January 21, 2008

Board's Give Or Get More Expensive Now

More than half of nonprofits now require board members to make an annual contribution, with a major share of large ones setting a minimum of $5,000.

That finding, in the new edition of National Board Governance Survey for Not-for-Profit Organizations conducted by the accounting firm Grant Thornton LLP, comes against a backdrop of more and more nonprofits reshaping board of directors practices and policies to fit the Sarbanes-Oxley Act. Just as more public companies expect their directors own stock, nonprofits expect an investment as well.

While it excludes nonprofits, Sarbanes-Oxley in 2002 established new or enhanced standards for all U.S. public company boards, management, and public accounting firms. It does not apply to privately held companies. The Act deals with everything, from responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law.

The survey, which drew 603 responses this past September, found that 56 percent of respondents require donations from board members. Although this was the first year the question was asked, the survey noted that this reflected "a trend that could become increasingly expected in the near future."

However, writing a check is not the only option. "Many organizations employ a 'give or get' policy, where board members are requested to contribute personally and/or solicit contributions from their friends and contact," the survey noted.

There were no numbers on how many allow the option.

The size of the mandatory contribution correlated roughly to the size of organization. For nonprofits with annual budgets less than $20 million, 54 percent set a minimum of $1,000 or less, while only 14 percent required at least $5,000.

On the other end of the scale, 38 percent of nonprofits with budgets of more than $500 million required at least a $5,000 contribution, with the rate rising to 60 percent for those in the $100 million -- $500 million bracket.

Overall, the way nonprofits run themselves in general has abruptly changed directions. Last year, 87 percent said they had adopted governance policies to conform to Sarbanes-Oxley, compared to only 20 percent in 2003, the first year Grant Thornton conducted the survey and the year after law was enacted. Included in the mix are more ethics policies, mechanisms for listening to whistleblowers and tighter audit controls.

"The findings show a community that is determined to hold itself accountable for its actions -- both fiscal and strategic -- and is committed to serving not only its constituents but, ultimately, the 'greater good,' " said Frank L. Kurre, the managing partner for Grant Thornton's nonprofit practice.

Only 30 percent require board members to review the federal Form 990s that nonprofits file with the Internal Revenue Service. But that could change with the arrival of an updated form starting next year.

Some 80 percent of organizations have enacted term limits, with 57 percent allowing a board member to serve two-to-four years and another 26 percent allowing five-to-seven years. Regular rotations of board members allow the influx of new ideas and help avoid the change of the board aligning itself too closely with the management.

The number of boards adopting a formal gift policy jumped to 68 percent from just 44 percent in 2006. Generally, the thrust is to avoid the appearance that a vendor has showered the board with valuables as a route to landing contracts.

More than half of the boards have established at least four committees: executive, finance, audit and fundraising.

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This article is from NPT Weekly, a publication of The NonProfit Times.

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