icon. The term should means that the practice is not required by law, but is generally recommended depending upon the nature, resources, and life cycle of the nonprofit organization. Practices that are asked about on the Form 990 are indicated by the 990 icon if it is a best practice and by the 990 icon if Colorado or federal law requires the practice. COLORADO NONPROFIT ASSOCIATION -3- P&P GOVERNANCE TOOLKIT

5 In this toolkit, the terms charitable organization and nonprofit organization are used interchangeably to refer to nonprofit organizations that are tax-exempt under 501(c)(3) of the Internal Revenue Code. LEGAL ACCOUNTABILITY All Colorado nonprofit organizations must be aware of and in compliance with all legal requirements pertaining to nonprofit management, reporting, and governance. Visit the following websites for summaries of applicable law and links to helpful resources, and to download forms: Colorado Secretary of State ( Colorado Attorney General ( Colorado Department of Labor ( Colorado Department of Revenue ( Internal Revenue Service ( Colorado Nonprofit Association ( TIP The Guide for Colorado Nonprofit Organizations (Continuing Legal Education in Colorado, Inc.) is an excellent resource for Colorado nonprofits. It was written by over 20 of Colorado s top corporate attorneys, many of whom specialize in representing Colorado nonprofit organizations. Visit for more information. COLORADO NONPROFIT ASSOCIATION -4- P&P GOVERNANCE TOOLKIT

6 PRINCIPLES A nonprofit s governing body, officers, and key employees are responsible for defining and upholding the organization s mission, vision, and values, and for providing overall leadership and strategic direction to the organization. Each nonprofit board should: Ensure that the organization is adequately resourced to carry out its mission; Advance the ethical and legal integrity of the organization and ensure accountability and good governance practices; Ensure that activities and expenses align with mission focus; Actively set and implement policies; Provide oversight, direction, and moral support for the chief executive in order to further the goals of the organization; and Evaluate its own effectiveness as a governing body and as representatives of the community in upholding the public interest served by the organization. Members of the governing body need to be aware of the legal fiduciary duties related to their work: the duty of care, the duty of loyalty and the duty of obedience. Directors must meet the duty of care by: Exercising their responsibilities in good faith and with diligence, attention, care, and skill, Carrying out the purposes and mission of the charitable nonprofit, Complying with federal and state law, Completing required filings, Complying with the organization s governing documents (articles of incorporation and bylaws). This includes both decision making and oversight responsibilities, and is fulfilled by such things attending board meetings regularly, entering discussions, reading minutes, learning about the organization s programs, maintaining a careful oversight of finances, and questioning unclear or troubling activity (CRS ). Directors must meet the duty of loyalty by placing the interests of the organization before their own private interests and avoiding the use of organizational opportunities for personal gain (CRS ). Directors must meet the duty of obedience by complying with federal, state and local law, adhering to the organization s governing documents, and guarding the organization s mission (CRS ). COLORADO NONPROFIT ASSOCIATION -5- P&P GOVERNANCE TOOLKIT

