TRANSCRIPT
Tele-Workshop: Organizational Self-Assessment

>>A lot of board members, let's face it, are recruited in what I would call the warm body method of recruitment. It's taking nourishment and seems to be ambulatory, so let's grab that body and put it on the board, and they really don't what they're getting into in terms of the roles and responsibilities that they have. It's critical that they understand what their potential exposure is. Next one is the Principle of Good Faith and Loyalty. You have responsibilities as board members to act in good faith all the way along the line and to be loyal to the organization. You may disagree with issues as they come up and you fight the good fight in the board meeting, but once the decision has been made, it's a responsibility of board members to implement the policies, the procedures of the organization.

>>And finally, the Principle of Personal Accountability, which you now for personal benefit and self-dealing, conflict of interest issues; the IRS is becoming more and more concerned about that. That happens very often, I know a lot of you are serving at other boards as well, and this information obviously may have some application to other types of organization that you represent. But the issue of personal accountability often comes up when you have a founder of an organization, the "founder syndrome," somebody who has created that organization stays with it for a long time, sometimes is a paid employee of the organization. That happens. The IRS is looking at this much more in detail and with a greater eye toward accountability of people who are in that position. Pretty good resource there I've got on that page, also on the web, that you might want to check out in terms of best practices and information. If you are looking for other resources in terms of information--let me know and I'd be happy to send them too. Any questions on any of that or discussion on any of that before we dig into the document? Okay, hearing none, turn to page 15. 

>>I'm sorry--I was on mute so I got a question. Is there a place, idea of the reference for a good resource? Is that the way to defining this prudence and due care, mismanagement issues? 

>>Yeah, some of that will--there are board sources another one for instance. You can Google Board Source, or if you want me to give you the homepage on that, email me and I'll send that to you. They get into that issue of prudence and due care and so on. We'll talk about these issues as well, and if you turn to page 15, the implications of the Sarbanes-Oxley Law which was--uhh, it came out of the Enron Debacle in the "for-profit" world. They get into these issues of accountability prudence as well, so we'll talk about some of that as we go ahead today, but I can give you other resources on that but try board Source. They're very, very good one in terms of dealing with what you're talking about. Okay? Any others? 

>>Okay, take a look at 15. What happen with Enron, of course, was that they went under and they dragged Arthur Andersen with them, and as a result of that, Congress passed the Sarbanes-Oxley Law which applies to the "for-profit" world, but we're now finding that many of the same issues that they came up with do now apply or being applied by the regulatory agencies and especially the IRS, to the "not-for-profit" world that are, as we would like to say, the independent sector. So, it's a matter of rebuilding trust in the business world in this--I mean, I'm not quite sure they've done a very good of it yet, but these are some of the issues you can get into. Inside your transaction, the conflict of interest, if the IRS is now pretty much requiring that we have a Conflict of Interest policy. If you don't have one, it very well could be required of you in the future. Independence of the Audit Committee, if you are subject to audit and that is often a State by State situation. Obviously, there are some Federal rules and regulations, I'm not an accountant or an auditor, but I know that there are certain criteria that will make you subject to audit.

>>If you were subject to audit, is there an independent auditor that has been selected. What happened with Enron was they got in bed with Arthur Andersen, quite frankly, and it dragged them both down because there was not independence there. And the Audit Committee was not selected by people who are competent to pick an auditor for the organization. They have some responsibilities for auditors, if you are subject to an audit and you get a management letter now, you will find that many of the auditors are making recommendations regarding how you select an auditor, and they're making suggestions as to the types of people who ought to be serving on your board.

>>I served on one board, we recently got a management letter and it said that we should make every effort to have an attorney on the board. We should make every effort to have a CPA on the board, other just so many to go around. We have 3600 still in traffic co-organizations in Dane County, Wisconsin alone. To have one on each board is probably unrealistic, but available to us for information advice, counsel, is now being recommend by the auditors. They talk about some of the certified financial statement information and if you are the CEO of your organization, the president of the board, the Chair of the board, you will be required to sign off on the financial statements on the 990 forms that you submit and they're all new rules regarding who will be subject to having to report and how you report, and the potential exposure that you may have as the CEO if you sign the document, that is not always been case in the past.

