Can the Deloitte® Governance Framework Be Applied to Nonprofits?

By Eugene Fram

I have been impressed with the Deloitte® Governance Framework (Copyright-Deloitte®), and following are my opinions on how nonprofits might benefit by understanding the model.

The lower four sectors of board governance chart are functions that can be delegated to management. The level of delegation should depend on the stage of the board’s development. However many boards unfortunately continue to micromanage the nonprofit, long after it has outgrown the start-up stage.

All five items in the upper part of the chart are functions not delegateable to management, although management must assist the board in meeting some responsibilities.

Four Lower Chart Level Delegateable Functions

Risk & Planning – There is an inherent relationship between the culture of the organization and the risk level the board is willing to assume. Most nonprofit governance boards, in my opinion, tend to be overly risk adverse, which can be strength because many spend charitable or public funds. However, being overly conservative can restrict the breadth or depth of client service offered. Although defining a risk balance is difficult, nonprofit boards must attempt to do it as they overview and monitor the planning function.
Compliance – Board audit committees need to develop relationships with the external auditors, also relationships with the internal auditor(s) if the organization is a larger one. In the nonprofit environment, most members of the audit committee will likely be persons without significant financial or accounting backgrounds. However, they should be able to ask questions such as:
• How well has management has cooperated with the audit process?

• What are the external auditors’ views of the performance levels of internal personnel responsible for financial activities?
• How can internal management/accounting controls be improved?
Operations – The biggest threat to good nonprofit governance is the tendency of boards to default to a micromanaging start-up style. This seems to be in the DNA of nonprofit directors, even those with substantial for-profit board experience. Perhaps a Lead Director (http://bit.ly/13Dsd3v) can help some boards to thwart these default tendencies?

Reporting – As with for-profit boards, management has an obligation to make certain that boards’ briefing materials are concise and cover all material issues. Since nonprofit board meetings can be as short as one or two hours monthly, a consent agenda can be utilized to quickly review routine items. The CEO also needs to review staff reports to make sure the content is board targeted, and the reports adhere to set time limits.

Five Upper Chart Level Non-Delegateable Functions

Performance – Obviously, the board needs to assess its own performance occasionally, making certain that Governance outcomes are effective/ efficient. (For example, board recruitment, processes, and committee configurations).

Integrity– The board is responsible for its own integrity and that of the organization. Evaluations of the board, management and staff must be considered rigorous and fair.

Strategy– Likewise, both board and staff must be involved with strategy development, but misguided outcomes remain the sole responsibility of a nonprofit board.

Talent- The board should only make one employment decision, engaging the CEO, and then have an established succession a plan in the event the CEO is incapacitated or resigns abruptly. The board must also carefully overview management to make certain that a talented staff is in place.

Culture Intersecting Risk & All Functions

A veteran nonprofit director once commented, never under- estimate the impact of culture on an organization. His comment is especially pertinent to nonprofit boards where directors rotate frequently, usually every three to six years or less.  Sometimes new directors, poorly chosen based on social/business ties, can attempt to change the culture radically, causing disastrous results. (For example, instituting a rigid management-by-objectives program.)

The Deloitte® governance model is highly applicable to nonprofit boards because it defines the difference between delegateable and non-delegateable functions and recognizes that cultural impact on all sides of the triangle.