Bristol Organizations

An Organization Made Up Of Organizations

The Nuts and Bolts That Keep Your Nonprofit from Crashing
By Elizabeth Schmidt

I’ve been spending a fair amount of time lately helping nonprofits beef up their policies and procedures. This is not a wildly popular task. The nonprofits’ leaders believe they have better things to do — orphans to feed, dramas to perform, diseases to quash. If they aren’t actually doing this work, they assume they should be raising funds. Why should they use their precious time and energy to put these boring things on paper that no one will look at anyway? They know they are all good people with good motives. They don’t need to be told not to steal.

What they are forgetting is that nothing substantive works well unless strong procedures are already in place. When you go to a restaurant, you assume the food preparers have washed their hands, sterilized the dishes, and cooked your food sufficiently long to kill bacteria. Those steps are procedural, but vital to your enjoyment of the meal. The nuts and bolts of your car and the airline mechanic’s checks of your plane are also procedural matters that allow you to drive or fly without incident.

Your nonprofit organization’s policies and procedures perform a similar function. They are the safety steps you take to ensure your ultimate service works smoothly. Without them, if anything goes wrong with your organization, you can expect your critics to look for your policies and procedures — and to blame the board if they are not in place.

So what kind of policies and procedures should you have? Although they will vary somewhat according to the size and type of organization, here are some suggestions:

  • Board policies
    • Board job descriptions
    • Board self-evaluation
    • Board nomination process
    • Conflict of interest policy
    • Confidentiality policy
  • Personnel policies
    • Hiring and firing policies
    • Harassment policies
    • Whistleblower policy
    • Conflict of interest and confidentiality policies
  • Others
    • Document destruction policy
    • Code of Ethics

Why so many? Yes, that sounds like a lot, but I promise that these policies can prevent some huge headaches. The board policies, for example, will help attract board members who understand their roles and agree to perform them. That should help your nonprofit run more smoothly and may even attract grants from funders who will see that your organization is well-run. At the very least, these policies will give you ammunition if you need to prod a director into doing the job or resigning. The conflict of interest policies are especially important. They will help avoid intermediate sanctions penalties — and the headlines of your local paper. The IRS considers these policies so important that it now requires organizations seeking tax-exemption to submit conflict of interest policies along with their Forms 1023.

The personnel policies are equally important. Like the conflict of interest policies, they should help your organization run smoothly and avoid lawsuits. Nonprofits are more likely to find themselves on the wrong side of a lawsuit in an employment dispute than for any other issue, and strong employment policies can go a long way toward forestalling such an event.

Finally, whistleblower and document destruction policies, while good ideas in themselves, are also important in light of the Sarbanes-Oxley Act. That act, which is designed to bring accountability to large for-profit organizations, also applies to nonprofit organizations in these two areas. Whistleblowers are protected from retaliation, and organizations cannot knowingly destroy, conceal or falsify records with the intent to impede or obstruct a federal investigation. Policies that recognize these Sarbanes-Oxley requirements should help the nonprofit avoid running afoul of this law.

How do you assemble all these policies? You have several choices. Umbrella organizations, such as the Council on Foundations or your state nonprofit association, may provide sample policies for their members. Smaller affinity groups that serve purposes similar to yours and even other nonprofits in your geographical area may be willing to share their policies. You will then want to adapt these forms to your situation, and you can assign policy-drafting to a board member, staff member, volunteer or intern. Of course, you can always rely on a local attorney or consultant, who, despite the cost, is probably worth every penny.

The biggest impediment to completing these policies is inertia, but once you make them a priority, they can be drafted and approved relatively quickly. Then the trick will be to ensure that everyone follows these policies, for it is probably worse to have policies that are never followed than to be without policies at all. Enron had a 64 page code of ethics [fn1] in place when it collapsed. It didn’t do much good, did it?

How do you ensure that the policies are followed? The example set by the executive director and the board chair has a powerful impact on the rest of the organizational community. When they follow the policies and procedures and emphasize the values behind them, they set the tone for everyone else. Additionally, the board, the staff, and all volunteers should affirm on an annual basis that they understand the policies that apply to them. Orientation and training sessions, and even board and staff meetings, can also reinforce the importance of these policies and procedures. Finally, pay attention to the signals people within the organization are giving. If someone is harping too shrilly about the need to follow the rules or if honest people begin leaving to find other jobs and board assignments, they could be signaling that the policies and procedures you have so carefully drafted are not being enforced.

Think of this article as a wake-up call. It is time to stop the inertia and begin formulating those policies. I recently heard that a fifty year-old organization with $50 million in assets instituted its first conflict of interest policy last year. That organization provides proof that it is never too late to tighten the nuts and bolts within your organization. You could be staving off a major catastrophe. 

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