>>Disclosure Information on the next page, 16, be aware of this, and the disclosure information again that the IRS is going to be requiring a whole new set of principles coming as of January 1 that are going to be affecting just about every not-for-profit organization in the country. So, again, it would be to your benefit to Google "990," Google the IRS, keep track of what they are recommending, take a look at the new forms, and what you're going to be required to sign off on because that will have implications in terms of the records that you keep. And that, by the way is another item, it's number seven on page 16, Document Destruction. I prefer to call it Document Retention. Again, what happened with Enron was that they destroyed a number of documents and that was highly illegal. So you are now being required to have a written mandatory document retention policy.

>>All of these are items that we're going to talk a little bit more about as I go through the agency assessment and I'll have samples that I can send you on all of those. I have a complete package that I think you might find useful.

>>Number six, the Whistle Blower Protection on page 16, if you have staff especially, that will affect you. They are trying to protect the whistle blowers. What's more, that's what--if that's what happened with Enron, there were people who stepped forward and they were being fired or they were being threatened in terms of their role with their organization, with Enron, and they're trying to protect against that. Volunteers are, if the definition that I use is unpaid staff, so volunteers should have a method of being able to blow the whistle on what they feel is inappropriate activity as well, has gone so far in this country. The Red Cross, for instance, they have a hotline that they instituted. Anybody can call that hotline, get straight to the board, they have no other people in the way, so somebody sees Malthusians misused or has questions about the operations of the Red Cross because they went through as, you know, some difficult times as well. They can get directly to the board without the fear of retribution. So, the--these are issues that you're going to be facing.

>>The next page, page 17, is kind of a good paste document also. This is the--these are the Standards of Practice that the Better Business Bureau puts out. Many people use those standards to make their decisions as who they're going to donate to. A Better Business Bureau is pretty much a nationwide repository of information about non-profits and the independent sectors. And many people will refer to that to determine, is this an organization that does have its house in order, and you can look at that at your leisure, I think you'll find that there will be a number of issues in there that may be of help to you. And the earlier question about what are considered appropriate governance criteria and oversight, you'll find some information on that as well. You'll also find information on the Finances on page 19, Fund Raising and Informational Materials on page 20 and how you need to handle those, page 21 gets in the mission, the types of reports that you will have to deal with. So, yes, stopping there, any questions on that before we take a look at page four of the Agency Assessment Document? 

>>This--something you're giving us, this is, I assume targeted primarily just 501c3's? 

>>Yes. 

>>Is it--how much of it is applicable to a 501c6 like a chamber? 

>>Quite a bit of it. 

>>Okay. 

>>A goodly amount of it will be--there's more information in here about fund raising than there would be for a c6a but many of the principles of governance are valid...

>>Okay. 

>>...across the entire 501 spectrum, so anybody with a board, it also is a very good document, by the way, for businesses that are being run in the for-profit sector. These are many of the same principles that before that the for-profit sector should be applying and should be aware of. So, I think you'd find it useful, it obviously will take some editing and modification. The information that I'd send you, if I send you a sample of something, don't take it just as a piece that you wouldn't want to modify or edit, adjust; you'll need to tweak them for your own particular situations because you do operate many different ways. But I do want to make very clear that you are welcome to use this document in any way you see fit with the organizations that you work with. What I do is I--when I start working with an organization, I ask every board member to fill it out. I ask all the key staff to fill it out, key volunteers to complete it. Just to make sure that we all understand what those criteria are for good management. If you would like an additional copy electronically--and I keep updating it, by the way, I keep adding things to it. If you would like to get an electronic copy separate from what you've all ready been sent, let me know and I'll send a clean copy. You'll notice it does not say anything on the front of it about copyright. I've eliminated that, it's yours to use as you see fit. And that's true of all the other materials that I will send you, these are materials that I've gathered over time. Any others?

>>Okay, let's dig into it on page 4, and we'll go down these items piece by piece. As I said there's as--go ahead. 

>>I do have a question. 

>>Yeah. 

>>Look, you have a board and you have meetings and the board member are employed by another agency or organization, or has a private business, so they're actually getting paid for some of the time that they serve on the board while they volunteer for that position, is that considered a conflict of interest? 

>>Potential, it certainly could be.

>>Uh-huh.

>>It would depend upon their relationship, and there are ways in which they can serve, but they can recuse themselves, remove themselves from the decision-making process regarding anything that would affect that. That may go all the way to leaving the room when there's discussion that would affect them or the agency that they're representing. It could be simply sitting mute, it could be that they could discuss but they could not vote on the particular issue. It will vary depending upon the level of conflict of interest and a lot of that is judgmental. It isn't necessarily something that there is a hard fast rule on, but you bet, there are potential conflicts of interest there.

