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Due Diligence Plan

man studying document with magnifying glass

Concept of due diligence

Due diligence is the process whereby individuals and/or a group assure that an organization is healthy and effective. The dictionary defines due diligence as the care that a reasonable person (or group) exercises under the circumstances to avoid harm to other persons or their property.

In a corporation, due diligence is carried out by both employees (e.g., management) and the board of directors.

Due diligence for your nonprofit organization

The chief executive and his / her staff are responsible for ongoing due diligence at the management level. The job description of the chief executive describes the scope of work. The board adopts policies that define the role and scope of authority of the board, the relationship between the board and its chief executive, and the limitations of the chief executive.

Due diligence by the board of directors is limited to the governance level. The board carefully carriers out its scope of due diligence without trespassing on the scope of responsibility of the chief executive and staff in general.

The chief executive helps the board carry out due diligence at the governance level by providing information, analyzing trends and implications, and responding to critical questions posed by the board.

The board of directors may appoint committees and /or task forces to help carry out the due diligence function of governance. However, the board cannot (and should not) delegate its due diligence accountability to any other body, whether individual or a committee or task force.

Scheduling due diligence activities

The board carries out its due diligence functions at board meetings. (Governance only happens when the board is together at its meetings so that’s where due diligence occurs).

At the start of each fiscal year, it may be useful for the chief executive and board chair to draft a due diligence outline for review, adjustment and endorsement by the board. This outline schedules the due diligence activities throughout the board meetings of the fiscal year.

The board chair and chief executive officer use this outline to help develop board meeting agendas, institutionalize critical work, and anticipate issues.

Role of the Board

The Board of Directors is legally and morally (ethically) accountable for the health and effectiveness of the XYZ Organization. The Board ensures that the organization achieves its mission in an ethical, transparent, accountable, and prudent manner.

The Board’s job is governance, the ongoing process of due diligence whereby the Board operates as a collective to assure corporate health and effectiveness. Specifically, the Board is accountable for the functions described below. The Board operates in a manner outlined in its policies.

The Board works in partnership with its CEO as articulated in various policies. The CEO provides leadership and support, enabling the Board to carry out its governance responsibility.

Board Functions | Scope of Authority

All of this is accomplished as a group – at board meetings – through review of information, strategic questioning, and dialogue.

  1. Articulate values and mission, and set standards, controls, and policies. Ensure that all the organization’s programs, activities, and operations adhere to these policies.
  2. Ensure that the organization is relevant to the community through processes that monitor the external environment and define vision, direction, and strategy.
  3. Define and monitor key areas of performance compared to short- and long-range strategy / plans, assess results, and assure that steps are taken for continuous quality improvement in all areas.
  4. Ensure that the financial structure is adequate for current priorities, long-range strategy, sustainability, and intergenerational equity.
  5. Ensure that adequate risk management is in place, e.g., safety and security, insurance, data back-up, CEO succession, etc.
  6. Determine eligibility for Board membership, assure proper recruitment of candidates, elect members and officers, and assure proper orientation and mentoring of Board members.
  7. Define and enforce parameters of the Board’s work including its committees / task forces and the role and performance of the individual Board member. Assess effectiveness.
  8. Hire the organization’s chief executive officer. Appraise his/her performance and set compensation; reward competence, or if necessary, replace the individual.
  9. Ensure compliance with relevant laws and regulations affecting the organization.
  10. Ensure effectiveness of management, without intruding in management’s role and authority.
  11. Ask strategic questions and provide candid advice and perspective regarding the organization’s health and effectiveness and the marketplace environment, without compromising management’s authority.

Due Diligence Outline (operationalizing Board’s job description into what happens at Board meetings):

Introduction

The Board of Directors of the XYZ Agency recognizes that it is legally and morally accountable for assuring the corporation’s health – and due diligence is the process whereby the Board assures said health.

Accountability

The Board is accountable for due diligence and cannot delegate this responsibility to any individual or entity, not even a committee of the Board – although a committee can help the Board do this work.

The Board carries out due diligence as a group at its Board meetings. The board does this due diligence by reviewing critical information, discussing trends and implications, asking strategic and cage-rattling questions, and making decisions sometimes (but not always).

