Saturday, February 27, 2010

2009 Nonprofit Board Governance Trends - Highlights of Grant Thornton Survey and My Commentary

One of my most popular posts has been a summary report of the 2007 Boardsource Governance Index, but 2007 is a long time ago and a lot has changed since then. I haven’t seen a Boardsource update, but Grant Thornton has been publishing an annual Nonprofit Board Governance Report and this post provides a summary of the highlights along with my own commentary. (You knew you had to get that too.)
There are two big items that have influenced and put a spotlight on governance findings in this year’s report: The revised IRS 990 and the bad economy. I have written about their impact on nonprofits many times on this blog and I don’t plan to expound on either in this post.

This survey of 459 top level nonprofit executives and board members was taken in October – November 2009. 71% of respondent organizations had annual revenues less than $50 million. There was no lower breakdown. This blog usually tends to focus on smaller organizations and sometimes the statistics are different for smaller organizations so keep that in mind as you review the results. Also I am not reporting on data in the report that tends not to be a major issue for smaller organizations such as scrutiny of executive compensation and investment trends.

Respondents answers to the issues they addressed because of the recession were not different than several major studies conducted earlier in the year. This is a no brainer. Respondents essentially said, “We had less income so we made tough choices and reduced, staff, programs and other expenses.”  It is sobering though that 51% reduced staff even as demand was rising.

          Issues Addressed in 2009 due to the Recession
          Reduce Expenses                                          87%
          Reduce Staff                                                   51%
          Reduce or Eliminate Noncore Programs    40%
          Other                                                                28%

Role and Structure of the Board
78% of the Boards have between six and thirty members. There does not seem to be much change in board size from year to year. There is, however, a change in the percent of boards with term limits - increasing from 74% last year to 78% this year. Clearly this issue is being looked at because the new 990 asks about it even though there is no right or wrong answer.

Of particular interest to me, is this breakdown of committees versus what respondents said was the primary focus for their Board today. 30% said that strategic planning was their primary focus followed by Fundraising at 21% and ensuring effective programs at 19%.  Even though strategic planning was listed as the top area of focus for the board, substantially more boards have a fundraising and program committee than a strategic planning committee.

          Types of Committees Board Have         
          Executive                 88%
          Finance                    83%
          Audit                         65%
          Nominating               58%
          Fundraising              55%
          Program                   39%
          Strategic Planning   32%
          Governance              30%

One startling change over the last 3 years is the composition of the audit committee. In 2006 only 24% of respondents said there was a CPA on the audit committee and today 74% do. There is also a substantial increase in interaction between the audit committee and auditor as clearly Board members are taking this responsibility more seriously. I have also seen in my work with small organizations more interest in having a CPA on the Board. Everyone used to want lawyers and people with experience in fundraising, but having a CPA on the Board is the new must have.

In contrast to actual committees respondents reporting board training was quite impressive.  I was surprised at how far down the list fundraising was.  And just to give a little self plug - I do Governance and Strategic Planning training.
          Areas of Board Training
          Governance              72%
          Financial                   70%
          Strategic Planning   60%
          Programatic              56%
          Fundraising               51%

Evaluation, Evaluation, EvaluationThe numbers are up in every form of governance evaluation you can think of – board assessment, CEO/CFO/Development Officer evaluation, compensation and other policy reviews and of course review and sometimes change for everything asked about on the 990. 78% of respondents said that their Board or audit committee have reviewed their 990. As little as three years ago when I mentioned a 990 to a Board, most people had no idea what I was talking about and someone usually said, “I thought as a nonprofit we did not have to pay taxes.” Well, even if you don’t pay taxes you do report to the IRS. In 2009 most Board members have heard of the 990 and see it as an important document they need to know about. Although every accountant I have heard talk about the new 990 sees it as evil, I think it is driving an incredible improvement in governance by Boards. There is definitely a new sense of responsibility among Board members.

The percentage of Boards with a Whistleblower’s policy has increased dramatically from 60% in 2007 to 84 percent in 2009 but I am surprised it isn’t even higher and concerned that smaller nonprofits are lagging far behind in adopting this important policy. It is one of the few provisions of the Sarbanes Oxley Act that nonprofits are not exempt from.

This is an excellent report by Grant Thornton and you can download it for free from their website.
Grant Thornton 2009 National Board Governance Survey for Not-for-Profit Organizations

1 comment:

Ashley Kasprzak said...

I found this blog to be really useful. I am leading a discussion on board recruitment tomorrow and I will reference your blog. Thank you.