1. Best Practices in Nonprofit Corporate Governance Elaine Waterhouse Wilson Quarles & Brady LLP Elaine.Wilson@quarles.com (312) 715 5141

2. Governing Law and Principles What determines good corporate governance? –Your state of incorporation's nonprofit corporation code sets the basic standard Some provisions can be varied; Some are a floor that can be increased but not decreased; but Others cannot be varied at all! –Other state laws Illinois Charitable Trust Act Illinois Charitable Solicitation Act –Federal law Tax law Sarbanes-Oxley –Best practices in the sector

3. Best Practices Definition: A best practice is a technique or methodology that, through experience and research, has proven to reliably lead to a desired result. A commitment to using the best practices in any field is a commitment to using all the knowledge and technology at one's disposal to ensure success. Source: www.SearchSoftwareTechnology.com Sources: –Industry Publications and Press –Tax forms –Legislation –Experience

4. The Purple Book In Illinois, one of the best collections of "best practices" in nonprofit corporate governance is the booklet "Illinois Nonprofit Principles and Best Practices" published by the Donors Forum (known as the Purple Book). The Purple Book lists ten principles of good governance, followed by a discussion of specific issues and examples.

5. Principle 1 - Mission The organization has a clearly stated charitable or educational mission, approved by the governing body, in pursuit of the public good. – Requires the organization to state its purpose in the mission – Ensure that the mission is responsive to the organization's constituencies

6. Your Mission What is your corporate purpose? Do you have a mission statement? Where is it stated? Remember, it will be reported on the new Form 990! When was it approved? How often do you review it?

7. Principle 2 – Roles & Responsibilities The roles, responsibilities, selection, and tenure of the governing body are clearly stated in the organization's governing and policy documents and understood by the governing body members. –Governing body size, election, term –Committee structure and power –Meeting frequency and preparation –Communication and review –CEO compensation

8. Your Governance Structure Board of Directors –Directors and officers are different positions – but one person can wear both hats. –Meetings and Action by the Board: Board action can be taken at a duly called meeting OR by informal action. Attendance at a board meeting must by communications technology that allows simultaneous communication. See 805 ILCS 105/108.15(c). Illinois law does not authorize voting at a directors meeting via email! Informal action requires Board actions to be taken informally by unanimous written consent of all of the Directors. See 805 ILCS 105/108.45. Illinois law does recognize electronic signatures on unanimous written consents –How often and preparation? Regularly scheduled Board book and contents Written minutes and resolutions

9. Your Governance Structure Committees –Except to the extent that the members are required to vote, the power and duty to run the organization resides in the Board of Directors –The Board may choose to delegate some of its authority to a committee if authorized by the Articles or Bylaws. A committee that has the authority of the Board must have at least two directors; must be made up of a majority of directors (exception for nominating-type committees); and must serve at the pleasure of the Board. See 805 ILCS 105/108.40. The scope of the delegation is set out in the Bylaws or in a resolution of the Board. A committee may not have the power to dissolve; approve or recommend member actions in certain circumstances; to fill vacancies; to elect or remove any officer or director; to amend the articles and bylaws; to merge; or to contradict a full board action. –Any committee that has not been delegated Board authority is advisory only; it may have any membership but its actions must be adopted by the full Board. –You retain the obligation to oversee any delegation of authority, whether to a committee or an agent.

10. Your Governance Structure Officers –Officers are named in your Bylaws: usually, President, President-Elect, Secretary, and Treasurer –Authority of the officers: All officers and agents of the corporation, as between themselves and the corporation, shall have such express authority and perform such duties in the management of the property and affairs of the corporation as may be provided in the bylaws, or may be determined by resolution of the board of directors not inconsistent with the bylaws and such imposed authority as recognized by the common law from time to time. See 805 ILCS 105/108.50(b).

11. Principle 3 - Knowledge The governing body ensures that its members are competent and knowledgeable, and it seeks diverse points of view and experience as needed to provide credible and effective oversight of all aspects of the organization's work. –Needed skill sets –Board training –Providing information and viewpoints –Consulting experts

12. Principle 4 - Assessment The governing body regularly assesses the organization's mission and the effectiveness of the organization and its leadership in achieving it. –Self-evaluation –Setting long- and short- term objectives –Review mission and programs –Solicit and act on feedback

13. Your Knowledge and Assessment Do you have a list of desired skill sets for the Board? –How do you communicate those in the nominations process? Do you provide for Board training/retreats/strategic planning? –Usually, new board member orientation –Annual board retreat for training and strategic planning –Opportunities for self-evaluation and goal setting –Common strategic planning period – 3 to 5 years How often do you consult experts? –With regard to articles and bylaw revisions, contact your attorney for at least a review –Attorney attendance at meetings? Sometimes….

