DIRECTORS, take heed! In this publication, the National Center for Nonprofit Boards (NCNB) issues a wakeup call for all of us who serve on boards of nonprofit organizations. "Recognize your role," the NCNB seems to say. "Ignore fiduciary responsibilities at your peril!" The fiduciary responsibilities here relate to the selection and compensation of the nonprofit chief executive. No longer is there only a moral imperative for fair and just compensation. Now there exist strong governmental sanctions to punish unwary or negligent directors.
Throughout the discussion, which I found relevant and informative, the message is clear: Boardrooms are boardrooms. Corporate governance fundamentals, process management, and executive leadership are valid and viable for the 501(c)(3) world as well.
Gone are the days, if ever, when individuals could view nonprofit directorships as an altruistic respite from more arduous corporate stewardship. As a result of some high profile nonprofit scandals, the public knows that greed and dishonesty are human traits, not organizational ones, and expects stronger oversight of nonprofits. In addition, talent shortages and competitive funding require new leaders, entrepreneurial and creative, able to manage and market the organization and to deal with assorted stakeholders. In short, another CEO. Indeed, many of the new nonprofit leaders are former corporate executives.
Now, the board challenge is to find the right leader and reward and retain him or her appropriately. Here, NCNB provides a concise, well-written guide. Excluding the introduction and the conclusion, the booklet is divided into three sections, "The Board's Role," which I found the most valuable and unique; "Guidelines for Determining Compensation"; and "Incentive Plans, Bonuses, and Other Compensation Trends."
The Board's Role. NCNB stresses that all directors must participate in the discussion and ultimate decision on CEO selection and compensation, even if they delegate the initial process to a few directors or a search firm.
Participation is critical for various reasons, two of which -- the previously mentioned public attention and asset management -- I believe are well known. The third, with major implications for directors, are the new IRS intermediate sanctions regulations. NCNB rightly stresses this aspect. In my admittedly anecdotal research, I found many directors unaware of these statutes. IRS Code 4958, enacted by the Taxpayer Bill of Rights in 1996, provides...