>>I'm working with one council now, The New Ad Council in the State of Wisconsin, we're trying to recruit young people to take up agricultural careers. We have a council of about 30 people, every one of them representing another organization, many of them being paid exactly the way you're mentioning it, by their other organization. Each one of those people has to declare their potential conflicts of interest in advance. They must sign a document indicating these are potential conflicts of interest and I will recuse myself when those issues are discussed, that may have some impact on my organization or me personally.

>>And, again, I can send you samples of those types of documents. One of the documents that I can send you is a job description for board members and a sample of a conflict of interest statement and a sample of a contract, if you will, between the organization byways, let's say, and the individual board member. Here's what you can expect of byways--one, two, three, four, five, six... This is what we will provide you to be a prudent and active board member. This is what we expect of you, board Member, if you are going to be on our board, and it's a signed agreement between the board member and the organization. I've seen more and more of that.

>>I recently joined the board where I had to do that, the Botanical Gardens in Madison, and they required me to, in effect, come to a contractual understanding with them regarding all of those issues. It's really becoming a very controlled environment that we're in. It's moving away from the "mop hop" type of situation to a much more business-like approach. And, I know that in one recent case also that I was not only imbedded as a potential board member, but they did a criminal background check on me because we deal with children. And that they went through a very stringent review of anything criminal and also my driving record because we were driving kids around and driving in behalf of the organization.

>>All of those are issues that are--we're just in such a litigious society, you know. We've come to the point where everything is going to be done on paper every T-cross, that we--I doubt it. And, lot of us going into board situations aren't really aware of all that.

>>Do you find this helping or hindering participation on boards?

>>I think if you don't--for instance, if you do not have Directors' and Officers' Liability Insurance, it's hindering. And I see an awful lot of not-for-profits where the exposure is there and they do not have directors' and officers' liability. I frankly will not serve on a board unless DNO insurance is in place. Well, the reason for that is because if we are potentially exposed because of something and we are sued, yeah, for acting in a prudent manner and doing things in good faith, the courts will protect us, but they're not going to pay the legal fees and they won't pay for the attorneys, that's what's happened with that organization that I mentioned earlier that--where the executive director is suing. Fortunately, they had directors and officers, so the fees were being paid. But a lot of board members don't realize that if you don't have that protection, there is great liability. So, if you do not have that, yes, there are going to be a number of people who will not consider joining your board. Also, the overwhelming potential of litigation and of exposure and of requirements of being a board director, I think, is holding back of number of people who understand their potential liability. Yeah, I've seen that.

>>Are paid staff also liable?

>>Sure, potentially they're doing--anybody can sue anybody for anything in this country. That is, we're a funny society that way. I mean, you sue somebody for--you poured a cup of hot coffee on your lap and you can sue McDonald's. Well, we've seen that in the past. Anybody can sue anybody for anything. It may be frivolous, they may sue everybody in the board; they may sue every staff member, all of these folks. It may be thrown out of court a year or two or three from now. But in the meantime, you got to pay the attorney's, and that's what's often forgotten. So, absolutely everybody is potentially liable. You can have all sorts of disclaimers in your bylaws, you can have written agreements with people that does not stop somebody from introducing litigation if they are so inclined and it's usually the deep pockets theory of litigation. We'll sue everybody in sight including the United States of America and all the ships at sea because you never know where the deep pockets will be if there is, in effect, a judgment.\

>>Now, I'm starting to sound like an attorney which I am not, and I want to be careful about that, each case is different. You need to also determine what are the rules and regulations in your own State, as I said, because they will--that will be a factor in the type of protection that you need and how you write your protection. You might get competent authority to check all these out. I know it sounds all, you know, it all sounds really scary but to some extent, it is. It's sad to say. And that's what we've run into. I don't know if that helps answer some of that. Anything else?

>>Okay, page four, Board. First, take a look at that. As I said, I have everybody fill this out and then I analyze this, and take a look at it. I'll inevitably find an awful lot of sixes. The sixes come very often from new board members. First of all, they don't know that these are things that they should know. It can come from older board members who have just never really paid attention to their government's responsibilities. Board members understand the roles and responsibilities, that's what we're talking about here and yes, I can send you information about how to be prudent, acting in good faith and all of those things. 

