Francie Ostrower, senior research associate in UI's Center on Nonprofits and Philanthropy, discusses the challenges of nonprofit governance and the implications of her recently published national survey of nonprofit boards, "
Nonprofit Governance in the United States: Findings on Performance and Accountability" from the First National Representative Study.
Five Questions Archives
July 19, 2007
1. You just published a major report on nonprofit governance in the US. What are the report’s most significant finding?
We found large percentages of nonprofit boards are racially and ethnically homogeneous to an extent that raises questions about their ability to be responsive to diverse publics. Fully 64 percent of nonprofits with under $100,000 in annual expenses have only white, non-Hispanic members – the figure drops to 31 percent or less for nonprofits in size categories over $10 million.
Three other findings were also important. First, a substantial percentage of nonprofit board members are not actively engaged in such basic governance activities as fundraising, monitoring programs, and community relations.
Second, 70 percent of nonprofits are having some difficulty finding board members and 20 percent are having great difficulty.
Third, given the wide variation among nonprofit boards, policy proposals and best practice guidelines must be assessed beforehand to determine the different impact they may have on nonprofits of different types. Overall, one of the most significant things about this study is that it is the first national representative survey of nonprofit boards. Over 5,100 public charities from across the U.S., with at least $25,000 in annual revenues responded. For that reason, the survey allowed us to get a broader picture of governance in the nonprofit sector, including the many variations among organizations of different types.
2. Why is nonprofit governance getting more attention from the IRS as well as from policymakers and the media?
There are clearly several factors. Recent media reports of scandal and failures of governance at some business and nonprofit organizations have raised public awareness and fueled the belief that these problems need to be addressed.
Policymakers, such as the Senate Finance Committee, now believe that one important way to prevent future scandals and improve performance at nonprofits is to strengthen their governance.
Within this atmosphere, the IRS is also paying more attention to nonprofit governance. The IRS believes that good governance practices may lead nonprofits to comply more fully with tax laws and better achieve their charitable purposes. The IRS recently issued a draft paper on good governance practices, and added questions about governance on its proposed revisions to Form 990, which many nonprofits are required to file.
3. What drives the trend of nonprofit organizations to be more accountable and more transparent?
Again, several factors are at work. One driving force is this greater attention from the public, media, policymakers and the IRS. Another is that professional membership organizations are responding to this heightened attention by encouraging their nonprofit members to think about and engage in practices they believe promote strong governance.
4. What impact is the Sarbanes-Oxley Act having on nonprofit governance?
The Sarbanes-Oxley Act was originally passed to strengthen corporate governance, but has had a strong, if indirect, impact on nonprofit governance. Its passage in 2002 quickly sparked debate about whether nonprofits should adopt some of the same procedures it called for from corporations, such as an external audit, an independent audit committee, and a written conflict of interest policy. Our findings suggest that, in fact, many nonprofits have voluntarily adopted some provisions. Compliance is particularly likely in nonprofits that include board members who also serve on corporate boards and apparently bring Sarbanes-Oxley practices to nonprofits.
5. Why are many nonprofits having a hard time finding board member?
Our study identified the problem, but we need to know more about its causes. Certainly, the dramatic growth in the number of nonprofits in the last decade is one important reason because it means that many more people are needed to serve on boards.
This recruitment issue is not likely to go away anytime soon because the nonprofit sector continues to grow. We need more research on recruitment because qualified and committed board members are critical to nonprofit governance.
