In October 2007, the Panel on the Nonprofit Sector, convened by the Independent Sector, released Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations.

The Panel convened in October 2004, at the encouragement of the leaders of the Senate Finance Committee. The Panel on the Nonprofit Sector is an independent group of not-for-profit leaders who recommend actions to strengthen the governance, ethical conduct, and accountability of charitable organizations. The members of the panel represent a wide range of the not-for-profit community, such as organizations large and small; charities, foundations, and corporate giving programs; and organizations that operate worldwide or in a single community.  The stated purpose of the panel is to preserve the soundness and integrity of the not-for-profit community by striking a careful balance between prudent legal mandates to ensure that organizations do not abuse the privilege of their exempt status and well-informed self-governance and mutual awareness among not-for-profit organizations. 

Not-for-profit organizations have long embraced the need for standards of ethical practice that preserve and strengthen the public's confidence. Many systems in fact already exist, though none have applied to the entire range of American charitable organizations. The guide outlines 33 practices designed to support board members and staff leaders of every charitable organization as they work to improve their own operations. The 33 principles are organized under 4 main categories:

Legal Compliance and Public Disclosure

• Comply with all applicable federal, state and local laws and regulations
• Formally adopt written code of ethics
• Adopt and implement conflict of interest policies and procedures
• Establish and implement policies and procedures enabling individuals to inform Organization of illegal practices or violations of policies
• Implement policies and procedures to preserve documents and business records
• Assure adequate plans exist to protect Organization’s assets
• Ensure information about operations, governance, finance and programs are available to the public

Effective Governance

• Must have a governing body responsible for reviewing mission, strategic direction, fiscal and governance policies
• Meet regularly to fulfill duties
• Establish size and structure and review periodically
• Assure board includes members with diverse backgrounds
• Assure substantial majority (usually 2/3) of board members are independent
• Oversee and evaluate the performance of the CEO
• Assure segregation of positions for CEO, Board Chair and Board Treasurer
• Establish effective system for educating and communicating with board members
• Board members should evaluate their performance as a group and individually no less frequently than every three years
• Establish clear policies for length of terms
• Review organizational and governing instruments at least every five years
• Review missions and goals at least every five years
• Document rationale for board compensation if applicable

Strong Financial Oversight

• Keep complete, current and accurate financial records with board review and independent audit or review
• Ensure  responsible management of investments
• Should not provide loans to directors, officers or trustees
• Should spend significant portion of budget on programs
• Establish clear written expense reimbursement policies
• Should neither pay nor reimburse for spouse and dependent expenses

Responsible Fundraising

• Clearly identify organization in solicitation materials and communication
• Use contributions consistent with the donor’s intent
• Provide donors with acknowledgements of contributions
• Adopt clear policies on acceptance of gifts
• Provide appropriate training and supervision of fundraising personnel
• Should not compensate internal or external fundraisers based on commissions or percentage of fundraising efforts
• Respect the privacy of individual donors, except where disclosure is required by law 

The panel strongly recommends that an organization’s board conduct a thorough discussion of the complete set of principles, and determine how the organization should apply each to its operations. It is possible that after this review, a board may conclude certain principles do not apply to its organization. Developing a transparent process for communicating how the organization has addressed the principles, including the reasons that any of the principles are not relevant, is likely to foster a greater appreciation of the diverse nature of the sector and deeper respect for the board's good stewardship.

Click Here to view the complete Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations.

For more information on  the Guide for Charities and Foundations, please contact your BC engagement executive or Jeanne A. Fazio, CPA, MBA, Nonprofit Services Group Director.