The CEO enables the Board to carry out its due diligence function by assuring effective communications, working with committees, and asking the Board if it is satisfied with the due diligence process.

In fact, management leads / does almost all of this due diligence as part of management work. Then management engages the Board (and appropriate committees and task forces) in fulfilling the Board’s level of due diligence.

Individual Board Member role

In order for due diligence to occur, each individual Board member is expected to function as a critical part of the Board itself. Each Board member shall read the material provided, highlight strategic issues, and ask essential and cage-rattling questions to foster dialogue. The Board member shall bring copies of all relevant materials to each Board meeting and shall demand that the Board focus on due diligence.

Scope of due diligence

See Board role / job description. The general areas of due diligence include: Values and Mission; Standards, Controls and Policies; Fiscal; Board Operations; Legal, Regulatory and Risk; Personnel; and Program / Services.

The Board may choose to establish committees to help the Board carry out its work. While these committees cannot assume Board responsibility, the committees can play a supporting role, as does the Executive Director.

Use this outline to operationalize the Board’s job description, showing the Board what it actually does at Board meetings. Sometimes Boards actually review this due diligence overview annually, to focus attention on what needs to happen, and the general timeframes thereof.

Preparing for Board meetings

Board meeting agendas are not mysterious. Board meetings exist to do governance, the Board’s work. And doing governance means assuring the health and effectiveness of the corporation – which means due diligence.

If you’re not doing due diligence – based on the Board’s job description – at Board meetings, then something is wrong. Are you doing the wrong stuff or the right stuff at your meetings?

Use the due diligence outline to plan Board meeting well into the future. For example: Based on your fiscal year, what month do you review and adopt the budget? What month do you review and discuss the audit? Which month, annually, do you review the results of the chief executive’s performance appraisal? And so forth.

Plot what has to happen when. Plot when you’ll do the other stuff that has to be done to fulfill your due diligence obligation. Decide what you will do monthly. And then fill in as needed and when issues arise.

Special note: Whenever the statement “adopt” appears in the Board Meeting list – the assumption is that the Board reviews and participates in strategic questioning and dialogue as necessary, prior to action.
Area of due diligence Board Meeting: report, analysis of trends and implications, strategic questioning & dialogue – and sometimes but not always, decision-making Supporting accountability Frequency on board meeting agenda
Values and Mission | Standards, Controls and Policies (Board role, items #1, #2, and #3
1. Assure relevancy of mission & services. 1. Review community needs and organization’s response.

2. Review, and if necessary, update mission and vision.

3. Articulate and adopt overall strategic direction for the organization.

 1&2. CEO

3. CEO & ad hoc Strat Pl Committee

 1. Ongoing

2. Every 3-5 yrs.

3. Every 3-5 yrs.
2. Set standards, controls, & policies. 1. Review and discuss recommended standards, controls, and policies, e.g., in program, finance, fund development, etc. 1. CEO and various committees 1. As needed
3. Define and monitor key areas of performance and benchmarks, and evaluate results. 1. Define desired outcomes, outline criteria for success, establish benchmarks.

2. Measure results compared to standards and plans.

 1&2. CEO and various committees 1 & 2. Annually, qrtrly, as needed
4. Assure that activities adhere to mission, values, standards, controls, and policies. 1. Compare plans and performance to values and mission, standards, controls, and policies. 1. CEO 1. As needed
5. Assure that facilities adequately support program. 1. Establish parameters and plans.

2. Ensure adequacy of maintenance and improvements.

 1&2. CEO and task force or committee. 1&2. Annually
Fiscal Health (Board role, item #4) This is usually the easiest due diligence item for boards to figure out.
1. Ensure that financial structure is adequate for current priorities, long-range strategy, sustainability, and intergenerational equity. 1. Adopt budget and fund development plan.