>>If you would like to--start making a list of anything that you would like, e-mail me and I will get it off to you probably over the Thanksgiving break. I'll be in Duluth through Tuesday and then can probably get stuff off to you next week late. And again, if you want to stop and talk about any of these as we go, please do it.

>>Are your bylaws up to date and effective and do you follow them? That is--has become a huge issue in the litigation in Madison. The board had bylaws but they weren't following them. And therefore, the judges said, you weren't acting in a prudent manner. You should have adjusted the bylaw, you should have amended them if you had changes. And often, what happen with bylaws, they sit in a shelf some place and they're not reviewed on a regular basis. They ought to be reviewed at least annually. 

>>If you would like to see a set of, sort of generic bylaws that are pretty permissive and don't get into a huge amount of detail, ask me for that, and I'll send them to you. I also have articles of incorporation that are fairly universal. But understand once again, they refer primarily to the State of Wisconsin because that's where I'm located, but I think that will give you some ideas.

>>I'm a great believer in bylaws being permissive, sort of, that it enables the board to do what it needs to do at any given moment in time without having to amend the bylaws. I see that happen, but you have to change everything or they're just ignored and that is dangerous because if you don't follow it exactly, that is what a good attorney will grab on to and use as a tool in making their case to the judge, and again, that's what's going on in Madison right now. They were not following them. I don't know if we have any attorneys on the line but what happens is, attorneys will have a tendency to write bylaws that are written by other attorneys and they will perpetuate the problems of prior bylaws on a continuing basis. I find some of the issues, especially deal with duties of officers, duties of the board member, potential exposure, all of that, committees structures, the issues of a quorum. Many believe that a quorum has to be a majority of the board. No, it doesn't. In many cases, many States--they allow, they have less than a majority of the board serving as a quorum. There are a whole bunch of different issues that you can take a look at. Any questions on that? 

>>With that idea, maybe one of the outcomes is...

>>Okay, there is your question about board members understanding the principles with due care and building prudence, good faith and loyalty. And it's really pretty simple. If you're acting in a prudent manner, what a normal human being will do in the eyes of the regulators, they'll protect you. And most States have laws that will protect the board, volunteers of an organization and give them quite a bit of slack in terms of how they operate as long as they are doing it for the right reasons. If they're doing it for personal gain, if they're not doing it in good faith, they're not being loyal to the organization and so on, and they haven't done their due diligence, then they are potentially liable or the exposure is potentially great. That's really what you have to look at. So, it's a judgment call, it's a judgment call. Are you being prudent? They felt that the officers...

>>Can you just explain that for me, please, prudence and due diligence?

>>Prudence and due diligence, yup. And prudence means you're doing what a normal individual would do or be expected to do. Due diligence means you've done your homework and you're aware of these issues. And you are not just coming to a meeting and sitting there, but you are looking at the finances, you're monitoring that, you are monitoring all of the executive director or the CEO. If you are planning for the organization, all those things that a good board member would be expected to do. That's the difference between the two. Do you know how many board members don't look at the materials that they are sent a week ahead until they hit the boardroom? Is that being prudent? I'm not so sure. Is that due diligence? I'm not so sure. 

>>Now, that's written into that contractual agreement I mentioned before. The organization can be expected to send the information out a week in advance, that's the one I recently signed. My expectation of me is, that I will review it and look at it, and if I have any questions that I should be raising before the board meeting, I will have done that but how many of us have seen board members who come to the board meeting totally unprepared? There are certain items that should be sent out in advance, I believe. The financials, the minutes of the prior meeting, I like to see the report from the executive director or the CEO in writing, in advance. I like to see committee reports in writing, in advance, not being presented verbally at the meeting, so that at least I have a chance to chew on them a bit before the meeting. Then when the meeting takes place, it becomes a Q&A session. It becomes a clarification session and not my first look or my first hearing of a committee report or the executive director's report, coming in prepared, in other words. There's work involved in being a board member. I think that's what a lot of people forget. It's not just sitting there and sort of being a rubber stamp of whatever is being presented. Anything else on that?

>>You have a formal process for selecting board members. I have an example of a recruiting process, you might find interesting. A lot of board members, as I said earlier, were recruited simply because--"Would you like to serve on this? Oh, great. Come to the next board meeting. We'll put you on." I'm not sure that's how you get the best board members.

