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resources: Setting Policies Recommendations for Types and Content
Setting Policies: Recommendations for Types and Content


For most boards both bylaws – the legal governing document – and policies – statements that define prudent management – are required. The creation of each is a board responsibility that takes careful and strategic thought to determine what will prove most efficacious for the organization in the long run. There is no end to the policies a board might draft. The most typical – whether they are to be found in the bylaws or in the more easily changed policy manual – are listed here along with some suggestions on content or considerations.

 

BOARD GOVERNANCE POLICIES


Attendance at Meetings
Carefully think through the attendance issue. Many boards rely on convention and adopt a statement that indicates that one cannot miss more than three meetings – worse is three consecutive meetings – or that one has to have an “excused absence.” If there are only six meetings and someone misses three, that’s half the meetings. How informed can that board member be? And, “excused absences” don’t ensure that someone is on top of the organization’s issues – it only means he or she took the time to make a phone call. Because attendance directly relates to one’s ability to carry through on his or her Duty of Care, it is incumbent on the organization to create a meaningful expectation regarding attendance.


Attendance at Organization Events
While it may be unrealistic to expect that all board members will be at all organization events, non-board members are aware when board members do not attend events and it often does color the degree to which they will choose to support the organization. It is fair to expect board coverage at events. However, it is not fair to spring such expectation on the board at the last minute. That is why a policy is so important.

Consider creating a grid of events and asking that board members sign up for events at the beginning of the year to ensure coverage. The policy might indicate that directors will find someone else to cover for them if they cannot make it at the last moment.


Board Sabbaticals
Sometimes a valued board member faces a long illness or becomes a caretaker, requiring that all outside activities be placed on hold for an extended period. The organization may want to offer such people the opportunity to take a leave of absence from the board.

Assure these individuals that their place will be waiting for them but be sure they are not considered active board members so that you are not relying on them to make a quorum and you are protecting them from any potentially adverse actions related to board decisions. Continue to send them board minutes and updates to make their reentry smooth, but make it clear that nothing is expected of them at this time.


Board Size
When writing policy regarding board size consider the trend to keep boards relatively small so that:
• People feel more responsible for being involved;
• They can get into serious, strategic discussions; and,
• They can react more quickly to changes in the internal and external environments.
Recognize that the traditional benefits of large boards – greater reach into the community for clout and funding – can usually be gained by involving people on committees rather than on the board.


Calling Special Meetings
There should be a policy regarding who can call a special meeting, the circumstances under which it can be called, how people will be notified and what the quorum is.


Code of Conduct
Codifying accepted behavior of board members is helpful. Standards might include such things as acting in an ethical, businesslike and lawful manner, maintaining a professional decorum and using authority in a transparent and appropriate way.


Confidentiality
Few people will open up and share their most honest thoughts without some assurance that what is said in the meeting will stay in the meeting. There should definitely be a policy statement requiring confidentiality surrounding issues of clients, funders, staff, and tentative plans.


Disclosure of Any Real or Perceived Conflicts of Interest
The Senate Finance Committee is requiring that all nonprofit boards have conflict of interest policies. It is expected that the committee will also require board members to sign these on an annual basis.

While the required content of such a policy has not been finalized, consider including the following:

  • A definition. What will you – and maybe more importantly, your community – consider a conflict of interest? Is it only something where a director has a potential for financial gain?
  • A written commitment to avoid conflicts of interest. Think about also including “potential and perceived” conflicts since “reality” is 9/10 perception.
  • An iteration of who is covered by the terms of the policy. Is it just the board, the board and staff, clients?
  • A requirement that people disclose any conflicts. If you included potential and/or perceived conflicts above, they would be included in this requirement for disclosure.
  • A clear statement of how and when disclosure should be made. Typically boards are requiring that everyone complete a written disclosure once a year and individuals actually facing a potential for conflict make a verbal disclosure at the time that is then noted in the minutes.
  • A clarification of instances where a director or other covered individual would be permitted to engage in business transactions with the organization. If your organization chooses to go this route your policy statement should also include the conditions that would cover such an engagement, such as what is reasonable compensation and whether other bids must be entertained.
  • A statement of the protocols that must be followed if such defined business relationships will be permitted. For instance, a director might be expected to recuse him or herself from both discussions around the relevant topic and the voting, with note made of this in the board minutes. (State laws may currently require this.)
  • An assertion regarding confidentiality.
  • A commitment to review this policy at least annually. (It appears this item will be mandatory.)
  • An indication of to whom the implementation of this policy will fall, e.g., the governance committee.


Executive Committee
The trend is to eliminate executive committees. If an organization wishes to maintain its executive committee it might consider changing its primary responsibility to board development with a focus on:

  • Providing ongoing board education;
  • Serving as a year-round nominating committee; and,
  • Facilitating board evaluations.
    At the minimum, the policy statement should limit the powers of the executive committee so that it does not risk assuming the role of the board itself.


