AMC Institute News Releases

New Federal Guidelines Add Compliance, Ethics Oversight to Board Responsibilities

CHICAGO (February 17, 2005) As a natural progression since the Enron scandal of 2001 and the accounting reform via Sarbanes-Oxley, a recently adopted federal amendment is likely to give some individuals pause before accepting board of director positions.  The amendment to the Federal Organizational Sentencing Guidelines of 2004 ventures into unfamiliar territory for board members of organizations with ethics and compliance programs by adding oversight of the programs to an already-full plate, joining other board considerations such as confidentiality, time commitments, fiduciary responsibilities and avoidance of conflicts of interest. While not mandated by law, the existence of ethics and compliance programs helps organizations adhere to accounting reforms and avoid higher fines from the courts should criminal convictions result.

The potential impact is widespread. The AMCinstitute, a nonprofit association comprised of association management companies (AMCs), estimates that each year four million individuals throughout the United States are asked to sit on boards of nonprofit organizations including trade associations, professional societies and charitable groups. Combined with board seats at for-profit companies, many business executives at one time or another will find themselves being asked to join (or rejoin) boards.

Effective late last year, the guidelines impact accounting best practices of public and private companies as well as non-profit organizations. The amendment and the guidelines themselves were authored by The United States Sentencing Commission (USSC), an independent agency in the judicial branch of the government created by the Sentencing Reform Act provisions of the Comprehensive Crime Control Act of 1984.

Key in the amendment is the switch from staff supervisors to board members of the responsibility for overseeing adherence to compliance and ethics programs. The amendment notes that boards of directors must “be knowledgeable about the content and operation of the compliance and ethics program and shall exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program.”  In addition, board members must review reports (annually, at a minimum) from those individuals responsible for the program on a day-to-day basis. Finally, board members are required to have ongoing training on ethics and compliance – with required periodic updates. “The amendment should assist companies by encouraging the board of directors to become more involved in overseeing the organization’s compliance program and by fostering more transparent leadership for today’s nonprofit and for profit organizations,” said Michael Horowitz, Commissioner of the USSC.

Corporate boards and those of nonprofit organizations are impacted alike. “Most executives are honored to serve on corporate boards as well as those boards in the nonprofit arena. This amendment strengthens organizations by placing ethics responsibility on the objective shoulders of the board of directors,” said Judy Keel, Executive Vice President of AMCinstitute. Directors of associations managed by association management companies (AMCs), however, do have an added comfort level. AMCs have long been at the forefront of governance issues, including, in particular, ethics. A key responsibility of an AMC includes ensuring that the board carries out its fiduciary and ethical duties. 

“This new ruling certainly places a brighter spotlight on the board nomination process and should result in better run organizations for all, though there might be some growing pains getting there,” said Washington, DC attorney Hugh Webster, partner, Webster, Chamberlain & Bean, representing associations and AMCs. This issue impacts AMCs especially, as they manage the annual elections of board members for thousands of organizations, including nonprofit trade associations, professional societies and charitable organizations.

The AMCinstitute recommends several other considerations that potential board members consider before taking on their new roles. Having fiduciary responsibility implies that board members keep up-to-date on financial statements for the organization. The time commitment is another, an especially important area to consider as meetings are held on a regular basis and can involve extensive travel. Once at the meetings, board members may also be responsible for the nominations of future board members.

Association boards have an additional wrinkle – competition. With industry trade associations, often board executives sit across the conference table with competitors and discuss industry initiatives. With this new compliance and ethics program requirement, information sharing among competitors might increase in volume. “Mandatory training can help improve ethics and compliance across America, as our association board members take this practice and mindset back to their companies. This new amendment represents a very positive action that could help corporate America win back the confidence of shareholders and the public in general,” said Keel.

Also review “Eight Key Considerations Before Joining a Board"

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The United States is home to over 147,000 associations. Nine out of 10 adult Americans belong to at least one association.  The estimated impact on the economy represented by non-profit organizations (including trade associations and professional societies) is nine percent of the Gross Domestic Product (GDP).

ABOUT AMCINSTITUTE
Chicago-based AMCinstitute serves as an information resource for associations, their volunteer leaders, media and others interested in association management companies (AMCs). AMCs are professional service firms that provide experienced staff, proven practices and shared resources to associations.

Click here for a copy of the press release in Word format.