>>One that was used to recruit me for Big Brothers Big Sisters some years ago I really liked; they said--they had a committee that was taking a look at the needs of the board. What types of people do we need? There was a matrix. They took all of their current board members, they put together a matrix of various needs, has financial experience, served on prior boards, whatever they are, and they filled in the ones that they already had. They saw where the gaps were. They discovered that, "Gee, we don't have somebody with financial experience." Or, in my case, they were looking for somebody who had experience in fundraising and development and marketing. They contacted me and said, "Would you be interested in the possibility of serving on the board?" That was all they asked me at that point; not would I serve but would I be interested in going through a process. I had a connection with Big Brothers Big Sisters because of a daughter that I was raising, and I said "Yeah, I'd be interested. How do we go about it?" They said, "We'll send you a care package." Which they did. They sent me a binder with their minutes of recent meetings, their financial statements, annual reports, they sent me marketing materials, they sent me the bylaws, articles of-- a whole bunch of things. And they said, "We'll get in touch with you a few days after you get this and see if you want to go ahead and here are the rules. You can opt out boards anytime you want and you don't even have to give us a reason. We can do the same." And I thought it was a fair thing. Okay, if we feel it's not going to be a good working relationship or I have problems or you think I'm not a going to be a very good board member for you, either side can say, "Let's stop it here. No further discussion needed. No bad, no hard feelings." I took a look at it, a few days later they called me, "You want to go ahead to the next step?" "You bet." I said, "It looks good to me." "Good, let's have lunch." I had lunch with the chair of the board and the executive director of Big Brothers Big Sisters and we just schmoozed. We talked, and we talked about stuff I saw in there and they said, "We'll give you a call in a few days. Let us absorb it. You absorb it." They called me in the middle of the week and said "We'd like to go ahead. Would you like to go ahead?" I said "Good." "Next step, come to at least one board meeting. You can come to more if you would like but we'd like you to sit at the table. We'd like you to act like a full board member. You just can't vote, but you do everything else. We will see how we get along. We'll see if we're compatible. Are you okay with us or are we okay with you?" They called me up later in the week and said, "We thought it went pretty well. Would you like to go to the next step or would you like to come to some additional board meetings or do you have other questions?" I said, "No, I'm comfortable." They said, "Good. Next board meeting you'll be inducted." And I was brought in at that next board meeting. They then assigned a mentor to me. They assigned a board member, a senior board member, who was my sounding board. If I had a question, you know, "What was so and so like in that meeting?" Or if I wanted some-- kind of confidential information or feedback, I had somebody I could go to. They had a horrible name for that person. They called that person a "Board Buddy." When I became president, I changed it to Mentor; the "Board Buddy" has really kind of got me. So that was that process. I can send that to you, as I said, as a sample. And I'll sort of just-- why don't you interrupt me if you have questions as we go here.

>>If you have community diversity on the board, are you really representing the community? There is one special group; I mean, this is something we think about normally. Do we have appropriate minority representation? Do we have appropriate senior representation?

>>There is one group I find often forgotten and that's youth, young people. Some of the best boards I have seen include high school students on the board; young university students. I think one of our responsibilities is to help to prepare the next generation of leaders for our organization. One board I know has three teenagers: a sophomore, a junior and a senior in high school. They recruited them from the leadership group at the high school and it gave them, first of all, continuity of youth on the board, so they were on for a three-year appointment. It also gave them a whole new perspective on issues that were facing them in the community. Also, if you have a website, you couldn't pick anything better than a 15-year-old kid, these days can help set up a website and technology... my 13-year-old grandson is my technology wizard. They have roles that they can play tangibly, not just in terms of serving us as a typical board member.

>>Substantial majority or independent do not receive any form of compensation or personal benefit from the agency. Absolutely. A very few not-for-profit boards pay their board members. That is not very common; it's very common, of course, in the for-profit field. As a matter of fact, in the for-profit field, board members are usually selected by the majority stakeholder or stockholder, or they're appointed by the CEO. In the not-for-profit world, it's quite different. So, having independence there is important. Bylaws define board terms which are enforced.

>>Now, that's something you have to decide if that's appropriate for you. I served on a foundation board; it was not really appropriate to have term limits there. We felt it was more useful to the organization to have a long history, and there were no term limits. So you have to decide, is that appropriate? Organizations that have term limits are usually those that want to have new blood coming on, a new direction, bringing the fields of the community on board. So, just determine that. But if you have the term limits, going back to number three, do you follow them?

