• A Handbook of NGO Governance

The Central and Eastern European
Working Group
on Nonprofit Governance
A Handbook
of NGO
Governance
Marilyn Wyatt
© Marilyn Wyatt 2004. All rights reserved.
Published by the European Center for Not-for-Profit Law, Apáczai Csere János u. 17,
Budapest 1052 Hungary.
Designed by: Grzegorz Laszuk Książki i Strony
Please send your comments and requests for additional copies to judit@ecnl.org.hu
ISBN 963–216–963–8
The Central and Eastern European Working Group on
Nonprofit Governance is a group of nonprofit leaders,
experts, and practitioners dedicated to exploring
issues of nonprofit governance in Central and Eastern
Europe.
Founded in 2001 by participants in the BoardSource
International Fellowship Program on Nonprofit
Governance, the Working Group promotes good
governance and develops resources for the region’s
nonprofit boards.
Working Group members:
Nilda Bullain, European Center for Not-for-Profit Law, Budapest
Natalia Cebotarenco, Association “Drugs,” Chisinau
Vasylyna Dybaylo, GURT NGO Resource Center, Kyiv
Darina Kadunkova, European Institute, Sofia
Vladimir Korzh, Counterpart International, Minsk
Bohdan Maslych, Ukraine Citizen Action Network, Kyiv
Zoran Puljic, NGO Development Foundation, Sarajevo
Balazs Sator, Civil Society Development Foundation Hungary, Budapest
Emils Stalis, consultant, Riga
Raymond Stephens, consultant, Riga
Yulia Tykhomyrova, Counterpart Creative Center, Kyiv
Marilyn Wyatt, consultant, Warsaw
Kelmend Zajazi, Macedonia Local Government Reform Project, Skopje
For more information
about the Central and Eastern European Working Group on Nonprofit Governance,
visit www.ngogovernance.org
 Table of Contents
* Acknowledgments ..................................................................................................................................... 3b
* * Introduction ............................................................................................................................................................ 4a-4b
* About Using This Handbook ...................................................................................................... 5a
Principles and Guidelines for Good NGO Governance 5b-29b
1 NGOs are accountable to their communities. ................................................................................................ 5b
1 1 NGOs are committed to the highest level of accountability. ............................................................................ 5b
2 Good governance is a basic form of accountability. ................................................................................... 6a-6b
2 1 An accountable organization has a functioning system of internal governance. ..................................... 6a-6b 1a
3 Good governance has a formal structure. ........................................................................................................ 7a-11a
3 1 An NGO’s basic documents formally establish its governance structure. ................................................. 7a-8a
3 2 The board is the principal governing body. ............................................................................................................. 8b
3 3 The board makes decisions collectively. .................................................................................................................. 9a-9b
3 4 Individual board members have specific duties. ................................................................................................... 10a-10b
3 5 The board has a chair. ...................................................................................................................................................... 11a
4 Good governance involves the separation of governance and management. ............................ 11b-16b
4 1 The board is distinct from the staff. ............................................................................................................................. 11b-12b
4 2 The board governs and the staff manages. ............................................................................................................. 13a-13b
4 3 The board delegates responsibility to the chief executive. ............................................................................... 14a-14b
4 4 The board and chief executive work in partnership. ............................................................................................ 15a
4 5 The board evaluates the chief executive regularly. ............................................................................................... 15b
4 6 The board plans for chief executive succession. .................................................................................................. 16a-16b
5 NGOs are mission-based organizations. ............................................................................................................ 17a-18b
5 1 The board safeguards the mission of the organization. ....................................................................................... 17a-17b
5 2 The board supports the mission through effective planning. ............................................................................ 18a
5 3 The board supports the mission through regular evaluation. ............................................................................ 18b
6 NGOs promote the highest professional and ethical standards. .......................................................... 19a-25a
6 1 The board articulates the professional and ethical standards of the organization. .................................. 19a-19b 1b
6 2 Board members are not paid for their service. ......................................................................................................... 20a-20b
6 3 The board establishes a conflict-of-interest policy. ................................................................................................ 21a-21b
6 4 The board sets the standard for professional conduct. ....................................................................................... 22a-23b
6 4 1 The board sets rules for its own operation. ............................................................................................................... 22a
6 4 2 The board practices informed decision-making. ..................................................................................................... 22a-22b
6 4 3 The board holds regular and professionally run meetings. ................................................................................ 22b-23a
6 4 4 The board documents its proceedings. ...................................................................................................................... 23a
6 4 5 The board sets annual goals and action plans. ....................................................................................................... 23a-23b
6 4 6 The board has an efficient committee structure. ..................................................................................................... 23b
6 5 The board looks after its own development. ............................................................................................................. 24a-25a
7 NGOs exercise responsible resource management and mobilization. ............................................. 25b-27b
7 1 The board oversees the financial affairs of the organization. ............................................................................ 25b-26a
7 2 The board establishes internal controls. .................................................................................................................... 26b
7 3 The board takes part in resource development. ..................................................................................................... 27a-27b
8 NGOs are responsive to the communities they serve. ................................................................................ 28a-29b
8 1 The board integrates organizational interests and community interests. ..................................................... 28a
