Board Members as Responsible Stewards
This article originally appeared in Glenmede’s “Perspectives.”
Good governance is at the core of an effective board, no matter the size or complexity of the grantmaking foundation. Sound governance practices help board members be responsible stewards of the assets they oversee and establish a strategic decision-making and administrative framework.
Best Practices for Boards
Board members are fiduciaries who owe duties of care, loyalty and obedience to the foundations they serve. With this in mind, there are common requirements and best practices board members should review annually. Because foundations are as varied as the donors who fund them, requirements may vary. Consult with an attorney or tax professional if appropriate.
Board Governance
The board should play an active role in guiding the foundation. This starts with developing and periodically updating policies and documents that describe the foundation’s mission and vision, long- and short-term goals, responsibilities and metrics to measure success. These documents should include but are not limited to:
- Annual calendar of board meetings
- Board membership criteria
- Board responsibilities
- Conflict of interest policy
- Gift acceptance policy
- Investment policy statement
- Perpetuity or sunset
- Travel and expense reimbursement
- Trustee compensation
To ensure continuity and avoid disruptions, there should be a plan in place for board members’ succession. Formal policies should anticipate both planned and unplanned turnover at the board and, if applicable, executive leadership levels. Consider engaging prospective board members in foundation business as committee or junior board members to get them acclimated.
Since every director and officer (D&O) has meaningful exposure to personal liability, determine if D&O liability insurance is needed. D&O insurance protects the organization, its directors, officers, employees and volunteers against “wrongful acts” in governing and managing the organization. Wrongful acts include allegations of breach of duty, errors and omissions, and other acts that cause harm to the organization or its members. If purchasing D&O insurance, review and understand coverage limits and policy terms.
Grantmaking
Strong grantmaking practices help foundations be good stewards of their resources. It is important to develop and review grant procedures and guidelines, such as award ranges, limitations on geography or purpose, approving or declining grants, discretionary grantmaking and relevant metrics.
Collect and review reports on prior grants to gauge how the organization’s funds are being spent. Conduct grantee meetings and site visits as needed. The reports and meetings should spark dialogue among the board and leadership to help determine if the foundation is meeting its goals.
Use the foundation’s website, publications and social media to communicate available grants to community stakeholders. More transparency with current and prospective grantees allows for stronger relationships with the potential for greater impact.
Financial
The board should ensure there are adequate financial resources to advance the foundation’s mission. In addition to creating and approving the annual operating budget, meet with investment managers and advisors to assess investment performance, services and costs. Review the investment policy statement and asset allocation to confirm they are consistent with the foundation’s objectives.
Private foundations must distribute 5% of their asset value annually for charitable purposes. Determine the 5% annual distribution requirement and ensure it is satisfied by the end of the foundation’s fiscal year. Calculating the minimum distribution includes many components of the foundation’s operations, such as grants, certain administrative expenses, grants repaid or returned to the foundation, cash reserves and tax liability.
Tax and Legal
The IRS has strict guidelines regarding private foundations, including nonexempt trusts treated as private foundations. Consult with the foundation’s tax attorney to ensure the organization is compliant with these regulations and file the appropriate IRS forms. File a corporate filing in every state in which the foundation is registered and pay the appropriate taxes. Be aware of and file other taxes and exemptions, such as employment and local property and state sales.
Assess the “level of assurance,” or confidence, stakeholders have that the foundation’s financial statements will be reliable, informative and conform to a particular financial reporting framework.
Administration
A foundation’s administrative expenses can be one way to determine if it is fulfilling the public trust and spending its dollars wisely. Regularly review compensation and other expenses to ensure they are necessary to fulfill the foundation’s charitable purpose and are reasonable relative to peer foundations. Ensure staff or other responsible parties are designated to process checks, balance accounts, prepare monthly financial reports and meet payroll. Have in place a record retention policy and maintain paper or electronic files of the following:
- Bylaws
- Filed tax and legal forms
- Governing documents
- Grant information
- IRS tax exemption documentation
- Meeting minutes
- Other relevant documentation
- Policies
- Resolutions
Through the strategic use of technology, foundations can target donors with messages and appeals that resonate with their interests. This not only helps improve fundraising effectiveness but also can enhance donor engagement and retention. It is important to create and update the technology policy. Assess foundation email, website, antivirus and spam filter software, and other technology needs.
The Value of Good Governance
Adopting good governance policies and procedures — and revisiting them annually — can strengthen a foundation and allow the board to focus on mission fulfillment. It may also uncover opportunities to adapt and sustain your mission.
About the Author
Glenmede is an independent and privately held investment and wealth management firm.
This material provides information of possible interest to Glenmede’s clients and friends, and does not provide investment, tax, legal or other advice. Any opinions, recommendations, expectations and/or projections expressed herein may change after the date of publication. Information obtained from third-party sources is assumed to be reliable but may not be independently verified, and the accuracy thereof is not guaranteed. Any potential outcome discussed, including but not limited to performance, legislation or tax consequence, ultimately may not occur due to various risks and uncertainties. Clients are encouraged to discuss any matter discussed herein with their tax advisor, attorney or Glenmede Relationship Manager.