“Good governance” is one of the hottest topics in the nonprofit world these days. Team huddle with all hands stacked on table.

What Makes Governance "Good"?

A Checklist for Nonprofits

“Good governance” is one of the hottest topics in the nonprofit world these days. Although the Sarbanes-Oxley Act (SOX) was meant to regulate for-profit businesses, nonprofits have been strongly encouraged to adopt certain SOX regulations, including a conflict-of-interest policy and financial statement review guidelines.

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The IRS Form 990 includes several questions regarding governance policies and board members’ roles in performing fiduciary activities. And the increasing power of charity watchdog groups means that nonprofits must try to put a responsible face forward to the public.

Some states mandate that nonprofits adopt practices such as forming an audit committee, but most good governance guidelines are only suggestions. It’s no surprise then that many charities have trouble defining the term “good” and putting it into practice.

General and Specifics

Your board is probably already aware of its basic responsibilities of creating a strategic plan and overseeing staff as it’s implemented; monitoring activities to ensure they contribute to the organization’s larger mission; hiring and evaluating the chief executive; ensuring adequate financial resources; and performing essential fiduciary duties of care, loyalty and confidentiality.

Following that general task list, however, doesn’t necessarily make a board effective. Good governance requires nonprofit boards—and executives—to go the extra mile and do some or all of the following:

  • Write policies, including conflict-of-interest, whistleblower, document retention and destruction, gift acceptance, Form 990 review and related-party transactions.
  • Form an audit committee made up of financially knowledgeable board members to oversee regular internal and external audits, and consider adding a paid or unpaid CPA if expertise isn’t already available from within the board.
  • Ensure that executive compensation is reasonable, which generally means setting it at “market level” based on current data.
  • Provide new board members with an orientation that covers your nonprofit’s mission, policies, programs and goals, and regularly offer refresher courses to long-time board members.
  • Regularly review risk exposure and ensure, for example, that insurance policies are up-to-date, internal controls are enforced, and investment policies are followed.
  • Develop emergency plans, including a leadership succession plan, procedures for handling urgent matters that require board input, and a communications plan.
  • Assemble a board that’s demographically diverse, including diversity of gender, ethnicity, economic status, disability, profession and expertise.

Finally, try to be organized. Maintain an annual calendar of board meetings and require members to attend a certain percentage of them. Be sure to prepare agendas and any materials relevant to discussions and votes before board meetings. When meetings are well attended and run smoothly, the board can focus on what’s truly important.

Make it a Priority

There are, of course, many other practices you can adopt to strengthen your organization’s governance depending on the type of nonprofit, the board’s composition, local and state regulations, and other factors. As you strive to make good governance a top priority, discuss the specific steps you should take with your financial and legal advisors.

© 2016

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