8 2 The board encourages transparent communications. ......................................................................................... 28b
8 3 The board oversees the publication of an annual report. .................................................................................. 29a
8 4 The board serves as a link to the organization’s constituencies. ................................................................... 29b
From Theory to Practice 6a-28a
What is accountability? ...................................................................................................................................................... 5b 1 1
What is good governance? .............................................................................................................................................. 6a 2 1
2a
Translating “governance” into CEE languages. ....................................................................................................... 6b 2 1
Basic forms of NGOs in CEE. .......................................................................................................................................... 7a-7b 3 1
What should the basic documents say about governance? .............................................................................. 8a 3 1
More than one governing body? How they can work together. ........................................................................ 8b-9a 3 2
Sample policy: board decisions outside of regular meetings. .......................................................................... 9b 3 3
A position description for board members. ............................................................................................................... 10a 3 4
The special role of founders. ........................................................................................................................................... 10a-10b 3 4
The duties of the chair. ....................................................................................................................................................... 11a 3 5
Why staff voting on the board is a conflict of interest. .......................................................................................... 11b 4 1
The results of research: staff on boards. ................................................................................................................... 12a 4 1
The chief executive’s lament: “Why do I need a board?” (part 1) ................................................................... 12b 4 1
The board’s basic business. ........................................................................................................................................... 13a 4 2
Should the chief executive be a voting member of the board? ........................................................................ 13b 4 2
A position description for chief executives. .............................................................................................................. 14a 4 3
Typical board-staff relationships. ................................................................................................................................... 14b 4 3
A crucial partnership: the chief executive and the board chair. ........................................................................ 15a-15b 4 4
When the chief executive leaves. .................................................................................................................................. 16a-16b 4 6
No mission statement? Here’s where to start. ......................................................................................................... 17a-17b 5 1
Involving your board in planning. .................................................................................................................................. 18a 5 2
The board’s role in evaluation. ....................................................................................................................................... 18b 5 3
Sample policy: code of conduct. ................................................................................................................................... 19a 6 1
2b
The chief executive’s lament: “Why do I need a board?” (part 2) ................................................................... 19b 6 1
Why do board members serve on boards? .............................................................................................................. 20a 6 2
Sample policy: board member reimbursement. ..................................................................................................... 20b 6 2
What is conflict of interest?............................................................................................................................................... 21a 6 3
Sample policy: conflict of interest. ............................................................................................................................... 21b 6 3
A table of contents for your policy manual. .............................................................................................................. 22a 6 4 1
An information “diet” for your board. .......................................................................................................................... 22b 6 4 2
A sample meeting agenda. .............................................................................................................................................. 23a 6 4 3
Board activities to schedule annually. ......................................................................................................................... 23b 6 4 5
Tips for board member recruitment. ............................................................................................................................ 24a-24b 6 5
 A mandate for the board development committee. ............................................................................................... 25a 6 5
Key financial indicators for the board to follow. ...................................................................................................... 25b 7 1
A mandate for the finance committee. ........................................................................................................................ 26a 7 1
The importance of audits. ................................................................................................................................................ 26b 7 2
Get your board started in resource development. ................................................................................................. 27a-27b 7 3
The chief executive’s lament: “Why do I need a board?” (part 3) ................................................................... 28a 8 1
Sample policy: communications. .................................................................................................................................. 28a-28b 8 2
The results of research: annual reports. .................................................................................................................... 29a 8 3
Starting off right: board member orientation. ........................................................................................................... 29a-29b 8 4
Conclusion: Getting Started in Good Governance .............................. 30a-31b
* Implementation Checklist ........................................................................................................... 32a-33b
3a
* Resources ............................................................................................................................................................... 34a
Acknowledgments
This publication was written by Marilyn Wyatt, with regional perspectives, experiences,
and the overall conceptual approach contributed by members of the Central and Eastern
European Working Group on Nonprofit Governance.