>>I find a lot of cases where they have term limits that are not implemented, and that's what we got this organization in trouble in Madison. The Executive Director said, "We had term limits and they weren't turned over and, therefore, they were harassing me, and they shouldn't have even been on the board, and the judges had to make a decision as to whether those were legal board members or not." Current board job description-- as I said, I have an example of that and I have an example of the performance standards and the written agreement. And if you want to see that, it's...

>>Let me butt in for a second. Everything that you've mentioned is something that we could potentially see on the internet today. Yeah, and so, what's the process of getting that information out there?

>>The front of your handout, upper right hand corner, see my e-mail address?

>>Uh-huh.

>>Email me.

>>Great.

>>And you've got them.

>>Thanks.

>>Okay? Page five-- board member's not compensated other than reasonable expenses, that is usually good. If you have the IRS rules and regulations for business travel, that's usually considered defensible; that's prudent, again. It's where you get-- they get out of hand. United Way-- a guy named Aramony, some years ago, went way beyond that. He was taking the supersonic jet across the Atlantic. He had a million-dollar apartment on Park Avenue and all sorts of things-- that's what got him in jail, by the way. It was just not appropriate. So you see IRS, at least. Do you train, adequately orient your board members? That goes back to that process I just mentioned. I felt well prepared for that. Board works well together, some of these are pretty obvious. People on the board with a financial and non-profit accounting expertise. Sad to say, almost daily, I see a story, an article about malfeasance, misappropriation of funds in not-for-profits. And it's because I think so many of us are passionate about the cause, we forget that there are people who misuse funds internally. And sometimes it's not bad people.

>>With a case of a church in Milwaukee, Wisconsin near Madison... sweet lady, bookkeeper for 18 years. The tip of the iceberg appeared to be almost $200,000 that she embezzled; and it started with her taking five bucks here and then returning it because she just needed to pay for lunch, and then ten and twenty-five and then it got out of hand.  And she's not a bad person in that sense but she became a bad individual in terms of her activities, unfortunately.

>>But the appropriate controls are there, the appropriate oversight was not there. And people with financial-- that's why bankers are very good to have on a board. They have to under-- they know the control issues and how you control funds internally. board members regularly evaluate their effectiveness. This document, I suggest administering it every year; having your new-- your older board members complete at every year. New board members, it's good to go through because, then, they see the things that they need to know.

>>Are your board meetings effective or are you wasting people's time? I heard of an organization the other day... they have a monthly board meeting, they meet for three hours each month. That's insanity. You're going to lose people. It just isn't going to-- people just don't have that kind of time available these days and they are serving on two, three, four, five boards. If you waste their time, it's-- you're going to lose them. Now that's the role of the Chair, that's the role of the President, is to be a good facilitator of a meeting, to understand how to preside and move things along. I'm a great believer in a time to board meeting. I want to have times on there for each item: approval of minutes, one minute; approval of financials, three minutes or whatever it might be; major discussion about a new facility, 45 minutes... but putting it down and having a timekeeper, other than the Chair or the President, so that that person can keep track of it. The Chair, the President ought to be focusing on facilitation, not necessarily keeping time. One of the best ones I ever saw was Sisters of St. Benedict, just outside Madison; they assigned a sister to be the timekeeper. I'll tell you, there was no nonsense there. They gave her this golden ruler that she kept as a joke. But it was-- she kept with the time and did a good job of it, too. You start and end on time.

>>Again, not wasting the-- first meeting when I was president of Big Brother Big Sisters, the start time had slipped by almost 15 minutes because people got used to the fact that the meeting was going to start 15 minutes late. I just made clear, the next meeting is going to start on time. And we did, by golly; we started at five o'clock and we were about three-quarters of the way through the agenda by the time all of the board was there. And I have people say, "Look, just a moment, I wanted to talk about that item up there." I said, "Sorry, too late. It's delayed until the next board meeting. You just got to put your foot down and run these well. Believe me, most people will appreciate that type of tough love, I guess, which you can call it. You get the agenda, things I was talking about in advance... I mentioned that earlier. 

>>Obviously, keeping board minutes... I can send you, if you would like to see it, what typically should go into board minutes? Sometimes I find they are overwritten or underwritten, and there are certain things that you need to keep in most States. There's a pretty good outline of what probably should be in the minutes so that you don't overwrite them either. I have a sample of that. Review in advance, and that's what I was talking about before. Be prepared. 

