Previously, we took a closer look at Program Expense Percentage. Today, we’ll dive into one of our most important Accountability & Transparency metrics: Independent Board of Directors.
Board independence is defined by the IRS, and it pertains to whether a member of an organization’s board has a personal financial stake in the organization. For our purposes, we are looking to see that independent board members outnumber non-independent members, so that decisions made by the organization’s board cannot be controlled by members with a financial stake. This ensures that those with a vested personal financial stake in the organization cannot control its board decisions. There are also requirements in the definition of board independence regarding familial relationships with principle officers; this ensures that relatives of individuals with a financial stake in the organization are not responsible for controlling board decisions.
Beyond simply requiring an independent majority, we also look to make sure there are at least five independent board members. Most organizations we rate have far more than this, but we believe that it is critical for an organization’s board to have diversity of thought and the capacity for full deliberation on decisions made, and having at minimum five board members ensures this. An independent board smaller than this will suffer, as it will overly rely on a small number of board members and may not make the best decisions possible for the organization.
Boards of directors with an independent majority and at least five independent members will have both the independence and the diversity of thinking that make for an effective decisionmaking body. Organizations that meet these criteria receive full credit for the metric. We consider this to be one of the most vital measures of an organization’s Accountability & Transparency, and lacking an independent board costs an organization 15 points from its Accountability & Transparency score.
To learn more about our Accountability & Transparency metrics, check out our Accountability & Transparency Methodology.