The Working Group thanks the many early readers of the handbook, especially:
Laurie Ball, Elitza Barakova, Jiří Bárta, Anna Belia,
Nathalie Bolgert, Ádám Cziboly, Katalin Erstey,
Rayna Gavrilova, Dragan Golubovic, Jenny Hyatt,
Serhiy Ivanyuk, Birutė Jatautaitė, Lidia Kołucka-Żuk, 3b
Medina Korda, Bohdan Krawchenko, John Kubiniec,
Irīna Kulitāne, Nóra Kuntz, Annette Laborey, Kristina Mänd,
Miklós Marschall, Matúš Minárik, David Moore, Ieva Morica,
Barbara Mozdzierz, Maria Prohaska, Anna Rozicka, Lyudmyla
Rudenko-Kardash, Niraj Saraf, Raisa Sinelnikova, Cathy
Shea, Marina Starodubska, Rebecca Tolson,
Marianna Török, András F. Tóth, Zoltán Valcsicsák,
and Jacek Wojnarowski.
This handbook is an initiative of the
Trust for Civil Society in Central and Eastern Europe and was
made possible with the generous support of the
Charles Stewart Mott Foundation and Freedom House.
* *
Introduction
The Central and Eastern European Working Group on Nonprofit Governance has been exploring challenges fac-
ing nonprofit boards since its founding in 2001. Bringing together experts and practitioners from nine countries,
the Working Group looks at governance from the unique viewpoint of nonprofit and non-governmental organiza-
tions (NGOs) in Central and Eastern Europe (CEE).
Our study of nonprofit boards in the United States has taught us that Western models of governance are often
far removed from the reality of our own countries. NGOs in CEE work in an unusual environment shaped by the
communist past and the difficult political, social, and economic transitions of recent years. But the needs and
circumstances of individual organizations differ sharply, depending on local attitudes, experiences, and goals.
Though common ground is not always easy to find, we consider it important to strengthen the NGO sector in
this part of the world by providing a consistent, locally responsive framework for nonprofit governance. We
see such a framework as both a practical need and a strategic necessity, helping our NGOs operate more ef- 4a
ficiently while contributing to the larger goal of improved transparency and accountability in the NGO sector
as a whole.
So we set about drafting a set of guidelines that could promote a shared regional understanding of good
governance while showing how to turn abstract theory into workable practice. This handbook is the result of
our efforts. It is based on eight basic principles we consider essential to NGO governance around the world.
These principles, expressed in the handbook’s eight major headings, provide the basis for the guidelines for
governance stated in the sub-headings and elaborated in the accompanying texts. The guidelines, and more
particularly the sidebars, reflect our belief that efforts to apply the principles of good governance face different
challenges in CEE than in the United States or elsewhere. Throughout the handbook we seek to address the
specific environment of CEE and offer solutions to the special challenges our NGOs face.
