Non-Profits Prepare For Onslaught Of Reform

The non-profit sector should think of itself as in the midst of a lengthy calm before a horrific storm. All the charities and foundations in the country are a small beach community, and a major storm is heading its way. But instead of only three or four days warning, the community has several months or even a year or two to get ready for the onslaught.

This analogy seems to work well to describe Congress' steady and highly visible progress toward the most comprehensive reform of the non-profit sector since 1969.

Led by Senators Charles Grassley, R-Iowa, and Max Baucus, D-Mont., the Senate Finance Committee is developing fundamental changes in the law that will affect corporate governance, executive compensation and supporting organizations. On the House side, Ways and Means Committee Chairman Bill Thomas, R-Calif., is tackling a different set of issues that are just as significant to the charitable sector. What is now a congressional tropical depression is being upgraded to a tropical storm and it is certain to reach hurricane status.

So, what to do? Should beachfront-property owners start nailing up the

plywood and eating all the ice cream now? That wouldn't make sense because the plywood looks ugly, you can't see out boarded up windows and you've got to live in the house until the hurricane arrives--which could be a long way off. And, you'll probably want an ice cream cone before then.

As long as you have so much advance notice of the storm, wouldn't it be smarter simply to make your house permanently hurricane-proof? Rather than nail up ugly plywood that might not be that effective and will have to be replaced next time anyway, install shutters. Secure the roof with rafter straps, and do the other things the experts recommend. Spend a few months and a few dollars to make your beachfront home a haven in a hurricane rather than a fixer-upper after every storm.

Non-profits should make equivalent preparations as they wait for Congress to act. Waiting to see what happens legislatively doesn't make much sense because we have a very good idea already of what to expect. Senators, Congressmen, their staffs and our experts are telling us the basics. Just as we know that a hurricane brings a lot of rain, we know, for example, Congress is going to insist on major governance reforms. The only question is when.

That is why the non-profits that haven't already done so should be doing the spadework for basic improvements in their governance now. These include creating a compensation committee that will have authority to set executive compensation and an audit committee with members who can read and understand financial statements. The non-profits also should adopt whistleblower protection policies to provide anonymity or confidentiality for employees, vendors and others who might not otherwise be willing to report wrongdoing. Furthermore, they should adopt formal codes of conduct or ethics that include detailed conflict of interest policies and procedures that apply to the board, officers and senior management.

Many charities and foundations already have these things, but too many don't. Those that don't can use this lengthy calm before the storm to review options, write drafts of policies, seek out consultants and schedule board meetings to formally adopt policies. But even if we tend to our governance issues before Congress passes its legislation, we will no doubt still have plenty to do to comply with the things we didn't anticipate. I'm just trying to make sure our to-do list is a bit shorter when that day comes.

In the meantime, we should make hay while the sun shines and batten down the hatches we know about.



Bruce D. Collins

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