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Endowments & Foundations

Can Good Governance Impact Fundraising?

Nonprofit institutions thrive on people donating their money without expecting a tangible product or service in return. What donors do expect is good board management. And yet, our recent Endowment and Foundation Survey reveals that many endowments and foundations—in one way or another—have significant room for improvement in governance practices.

Nonprofit institutions are unlike any other type of organization. They thrive on people donating their money without expecting a tangible product or service in return. What most donors do expect is transparency, responsibility, and that donations go to a defined purpose.

“I have worked with well-run endowments and foundations and some that were not as responsible or transparent. It’s the endowments and foundations committed to best practices that run the most successful capital campaigns,” said CAPTRUST Senior Director Grant Verhaeghe.

Donors are more likely to reward nonprofits with good board management, according to a 2014 study.[1] The study found donors took board education, training, and access to historical records into account as part of their considerations.

So, how can a board of directors be sure that its charitable nonprofit wins over the most givers? Two words sum up the answer: good governance.

With no one-size-fits-all recipe for good governance, nonprofits must challenge themselves to figure out what works well for their organization in terms of governing bodies.

A range of governing behaviors were observed among the sampling of nonprofits included in CAPTRUST’s 2018 Endowment and Foundation Survey. This independent research reveals many endowments and foundations—in one way or another—have significant room for improvement in governance practices.

This article will look at four essential components of good governance as gleaned from CAPTRUST independent research and the more than 220 endowment and foundation portfolios served through the firm. These components are: overlap between committees, continuity, education and training, and historical records and documentation.

Overlap Between Committees

Most foundations govern by committee. It should come as no surprise that nonprofits that consider finance, philanthropic, and investment committee perspectives when making decisions experience better alignment with larger organizational objectives tied to spending, fundraising, and investing.

However, only 46 percent of CAPTRUST’s 2018 Endowment and Foundation Survey respondents indicate an overlap between committees responsible for overseeing spending and committees responsible for overseeing investments.[2]

This is not a good thing, says Verhaeghe. “The harm here is that the people with insight into investment objectives and outcomes are not in on the spending decisions and vice versa.” If an overall governance process does not tie spending decisions to asset performance, it creates significant potential for declining asset values.

“That may be OK and aligned with organizational objectives but all too often spending decisions made in a vacuum have the potential to negatively impact ability to spend in the future because of the impact on the investment portfolio,” says Verhaeghe.

In these cases, clear communication between separate but collaborative spending and investment committees that oversee investable assets together can help ensure alignment of results with objectives.


The management of change is an imminent responsibility nonprofit boards need to be aware of as a normal part of operations. As board members rotate off, their knowledge and historical perspectives go with them.

“These are often very influential community members with significant commitments and constraints on their time. To ensure a level of continuity, it starts with recruitment at the board level. Organizations need to have a bench of talent,” says Verhaeghe. “Nonprofits should be organizing committees to manage turnover and create overlap across continuing and new board members. The organizations I see who have really strong committees with strong leadership—that doesn’t happen by accident.”

As reported by the Stanford Graduate School of Business in its 2015 Survey on Board of Directors of Nonprofit Organizations, two-thirds of nonprofit directors do not have a succession plan in place for the current board president or chief executive officer.

Verhaeghe explains why it’s important to develop and maintain a pipeline of qualified board candidates. And not just anyone, he says. “You need a pool of qualified board members with substantive, relevant experience who will deeply and personally embrace the mission of the organization and bring diversity and balance.”

Jimmy Talton, senior vice president and financial advisor at CAPTRUST, explains that using a separate board member nominating committee has worked well for an organization where he volunteers as a board member.

Talton, who holds the position of chair of the board of directors for this endowment, says, “The board nominating committee is always thinking about who’s the next in line as a best fit and why. There are always newer people, medium-term people, and longer-term folks, because the terms stagger. So, this way we kind of maintain that longer-term perspective.”

Staggered terms allow for fresh ideas and thinking among board members along with the ability to increase diversity and retain important historical information. As called out in Figure One, the vast majority (80 percent) of board terms are staggered. Further, having terms can give board members a better chance of planning ahead to replace needed board skills (knowing that career, family, and other outside forces can still pull a board member away mid term).

Figure One: How Are Your Board Terms Structured?

Source: CAPTRUST Endowment and Foundation Survey Results, 2018

Education and Training

The nonprofit board’s understanding of its roles and responsibilities is fundamental to strong performance and good board management of a philanthropic organization. However, to effectively fulfill any role or responsibility, an individual or group must first understand what that role or responsibility is.

