Charity watchdog group adopts change in its ratings to promote good governance
Caroline Preston, The Chronicle of Philanthropy, 9/22/11
The watchdog group Charity Navigator revamped its ratings system this week as part of a plan to move beyond evaluating charities based solely on their financial performance. The website now places equal weight on a charity's governance and openness about its operations as it does on financial information. Ken Berger, Charity Navigator's president, said: "Our basic belief is that any charity...should have certain basic best practices, governance procedures, and openness in sharing information. Organizations that have those...are less likely to get into ethical problems." For three years, Charity Navigator has been exploring how to improve its ratings system. Critics say the watchdog group's emphasis on what share of a charity's money goes to administration has been misguided. Berger said this week's announcement was a first step and that [it] would now be examining if it should adjust its methodology for assessing financial performance and developing a way to tell whether charities are measuring their programs' effectiveness. To perform well on Charity Navigator's new system, a nonprofit must share certain information on its website and in its tax filings. A charity can no longer receive four stars, the top score, if it doesn't have a board of at least five people, if its money has been diverted for purposes that don't relate to the charity's mission, and if the group lacks an independent audit of its financial information. Other factors include whether the group has a whistle-blower policy, lists its chief executive's salary in its tax filings, and keeps minutes of its board meetings. Mr. Berger said he initially thought that adding a transparency component wouldn't be "that big of a deal." But 2,700 groups, about half the nonprofits rated by Charity Navigator, received different ratings under the new system. About 30% of groups got higher marks. Other groups saw their ratings drop.
Commentary: "Poor governance sickens the arts. We have the cure."
From a lecture at Deakin University by Professor Johanne Turbide, HEC Montreal, 5/5/11
In the last decade, financial crises have popularised the notion of governance. We rarely congratulate board members publicly when an organisation is successful. It seems that the success belongs to the management team. In the opposite situation, in cases of organisational or financial difficulties, we are quick to point the finger at board members. Who are they? Were they asleep? Why did they let the Executive Director and his team take such risky decisions? Quite easily, we assign criticism and blame to the board members: "The board was irresponsible, it governed inadequately!" As an academic, I was very much interested in the governance buzz. Moreover, my research with the Quebec Ministry of Culture made my curiosity even more acute. My first thoughts were: "Before accusing board members of inadequate governance, is it possible to get a clear picture of what this means?".... Where can we go from rich empirical data to try to propose a more integrative framework that would help arts board members and managers improve governance?
- We believe that a combination of trust and distrust might be key to balancing relations between board and staff. It seems that the Executive Director will always be the person (along with his team) with the knowledge and the expertise to inform board members about activities, risks and possible consequences. However, boards need to be able to challenge the artistic vision and to ask "why" the decision should be taken instead of just asking "how" it will be done.
- We also see a need for better communication between the expectations of Executive Directors and the expected roles of board members. If managers are seeking "fundraisers", then they have to communicate that need when looking for new members. In order to meet the multiple objectives of a not-for-profit arts organisation, an equilibrium between three profiles might best serve the entity: an artistic profile, meaning a person who knows the artistic field and who is able to challenge the manager; a business profile, meaning a person who has the aptitudes and experience to measure risks; and a fundraising profile, meaning a person who has a list of influential people who will be able to help enhance the financial capabilities of the organisation.
- As a concluding remark, we could not confirm that good governance would prevent all financial crises, but at least, we had observed that bad governance can precipitate crises. More studies are needed to document roles and responsibilities that make a difference. Remember: It is easier to have a good board than to have good governance!
Commentary: 5 ways foundations can strengthen nonprofit boards
Rick Moyers, Against the Grain blog on Philanthropy.com, 9/21/11
In two recent posts, I asked if foundations should be doing more to strengthen boards and whether we expect too much from boards. More than 50 readers provided thoughtful comments, with a range of perspectives, that are well worth reading. Much to my surprise, most readers who commented thought foundations should indeed do more to strengthen boards. A third suggested more grants to support board development. A handful requested more foundation-sponsored training for boards, and one practical soul suggested that foundation staff members roll up their sleeves and help grantees find board members.
Your comments helped overcome my initial skepticism about whether boards need more intervention from foundations. Most of you think boards need the help. And the comments from my colleagues at other foundations indicate that a growing number of grant makers agree -- and are tackling the issue with vigor and creativity. Assuming that many foundations want to do more to strengthen boards, how can we make sure their efforts don't do more harm than good? Here are five suggestions, grounded in your comments and my own experience as a grant seeker, grant maker, and nonprofit-board nerd.
1. Raise the issue. This may seem rudimentary, but many grant makers don't do so or they ask only perfunctory questions.
2. Lose the checklist. Having a conflict-of-interest policy, term limits, or a governance committee doesn't automatically produce a high-performing board. A few probing questions tailored to the organization, its stage of development, and its most pressing challenges will yield better information than a one-size-fits-all checklist.
3. Communicate high expectations. If we expect 100% board giving, for example, we should say so. If a weak board was a factor in turning down a funding request, we should provide that feedback -- and in specific rather than general terms, if possible.
4. Consider governance when making funding decisions. Foundations that profess to be committed to building strong boards while supporting organizations with weak boards that are making no effort to improve undermine their own credibility and risk creating the impression that they are only paying lip service to the need for stronger boards.
5. Strengthen our own boards. The medicine we so freely prescribe for grantees should also improve the health of foundation boards, which have the same basic responsibilities and face many of the same challenges.
These five suggestions don't require additional resources, special grants, or foundation-designed programs or initiatives. But these suggestions do require some expertise, and foundation staff members who regularly ask grantees about board issues -- and listen carefully to their responses -- will quickly increase their understanding of effective board practices.
"Essential Governance Principles for Arts Organisations"
Australia Council for the Arts publication, 2nd edition, September 2011
What constitutes good governance will evolve with the changing circumstances of an organisation and must be tailored to meet those circumstances. Best practice must also evolve with developments both in Australia and overseas. Although the following best practice recommendations cannot, in themselves, prevent failure or mistakes in organisational decision-making, they can provide a reference point for enhanced structures to minimise problems and optimise performance and accountability. Ultimately good governance is essentially about people working together effectively - especially so in the arts where board members are voluntary positions. Getting the best out of people is the way to make boards "great".
> You can read/download this publication here.