Can the Nonprofit World Govern Itself?

Tuesday, January 15, at 12 noon, U.S. Eastern time

Diana Aviv, Independent Sector's president, will answer your questions about the guidelines, her organization's agenda now that the principles have been ratified, and what nonprofit leaders should expect from lawmakers in Washington during the next several months.

A transcript of the chat follows.

Peter Panepento (Moderator):
    Hello, and welcome to today's live chat with Independent Sector President Diana Aviv. Ms. Aviv will be available for the next hour to answer your questions about new ethical guidelines for the nonprofit sector, her organization's agenda, and the current climate in Washington. It promises to be an interesting discussion -- and we hope you will be free to submit your own questions along the way. Thanks for joining us.

Question from John C McGee, consultant:
    What is being done to insure that small and mid-size nonprofits are being included in this process, are actively working to implement the guidelines and have the resources available to implement the changes that might be required?

Diana Aviv:
    Small and mid-size nonprofits have been a key focus of the Panel on the Nonprofit Sector work since it was created by Independent Sector in 2004. We know that smaller organizations are the most vulnerable when board members aren't aware of their responsibilities and there isn't appropriate financial and programmatic oversight. The Principles can provide a useful guide that the boards of all organizations -- large and small -- can use and adapt to their particular needs and circumstances. Independent Sector is in the process of gathering tools and resources that are available to help nonprofits implement policies and procedures that will help them reach higher standards of management and governance without necessarily incurring additional costs.

Diana Aviv:
    Hi, everyone. Welcome to the chat. I am looking forward to an engaging and enlightening discussion. The Principles for Good Governance and Ethical Practice have been embraced by a large portion of our sector, and we are hoping that many more choose to consider them. I look forward to your questions about the Principles, and about our nonprofit community.

Question from Fred Matthews:
    One of the major deficits in nonprofits is the lack of background and experience in governance by so many board members. One consequences of this is an often casual attitude about Board duties and responsibilities--including their ultimate responsibility for the mission of organization. Another consequence is the dominance of many nonprofits by senior staff. How can we get Board members to take their responsibilities more seriously or are we just going to keep moving into a corporate model where the CEO basically runs the organization?

Diana Aviv:
    You're absolutely right that many people join boards of nonprofit organizations because they care about the organization or simply because they are asked by a friend to volunteer. The Principles can be used by both staff and board leaders in educating board members about their responsibilities and helping them to understand why it is important to review financial statements, manage conflicts of interest, avoid percentage-based fundraising compensation arrangements, and set appropriate program goals that will help the organization to achieve its mission. It is the responsiblity of the CEO to run the organization and manage the staff; the board's resposibility is to set the strategic directions and policies and oversee the work of the CEO. If you mean by your question that the board is not doing its job, we hope that you will use the Principles to remind and educate them about their responsibilities.

Question from Ronnie McClure, Consultant:
    Do you believe that the Principles you recommend will meet the requirements of anticipated Sarbanes-Oxley standards.

Diana Aviv:
    We don't anticipate Sarbanes-Oxley will be applied to the charitable sector. We have just seen the most far-reaching legislation affecting the nonprofit community since the Tax Act of 1969 in the Pension Protection Act, passed in August of 2006. We also believe that by embracing our own high standards of good governance and ethical standards, our organizations will preempt the need for further, comprehensive legislation.

Question from Sally Roslow, NJHA:
    What will be the impact of the new 990 forms on nonprofits?

Diana Aviv:
    The new 990 should be easier for most nonprofits to complete, and for our donors and the public to understand. It incoporates many of the recommendations of the Panel on the Nonprofit Sector. In its latest iteration, it is clear that the IRS has responded to concerns and suggestions put forth by our nonprofit community. The IRS has also provided reasonable transition time for organizations to become familiar with the new form and establish any policies or procedures they need to ensure compliance. For these reasons, IS considers the new form a major step in fulfilling our nonprofit community's commitment to accountability and transparency.

Peter Panepento (Moderator):
    We have some great questions in the queue for Diana. Please stay tuned for more of her insights.