Financial Obligations
There should be no question in anyone’s mind regarding what, if any, financial obligation is expected of board members. Policies should cover both “give and/or get.” Some boards look to their directors to bring in a named dollar amount and are not concerned whether they give it, get it, or obtain it through a combination of the two. Others want to see money coming from the board members personally as well as from the community. Some groups do not specify an amount of money, others do or at least provide guidelines such as requesting that the gift be among the board member’s top three gifts for the year. If there is an expectation that board members are responsible for supporting special events this should be clearly stated in the policies as well.


Involvement on Committees
Some questions to answer and then incorporate into policy include:

  • Must there be a board member on every committee?
  • Does a board member have to sit on any specific number of committees?
  • Does the committee have to meet regularly or can it meet only as necessary?
  • Are there going to be standing committees?

Consider asking non-board members to sit on committees. Many boards have found their reach and level of expertise extended dramatically by opening up opportunities for service in this way. It also minimizes burnout for the board members that would otherwise be expected to man all the committees.

Also, think seriously about what committees really must be standing committees. The answer might be very few. One benefit of this is that people will be more willing to serve on a committee if they know their term is short-lived and they have a specific task to accomplish.


Number of meetings
The number of times a board meets in a year has a big impact on the outcomes achieved, the level of Duty of Care and board member satisfaction. While there is no optimum number of meetings per year, generally, frequent meetings allow people to feel more connected to the organization and to the tasks at hand. Meeting once every 6 weeks is good spacing, however, the policy statement itself might be worded something like, “will meet no less than _____ times per year,” to allow for more frequent meetings as necessary or desired.

Regardless of how frequently the board decides to meet it is wise to work through the summer since the organization’s work does not end just because people tend to go on vacation during this time. If the meeting dates are published far enough in advance people can plan their schedules around them.

When defining how often the board will meet consider how much time it takes the executive director to prepare for each meeting.


No-harassment Policy
Harassment is one of the more frequent causes of suits filed against organizations. It is, unfortunately, not limited to the purview of employees. Board members have been known to harass other board members, staff members and clients, or been harassed by others. Be sure to include language that protects against any form of harassment related to a person’s race, color, sex, religion, national origin, sexual orientation or age. Give some examples of prohibited behavior, such as slurs, jokes, or other verbal, graphic, or physical conduct including sexual advances or requests for sexual favors. Be clear about to whom harassing behavior should be reported – e.g., the chairperson for harassment by board members and the executive director for staff or clients.


Officers
There should be a policy statement regarding the responsibilities of officers for modeling behaviors for the rest of the board. For instance, attendance requirements of officers might be more stringent.

A policy for the removal of officers should also be delineated. This should include those circumstances under which someone can be removed – usually when an individual is not doing his/her job or when his/her behaviors are detrimental to the organization – and the procedure to be followed. (see Protocol for Removing People from the Board Prior to the End of Their Term below)


Political Appointments
The organization might consider a policy statement around the issue of political appointments – e.g., representatives from specific community, government or advisory groups. Generally it is ill-advised to ask people merely because they hold a specific position since these individuals often lack the commitment required for board service and/or they may be limited in what they can do for the organization due to Duty of Loyalty obligations to their primary affiliation. This can compromise the dynamics of the board.

The lines of communication with valued outside groups may be kept open in other ways, such as:

  • Sharing minutes with them;
  • Holding regularly-scheduled meetings just for/with the representatives of these groups; or,
  • Inviting representatives of these important entities to meetings, but strictly as guests.

In the latter case the guests would not vote and would leave if the boards went into executive session.


Protocol for Inviting People onto the Board
Recruitment must be strategic. This means the nomination process should be codified. Policy statements might indicate, for instance, that desired skill sets and characteristics are to be ranked or weighted to ensure that those things that are most important to the organization’s future are obtained. They might require that every potential board member submit a resume and references as well as interview with a small group of board members. Or, they might state that people be expected to serve on a committee before being asked to join the board.

The policy should define when people may be asked to join – for instance, throughout the year, quarterly or once a year. Never should someone be asked to join by a current board member acting independently.


Protocol for Removing People from the Board Prior to the End of Their Term
Too few organizations plan for removing people prior to the end of their term and then have no recourse when someone either fails to perform or his/her behavior is so negative that it strains the rest of the board. Consider the conditions under which someone might be asked to leave early and decide the protocol that will be used. If relying on a vote it should be more than a simple majority.

Telephone Participation
Recognizing that board members have many competing responsibilities, the organization might allow board members to participate in meetings via conference call if business, family obligations or illness prohibits them from attending in person.

