I recently read a thought-provoking article by a senior fellow in a DC-area ‘think tank’ and it prompted me to think, reflect, and to write this article. In summary, his article pointed out the governance problems with non-profits and called for Congressional action to put in place regulations to better govern the non-profits and to provide more IRS staffing to better police the non-profits.
I do not disagree. In fact, in my previous articles on issues of non-profit ethics, governance, and accountability, I have been (and remain) a strong advocate of responsible non-profit behavior and adherence to good business practices and all applicable IRS regs.
I do, however, differ with the author’s notion that non-profits cannot be self-regulating.
As with any good article on non-profit compliance, the one I read points out the important role of the board of directors and the oversight responsibility it has in making sure the non-profit operates properly. Amen! My organization, The Center for Ethics, Governance, and Accountability (CEGA) believes that non-profit status is a privilege and that adherence to all requirements can be used as a competitive advantage in grant-seeking and fund-raising. Implicit in this premise is the notion that non-profits certainly can be self-governing.
I recently had lunch with a retired CEO who is an experienced for-profit and non-profit board member. He remarked candidly that he was disappointed in the lack of governance of most non-profits with which he was familiar. Amen! We engaged in a friendly debate as to whether or not the typical board member was truly qualified to serve or whether they just did not want to assert themselves at board meetings. From my viewpoint, I believe most board members are qualified, but most do not want to rock the boat during board meetings, thereby becoming complacent – and ineffective – by default. This does not have to be the case. I am a proponent of proactive boards.
During our lunch discussion, we cited several examples of non-profit organizations where we knew the board members and we knew they had the requisite skills and experience for effective board service. Yet, for reasons that eluded us, those board members had been negligent in their duties and the non-profits they were supposed to be serving were suffering. The reasons why are numerous, but the outcome is the same: a poorly performing non-profit. We concluded our discussion by agreeing that board members needed to take their roles more seriously – and be proactive!
The article from the ‘think tank’ was full of good information, figures, and factoids: the regulations are not tough enough, the IRS does not have adequate staffing to police the non-profits, the states are in the same predicament, Congress is reluctant to act, and citizens are afraid to speak out about problems with specific non-profit organizations.
I would argue that Congress is not likely to address non-profit regulations any time in the near future; our nation is faced with economic and foreign policy issues that take precedent over the non-profits. However, this does not mean that non-profits cannot get serious about improving their performance and raising their board governance to a higher level. Again, this places me in the position of believing that self-regulation is, in fact, doable – an organization just has to want to do it.
So, absent the ‘stick’ (i.e. tougher regulations and penalties and audits), why would a non-profit choose to improve its self-regulation? If there is no ‘stick’ then where is the ‘carrot’ that would encourage a non-profit to be proactive? Not only because it is the right thing to do, but because it can demonstrate to the community that the organization outperforms its peers. This should be a powerful incentive!