As a consultant with one of my specialties focused on nonprofit governance I believe that governance very much matters and makes the difference, or can make the difference, between a successful and unsuccessful organization.
I know that funders, particularly private funders, periodically, at least perfunctorily, ask their grantees about the organization's governance. I'm not always clear they are clear about their expectations except perhaps to send a message that a nonprofit's governance should matter.
This said, I find it very unsual for a funder to put governance conditions on a grantee, and maybe this is the red flag, especially if outcomes are satisfactory. It is not clear how well this organization is doing in the area of outcomes but the funder, and public sector at that, has decided to put governance specific conditions on the receipt of future monies.
Hooray for the funder and in the end, hooray for the nonprofit -- with better governance I believe it will not see itself in this life-threatening condition in the future.
Here's the story.