Legal Updates

Governance Best Practices: Updates To Trustee Agreements And Other Essential Board Policies

Serving on the Board of Trustees of a nonprofit organization is an important contribution to the community, and a significant responsibility. In general, a nonprofit Board’s most important role is stewardship -- i.e., protecting the financial health of the organization; setting the long-term, big-picture objectives of the organization, making sure those objectives are aligned with its mission and purpose, and overseeing the administrators of the organization to help achieve those objectives.

To properly support the mission of the organization, each Board member should understand the fiduciary responsibilities that come with Board service, such as the duty of care and the duty of loyalty. As part of those duties, the Board must ensure that the nonprofit and its governing documents, agreements, and policies all comply with applicable laws.

Which Policies Does The Board “Own”?

Boards and Board Chairs often ask us which organizational policies are “owned” by and must be reviewed and approved by the Board, which policies the Board and the administration of a nonprofit work on together, and which policies should be left to the administrators of the organization.

A collaborative and balanced approach to risk management includes oversight of operational policies: the Board should confirm their existence, hold the executive director accountable for implementation, and conduct regular reviews of key operational policies. These could include business office policies such as handbooks, document retention, and hiring policies, as well as enterprise-level policies such as those relating to crisis management, gift acceptance, and data security.

Board members, at a minimum, should be familiar with the core policies for which they are responsible. Along with a nonprofit’s Articles of Organization and Bylaws, these policies are key building blocks to good stewardship and effective risk management.

Nonprofits classified by the Internal Revenue Service as 501(c)(3) organizations must generally submit a Form 990 each year, which, in addition to requiring disclosure of certain financial information, asks whether the nonprofit has certain basic governance policies in place. These policies include a whistleblower policy, a nondiscrimination policy, and a policy on conflicts of interest.

While the policies listed in the Form 990 are not required for a nonprofit to maintain its 501(c)(3) status, the clear implication is that the federal government considers these Board-level policies to be essential to a well-governed organization. In addition, state attorneys general and other agencies which oversee nonprofit organizations at the state level consider these policies to be an essential part of the foundation of good governance.

A nonprofit’s 990 policies should be anchored by a solid Trustee Agreement and conflict-of-interest disclosure form that each Board member must complete and sign annually. In signing the Trustee Agreement, the Board members acknowledge that they understand and will faithfully uphold their fiduciary responsibilities to the organization, and that they agree to abide by its key policies. These key policies should include a Code of Business Conduct and Ethics, which outlines the organization’s ethical expectations and the duty of Board members and others to act in the best interests of the organization.

Updates To Model Trustee Agreement And Board Policies

Schwartz Hannum has significantly updated its model Trustee Agreement and Form 990 Policy Package to comply with applicable laws and evolving best practices in nonprofit governance. This package includes an annual Trustee Agreement with Conflict of Interest Disclosure Form, Non-Trustee Committee Member Agreement, Code of Business Conduct and Ethics, Conflict of Interest Policy, and Whistleblower Policy.

Key updates to these documents include:
 

• Updates to the Trustee Agreement to include a version for non-trustees and other individuals who may attend Board meetings, sit on Board committees, or have access to confidential Board information.

• Revisions to the Code of Business Conduct and Ethics and Whistleblower Policies to include non-trustees, whose duties will be in line with their expected level of service and access to information.

• Revisions to the Conflict of Interest policy and disclosure forms to broaden their scope beyond financial conflicts of interest, to include all actual or potential arrangements that may involve conflicts that pose risk to the organization. Additional updates clarify the procedures and guidelines for Boards to follow when evaluating and resolving conflicts of interest.

• Updates to the Whistleblower policy to clarify when managers and senior administrators are required to report a complaint to someone trained to handle such complaints within the organization or its Board.

* * *

If you have questions about these policies, or if you are interested in updating your institution’s Trustee Agreement and Board policies, please don’t hesitate to reach out to one of our experienced nonprofit governance attorneys.