>>Twenty-one, "Conflict of Interest and Loyalty policies", I have them. I have a conflict of interest policy, ask me for it. I also have privacy and confidentiality policies, they're in place where the--more and more hearing not just about the confidentiality reserved, but also of donors and donor information. All of you are getting confidentiality statements from your banks and other institutions that you deal with; we should have the same. Do your board members even understand the financial reports? Do they know how to read a balance sheet? Do they understand and know how to read your monthly statements or your quarterly statements?

>>One of the things I like to do annually is-- at the first meeting of the new board, when the board takes office-- is have an accountant or somebody who is financially literate go through those documents and explain them in detail as to how to read them. I find a lot of people come to a board and they do not have a good understanding of how to interpret the financial information. Bylaws, you have a way of getting rid of people who are ineffective or inactive. I see bylaws that say, "If you do not attend three consecutive meetings, you're off the board." Well, maybe there are extenuating circumstances, I'm not sure it should always be hard and fast.

>>One board that I was involved with, American Players Theatre in Wisconsin, they had one person on that board who was probably their most important board member... he never attended a single board meeting over a three-year period. His name was Tony Randall. Without Tony Randall they would not have existed because he brought other people into the organization. He wanted to serve on a board but he made it clear, he couldn't serve. Well, there are always extenuating circumstances like that and you have to determine what's appropriate for you.

>>Page 6, you meet in an executive session to discuss staff and personnel issues, by laws, as I've mentioned earlier, should be periodically reviewed... take a look, times change. You have a political activity and advocacy policy. I have a sample, if you would like to see that. And in your case, in the case of Byways, this is an important issue. How far can you go in effecting legislation for in instance or support of a candidate? Need to be kind of careful about that. This is true deceit freeze. The sexist and others have more liberal potential in terms of what they can do. Time for of interest policy, we've mentioned that, I have a sample of that I can send you. If you want all of these policies, it's best to just say, "Send me the policy package." I have about 50, 60 pages of the information and you'll give a kind of sort through to it and see what you want which you might want it for awhile or not of use to you. Just make makes it simple-- for all individuals. We've talked about potential conflict of interest signing that statement.

>>Thirty-- inappropriate for compensating its staff to service officers. As a matter of fact, in some States, it's considered illegal. It just is not a usual thing. Now, can they serve on boards? Yes. Take an arts organization; very often, the artistic director will have a full board position and they will be a paid staff. That's good, but again, they have to recuse themselves on any issues affecting their compensation for instance. President Board Chair, now turned currently Service Treasurer or Secretary, again, that's usually illegal in most States; they cannot hold the concurrent position. Finance Committee, Audit Committee, full board; review your 990, no who can sign off on it. Make sure that you have a full understanding of what the role of the Finance Committee and Audit Committee are. Some of you are--the open meeting rules and free of information requirements are there. Make sure that you understand the information that you have to provide, and if you're asked for it. Anything on any of that before I go on to Committees?

>>I guess, just one question with the point about a compensated staff now serving as officers...

>>Yeah.

>>Because if I understand that correctly, you're saying, they could be board members--voting board members, just not one of the Treasurer's Secretary, President and they would recuse self committee anything that actually would affect them personally?

>>Correct, because you can see a paid staff person, they are under the control of the boards or in effect, if they are an officer, they're controlling themselves. It's a serious conflict of interest there. But, they can serve on the board, yes, and be compensated. That is, as I say arts organization, there a few types of organizations where that is fairly common. For many of those, and you represent, I would imagine very few board members are compensated staff, but it can happen.
 
Would you recommend that an executive director would be a voting member of the board or would you recommend that they not be or not gone at that point?

>>Personally, I think, they should not be a member of the board in a voting position, first that's my own personal feeling. I know that that varies from organization to organization where you usually find that that person is a voting member is if they're a founder, the founder's often are the core board members of the new organization. But, again, there is a potential for conflict of interest, number one. Number two, there is the potential for control issues with people differing to a founder or an executive director rather than the executive director serving as an employee of the board, so you just have to think that through. These are not hard and fast and always or never rules, but there are things you ought to think about in terms of the potential.

>>Okay, committees are declared on how you can form them, that's usually in the by laws. I want to make sure that you have an understanding of how a committee can be created by the board, by the President of the board, of the chair of the board. If you're delegating information to--you're delegating responsibilities, how are you setting up committees in terms of who you're delegating to. For instance, if you're delegating certain responsibilities to the executive director, then the executive director probably should be creating the committee not the board. It depends upon who has that control; those of work. Are there clear definitions of responsibilities, reporting, committee minutes ought to be kept? 