We believe that the handbook can serve as a guide to good governance throughout CEE, no matter what the
stage of maturity of an organization or its country’s NGO sector. We know that the guidelines may seem suited
only to larger NGOs working in a supportive environment and able to embrace a fairly complex operational
approach. We agree that some of the advice in these pages may seem difficult to implement where the law is
imperfect and local attitudes to governments vary. And we understand that smaller and newer NGOs—those
with volunteer staff, tiny budgets, and informal governing bodies of just two or three friends—will be tempted to
set aside the guidelines as overly ambitious or too much trouble for their simple operations.
But we believe that every NGO has the responsibility to think early and deeply about its governance practices.
Good governance established early sets a positive course for an NGO’s development for years to come, by en-
couraging organizational stability and balanced decision-making. Good governance also testifies to the integ-
rity of a country’s NGO sector. Engaged and responsible governing bodies set the standard for leadership and in
their own behavior express the fundamental values our NGOs stand for. In this sense they are no less important
to NGOs than to the private and public sectors. 4b
Therefore we encourage both new and mature NGOs to use this handbook, at the very least, as a guide for their
future development. We welcome your commitment to strengthening NGO governance in CEE and we wish you
the greatest success in achieving this goal.
—The Central and Eastern Working Group on Nonprofit Governance
*
About Using This Handbook
This handbook offers several different types of information. The main headings state generally accepted Principles of nonprofit governance. These
principles are the point of reference for Guidelines for good governance, set forth in the sub-headings and elaborated in the accompanying text.
Sidebars show how to go From Theory to Practice in implementing the guidelines, often in a regional context. In the extra lined spaces you can
record notes, comments, and ideas about applying the guidelines to your own NGO.
Organizations seeking to strengthen their governance may wonder where to begin putting the advice contained in this handbook into effect. A first
step is to use the Implementation Checklist near the end of the handbook to assess your organization’s governance capacity. Thereafter a
gradual approach may make the most sense, with steps prioritized and introduced one by one according to your organization’s needs. See Getting
Started in Good Governance for more suggestions about strengthening governance at your NGO. The Resources listed at the end offer
further information about NGO governance in CEE.
The Principles
2
5a
Good Governance is a Basic Form of Accountability.
2 1
An Accountable Organization Has A Functioning System
Of Internal Governance.
Accountability can take many forms, including the accurate reporting of
financial data, the publication of annual reports, and the responsible use of
resources. One of the basic indicators of accountability within an organiza-
tion is its system of internal governance.
The English word governance is often difficult to translate (see Translat- Translating ‘governance’ into CEE languages
ing ‘governance’ into CEE languages). The term comes from the Latin word The word governance is notoriously difficult
The Guidelines meaning “to steer, guide, or direct” and generally refers to the way in to translate into the languages of CEE.
The problem is that home-grown words for
which power is assumed, conveyed, and exercised within a society or an governance are also used to translate the
organization. “Good governance” implies the sharing of decision-making English word management, confounding
authority so that power and resources don’t accumulate in the hands of a efforts to sort out the two concepts.
Furthermore, although the English philosopher
single individual or group. In the public sector, good governance consists John Locke introduced the notion of good
of a system of checks and balances between different branches of govern- governance as a “separation of powers” more
ment and includes a process of regular consultation between governmen-
tal authorities and the general public. Good governance allows citizens to
than 300 years ago, in CEE an understanding
of governance in this sense began only a little From Theory to Practice
over a decade ago. Thus the words we use to
hold authorities accountable to their trust and ensure their interests are translate governance—such as the Bulgarian
served. upravlenie and its variants in Russian,
Ukrainian, and other Slavic languages, or
the Hungarian word xxx —issue from a
very different political tradition and don’t
adequately convey Locke’s meaning.
In most CEE languages the word
management lives happily as a borrowing
from the English. Should we consider simply
borrowing the word governance too?
1
NGOs are accountable to their communities.
1 1 NGOs are committed to the highest level of accountability.
NGOs are founded on the principle that citizens have a right to associate
freely. Most countries in CEE acknowledge this right in their constitutions
and through legislation. They may also affirm it by extending direct or indi-
rect financial support to NGOs, which can include full or partial exemption
from taxes. In return for this support, NGOs pledge to pursue activities What is accountability?
