The Role of Your Finance Committee
The "right people" plus the "right information" produce effective financial management, according to panelists at the March 19 Governance Matters Round Table about the role of the board Finance Committee.
The right people include:
- An executive director and a chief financial officer that the board completely trusts to provide information needed to fulfill its fiduciary responsibilities.
- Board members willing to look at financial reports, ask questions and take their role seriously by attending meetings and responding to problems quickly.
- Some Finance Committee members who do not have financial backgrounds, to ensure that financial reports do not become arcane, jargon-laden documents of interest to few. All board members, especially those on the finance committee, must understand both their fiduciary responsibilities and the meaning of the financial documents that inform their decisions. If board members don't understand financial reports, the reports need to be re-formatted.
- Having the "right" people means being willing to fire the "wrong" ones. The board's duty is to the organization's mission and its clients, not to the staff. One reason boards fail to fire is their failure to evaluate well. An executive director should be given a succinct list of goals with measurable outcomes and should be evaluated on achieving those outcomes.
The right information is defined by those who use it, and panelists were divided on the frequency of updates: more frequent updates to the Finance Committee in light of today's rapidly shifting financial situation versus information presented by a highly competent chief financial officer four times a year at board meeting. The panelists agreed, however, that the Finance Committee should demand financial information that is clear and pertinent, with critical issues highlighted. The "right" information includes:
- Everything the board needs to make a rational decision. That doesn't mean a report on every contract but it does mean information about a contract that is 6 months behind.
- A cash flow report
- An analysis of which programs are making a profit, not because all programs should make a profit but because the board needs this information to make financial decisions. An essential, on-mission "losing" program need not be cut, but the board must know how much money is required to keep it going.
- Restricted versus unrestricted funds. In these times, one approach to staying afloat may be to ask donors to remove restrictions on their donations.
- Reports on program effectiveness. Boards should demand measures not just of quantity (how many clients are being served) but quality of service (how well are they being served).
The chair of the Finance Committee facilitates getting the right data to the right people and:
- Is staff's emissary to the board and presents financial reports to the board;
- Must make sure staff knows what data is needed, in what format and when;
- Trains new Finance Committee members.
The right "time" for information is well before the board meeting. Board members need time to read the reports and should be encouraged to call the chair of the Finance Committee with questions. It's better to raise a question before the meeting so staff has time to gather more or better data.
- Tim Ettenheim, CFO at Stanley Isaacs Neighborhood Center, who has more than 30 years experience in healthcare and academic administration in the New York area, and was Associate Dean of the New School's Milano Graduate School of Management and Urban Policy, where he also taught nonprofit accounting and financial management;
- Paula Park, senior vice president of Wachovia's Tax Exempt Advisory Group, who deals with the banking and investment needs of nonprofits and serves on a number of nonprofit boards;
- Ed Sermier recently retired from the Carnegie Corporation of New York where he served as vice president, chief administrative officer and director of program evaluation. He also served as chief financial officer of the New York Philharmonic Orchestra and held senior positions in New York City Government.
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