>>Do you have audit committee? You should, if you are subject to an audit, and that should be created by people who are independent of any of the financial management of the organization. I see organizations where the finance committee or the executive director or others who are in the financial stream, create the audit committee. They should not be involved in the selection of the auditor, that's other people; it sudden... 

>>Seven applies to Wisconsin statutory requirement. "Personnel and Staffing" moving quickly through some of this...

>>I have a question on that Audit Committee.

>>Yeah.

>>Is that--those are should be board members, the ones who were not on the finance committee or do you take people from outside the board?

>>It's not appropriate to have somebody on the finance committee or the treasurer, or a staff person who's going to be auditor.

>>Okay.

>>"Picking the Auditor". So, it can either be independent board members or it could be outside people. You can have somebody from outside to select your auditor.

>>Select, what if you have an auditor, and--but don't you keep using the same auditor year after year?

>>One of the things that you will find in the--some of these guidelines that you should be reviewing your Auditor roughly every three years to see if you should be going to a different auditor. And the principle, the partner at the audit firm mostly suggests that it should be changed at least every five years. The point being, again, there can be no chance for collision, that's what happened between Ayn Rand and Arthur Anderson. So, there are guidelines on that and, again, if you have questions on that, follow-up, I can do that because we have a lot of staff here that was covering and it's a matter of...

>>Okay.

>>Okay, I have a question. This is Christina from Oregon, and I have a question. When you have a small organization comprised of volunteers, how can you actually encourage people to be volunteers and take on that responsibility when they don't have any self-interest, and everything is voluntary, there are time and consideration and everything? Is there a financial breakdown of how big an organization needs to be before you start adding a lot of these other things, like an Audit Committee and that kind of thing?

>>I think that a lot of these you ease into and you introduce as you go along. One of the things I'm suggesting is maybe you don't need a huge board. Maybe smaller number of board and people from outside who are serving almost in a consultative capacity...

>>Yes.

>>In this issue.

>>Right.

>>Without their having to commit to being on a board. So, the idea of an Audit Committee engaging people from outside who have those skills, but don't want to be a part of the board on a continuing basis because of time constraints, that maybe a way to go. We need to start thinking...

>>Or the financial where it was always just so small?

>>Yeah, it can happen and, it may be that--well, I've been involved with some very small ones where we've had to do it to counter to some of these best practices for we're always striving to achieve them eventually as we move along; there are ways in which that can be done. It may be outside the traditional board structures, give thought to it. These are just ideas and suggestions for many of you.

>>The only ones that are really being absolutely mandated, I'm finding by the IRS, are the whistleblower, the conflict of interest and the record retention, they're insistent upon that. The others, they seemed to say, at the moment at least, do the best you can. Okay? 

"Personnel and Staffing", anything here that they want hiring process, relationships, communication-- you should have a clear organizational chart if you're a larger organization, especially. Board should not be involved in staffing decisions of the executive director, that's the executive's prerogative, morale. Background checks, I've mentioned that before, are we having those? Personnel handbook and policies; have a competent human resource person if you have staff. There are certain rules, regulations you must follow, grievance. The whistleblower policy that's a critical one, and that will be part of the package I can send you. Job descriptions, evaluations of the CEO, some of these are just pretty obvious.

>>Volunteer pol--I have a volunteer policy and a volunteer handbook draft that you might want ask for it. I develop that with the Northwind Foundation up here in Duluth and it's being made available on a nationwide basis. A pretty good set of policies and procedures that you may find. We'll give a staring point, if you do not already have those.

>>Is that the same materials that we got if--for those of us who were in your volunteer workshop?

>>Yes, it is.

>>Okay.

>>For those of you who are new to it, I have that and it'll be added to it if you want it. The key person insurances, usually for larger organization where you lose the executive director for some reason, you have to bring in another person on an insurance base, so you can buy that kind of insurance. Budgeting finances, we have adequate operating funds, ha-ha-ha. The budget is always a key policy document of the board. I'm always wary of budgets, that it would zero-out at the end of the year. There's no reason why you can't make money and put it into a reserve, operating reserve, if you're allowed to by your grant sources. You should have a good cash flow projection.

>>Not-for-profits, we see a lot of peaks and valleys in terms of when we get our money. Will you have operating extra funds when you need them? Do you need a line of credit? And these days, can you even get a line of credit if you have to operate over those tough times? Number five, I see money sitting on desks, it shouldn't be there, it ought to be in the bank within 48 hours.