7 THE IMPORTANCE OF ORGANIZATIONAL GOVERNANCE Nonprofit organizations are established to meet a critical need in the community. The organizers are passionate, dedicated to the purpose of the nonprofit, and work around the clock to solve the problems that aroused their passion; however, increased scrutiny of the nonprofit sector and rising accountability standards in the private and public sectors make it imperative to move beyond sentiment and demonstrate that the operations of nonprofits are in accordance (first and foremost) with the law, and also with best practices for accountability and stewardship. Online FAQ: Nonprofit Governance Problems Excerpted from Are Charity Boards Asleep at the Wheel? By: The American Institute of Philanthropy Confidence in nonprofit organizations is at the lowest level in two decades and one-third of Americans who are 57 or older have less confidence in nonprofit organizations over the last 2 years. Too many nonprofit governing boards are not taking their positions seriously and shirking their oversight responsibilities. The American Institute of Philanthropy is calling on all nonprofit board members who are more focused on social or networking opportunities for themselves than on overseeing and governing their organization to resign. Responsibility for the numerous recent mishaps of nonprofit groups lies with the governing board. The road to regaining the public trust must begin with charity boards because they are in the best position to improve the integrity of their organization. Visit: for the complete article. Stakeholders are frequently recruited to serve on nonprofit boards because they hold the same passions and belief in the organizational mission as the founders. These stakeholders play a vital role in maintaining a vibrant organization. In light of the increased need to provide legal oversight and accountability, board members now require additional training and guidance to fulfill all the requirements of their essential roles. While the job of the board member has become more challenging, there are readily available tools to fill in any gaps in experience or knowledge. Many nonprofits struggle with the fact that their board members have a broad range of skills and levels of investment. The guidelines set forth in Principles & Practices for Nonprofit Excellence in Colorado, are further discussed in this training guide, and will inform board members of current best practices. We encourage board members to review and use as much of this content as possible to strengthen the skills they need to attain and support their organizational mission. COLORADO NONPROFIT ASSOCIATION -6- P&P GOVERNANCE TOOLKIT

8 GOVERNANCE ETHICS POLICIES Every organization has a responsibility to their constituents and the public at large to abide by the highest standards in all their dealings. In many cases this will mean adopting written and specific codes of conduct to ensure every member of the organization (especially board members) has an understanding of the importance of organizational accountability. CODE OF ETHICS Nonprofit organizations should have a written code of ethics approved by their board that is made available to the public and their constituents on their website. This code describes the organization s commitment by staff, board, and volunteers in creating a transparent organization. Online SAMPLE: Code of Ethics By: Independent Sector The Independent Sector Code of Ethics is a demonstration of our commitment to high ethical standards. This code recognizes that an organization is defined by the people who work for it, and that those people (board members, executive leaders, staff, and volunteers) must demonstrate their ongoing commitment to the core values of integrity, honesty, fairness, openness, respect, and responsibility. Sample addresses: personal and professional integrity, mission, governance, legal compliance, responsible stewardship, openness and disclosure, program evaluation, inclusiveness and diversity, and fundraising. Visit to read the full sample. COLORADO NONPROFIT ASSOCIATION -7- P&P GOVERNANCE TOOLKIT

9 BOARD ROLES Governing Body Unless otherwise provided in the articles of incorporation, a Colorado nonprofit corporation must have a board of directors (CRS ). Responsibilities of the board of directors generally include reviewing and approving the organization s mission, strategic direction, annual budget and key financial transactions, compensation practices and policies, and fiscal and governance policies. OFFICERS OF THE BOARD Board officers titles and responsibilities will differ greatly from organization to organization dependent on size, qualifications, and level of involvement in the organization. While some organizations may have board committees with officers within their own specializations, some organizations may only need (or be able to produce) the three basic offices: president, secretary, and treasurer. Corporate (Board) Officers Unless otherwise provided in the bylaws, a Colorado nonprofit corporation must have a president (or chairperson), a secretary, and a treasurer, each of whom must be eighteen years of age or older (CRS ; 990). JOB DESCRIPTIONS Titles for officers of nonprofits may vary dependent on the officer s duties for the specific organization; however, the officer s duties should be clearly communicated, well-understood, and accepted in writing by officers before they accept the position. There are many excellent sources for sample job descriptions for officers. Board Member Job Descriptions and Responsibilities Board members should be provided with a clear job description and understand their roles and responsibilities to the organization and to the public. Board members are responsible for fully understanding their legal and fiduciary obligations and carrying out their responsibilities in the following areas: Policy development and approval; Financial oversight; Strategic planning; Fundraising; Hiring, supervising, and conducting and annual performance review of the Chief Executive Officer or equivalent; and Setting of compensation structure. COLORADO NONPROFIT ASSOCIATION -8- P&P GOVERNANCE TOOLKIT