If the organization does decide to allow the use of technology in this way – which is allowed by most states as long as everyone can hear simultaneously – the policy statement might include:

  • Requiring that board members attend several meetings – e.g., three or four – in person before participating by telephone so that everyone else can picture the individual as he or she speaks. This is important if people are to feel comfortable saying whatever is on their mind;
  • Limiting the number of times someone can participate by phone; and,
  • Investing in good conferencing equipment.


Sunshine
Regardless of whether your organization legally falls under Sunshine Laws – a requirement that all board business be discussed in the open with the full board and never between a few individuals outside the boardroom – the board should act as if it is governed by such laws.


Term Limits
Term limits are an effective means of ensuring new ideas and future leadership. They also serve to help rid the organization of deadwood. Most people today spend an average of six years actively involved with an organization. Given that number, consider either two three-year terms or three two-year terms.

One argument against term limits is that organizations cannot afford to lose its most dedicated volunteers. Officer positions can have their own terms that are not counted as part of the general term. Under such a design someone could spend a total of six years as a board member without office and then spend additional years fulfilling the different officer positions.



FINANCIAL POLICIES


Audits and an Audit Committee
There is discussion today that nonprofit corporations – especially those with a minimum gross income, which varies from state to state – be required to have an independent audit committee – a non-compensated group other than the finance committee or management. While some members of the finance committee may sit on the audit committee, the purpose of the audit committee is to serve a checks and balances role, so there should also be non-finance committee members. Define if any of these can be non-board members (check state law first). The members of the audit committee should be financially literate and at least one should be a financial expert. The role of this committee is to:

  • Engage the auditor
  • Set compensation for the auditor
  • Ensure that materials required by the auditor are made available and that the audit process runs smoothly
  • Receive the initial report from the auditor to ensure that it is clear and meaningful
  • Recommend approval of the audit by the full board
  • Recommend financial controls to be adopted and ensure their implementation
  • Monitor financial practices to ensure honest and accurate accounting

If your organization receives more than $500,000 in Federal funds or has gross revenues of $1 million or more it must have an annual audit. If your organization’s gross revenues are less than $1 million but at least $250,000, it should ask an independent auditor for a review or compilation. In such a case you should periodically review the decision to accept the lesser-detailed review or compilation. You may want to occasionally go to the expense of a full audit to demonstrate transparency to stakeholders.


Bank Accounts
Your organization should maintain its accounts only in financial institutions that are federally insured by the FDIC. You may wish to limit the number of accounts the organization may have and/or to indicate who must know about the existence of any organizational accounts in order to protect the organization from inappropriate or illegal slush funds.


Budget
You might indicate how often you will look at the actual figures in relation to those that were budgeted. A minimum is typically six months, though many organizations do this quarterly or even monthly.

Determine if you want to maintain a specific ratio of program expenses to administrative costs. While many organizations try to keep the administrative costs extremely low, savvy donors know it costs money to make money and may question a figure they believe is unrealistic. Nationally, organizations that are able to keep their administrative costs to 35% are considered to be reasonably managed according to the Better Business Bureau Wise Giving Alliance Standards for Charity Accountability.


Check Signing and Distribution
While all nonprofits should always have a policy regarding signatures on checks and the distribution of money, a result of Sarbanes-Oxley is that organizations will be required to have such policies and procedures in writing. Define who has the authority to sign checks and clarify up to what amounts they may sign without obtaining additional/written authority.

While often inconvenient, there should be NO pre-signed checks. Also, the person who writes the checks should not receive the bank statements – at least until someone else has reviewed them first.


Contracts
Identify who may obligate the organization. Consider a monetary level up to which the identified staff or board member(s) may sign contracts without obtaining prior board approval. This might be for any amount other than what was budged, or it might be a specific dollar amount. When determining contracts that may require board approval you might also consider the degree to which a contract opens the organization to risk and multi-year contracts.

You may wish to create a policy that dictates how contracts with guaranteed minimums, hold-harmless clauses or without escape clauses are to be handled.


Contributions to Other Organizations
There may be situations where your organization will wish to support another organization financially. Policy might limit the amount to be donated to any one group at any one time and/or over time. It might also limit the types of organizations that can receive contributions – e.g., organizations with a similar mission or those working to further a cause that benefits your organization.


Disclosure Statement
Most states require a disclosure statement on any printed solicitation. The inclusion of such a statement should be policy.

 

Endowment
It is important to state how the endowment will be funded – e.g., using all legacy monies or 60% of all funds over the income total budgeted for the year – and under what circumstances, if any, loans may be made by the endowment to general operating expenses.


Gift Acceptance
Not all gifts are desirable. Donated land could have environmental liabilities, donated art could be impossible to sell and inappropriate to display, certain annuities could leave the organization with a minimum donation and significant administrative costs. Your organization must determine what it is willing to accept and the conditions under which it is willing to accept non-cash donations. If there is written policy it is easier to turn down an undesirable gift since the “no thank you” can be blamed on the policy.

