The Challenge: Not-for-Profit boards are a constantly evolving entity, typically comprised of selfless, community-minded individuals who have come together to accept the great responsibility of acting as Trustee and Steward of a cause. Whatever policies and governance procedures are in place, whatever success the association has had at fundraising are legacy items from the past, and the active 2012-2013 slate of directors step up as volunteers to guide, nurture and above all act as Trustee. A purpose-built board should have equal part representation in a variety of categories from finance to social services to operations to legal to marketing savvy. Daily I read stories of boards in tussles, resignations, or worse, accusations or legal ramifications!
Avoiding Director Liability through Risk Management: In response to increasing demand on the topic of risk management in the non-profit boardroom, I have committed to share what I have gleaned from this sector with my fellow Canadians who are active board members, as your work is so important to your community and beyond!
Volunteers, employees and directors of organizations must safeguard against personal liabilities in duties as trustee; always take steps to implement and monitor risk management and follow standard operating procedures. Ensure your charity has director’s liability insurance in-place. Do not accept a term as director without doing thorough due diligence.
Questions your board must address:
Are brand and operational risk management techniques in-place across your non-profit’s workforce?
What are the priorities of the board? Where does risk management fit? HINT, it should be in top 3 and be front and centre in your strategic planning.
Do we have bench-strength at the board level to appropriately answer the question, “are we taking the right amount of risk?”
Are we monitoring general economic conditions, inflation, tax-consequences, liquidity; does current forecast provide margin of safety?
Is each board member active on a least one committee? Who is engaging donors, past supporters, new board recruits, and communications?
Is the board operating using current, audited financials? Is your strategic plan too dated. Are minutes being recorded? Are tax filings up to date?
Directors, Executive Committee, Executive Director and staff must ensure their non-profit is run to the highest standards (conduct, compliance, privacy etc.) to ensure public trust is not broken. It is imperative for foundations to have perspective and if needed, seek outside counsel. I was personally impressed with the expertise shared by Jeffrey R. Wilcox, President & CEO of USA-based Third Sector Company, in his workshop, Building Continuity of Leadership. A workshop sponsored by Clark Wilson LLP on Administering Charitable Bequests and the Estate Litigation Minefield, was certainly memorable. Always encourage ongoing Trustee or board member education, through workshops, webinars or other reading materials. Only by learning and further developing your skillset can your intuition and experience be on guard regarding potential problems. Your risk antennae must always be on alert lest a high profile, negative event and the resulting media attention permanently impair your non-profit brand’s ability to serve its mandate.
Endowments must follow a prudent investment policy statement and the investments must be monitored to ensure interest, dividends, maturities, asset allocation and SRI (socially responsible/ethical) screens are followed. Foundations of any size may have restrictions, constraints and screens in their investment policy mandate.
A movement is underfoot to encourage an additional asset class, with up to 20% of an endowment fund’s assets to be in “mission-related investments”, social community capital lent via a secured lending structure (see Vancity Credit Union’s division called Resilient Capital). Investment management services need not be a reason for a foundation’s discord, but rather a source of pride and community impact.
I have contributed countless hours just this past year to studying methods and standard operating procedures non-profits utilize to become best-in-class in transparency and reporting, both internally and externally. I am intimately aware and seen first-hand the shortcomings many foundations have in procuring institutional-level pricing, pooling service and bulk purchasing agreements with other like-minded charities, HR obligations with respect to reporting and management of their foundation assets. The board must be transparent. The entire organization must try to be collaborative and not try to play turf-ism solely to collect government agency funding. The board, in doing its altruistic best is able to meet stringent fiduciary and operational obligations, while best serving the strategic mission.
When the board is doing everything right, the Executive Director can implement the plan and manage the program measurables. This allows the public to see actual results. Actions are the voice of the charity. Community or mission-impact must be demonstrated. Each participant in the non-profit sector wants to have accretive dialogue with their stake holders and donors to share good news.
Best Practices: Governance, investment restrictions and constraints require controls at the board and investment manager level and must include the implementation of a comprehensive investment policy statement. The IPS will establish asset allocation, procedures for investment decisions, restrictions and constraints from SRI screens, resulting in a more robust investment plan.
Other Non-Profit Sector News: There is a sea-change stirring up ways the once conservative, tired way non-profits obtain funds to sustain operations. The gala, golf tournament or dream home lotto concept is essentially secured by a handful of well-established non-profits in any given community. No doubt, 80 per cent of the fundraising from these initiatives is controlled by 20 per cent of the sector. Be bold, but do so within the constraints of a Trustee’s duty. Explore grants to fund technical assistance, business planning, and demonstrating value. Develop fertile new ground in the donor space. Be a harbinger – lead like-minded volunteers in this mission. Nurture like-minded donors who can support your mission. Be cost-conscious.
Sustaining Partnerships: Donors are sensitive to the friction their contribution endures as it flows through the organization and eventually into the services the charity supports – how much is lost along the way to overhead? This has provided an opportunity for donors to become “sustaining partners” with the contribution (cash for operations or in-kind, such as office space, gas cards) identified up-front to cover administration and overhead. With these costs out of the way, the charity can publicly state that 100 per cent of all general donations go straight to programs.
Social Enterprise: A Social Enterprise acts almost like any other business with the exception that it seeks to create employment or serve a social purpose as priority No. 1, such as life skills and employment skills. David LePage, Program Manager for Enterprising Non-Profits, has been touring Canada, coast-to-coast to provide support for social enterprise development; including development grants, marketing opportunities, access to capital, and public policy advocacy.
There has been a surge of economic impact from this sector that has benefited Canada and the provinces supporting these entrepreneurs. My favourite quote from attending David’s workshop on Building your Social Enterprise is, “Social Enterprise will not fix dysfunction board’s psycho-drama!”
Donor-Advised Funds and Endowment Funds can be established at any one of the 181 Community Foundations across Canada, with start-up capital of just $10,000 (may be possible to start smaller increment and pledge to achieve min $10k over 3 to 5 years). What a great opportunity to recognize a loved one, a cause or a legacy of your own!
R. Brent Lang, CIM FCSI, is active in the fields of finance and philanthropy. He is a Director at the Surrey Foundation and Chair of the Community Impact Fund.
Brent is also registered as an Associate Portfolio Manager. He holds the CIM (Chartered Investment Manager), Branch Manager, and FCSI (Fellow of the Canadian Securities Institute) designations. He enjoys contributing to nonprofit organizations with an emphasis on social entrepreneurship, planned giving, and community relations.
The Surrey Foundation is part of one of the fastest growing charitable movements building community vitality. Opportunities in collaborative community development are great topics to discuss with me. Find me on LinkedIn at ca.linkedin.com/in/rbrentlang or I can be reached at Brent@SurreyFoundation.org