2012 Governance & Leadership Institute

January 29 – 30, 2012

The Changing Landscape of Independent School

Governance

Steve Robinson

Since the Sarbanes-Oxley Act (2002)

•Enacted for publically traded companies following the Enron scandal in 2001

•Has become the de-facto court standard for non-profits

•Addresses separation of governance and management

•Expects a more strict fiduciary and oversight role for the board

Ten general principles of corporate governance from Sarbanes-Oxley reforms

• Role of the board• Importance of Independent Directors• Audit Committee• Governance and Nominating Committee• Compensation Committee• Disclosure and Integrity of Institutional information• Ethics and business conduct codes• Executive and Director compensation• Monitoring compliance and investigating complaints• Document and destruction and retention

Governance Reforms Emanating fromSarbanes-Oxley for Corporations

• Board size• Diverse composition• Nominating by independent directors• Term limits• Focused agenda• Regular and long enough board meetings• Separate CEO and board chair• Delegation of board duties to committee• Committees hiring expert advisers• Clarifying accountability

Applications of Sarbanes-Oxley for Non-profits

• Role of the board• Importance of Independent Directors• Audit Committee• Governance and Nominating Committee• Compensation Committee• Disclosure and Integrity of Institutional information• Ethics and Business Conduct Code• Executive and Director Compensation• Monitoring Compliance and Investigating Complaints• Document Destruction and Retention

Is it time to rethink the governance model of independent schools?

If so, what would it look like and where do we start?

DEFEND | CONNECT | INFORMThe mission of SAIS is to provide leadership, accreditation services and professional

development resources that will strengthen member schools as they fulfill their missions.

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Role of the Board

• Board is responsible for assuring the non-profit is managed appropriately

• Non-profit boards would benefit from a review of structure and operation of the board

• Non-profits may need to review assumptions about appropriateness of large/prospective donor boards

• Composition is important with diverse backgrounds to bring expertise to the board

Independent Directors

• Historic deference to management

• Board culture issues

• Special circumstances affecting appropriateness of independent director

• Application of Independent principles to non-profits

• Organizational support of directors

Audit Committee

• A non-profit with at least $1million gross revenues should have audited financials

• Audit committee comprised of independent directors not controlled by management

• Non-profit directors are interested in mission rather than share holders

• Independent director’s audit committee strengthens the board’s fiscal oversight

• Audit committee needs delegated authority from the board

• Rotation of audit partners

• At least one financial expert on the audit committee

Governance and Nominating Committee

• Governance / Nominating Committee

• Board evaluation

• Corporate Directors Governance Review

Compensation Committee

• Use of comparability data to avoid excessive compensation

• Evaluation of executive performance and succession planning

Disclosure and Integrity of Institutional Information

• Audit committee

• Just and reasonable compensation

• Senior officers to certify on organziation’s financials and controls

• Request from creditors on material changes in financial status although exempt from SEC regs unless issuing securities or tax exempt bonds

Ethics and Business Conduct Code

• Conflict of Interest policies and procedures

• Ethics and Business conduct codes

Executive and Director Compensation

• Based on an analysis of comparable organziations

• Reasonable with respect to the organization’s revenues and assets

• All compensation reported for tax purposes

• Director compensation / liability insurance

• Loans to officers or key employees frowned upon

Monitoring Compliance and Investigating Complaints

• Have policies and procedures for communication of concerns regarding possible violations of law, organizational ethics or business conduct codes.

• Written policy or program for communications of concerns regarding possible financial, accounting, or other legal and ethical violation to appropriate authority

• Whistle Blower policy

Document Destruction and Retention

• Review document destruction and retention policies