“Our research finds that, unfortunately, too often board members lack the training, the depth of knowledge, and understanding of their role to help their organizations succeed. Nonprofit boards would greatly benefit from board-level investment and fiduciary training as well as new board member orientation,” says Verhaeghe.

“The board of directors is very aware that without the right education and training, new board members could potentially put our organization at legal risk,” says Talton. “That’s why we follow a set of best practices for onboarding to ensure every board member starts service with a firm understanding of his or her roles and responsibilities—both what those responsibilities are and what they are not.”

As referenced in Figure Two, typical staff development opportunities are attending conferences, internal networking with peer organizations, subscriptions to philanthropy periodicals, and participation in formal philanthropic networks.

Figure Two: Staff Development Activities

Source: CAPTRUST Endowment and Foundation Survey Results, 2018

Historical Records and Documentation

Documentation is a simple but often overlooked aspect of a successful endowment or foundation. Verhaeghe suggests a few items that belong in the filing cabinet of each endowment or foundation: an investment policy; a spending policy; governance policies; board and committee charters; conflict-of-interest policies; portfolio monitoring records; and, according to Verhaeghe, among the most important, the meeting minutes.

This is because, he says, “changes will inevitably be made to an investment portfolio or to spending policy over time. Therefore, it’s important to record the rationale behind those changes and any work that was done to back up a course of action.”

For example, a board might conduct an analysis to assess the appropriateness of a portfolio’s investment objectives. The analysis would consider an organization’s time horizon, withdrawal needs, and risk tolerance—all of which should be documented to demonstrate that the fiduciary duty was met.

Most of the survey respondents had formal documented investment policies, spending policies, conflict-of-interest policies, and documented responsibilities for committees and boards. However, 12 percent of respondents do not maintain a formal spending policy. According to Verhaeghe, “Without a formal spending policy, among other things, it’s hard to know if an organization’s assets are going to last relative to its goals and objectives. This is true even if the organization does not have a perpetual time horizon as that should impact the corresponding investment strategy and liquidity needs.”

“Operating with outdated, inconsistent, or just plain missing governing documents is a setup for mismanaged and ineffective governance of the organization,” says Verhaeghe. “Good governance requires that policies are documented and kept up to date. Thorough documentation is critical to ensuring new board members understand the historical context of predecessors’ decisions.”

Nonprofit boards can support good governance by adding clear descriptions and expectations for board directors, officers, managers, and standing committees to their bylaws. Lastly, keeping up-to-date and detailed meeting minutes is a good place for any nonprofit to start the process of maintaining proper historical records and documentation.

In an environment of great competition for charitable donations, it is important to understand that a nonprofit with well-structured and effective governance is going to be favored by donors. As your board considers how it can invest in its own leadership and achieve its true philanthropic mission through good governance, consider the following:

  • Does your endowment or foundation have overlap between the committees responsible for overseeing finance and investment?
  • Does your endowment or foundation tie a documented spending policy and formal investment policy together when making spending and investment policy decisions?
  • Could more documentation help your board strengthen its fiduciary oversight?
  • Do current board members have access to meeting minutes documenting historical decisions?
  • Does your endowment or foundation have a formal process for training new board and committee members?
  • How confident are you that each of your board members has a firm understanding of the board’s responsibilities and governing role?
  • Does your endowment or foundation have a succession plan in place for the current executive director, chief executive officer, or influential board positions?

While there may not be an easy answer to all the questions posed above, discussing them with current board members may help your nonprofit uncover areas to improve current governance and strengthen the overall structure of a board of directors.

About the CAPTRUST Endowment and Foundation Survey

The CAPTRUST Endowment and Foundation Survey was primarily focused on nonprofits with long-term investment assets between $10 million and $100 million and includes more than 50 questions across four primary areas, including investment strategies, spending policies, governance, and fundraising and provides insights and best practices for nonprofits interested in peer benchmarking.

To view and download CAPTRUST’s 2018 Endowment and Foundation Survey results, click here. Or click here to replay a recent webinar featuring subject matter experts Eric Bailey, Grant Verhaeghe, and James Stenstrom reviewing the results of the CAPTRUST Endowment and Foundation Survey.

[1] Harris, Erica, Petrovits, Christine M., and Yetman, Michelle H., “The Effect of Nonprofit Governance on Donations: Evidence from the Revised Form 990,” 2014.

[2] CAPTRUST Research.