Along with what the organization will or won’t accept, your gift acceptance policy should clarify that the organization cannot ascribe value to the donated item – unless the value is well-known and accepted. Rather, the contributor must get an independent appraisal. All the organization can give is a thank you letter describing the donated item.

Also, pre-determine the recognition to which a donor will be entitled and at what point that recognition will be awarded. For instance, say someone purchases an annuity and makes your organization the beneficiary. Will you recognize that person for the total amount of the policy when he or she will be receiving a substantial amount of the total back? If someone donates a piece of art with a assessed value of X amount, but you can only sell it for a lesser amount, will you credit the person for the assessed value or the amount you realized? If someone puts you in his or her will – a decision that is usually revocable – will you recognize that person prior to his or her death, especially for the full amount he or she has indicated the organization can expect?

Insurance
Besides determining the types of insurance the organization will carry – e.g., General Liability, Property, Worker’s Compensation, Directors and Officers, Fidelity Bond, Travel Accident, Business Interruption, Umbrella – and the amounts of protection under each, you should determine how and when incident reports are filed.


Investment
Be sure to define your objective for investing – e.g., growth or preservation – along with the desired annual return, the level of risk the organization is willing to tolerate and any limits to investment vehicles and/or suggested asset allocations among vehicles. You might want to limit investments to socially-conscious funds. If so, this must be stated.

You might also want to spell out the asset manager’s responsibilities, including how often reports will be made back to the investment committee and what indicators are desired in those reports.


Loans
Describe those conditions, if any, under which a loan can be taken out in the name of the organization. Identify who can sign to obligate the organization and if there are any terms, such as interest rates or length of the loan, that are to govern in this situation.


Payroll
Codify such things as cost of living increases, the maximum percentage for pay raises and the use of over-time, sick pay and vacation time.


Planned Gifts
Determine what type of planned gifts you will accept. If any type of credit or recognition is typically given for gifts to the organization consider at what point the planned gift will be credited and at what level it will be credited. Determine who shall be allowed to sign any legal documents relating to estates.


Receipts
The IRS requires that all contributions of at least $250 be receipted in writing. You may decide to receipt all donations in writing. You might also decide to send an end-of-year letter that details an individual’s cumulative giving for the year.

If someone received goods or services for their donation or any part of it, the receipt should state the fair market value of the goods or services and the donation amount.

Someone who makes a non-cash donation should also receive a receipt, however, unless there is a well-known or well-accepted value for that gift, the organization should merely describe the donation. Ascribing value shall be left up to the donor or an independent appraiser.


Records Retention
Sarbanes-Oxley enhances penalties for altering or destroying corporate records. Therefore a records retention policy is critical. Because there is not 100 percent agreement on the length of time records are retained the policy statement should be reviewed by the organization’s financial advisor.

  • The final guidelines should include the following three points:
  • The organization cannot rely on a third party to retain its records;
  • Regardless of customary storage recommendations, if there is reason to think that a record will be required at some future time it should be kept; and,
  • If an issue arises any records associated with it must not be destroyed.

Reimbursements
While board members are rarely compensated, there may be situations under which they can be reimbursed for expenditures made on behalf of the organization. Staff may also be entitled to reimbursement. The types of eligible situations should be enumerated along with the reimbursement rates and the procedure for requesting reimbursement – e.g., completion of a reimbursement form and submission of original receipts. Note who shall approve reimbursements.


Reports
State those reports, if any, that are required. Indicate what they should include, to whom they should be sent and due dates.


Reserves
Money should always be held in reserve to protect the organization against unexpected expenses. Typically, this is 3 – 9 months worth of operating expenses. The policy might state the conditions under which the reserves may be tapped as well as how the reserves should be funded.


Return on Investment for Events
Determine if you expect all events to bring in a minimum profit level and whether or not this level differs based on the purpose of the event – i.e., fundraiser or friend-raiser. Special events should periodically be evaluated to determine whether the profit merits the expenditure of efforts.


Sales Tax Exemption
Sales tax exemptions may only be used for organizational purposes. This should probably be spelled out. You might also limit those with access to the number.

 

Whistle-blower Protection
As a result of Sarbanes-Oxley, all nonprofits must have a whistle-blower policy that encourages people to report questionable accounting or auditing procedures as well as program mismanagement. Such a policy must also protect those individuals from retribution.

 

Terrie Temkin
© CoreStrategies for Nonprofits, Inc. • Revised 2006
PO Box 630745 • Miami, Florida 33163 • 888-458-4351 • 954-989-3442 (fax)
www.CoreStrategies4Nonprofits.com

 

updated 10/23/07