Question from Tish Mogan, Pennsylvania Association of Nonprofit Organizations:
    We applaud the work of the Nonprofit Panel in issues "Principles for Good Governance and Ethical Practices." The work in this document has similarities with previously published "sets of Standards" issued by the Standards for Excellence Institute and the Minnesota Council on Nonprofits. Both of the latter are already extensively utilized in many states. We have a specific concern that the Nonprofit Panel Document, in combining standards for public charities and private foundations, tends to weaken some of the standards set for public charities in previously issued documents. Exceptions for very small organizations exist in the Nonprofit Panel's document in the areas of number of board meetings,number of indepedent board members as well as other areas. It is our experience that areas in which scandals occur are those where power is limited to a few individuals. Why have these exceptions been allowed.

Diana Aviv:
    There are many organizations that have excellent existing standards, and they have gotten in touch with us to tell us how the Panel recommedations enhance their efforts to ensure good governance and high ethical standards by pulling specific principles that were not in their own existing systems. In the Panel principles, we encourage organizations that have already developed standards that go beyond the Panel to keep up their great work and encourage others to subscribe to their high standards. For principles that apply to a large number of organizations, we don't believe there can be a one-size-fits-all solution. Each organization should look at the principles individually and determine how best to apply them to their own organizations.

Question from Terri McNichol, Reformed Church Home:
    Although I think the document is well-thought out and superbly written, a search for terms such as "altruism," "benevolence," "civil society" did not produce any results.

Are you concerned, like me, that by nonprofits trying to fit themselves into the private sector mold of "efficiency" that we may be losing sight of specifically what distinguishes us? Certainly, we want to stay on budget and manage prudently, yet what if the inverse were true and that nonprofits have something of worth to demonstrate to the private sector? Using Geraldine Dodge Foundation’s example of what they ask of their grantees, what if our board members and organizations reflected annually and articulated the ways in which as a result of our efforts our communities, our institutions, our world are a more liveable place? As civil governments, isn’t that our aim despite our specific missions? We in the nonprofit sector do hold ourselves to a higher standard, after all that is the attraction of the sector—to create a better world. And wouldn’t that inform the current ubiquitous term of sustainability.

Diana Aviv:
    Our organizations need the trust of the public to be able to fulfill missions and improve lives. Good governance is part of maintaining the trust of donors, volunteers, service recipients, public officials, and others. The Principles are an important tool to help us all achieve these ultimate goals.

Peter Panepento (Moderator):
    We're halfway through our chat with Diana Aviv and have heard some great questions thus far. Please feel free to join the conversation by adding your own question.

Question from Tammara Van Ryn, Land Trust Accreditation Commission:
    Diane, Here is a suite of related questions. Can you please provide an update on your work with elected officials in Washington? How have the Principles been distributed to lawmakers? What sort of response has there been? What are your impressions about how self-regulation in the nonprofit sector is being received by elected officials and the public?

Diana Aviv:
    Elected officials have responded very positively to the principles, and in encouraging other organizations to take a look at them. Both committees, in the House and Senate, that have oversight jurisdiction over the sector have expressed positive reactions to the principles, as has the head of the Tax Exempt division of the IRS. As noted in an earlier question, the IRS has developed a revised Form 990, on which we have worked closely to ensure that they increase transparency and are responsible and sensible. The Panel's principles will be distributed to every member of Congress. But I encourage you to share your own copies with your own federal and state elected officials. As for the response, the House Oversight and Government Reform Committee has held hearings into reported abuses by Veterans charities. They have been encouraged by the Principles and efforts by the nonprofit community to regulate itself and improve governance. Individual lawmakers continue to focus on specific inststitutions that they believe are operating outside the sphere of reasonable and responsible conduct. Many of us are continuing to work to ensure that the IRA Rollover provision, which expired at the end of 2007, will be extended to facilitate greater charitable giving. It remains unclear whether we will succeed in this effort unless we have a lot of help from all of you.

Question from Peter Panepento:
    Even if these new standards are embraced and followed by well-minded organizations, there will likely always be a subset of groups that operate outside of common ethical boundaries. Are there enough checks and balances in place to properly root out the bad seeds -- or do the IRS and state agencies need to dedicate more resources to enforcement?

Diana Aviv:
    We agree there will always be bad actors. The checks and balances will only be as strong as the resources available to enforce existing law. This is one of the reasons IS has been calling for increased appropriations for the IRS, and we need your help.

Question from Sally Roslow, NJHA:
    New Jersey passed the first ever (we believe) required board training for hospital trustees. Do you see a trend in requiring board members take orientation and continuing education credits as a requirement or voluntary basis?

Diana Aviv:
    Iowa also has similar law for all nonprofits (not just hospitals), and we are going to use this time to see what kind of impact it has before recommending universal adoption. To succeed, these states must ensure that there are sufficient educational resources available to meet these requirements.

