Wednesday, November 4, 2009

Unveiling the New Accountability Standards!

Here they are!

Today, officially, the Charities Review Council unveils its new standards. These represent over a year's worth of work to find a balance of contemporary regulatory requirements and sound practices for nonprofits. In so doing, these standards also serve to modernize donors’ reasonable expectations of nonprofits.

I want to highlight a few of the changes, but, as the adage goes, sometimes a picture is worth a thousand words. So, here's a picture of words.


The above "wordle" helps highlight the changes by emphasizing words that occur more frequently in the new Accountability Standards. Some things aren't surprising. Since these standards focus on nonprofits, obviously the word "nonprofit" stands out. But what I find interesting is the fact that "board" is the next most frequent word, reflecting an emphasis on nonprofit governance.

Now, we're all familiar with the increased interest in how a nonprofit is governed. But what I think is notable is that the Accountability Standards not only try to shed some light on how a board goes about its business, but gets at the need for an engaged Board of Directors.

Among these standards related to governance is the brand new Diversity and Inclusivity standard. A whole post could be devoted to this standard, but briefly it asks two things:

  1. That a nonprofit identifies the community it serves, and;

  2. Using this information, it evaluates whether the composition of the organization reflects its community.
There are a number of reasons this standard was added. First, clearly there have been demographic changes in the sector and the country that make the case for having a diversity standard. Second, research, such as Francie Ostrower's 2007 study, finds a connection between board diversity and issues of accountability. Third, we wanted to be responsive to what we were hearing in our focus groups and town halls. Time and time again, we heard individuals tell us that it is time to include diversity and inclusivity in our Accountability Standards.

Another notable change related to governance is the addition of board term limits. When this came up at our first town hall in Mankato, I had no idea that it would become the most consistent piece of feedback we received. Overwhelmingly, people told us we needed to add board term limits to the Accountability Standards. The new standard isn't prescriptive in terms of how many terms or how many consecutive years a board member can serve, but rather simply asks that the nonprofit establish some limit. Again, I can see this being a future blog post, so keep an eye out for further conversation around this one.

The last change I wanted to mention connects to the third most frequent word in the Accountability Standards - "financial." After the Governance section, the Financial Activity section received the most revisions. Perhaps the change that got the most attention was shifting the Use of Funds standard from at least 70% of expenses going to programming to 65%. Although this change was welcomed by most nonprofits and donors we talked to, there were a number of people that worried we were getting too lax.

As Charities Review Council Executive Director Rich Cowles wrote back in July, there are a lot of reasons why this change occurred. But to sum it up in a sentence, this standard was changed in recognition that a nonprofit needs to invest in its infrastructure (i.e. administration and fundraising) in order to achieve its mission. There's been an ongoing debate about the validity of overhead ratios, so again I expect future blogs around this topic.

Thank you again to everyone who helped craft the new Accountability Standards. It was a tremendous effort by a great number of folks, and it speaks to the vitality of the philanthropic and nonprofit sectors here in the upper-Midwest. Although the standards are now finalized, we still invite comments, questions and concerns as we begin implementing them in the spring of 2010.

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