SUMMARY
Nonprofit leaders swear an implicit oath of obedience, loyalty, and care, similar to the Scout Oat, making them legally responsible for following the law and safeguarding their organization. Below outlines nine essential policies, from financial reserves to cybersecurity, that nonprofits need to fulfill these duties.
The Oath
When I was a kid, I LOVED scouting.
The outdoors. The challenges. The manual. The badges. The camaraderie.
I loved it all.
But most of all, I loved the Scout’s Oath.
In fact, I can still recite it to this day.
... "On my honor I will do my best to do my duty to God and my country and to obey the Scout Law; To help other people at all times; To keep myself physically strong, mentally awake, and morally straight."
To anyone who took scouting seriously, these weren’t just words.
Rather, these were the standards to which you were openly committing.
These words were real. They were serious. And they meant something.
Now, here’s the interesting thing about all of this.
Whether you are a fan of scouting or not, when you assumed a leadership role within your nonprofit, you also swore an oath.
In fact, by law, your organizational oath is three-fold.
#1: The Duty of Obedience—As a nonprofit executive and/or board member, you have the responsibility to make sure you are following all federal, state, and local laws.
#2: The Duty of Loyalty—You also have the responsibility to cast aside any personal or professional interests and place the needs of your nonprofit first
#3: The Duty of Care—Last but not least, you have the responsibility to ensure that an information-gathering and reporting system exists; and that the reporting system is adequate to flag all executives, board members, and supporting agencies in a timely manner should something go wrong.
Having just articulated your three duties, I encourage you to carefully read these items again.
Why?
Because, like the scouting oath, these aren’t just empty words.
In fact, should anything go wrong in your organization, these are the standards to which you will be held.
Serious stuff, indeed.
But just as every scout had a manual to help provide clarity and insight, we’re sharing the nine policies that you need to have in place to ensure that you can meet your duties.
The Big 9
#1 Operating Reserve Policy:
An operating reserve policy is a formal, board-approved guideline defining how a nonprofit sets aside, monitors, and uses unrestricted cash to cover unexpected financial shortfalls or emergencies. Specifically, it acts as a “rainy day fund,” usually targeting 3–6 months of operating expenses to ensure financial stability and sustainability.
#2: Investment Policy:
A nonprofit investment policy (or Investment Policy Statement (IPS)) is a written document that outlines the strategic goals, risk tolerance, asset allocation, and guidelines for managing a nonprofit’s financial assets. It serves as a roadmap for board members and advisors, aligning investment strategies with the organization’s mission while maintaining fiduciary duty.
Said differently, an investment policy establishes a clear, documented process for managing assets, which helps protect board members and the organization.
#3: Conflict of Interest Policy:
A conflict of interest is any activity or interest that would cause a lack of objectivity for a board of directors reviewing a particular transaction. The IRS requires nonprofit boards to have a conflict of interest policy to ensure that they are making decisions objectively. The Code of Federal Regulations addresses conflict of interest in the Code of Conduct section.
#4: Gift Acceptance Policy:
A gift acceptance policy establishes procedures for reviewing, accepting, and substantiating non-standard contributions. These are contributions of items that are difficult to sell and/or value—e.g., vacation time shares or stock in a privately owned company.
In other words, if your nonprofit accepts these kinds of non-standard contributions, you should adopt such a policy.
#5: Directors and Officers (D&O) insurance:
Directors and Officers (D&O) insurance protects board members, staff, and volunteers from personal financial loss due to lawsuits alleging mismanagement, wrongful acts, or errors in judgment. It covers legal fees, settlements, and judgments arising from claims by employees, donors, or regulators.
... Leading a best-in-class nonprofit organization is an exhilarating experience.
#6: Whistleblower Policy:
The purpose of a whistleblower policy is to protect an employee from being fired in a situation where they choose to report misconduct within an organization. Whistleblower policies prevent fraudulent behavior in all types of organizations. The policy should consist of a written process whereby the organization will deal with employee or volunteer complaints while alleviating any concerns over retaliation to the reporting employee.
#7: Records Retention/Destruction Policy:
A nonprofit records retention policy is a formal document outlining how long an organization keeps, stores, and safely destroys its records (physical or digital). It is crucial for compliance with federal/state laws (e.g., IRS regulations, Sarbanes-Oxley Act), maintaining accountability, ensuring operational efficiency, and managing risk.
#8: Cybersecurity Policy:
Many nonprofits collect and store sensitive personal information that is protected by law as confidential. When there is a breach of the confidentiality of the data, that poses a risk for both the individuals whose data was disclosed, as well as for the nonprofit that will now potentially be subject to liability for the breach. It makes sense for every nonprofit to, at minimum, assess the risk of a data security breach and protect its data from unauthorized disclosure.
#9: Directors’ Terms of Service:
This document covers a variety of important issues, including:
- Access and interaction with staff
- Board expectations
- Number of members
- Director nomination and election
- Board vacancies and removal
- Election and responsibilities of officers
- Meetings
- Quorums
- Voting by proxy
- Committee membership
- Access and interaction with staff
Extraordinary Impact
Leading a best-in-class nonprofit organization is an exhilarating experience.
You get to work with believing difference-makers.
You get to put your God-given talents to their highest and best use.
All to make the world a better place.
And as cool as all this is, never, ever, ever, ever, forget: It’s also an enormous responsibility.
That’s why you have to take your oath seriously (and you must have these nine policies in place to help you get the job done!).
Today (right now!), while it’s fresh in your mind, make these nine policies a priority.
Don’t put it off. Your organization’s success (and your reputation!) depends on it.