Question from Carmen Gonzalez, City of Hope:
    What are the penalties Congress has spelled out in the current legislation?

Diana Aviv:
    I am assuming you are speaking of the Pension Protection Act passed in 2006. If you are interested in that, IS has a summary of the legislation on our website, www.independentsector.org.

Question from Peter Panepento:
    Now that these standards have been approved, what are some of your organization's biggest upcoming goals?

Diana Aviv:
    First, our work is not complete with the Principles. We want to double the number of organizations that are familiar with and are using the Principles. We want to make sure that every member of Congress is also familiar with this work. From our recent experience, we are aware of how little members of congress understand the nonprofit community. Toward that end, we are in the process of developing a series of messages that help communicate to public officials the value of nonprofits to their communities. We are also looking at the effectiveness of charitable organizations; the human resources avilable to the nonprofit community, to ensure they are sufficient to fulfill our missions. We are about to take a lok at the nonprofit community itself--who's in it? What does it mean? What defines it? Given that we are in an election year, we are in the process of exploring what the common agenda of the charitable community might be, so we can share it with the next administration and Congress. Finally, on the international front, we have reached out to a number of countries to explore ways we can work together to strengthen civil society on a global level.

Question from Carolyn, mid-size nonprofit:
    With the Senate Finance Hearings, followed by the passage of the 2006 Pension Protection Act and now the revised 990 addressing/regulating various aspects of nonprofit oversight and operations, have lawmakers seen their primary concerns regarding the nonprofit sector addressed and what might we expect going forward?

Diana Aviv:
    Because we worked closely with legislators and demonstrated that our community was taking steps to address these issues, we think we managed to address their main concerns in 2006. Because of that, we don't expect further comprehensive legislation at this time. That said, there are lawmakers who have expressed concern about the actions of and rules for specific types of nonprofits, such as universities and hospitals. There may be some further activity in areas such as those.

Question from Laura Murphy, non-profil lobbyist:
    Do you think that the combined effect of recent laws (revisions in the lobbying disclosure act and congressional ethics law) and a potential non-profit version of Sarbanes-Oxley will have a chilling effect on the willingness of non-profits to fully engage in legally permissible federal lobbying?

Diana Aviv:
    As I have said, the Pension Protection Act is the most far-reaching legislation affecting nonprofits since 1969. And there is no indication that Congress intends to apply Sarbanes-Oxley to the nonprofit community. That said, there is some concern that the new lobbying rules may cause nonprofits that are already fearful about engaging in loibbying to pull back further. We are working hard to inform nonprofits about the rules, and how they can comply without compromising their ability to communcate with Congress. We believe that nonprofits are a critical voice for people who otherwise find it difficult to be heard by elected officials. And, we must all encourage nonprofits to speak up and participate in the process.

Comment from Tish Mogan, Pennsylvania Association of Nonprofit Organizations:
    This is a comment, not a quesiton: Regarding the next steps, Peter, thank you for that question. I am sure you may be aware of the report issued by the General Accountability Office in July 2007 on the Nonprofit Sector. One of the six areas included in this reports is the need for appropriate data on the nonprofit sector. It is heartening to hear Diana's response that ongoing focus will continue with legislators and helping them to understand the critical role of the nonprofit sector in civil society. The fact that the Principles are drawing attention to that is to be celebrated. Tish Mogan

Question from Peter Panepento:
    What government policy issues should the nonprofit sector be most concerned about during the coming months?

Diana Aviv:
    Nonprofits should not let the elections trump important legislative activity. There are some serious federal budget issues on the table, and spending decisions, which affect the nonprofit community's ability to fulfill our missions. We'll be providing more information as this moves forward, and we urge nonprofits to stay involved.

Diana Aviv:
    Looks like my time is up. Thank you all for your thought-provoking questions. To learn more about Independent Sector and the Principles for Good Governance and Ethical Practice, please refer to our website, www.independentsector.org. You can also download the Principles at nonprofitpanel.org. Thanks again, and best of luck with all of your efforts!

Peter Panepento (Moderator):
    Thank you to everyone who joined us today -- and a special thanks to Diana Aviv for taking our questions. Please note that next Tuesday at noon, we'll have two donors from our "50 Top Donors of 2007" survey here to take your questions about philanthropy -- and what motivates them to give. Thanks again.