10 BOARD RESPONSIBILITIES: OVERSIGHT & EVALUATION The board of directors is responsible for the organization s overall direction and leadership as well as ensuring the organization has adequate financial resources to achieve its mission. These responsibilities include active participation in creating or reviewing the organization s mission, strategic and operational plans. The board will also set and implement policies, ensure the financial sustainability of the organization and provide oversight and direction to the executive director. Given these roles, the board should also perform regular individual and collective evaluation to ensure effectiveness. LEGAL RESPONSIBILITIES The board of directors is responsible for staying abreast to all local, state, national, and international nonprofit and industry-specific legal requirements. The levels of awareness should comply with the organization s reach (whether multi-state or multi-national). Federal, State, and Local Laws A nonprofit organization must be knowledgeable and comply with all applicable federal laws and regulations, as well as applicable laws and regulations of the states and the local jurisdictions in which it is based or operates. If the organization conducts programs outside the United States, it must also abide by applicable international laws, regulations, and conventions. TIP Examples of the board s responsibilities are also present in the Colorado Nonprofit Associations P&P Transparency & Accountability Toolkit. The excerpt below demonstrates the importance of accountability practices in organizational governance. Nonprofit organizations operate for the benefit of the public, and typically hold assets in public trust, so they are responsible to the public for their performance and use of those assets. Honest, proactive demonstration of the value and performance of the organization is at the heart of the principle of Transparency and Accountability. The backbone is the adoption of procedures, processes and policies that enable a nonprofit to meet its legal and ethical obligations. The board of directors of the organization is ultimately responsible for adopting and complying with these practices, but staff and volunteers also play a key role in their implementation. Visit for more information. RISK MANAGEMENT Independent Sector clearly states that a charitable organization s board should ensure that the organization has adequate plans to protect its assets property, financial and human resources, programmatic content and material, and integrity and reputation against damage or loss. A board should be reviewing issues such as liability insurance, policies to protect employees and intellectual property, and comprehensive legal compliance practices. They should also secure skilled financial advisors to design policies and procedures for safeguarding fiscal resources. COLORADO NONPROFIT ASSOCIATION -9- P&P GOVERNANCE TOOLKIT

11 FINANCIAL INFORMATION Board Review of Financial Information The board should annually review and approve the organization s budget to ensure that expenditures are in alignment with the organization s mission. Dependent on the size of the nonprofit, the board or the appointed finance committee should review financial reports quarterly, at a minimum, and monthly if possible. If an audit is conducted, the board should review and approve the audit. All board members should have the opportunity to review and approve the Form 990 prior to submission (990), and should be aware of any state and local filings. For more information, please see the Independent Sector s Checklist for Accountability. STRATEGIC PLANNING Board Involvement in Strategic Planning The board should actively participate in and approve the strategic planning efforts of the organization. Most nonprofits complete a comprehensive strategic planning process every three to five years. However, it is important to revisit the strategic plan regularly to ensure the organization is poised to meet its goals and make adjustments as needed. A copy of the strategic plan is typically included in the board handbook. Tip The Association will be offering Principles & Practices Planning workshops, webinars and tools. See for details. EVALUATING THE BOARD S PERFORMANCE The board of directors, in addition to being responsible for reviewing the performance of the executive director, is responsible for reviewing its own effectiveness. Review of Board Composition and Governance The board should annually evaluate itself with an eye toward ensuring the effectiveness of the board while also improving governance practices. Periodically, the board should review its size, composition and operational structure to ensure it is best able to support the organization s goals and objectives. Board Composition Do the organization s current board members meet set goals for diversity and inclusiveness, desired areas of expertise, and representation of different sectors? Board Assessment Each board member should complete an assessment of individual and collective performance. Samples are included in the back of this toolkit. During this process the board should consider: adherence to the mission of the organization, compliance with state and national legal requirements, fiduciary responsibility, planning and evaluation processes, progress on other goals. COLORADO NONPROFIT ASSOCIATION -10- P&P GOVERNANCE TOOLKIT

