The membership places those charged with club governance in a position of trust, which imposes a duty on them to put the interests of the membership above any individual interests. Various policies are critical for sound governance and to ensure that club procedures adhere to legal and ethical standards. Ever since the Sarbanes-Oxley Act of 2002, clubs have had to pay more careful attention to auditing and governance policies and practices.
Policies encourage transparency and accountability and enables employees to voice concerns without fear of retribution. NCA’s Board Toolkit: Leadership Essentials recommends clubs have the following policies among their governance documents: conflict of interest, whistleblower, document retention and code of ethics.
Conflict of Interest
Those charged with governance should refrain from self-dealing or using their position for personal advantage in matters concerning club business. Most conflict of interest lawsuits arise from two basic situations. The first is when a person charged with governance makes a decision out of self-interest or in the interest of only part of the institution instead of the common good of the whole organization. The second situation arises when the club engages in a transaction with an organization that has a financial connection with a board member or a board member’s family.
To identify where potential conflicts may arise, the club’s written Conflict of Interest Policy should outline what a conflict is and procedures for handling conflicts. A Conflict of Interest Policy is intended to facilitate compliance with federal and state laws relating to interactions with directors, officers, employees and other persons, the independence of the board and its members’ duty of loyalty, and to disclosure about those interactions and individuals. The policy sets out procedures for addressing situations that involve, or may appear to involve, conflicts of interest.
A club should require those charged with governance to review annually the Conflict of Interest Policy
and complete a Conflict of Interest Disclosure Form outlining potential conflicts of interest that may arise in carrying out their duties to the club. The board or the Executive Committee should review the statements to determine whether potential conflict warrants further investigation. If a potential conflict of interest does exist, the person should explain the circumstances
Whistleblower Policy
The Sarbanes-Oxley Act of 2002 makes it a crime for anyone to take action harmful to any person for providing any truthful information about possible wrongdoing within a club. In other words, an employee who participates in an investigation related to fraud within the club or testifies before a tribunal is protected under Sarbanes-Oxley from termination, suspension, demotion, threats, harassment or other adverse actions.
An individual is protected regardless of whether information is communicated to a third party, such as a federal agent, or an internal representative, such as the general manager.
Accordingly, clubs should maintain a Whistleblower Policy intended to facilitate open and honest communications by employees, directors, officers and volunteers concerning our governances, finances and compliance with law, policy and ethical principles.
Document Retention and Destruction Policy
Clubs should maintain a Records Retention Policy to manage records efficiently, report performance accurately, comply with applicable laws relating to preservation and confidentiality of such records, and take appropriate actions, including litigation holds, in situations involving legal proceedings. Unlike many other provisions of Sarbanes-Oxley, nonprofit organizations such as clubs must comply with Section 1519, which makes it a federal offense to destroy a document knowingly with the intent to obstruct justice or influence an investigation.
The Code of Ethics
To promote the highest standard of professional conduct in the workplace, a club should adopt a Code of Ethical Conduct. To achieve this end, all club employees, leaders, members and vendors should commit to act with honesty, integrity and openness in executing club business. Loyalty, diligence and respect as well as compliance with laws, regulations and club rules should prevail and protect the reputation of the club.
These core documents achieve an appropriate level of transparency and disclosure within the club’s operations and enhance the board’s legal duties: duty of care, duty of loyalty, duty of obedience and confidentiality. With the right tools, a club can govern effectively—and legally.