14. Principle 5 – Code of Ethics The full membership of the governing body is responsible to the organization and each member acts at all times in an ethical manner and in the best interest of the organization and the public –Written code of ethics –Conflict of interest policy –Confidentiality and privacy issues –Whistleblower policy –Document retention policy

15. Your Code of Ethics Do you have one? What is in it? –Conflict of Interest Policy Does it address non-financial conflicts? Does it define a potential conflict? IRS questions on the Form 990, Form 1023 –Document Retention and Whistleblower Addresses Sarbanes-Oxley concerns IRS questions on the Form 990 –Other Policies Confidentiality and privacy Acceptance of gifts (lunches, tickets, etc.) Individual political and lobbying activity

16. Principle 6 - Compliance The governing body and staff know about and comply with all federal, state, and local laws, regulations and fiduciary responsibilities –Education regarding tax and other legal requirements –Seeking professional advice –Financial management policies –Review of Forms 990 and 990-T –Risk Management

17. Your Compliance Your fiduciary responsibilities: –A director has a duty of care Requires you to know and follow the provisions of the organization's governing documents Requires you to be involved, attend meetings, and educated and ask questions Requires you to exercise independent judgment Requires you to oversee your delegations to officers, agents and committees Requires you to contact experts when you need help –A director has as duty of loyalty Requires you to act in good faith in the best interest of the corporation Requires you to identify and disclose conflicts of interest Requires you not to usurp corporate opportunities Requires you to maintain confidentiality Requires you to respect donor intent

18. Principle 7 - Oversight The governing body exercise active oversight of the financial affairs of the organization and sets policies to ensure that the organization's resources are used appropriately in furtherance of the organization's mission –Budget and cash reserves –Reasonable and necessary expenses –Compensation procedures –Accurate financial information provided and reviewed –Audit statements and audit committees

19. Your Oversight What is your budgeting process? How does it align with your strategic plan? What is your process for approval of expenditures? Do you have a budget or audit committee? How often do you receive financial information and in what format? Do you receive the Form 990 prior to filing? Do you review it? –New IRS question on the Form 990

20. Principle 8 - Transparency The organization makes information about its mission, program activities, and finances available to the public and communicates in a clear and timely manner with those who request information. –Ensure all information is complete and accurate –Make certain information available to the public –Provide contact information

21. Your Transparency Are your bylaws on your website? –Not required by law; often made available Are your articles on your website? –Is publicly available Is your tax status obvious on your website? –Form 1023 and Form 990 must be produced if requested per IRS rules –Posting your tax status and determination letter can help donors Are your annual report and financials on your website? –Not required by law; often made available Are your internal policies on your website? –Not required by law; are sometimes made available

22. Principle 9 - Fundraising Organizations that raise funds from the public or from donor institutions maintain solicitation policies that reflect the organization's mission and use of solicited funds –Appropriate disclosures and materials –Honor statements in fundraising appeals and donor intent –Appropriate use of professional fundraisers –Compliance with laws regarding solicitation

23. Fundraising Issues Use caution when describing the use of funds (purpose of funds, use of income) Know the solicitation reporting requirements for your jurisdiction and others –Illinois requirements –Multi-state filing requirements Oversee professional solicitors appropriately –State law registration Honor donor intent –Keep good records! –UPMIFA, cy pres, and other ways to amend donor restrictions

24. Principle 10 – Grant Making Grant making organizations establish, follow, and clearly communicate processes for receiving, reviewing, and acting on grant applications and for monitoring and evaluating grants made –Make grant areas and criteria readily available –Communicate with grantees regarding policies and changes –Clearly explain reporting and evaluation procedures

25. Grant Making Create and publish grant criteria Create a check sheet for evaluating criteria Use a grant agreement! –Even for simple grants –Provide for return of misused funds –Provide clarity on use of funds and income therefrom –Describe reporting Grants are a relationship, not just a check!