12 PURPOSE The members of the board should always keep in mind that their decisions ensure sustainability and advance the mission. Board Review of Organization The board should annually review the organization s articles of incorporation, bylaws, corporate policies, and mission statement, and amend them as needed to reflect organizational growth and development. Performing regular reviews will help the organization prevent mission drift, when programs (while wellintentioned) do not conform to the mission statement and overall purpose of the organization. PERFORMANCE AND COMPENSATION REVIEW Annually, the board should conduct a performance review of the chief executive, including his/her compensation. The chief executive should be assessed in light of organizational accomplishments and compensation should reflect his/her performance and industry standards. Chief Executive Performance Review and Compensation Both Colorado law and federal income tax laws prohibit the payment of more than reasonable compensation (CRS ; IRC 4941 and 4958). To reduce its exposure to penalties relating to unreasonable compensation, the board of directors should consider the process outlined under of the Treasury Regulations. A public charity that follows each of these three steps can position itself to create a rebuttable presumption that the compensation is reasonable: Independent approval: An independent governing body (or a committee acting on behalf of the governing body) approves the compensation arrangement. Usually this is a board of directors or a compensation committee of the board of directors. Comparable comparisons: The board or committee obtains and relies upon appropriate comparability data prior to approving the arrangement. Documentation: The board or committee should adequately document the basis for the determined compensation. What are the best practices for evaluating the CEO/executive director? In The Board-Savvy CEO, Douglas Eadie suggests five distinct characteristics of a performance evaluation. First, the evaluation is the responsibility of a standing committee (perhaps the Executive Committee) and should not be handled solely by the board chair. Second, the full board should review the evaluation and the process annually. Third, the evaluation should be based on specific performance goals that are established annually. Forth, there should be reciprocity in the process of negotiating [goals]/targets. The board and executive director should establish open communication about the executive director s goals and any board support needed to reach them. Finally, the process should be growth-oriented and take into account the executive director s leadership and management capacity as well as the board-executive director relationship. SUCCESSION PLANNING Succession planning is a challenge for many, if not most nonprofit organizations. Boards often wait to confront the issue until they are faced with replacing key leadership. Open communication between the board and executive director regarding succession planning is the first step towards preparing for successful leadership transition. COLORADO NONPROFIT ASSOCIATION -11- P&P GOVERNANCE TOOLKIT

13 Succession Planning - The board should engage in succession planning for the chief executive, board members, and key staff to ensure strong leadership and accountability for the organization during planned and unplanned times of transition. Tip Elements of leadership succession planning include: Excerpted from the National Council of Nonprofits website 1. Identifying the current leadership s strengths and challenges; 2. Identifying challenges ahead and the leadership qualities that will be needed to navigate those challenges successfully; 3. Identifying an Emergency Succession Plan in the event that an unexpected event requires the swift delegation of authority to a replacement staff leader; 4. Identifying leadership development opportunities for existing staff and board members to participate in so that they can extend their leadership skills. See for more information. Nonprofit organizations cannot afford to wait to devote energy and needed resources to preparing a succession plan. Sometimes, succession planning can be a difficult topic to address. Start by creating a culture that supports leadership development across all levels and convening regular conversations with board and senior management staff and long-term leadership needs. Succession planning is not about how long a few key individuals will remain in place, it is about thinking strategically about the organization s leadership needs and involving key staff and board members in the process. BOARD RESPONSIBILITIES: FUNDRAISING & DEVELOPMENT Each nonprofit organization will have different expectations for incoming board members; therefore, every organization should be clear and up front with prospective (and current) board members so that there are no miscommunications. Expectations of Board Members To demonstrate their personal investment in the organization, board members should volunteer their time, assist in raising external funds, and make financial contributions to the nonprofit. One-hundred percent of board members should give financially to the organization. Expectations should be clearly communicated in writing to all prospective board members. Board members are uniquely positioned to conduct fundraising on behalf of their organizations. In order to do this effectively, nonprofits should ensure training and support materials are available. Nonprofits should also help each board member to identify the roles for which they are best suited. If every member of the board of directors is not somehow involved in fundraising within the organization, consider updating the nonprofit s fundraising plan to include them as soon as possible. COLORADO NONPROFIT ASSOCIATION -12- P&P GOVERNANCE TOOLKIT

