Nonprofits focusing on governance reforms

By Sean Hao
Advertiser Staff Writer

•	To learn more For information on new corporate governance rules, visit the Securites and Exchange Commission Web site at www.sec.gov. For information on how the Sarbanes-Oxley Act may affect nonprofits, go to bdo.com or pwcglobal.com.

This includes hiring outside attorneys, adopting ethics codes and hiring independent auditors, panelists said during a discussion on corporate governance held by the University of Hawai'i Board of Directors' Institute yesterday.

"Nonprofits as a rule are starting to wake up," said Kent Graham, a partner with law firm O'Melveny & Myers LLP. "If the level of interest is any indication, we're seeing a great deal of interest on the part of non-profits.

"That world is definitely changing."

Much of the discussion at the Hawai'i Prince Hotel centered on the changing role of boards of directors in response to such regulatory reforms as the Sarbanes-Oxley Act of 2002. Congress passed the act in the wake of Enron, WorldCom and other corporate accounting scandals with the purpose of cracking down on corporate fraud.

Corporate governance deals with a broad range of issues, including how executives and directors are chosen and compensated as well as how well they perform.

Federal regulators, the New York Stock Exchange, Nasdaq and others are drafting rules requiring public companies to adopt and disclose policies addressing conflicts of interest and encouraging the reporting of unethical behavior.

While the rules generally affect only public companies, nonprofits and those that receive money from the federal government also are adapting to the demands for increased accountability.

Jeri Calle, a partner at business consultant KPMG Peat Marwick, said some of the changes are motivated by nonprofit directors who are increasingly concerned about their community standings should their charitable organizations run into controversies.

"They realize that their reputation locally is just as big as any of these legal ramifications," she said.

Other changes are being driven by agencies such as the U.S. General Accounting Office, which has independence standards covering organizations that get federal money. These standards include requirements that prevent auditors of nonprofits from performing some non-audit services.

Besides the government, other large benefactors are likely to require proof that nonprofit groups are meeting fiduciary responsibilities, said Michael O'Neill, chief executive for Bank of Hawaii.

This includes evaluating the amount of money that gets to beneficiaries of the nonprofits and the compensation of employees and managers, he said.

"I think that's very much out there — increasing the outcomes as well as looking at the structure of the expenses," O'Neill said.

Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.