2. Review financial performance compared to budget.

3. Monitor cash flow.

4. Review independent audit and management letter.

5. Review fund development results compared to plan.

6. Establish and monitor cash reserves and endowment.

 1, 2, 3, 4, 6. CEO & Finance Committee

5. DOD1, CEO, Fund Dev Committee

 1. Annually

2 & 3. Mthly/qrtrly

4. Annually

5 & 6. Qrtrly and annually
Legal and Regulatory | Risk Management (Board role, items #5 and #9)
1. Assure that the organization complies with relevant laws and regulations. 1. Review report re: relevant laws and regulations, e.g., state and federal government filings etc.
2. Review reports re: compliance with contracts, gifts, and grants.		 1. CEO, legal counsel
2. CEO & staff		 1. Annually
2. Semi-annually
2. Assure adequate risk management. 1. Review risk management report (insurance, MIS, safety, etc.) 1. CEO, ad hoc task force perhaps Semi-annually

1 The acronym “DOD” refers to the chief development officer. Some organizations use the acronym “CDO” for this position. If you do not have a DOD, your CEO serves as your DOD.

Area of due diligence Board Meeting: report, analysis of trends and implications, strategic questioning & dialogue – and sometimes but not always, decision-making Supporting accountability Frequency on board meeting agenda
Board Operations (Board role, items #6 and #7)
1. Define and enforce parameters of Board’s work. 1. Adopt expected behaviors, skills, roles, performance expectations, confidentiality, conflict of interest, scopes of authority, limitations, etc. Define processes for enforcement and consequences.
2. Adopt standards for good governance.

3. Conduct Board and committee assessments, and enforce continuous quality improvement.

 1, 2&3: CEO and Governance Committee 1, 2&3: As needed but at least every 2-3 years.
2. Assure that best candidates are selected for Board and committees, and that these individuals perform optimally. 1. Conduct screening interviews. Prior to nomination, secure commitment to expectations and other standards and controls.
2. Conduct Board and committee assessments.
3. Conduct Board member assessment.		 1, 2 & 3. CEO and Governance Com
  1. Annually
  2. Every two yrs.
  3. Annually
3. Assure strategic focus, supporting materials, and meaningful dialogue. 1. Review due diligence outline.

2. Evaluate effectiveness of Board meetings.

 1&2: CEO, Board Chair and Gov Com 1 &2. Ongoing
Personnel | Management (Board role, items #8, #10, and #11)
1. Assure that management is effective without intruding in management’s role and authority. 1. Observe effectiveness of due diligence executed by management including systems and processes to assure continuous quality improvement, efficiency and effectiveness of all areas of operation.

2. Observe effectiveness of Board and committee meetings, which are enabled by staff.

3. Discuss reports on resources required to achieve mission.

4. Review management reports re: process to recruit, develop & retain quality personnel; employee turnover rates; professional development; promotions; climate surveys; etc.

 1, 2, 3, 4. CEO, all Board members, task forces, and committees 1, 2, 3, 4. Ongoing
2. Ask strategic questions and provide candid advice and perspective without compromising management’s authority.
3. Assure that appropriate policies and procedures are in place to recruit and retain a quality CEO. 1. Adopt job description and qualifications for ED position.

2. Adopt performance appraisal process/tool for ED.

3. Approve ED performance appraisal, establish performance objectives, and professional development targets.

4. Determine ED compensation.

5. Establish Search Committee, approve search process, and hire.

 1&2. CEO & ad hoc personnel task force

3&4. Ad hoc personnel task force

5. Ad hoc personnel task force

 1&2. As needed but at least every 2 years

3&4. Annually

4. As needed
5. Ensure personnel policies, procedures that comply with relevant laws, regs. 1. Adopt personnel policies. 1. CEO, legal counsel, personnel task force 1. At least every other year
6. Approve general compensation policies and practices. 1. Review and recommend policies.

2. Receive findings from compensation analysis.

 1&2. CEO and ad hoc personnel task force 1. Every other year

2. Every 3 years

Developed by Simone P. Joyaux, ACFRE

Kristen Hay
Kristen Hay is the Senior Marketing Manager at Bloomerang. From 2018 - 2020, she served as the Director of Communications for the Public Relations Society of America's local Hoosier chapter. Prior to that, she served on several committees and in committee chair roles.