A popular dictionary defines “accountability”
that meet a public or community need rather than the private profit-making as “an obligation or willingness to accept
interests of owners or stockholders. responsibility or to account for one’s actions.”
The first recorded use of the word in this
As long as they benefit directly or indirectly from public-sec- sense in English was in 1794—an era of new
thinking about the public interest, civil society,
tor support, NGOs are expected to demonstrate a high degree and the nature of good governance.
of accountability to their surrounding community. This commu- 5b
nity includes members, beneficiaries, donors, the government, and other For an NGO, being accountable means
demonstrating regularly that it uses its
stakeholders or constituencies. Even membership organizations have the resources wisely and doesn’t take advantage
responsibility to be accountable to the larger community to the extent that of its special privileges to pursue activities
they are directly or indirectly dependent on its support. contrary to its nonprofit status. An accountable
NGO is transparent, readily opening its
accounts and records to public scrutiny by
NGOs should behave accountably even in countries where the general public funders, beneficiaries, and others.
doesn’t expect it or the legal or political environment isn’t supportive of the
NGO sector. Throughout CEE, a so-called “accountability gap” exists in that Through these acts of accountability, an NGO
expresses its commitment to democratic
NGOs often feel little pressure from stakeholders to behave accountably—do-
values and, over the long term, contributes to
nors don’t ask how money is spent, or beneficiaries don’t ask who funds an the building of civil society in CEE.
organization and why. However, the best NGOs view this accountability gap
as all the more reason to prove they deserve their special privileges. By be-
having responsibly and responsively, an NGO demonstrates its commitment
to serving the public interest (see What is accountability?).
2
Good governance is a basic form of accountability.
2 1 An accountable organization has a functioning system
of internal governance.
The English word “governance” comes from the Latin word meaning “to
steer, guide, or direct.” The term generally refers to the way in which power
is assumed, conveyed, and exercised within a society or an organization.
According to Western political theorists, “good governance” is a sharing of
decision-making authority so that power and resources don’t accumulate
in the hands of a single individual or group.
In the public sector, good governance is based on a system of checks and bal- What is good governance?
ances between the different branches of government (legislative, executive, The Working Group on NGO Governance
in Central and Eastern Europe defines
judicial). It is understood to include a process of regular consultation between good governance as “a transparent
6a
governmental authorities and the general public, so that citizens can hold au- decision-making process in which
thorities accountable to their trust and ensure their interests are served. the leadership of a nonprofit
organization, in an effective and
accountable way, directs resources
In nonprofit organizations, good governance works in much the same way. and exercises power on the basis of
An organization exercises good governance when it has an in- shared values.”
ternal system of checks and balances that ensures the public
interest is served. Good NGO governance is based on the distinction
between organizational entities (management and the governing body) and
the distribution of decision-making power between them. This arrangement
helps restrain and moderate the control of any one person or group, ensure
the organization’s resources are well managed, and safeguard the NGO’s
public-service orientation (see What is good governance?).
2
Good governance is a basic form of accountability.
2 1
In Central and Eastern Europe, the English word “governance” can be
nearly impossible to translate (see Translating “governance” into Translating “governance” in CEE
CEE languages).The connotations of local terminology may differ languages.
The word “governance” is notoriously
markedly from the English word with its specific traditions. Even more difficult to translate into the languages of
confusing, the same words are often used in CEE to describe the different CEE. A major problem is that local words for
functions of the staff and the governing body. NGOs can take the first step “governance” are often used to translate the
English word “management,” too, confusing
towards strengthening their governance by looking at the words they use the difference between the two concepts.
to describe the work of various actors in the organization and making sure
they are sufficiently distinguished. Furthermore, although the English philosopher
John Locke introduced the notion of good
governance as a “separation of powers” more
Notes:
than 300 years ago, an understanding of
governance in this sense was (re)introduced
to CEE only a little more than a decade 6b
ago. Thus the words we use to translate
“governance”—such as the Bulgarian
“upravlenie” and its variants in Russian
and other Slavic languages —come from