Governance is that separate process or certain part of management or leadership processes that makes decisions that define expectations, grant power, or verify performance. Frequently a government is established to administer these processes and systems. Governance (in business) is the action of developing and managing consistent, cohesive policies, processes and decision rights for a given area of responsibility. For example, managing at a corporate level: privacy, internal investment, the use of data.
As a process, governance may be carried out for any size organization from a single human being to all of humanity, and it may be carried out for any purpose, good or evil, for profit or not. A reasonable or rational purpose of governance is to see to it (assure), sometimes on behalf of others, that the organization produces a worthwhile pattern of good results while avoiding an undesirable pattern of bad circumstances. The ideal purpose, obviously, would assure a perfect pattern of good with no bad.
Governance and Related Topics - 501(c)(3) Organizations
The Internal Revenue Service believes that a well-governed charity is more likely to obey the tax laws, safeguard charitable assets, and serve charitable interests than one with poor or lax governance. A charity that has clearly articulated purposes that describe its mission, a knowledgeable and committed governing body and management team, and sound management practices is more likely to operate effectively and consistent with tax law requirements. And while the tax law generally does not mandate particular management structures, operational policies, or administrative practices, it is important that each charity be thoughtful about the governance practices that are most appropriate for that charity in assuring sound operations and compliance with the tax law. As a measure of our interest in this area, we ask about an organization’s governance, both when it applies for tax-exempt status and then annually as part of the information return that many charities are required to file with the Internal Revenue Service.
Some of the policies and practices we commend for your consideration are divided into the topics below. Although the discussion that follows is generally directed to public charities, private foundations and other exempt organizations should also consider these topics. Depending on an organization’s specific situation, some of the recommended policies and practices will be more appropriate than others. References to Form 990, Return of Organization Exempt From Income Tax, are to the 2008 Form 990.