14 Levels of participation will depend greatly upon the organization s unique circumstances, but every member can contribute in some fashion. Members may participate in fundraising by providing potential sources of funds from their personal contacts, contributing themselves, assisting the chief executive in his/her fundraising duties, assisting the staff in fundraising duties, attending fundraising events, and/or seeking out and applying for applicable grants. TIP This excerpt from the P&P Fundraising Toolkit demonstrates the importance of considering your organization s situation when placing expectations on board members. 100% board giving is an excellent benchmark to set for your organization, but emphasis also needs to be placed on the diversity of organizations in Colorado. Some nonprofit boards may not want 100% giving due to the constraints it may place on potential board members. For example, if your organization provides services to the homeless and you want to create an inclusive board by making a few capable constituents part of your board, 100% board giving may be a serious topic of discussion. Consider what your organization may have to sacrifice in order to require or not require 100% giving. Visit for more information. FAQ: Nonprofit Champions: Your Board Members Play a Crucial Role in the Fundraising Effort By: Sharon Knight, CEO, Warren Village (formerly Vice President and Chief Operating Officer, Colorado Nonprofit Association) Individual giving programs are vital for nonprofit organizations and board members play a key role in that work. While writing grants and finding corporate sponsors for events may seem less intimidating than asking real people for money, it is exactly those donors who offer long term financial stability. Individual gifts provide money for general operating support, endowments, capital campaigns and special projects. Nonprofits avoiding this part of solicitation miss opportunities to gain significant support AND provide a meaningful way for people to support the causes they care about most. Reprinted from Nonprofit Colorado May/June 2010 See page for full FAQ. ADVOCATES AND LIAISONS Board Members as Advocates & Liaisons - Board members should receive the training and education necessary to empower them to advocate for the organization and its cause. By sharing facts, figures and COLORADO NONPROFIT ASSOCIATION -13- P&P GOVERNANCE TOOLKIT

15 personal stories, board members are poised to raise awareness for the organization in the community. Board membership should act as liaisons with the community by sharing the organization s mission, accomplishments and goals. In this role, board members can effectively solicit feedback from the community and needs and expectations. As part of the organization s leadership, members of the board are probably already sharing stories and talking about the organization throughout their networks. It is important for board members to think about the impact of these conversations. Work with them to ensure that they are sharing accurate information and conveying current facts and organizational priorities. Ensure that board members know which staff members to contact about new relationships or potential partnership opportunities that may result from these conversations within the community. These informal connections are valuable and can lay the groundwork for raising awareness and more funds for an organization. Nonprofit staff and board members alike often shy away from advocacy because of a fear of getting involved in illegal or inappropriate lobbying activities. While public policy, advocacy and lobbying will be discussed in a different training and training guide, it is important to note that nonprofits are allowed to engage in lobbying and advocacy work. TIP Charities can lobby and they should! Contrary to popular opinion nonprofits are legally entitled to lobby and advocate for the causes and constituents they represent. The confusion often results because charitable nonprofits (designated as 501(c)(3) organizations) are prohibited from participating in partisan politics working for a political party or candidate. But it is imperative that nonprofits get involved in the political process as it affects government funding for their programs and policies that impact their ability to carry out their charitable mission. Visit for more information. A nonprofit organization does not need to be formally involved in local or national lobbying to capitalize on the opportunity to train board members to serve as community advocates. Begin by educating members of the board. Each member should be able to speak to the organization s achievements, short- and long-term goals as well as more broadly about the mission/cause and constituency. Perhaps certain board members already have connections with local or state government. Consider working with these members to consider whether or not the organization may be able to benefit from strengthening relationships with local or state government offices. For more information on partnering with government and advocacy, please visit, COLORADO NONPROFIT ASSOCIATION -14- P&P GOVERNANCE TOOLKIT

