Governance: self-regulating the nonprofit sector.

Addressing the ASAE Key Philanthropic Organizations Committee (KPOC) at its February 12 meeting, Diana Aviv, president and CEO, Independent Sector, Washington, D.C., cautioned leaders of charitable organizations that inaction in self-regulating nonprofit sector governance practices--based on the theory that the current public scrutiny will blow over--"is a dangerous conclusion to make. After all, we have grown quickly to a $665 billion sector, with approximately 62,000 foundations and 1.8 million nonprofit organizations. With that kind of growth--in an unorganized and unplanned way--it's easy to see how problems arise."

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Aviv cited a number of factors that have intensified the scrutiny of the nonprofit sector: corporate scandals and a few examples of poor governance in the nonprofit sector; the 24/7 nature of the news services, which creates repetitive coverage (often negative); and the contribution of the Internet to information access the distribution of negative news.

"Public officials are absolutely exorcized over this [bad news]," says Aviv, "with much of their attention focused on executive compensation--not so much on salaries, but on the accoutrements and hidden benefits of the executive position." The message, says Aviv: "If we do not regulate ourselves, legislators and the Internal Revenue Service will do it for us."

Aviv's comments mirrored those she made at the National Consensus Conference on Nonprofit Governance, which drew approximately 150 nonprofit executives about a month earlier. At the conference, presented by the ASAE Foundation and the New York Society of Association Executives Foundation, 77 percent of those participating in a polling exercise strongly agreed that the nonprofit community must begin acting now to affirm, or reaffirm, its integrity to all of its constituents. One speaker, Robert M. Bender, Jr., a special adviser to and former CEO of the American Red Cross of Greater New York, emphasized what's at stake: "When trust gets shaken, it reflects in the bottom line of charitable [organizations]. The average, small donor bases a lot on trust. When that's eroded, it reflects on the organization and the nonprofit community as a whole."

The consensus conference focused largely on effecting good governance practices across the nonprofit community, with the Sarbanes-Oxley Act of 2002 (which applies to public companies) as the catalyst for the discussion. Generally, participants agreed in principle that voluntarily adopting key concepts from the act is good governance, increasing accountability, confidence, and trust. However, complexities driven by organizational type and size, cost-benefit concerns, and other factors make developing definitive guidance difficult.

Aviv, speaking at the February KPOC meeting, identified several actions that could begin to alleviate these problems--and to raise the reputation of the sector.

* Focus on ethical practices collectively and individually.

* Educate and initiate new board members to the ethical and legal practices of good governance.

* Become your brother's keeper. "If we do not," said Aviv, "Congress will move to formalize legislation--just as it did with Sarbanes-Oxley."

* Keep legislators informed. Associations must tell Congress about the positive things that the nonprofit sector provides society.

Aviv suggested that these actions and others could assist the IRS and the state attorneys general in doing their jobs. "If we put such a process in place and make it visible," said Aviv, "legislators might delay formal regulations."