16 BOARD RESPONSIBILITIES: INDEPENDENCE This section includes best practices and legal requirements, all of which are part of the new Form 990. Maintaining the independence of the board is critical to maintaining public trust. Remember that voluntary compliance with the relevant requirements of the Sarbanes-Oxley act (like those mentioned below) may help protect nonprofits from further regulation at the state and federal level. Independence of Board Members A substantial majority (at least two-thirds) of the board members of a public charity should be independent that is, neither they themselves, nor anyone related to them (such as a spouse, sibling, parent or child), nor anyone they reside with, should: Be compensated by the organization as an employee or independent contractor; Have their compensation determined by individuals who are compensated by the organization; or Receive, directly or indirectly, material financial benefits from the organization, except as a member of the nonprofit class served by the organization (990). CONFLICT OF INTEREST Conflict of Interest Policy Each board should have a conflict of interest policy that includes a disclosure form, which is signed by all board members annually, and procedures for managing conflicts of interest and handling situations in which public and private interests intersect. The policy should include an obligation of each board member to disclose all material facts and relationships and refrain from voting on any matter when there is a conflict of interest. A nonprofit should regularly and consistently monitor and enforce compliance with its conflict of interest policy (990). SAMPLE: Sample Conflict of Interest Policy By: the Nonprofit Management Center See page 45 for full sample. COMPENSATING THE BOARD Nonprofit organizations should seriously consider the potential pitfalls when deciding on board compensation. It is highly recommended for board independence and stewardship considerations that board members receive no paid compensation. Compensation of Board Members Board members should receive no monetary compensation for their board duties other than reimbursement for board-related expenses. If compensation is paid, it must be reasonable in amount (CRS (b), 26 CFR (b)(1)(ii)). Board member compensation may void applicability of federal and state statutes providing immunity for board members personal liability. Some organizations choose to compensate board members in order to promote economic diversity and inclusiveness regarding board composition. Other nonprofits use this strategy to attract specific talents COLORADO NONPROFIT ASSOCIATION -15- P&P GOVERNANCE TOOLKIT

17 or promote better attendance and engagement from board members. If your organization decides to compensate board members for their services, ensure that you can justify their compensation as reasonable according to legal standards. Accepted standards specific to your field and location are required benchmarks when determining the rate of compensation for any board members, and paying more than the recognized market average can result in serious penalties and fines. COLORADO NONPROFIT ASSOCIATION -16- P&P GOVERNANCE TOOLKIT

18 BOARD PROCEDURES A solid framework will position the board for success. The board should establish procedures for the ongoing training of members, the member nomination process, and board meeting attendance, voting and documentation. The board should also determine whether or not additional committees are necessary and establish any related procedures. Procedures should be reviewed annually to ensure that they still accurately reflect the needs and activities of the board of directors and the organization. TRAINING All nonprofit board members should receive ongoing training related to nonprofit governance and management. Along with a clearly defined and up-to-date job description and handbook, the board should identify areas where additional training is needed. This training may take place during board meetings and be provided by a guest speaker or member of the staff. Numerous workshops and webinars are also available through the Association and other local organizations. Tip Encourage your board members to stay up-to-date on available professional development opportunities. Colorado Nonprofit Association: Colorado Nonprofit Training Collaborative Professional development from Colorado Nonprofit Association, Community Resource Center (CRC) and Metro Volunteers. Follow the link above to join the list (approximately two s per quarter). Share articles and online resources. See the resources section at the end of this guide to get started. Board Orientation Board members should be provided with an orientation including a board manual with the history of the organization, governing and planning documents, policies and overview of board responsibilities, financial reports, fund development strategies, and impending challenges. FAQ: Board Handbook and Orientation Checklist By: Metro Volunteers Suggested contents for board of directors handbook and orientation See page for full article. Ongoing Board Training The board should establish an effective, systematic process for educating board members to ensure that each member is equipped with the information needed to carry out COLORADO NONPROFIT ASSOCIATION -17- P&P GOVERNANCE TOOLKIT

19 oversight functions, act on all legal and ethical responsibilities, and be knowledgeable of the community served by the organization and of all its activities. FAQ: Good Board Practices Prevent Lawsuits By: Alliance of Nonprofits for Insurance Risk Retention Group Excerpted from Nonprofit Resources ( Even the best practices are no guarantee that the board will not be sued; however, good board practices can be an effective defense. Reprinted with permission. See page 34 for full article. NOMINATING NEW BOARD MEMBERS Recruiting and nominating new members to your board is an essential part of the process of keeping fresh ideas and perspectives in your organization s leadership. Board Nomination The board should establish a process for recruiting, evaluating and selecting new board members that will ensure adequate infusion of new ideas and diverse community perspectives, while preserving institutional memory (e.g., term limits and staggered terms). TIP Metro Volunteers Board Leadership Connection recruits, trains and places qualified individuals who wish to serve on nonprofit boards of directors. See page 35 for a helpful board nomination guide. Visit for more information. When nominating and including new members on your board, it is important to consider the current level of skills, background, and expertise of your current members. Completing the board analysis and assessment in the samples and resources section will help your organization assess areas where improvements may be needed. BOARD MEETING BEST PRACTICES Nonprofit organizations should outline and enforce guidelines for how and when the board meetings will be conducted. FREQUENCY Board members should make regular attendance to board meetings a habit to demonstrate their passion and dedication for the organization s cause and to ensure they can adequately meet all legal and ethical requirements. COLORADO NONPROFIT ASSOCIATION -18- P&P GOVERNANCE TOOLKIT

20 Frequency of and Attendance at Board Meetings Board meetings should be held at least on a quarterly basis and regular attendance should be expected. While meeting attendance is expected, do not take the attendance of fellow board members for granted. The board s officers and members alike should take a proactive approach to ensure that meetings are engaging, informative, and beneficial for all in attendance. Tip Effectively Engaging Board and Committee Members By: Metro Volunteers 1. Preparation is critical both by the meeting leader and the participants. 2. Providing information is key but in reasonable amounts. 3. Ensure that the goal of the meeting is clear at the outset and connect that outcome to a clear impact or organizational goal. 4. Make it fun! 5. Create an environment that encourages interaction and constructive discussion and where people feel free to disagree. 6. Read your audience. 7. Put the meeting in the hands of the participants! 8. Don t meet just because you have a regular meeting time. 9. Keep the mission in front of participants. DOCUMENTATION Board meetings as well as decisions made by the board are public in nature whether or not anyone else is in attendance. The organization is required to keep documentation on board meetings and decisions as permanent records of the organization. In the case of a lawsuit this documentation can be used to demonstrate that board members acted in good faith in all the decisions that were made, so make sure all members are doing so. Documentation of Board Meetings Colorado nonprofit corporations must keep minutes of all meetings of its board of directors, along with a record of any actions taken by the board without a meeting, as permanent records of the corporation (CRS ; 990). Minutes of board meetings and records of actions taken without a meeting should be recorded contemporaneously and should include the date, time, attendees, motions and votes. Board meeting minutes should record major discussions and actions, whether they were approved or not. It is not necessary to include personal opinions and justifications. Furthermore, committee and board meeting minutes should utilize same format and content standards. The following tip details what robust minutes would include: COLORADO NONPROFIT ASSOCIATION -19- P&P GOVERNANCE TOOLKIT