Chapter 13
Board Governance and Oversight
Boards of Directors or Trustees are responsible for providing guidance and oversight in nonprofit and commercial organizations. In the world of commercial organizations, the board also has a particular responsibility to protect investor interests as measured in profits. A nonprofit or NGO board also has the responsibility to protect assets, make prudent investments, approve an annual budget, secure an independent audit, and otherwise provide prudent financial oversight. But, they do it with a special twist, their responsibility is to maintain the organization’s focus on mission.
The initial purpose for which a commercial organization has been created is likely to grow, change or lose meaning as time passes with little consequence so long as it is profitable. For nonprofit organizations, its mission is the ultimate expression of its value. All of the work a nonprofit does is either in the service of achieving its mission or a consequence of lost focus or mission drift. Much discussion of the role of nonprofit boards relates to risk centered on financial oversight and organizational sustainability. Yet, it is the unique role as mission-keeper that is key to a nonprofit’s success.
Note: This is not to suggest that the mission of a long-standing nonprofit organization cannot change, but only to suggest that the constant objective for a commercial organization (which boils down to value) does not apply in the same way to nonprofits.
All boards have three basic responsibilities:
–Duty of care. Every board member has a legal responsibility to participate actively in making decisions on behalf of the organization and to exercise best judgment while doing so.
–Duty of loyalty. Every board member must put the interests of the organization before their personal and professional interests when acting on behalf of the organization or in any decision-making capacity.
–Duty of obedience. Every board member bears the legal responsibility of ensuring that the organization is in compliance with the applicable federal, state, and local laws and that it adheres to its mission.
There are other duties of board members and we will cover two of them as particular areas of risk:
–Creating a nonprofit or nongovernmental organization.
–Maintaining a sustainable board.
Creating a Nonprofit or Nongovernmental Organization
Whether you are contemplating creating a new nonprofit organization or are dealing with an established one, it is important to understand the roles and responsibilities of its board. In addition to the responsibilities of nonprofit boards covered above, each organization delineates roles and duties in its articles of incorporation, bylaws, charters and other foundational documents that vary by jurisdiction. Bylaws and charters are subject to revision over time to meet new legal or regulatory mandates.
What to Watch For
In its simplest form, a nonprofit or nongovernmental organization starts with a person or group of people united by the desire to address a community issue or meet a community need. The issue that animates them can be as varied as providing health care, promoting the arts, protecting the environment and many other causes. At some point, this simple concept (a collection of people united by a cause) can evolve into a structured organization that can be organized formally as a corporation under the law.
Oversight of the new organization is provided by a board that provides oversight of operations and finances and offers guidance for other mission-related actions taken by the organization.
The first risk to watch for in governance and oversight is familiarity and consistent understanding by board members of the organization’s mission and how the organization chooses to operationalize that mission. This is followed by how familiar each board member is with the rules, roles, responsibilities and accountability requirements that govern board and organization operations.
This is the most basic aspect of nonprofit risk, and it is listed here first because in organizations large and small, there often are misunderstandings regarding the scope of the organization’s activities in support of its mission. Outsiders (members of the general public) as well as staff and board members will periodically ask, “Why can’t we...?” Sometimes, the answer is simply that this is not part of the organization’s mission no matter how worthy or critical the issue is. A focus on mission helps an organization make more informed decisions about all areas of operations—from programs and fundraising to technology and communications.
Founderitis (Founder Syndrome)
As the term suggests, this can be the initial founder(s)—often chief executives but commonly, one or more board members who have long been involved with or have held key leadership positions in the organization.
Founderitis is a term with a negative connotation although there are benefits to the experience that board leaders with a strong and long tenure with the organization bring that can be very useful. After all, with a powerful individual or group of board members, there may be a reduced burden on other members. Founding or longstanding board members can smooth the onboarding and transition of a new executive director and/or new board members. Founding board members can also be culture carriers and keepers of the organization’s traditions. And, when it comes to fundraising, founding or longstanding board members may have a strong track record of cultivating and retaining donors.
The flip side of founderitis comes when tenure interferes with progress or needed changes in an organization. Term limits and executive contracts typically have end dates to prompt a review of performance and fit. When a board member or executive is unable to let go and they begin to hold the organization back from being able to meet its obligations or serve its mission, founderitis may be the cause.
All of these issues can be warning signs of trouble to come. If you look at media coverage of nonprofit organizations in the news, you will find many examples of these situations. Founderitis is notoriously difficult to handle because the founder is believed to have been responsible for everything the organization has accomplished to date. In many organizations, the founder has had a hand in everything from funding to plumbing and promotion of the organization. Boards are tasked with the challenge of helping a longstanding executive make a seamless exit. Executives are tasked with helping their board members and leadership know when it’s time to move on and finding ways to acknowledge their contribution and commitment.
Prevention
Preventing governance risk extends to the relationships between the board, the executive director, the staff, and the public. Much writing has been done on the risk that comes when boards communicate and get all information from the chief executive only. Solutions offered typically include encouraging board communication with managers, staff and service recipients. This is a necessary but not sufficient protection from risk and it comes with some unique challenges for nonprofit organizations.
–Board composition. The composition of a board is outlined in the bylaws and other foundational documents of the organization. The number of board members, their terms of office, elections, attendance, and board committees are delineated in this way. The bylaws may include specification of types of members to be included such as representatives from the community, clients or service users. Nonprofit organizations with affiliates may require central approval of board members. Adherence to bylaws is the first step in risk prevention. If you do not adhere to these bylaws and other requirements, actions of the board may be null and void.
–Open meetings. Many nonprofit boards conduct their business in closed session with an open annual meeting once a year, while others welcome members of the public to any meetings. The organization’s bylaws should define the organization’s practice and notification requirements.
–Term limits. Best practice is to set term limits for board officers and members in bylaws. There are pros and cons to having term limits. One pro is that term limits allow organizations to bring in fresh perspectives and capacities. A con is that term limits that push out longtime board members can drain expertise and knowledge about the organization.
–Meetings. Nonprofit organizations must have at least one annual meeting where corporate elections and other routine business is conducted. Most nonprofits have quarterly board meetings as detailed in their bylaws. Organizations that do not hold regular board meetings should raise a red flag.
–Attendance. Bylaws typically specify a quorum that must be present or on a conference call to conduct business and vote or ratify decisions. This is often a majority of the board, but it is not always the case. Bylaws may also specify what “attendance” means. In some organizations, a board member who notifies someone (board president, executive director, or the like) is not counted as absent but as “excused.” Board attendance is another risk for nonprofit organizations because of quorum requirements for voting and for decisions about continued board service for members who are frequently absent. Board minutes must include attendance. As noted previously, the absence of a quorum can make board actions invalid. Proper record-keeping is essential because some laws and bylaws specify that a certain number of absences automatically remove a board member. Comings and goings of board members during a meeting may alter the quorum. A roll call (or “quorum call”) may be requested during the meeting to confirm the presence of a quorum at any given time.
–Virtual attendance. Bylaws or procedures may specify that board members can or cannot participate digitally. In some jurisdictions, laws governing nonprofit organizations may require in-person attendance.
–Adopt and rely on meeting parliamentary procedures. The manner in which board meetings are conducted, vary by country and type of organization; they may be specified in your organization’s bylaws. It is important that there is consensus and formalized rules set to maintain order, move through the meeting agenda, take a vote. Bylaws should also cover how the organization will handle dissent and minority opinions. In the absence of agreement on the rules governing meetings, the board may be unable to act as a single body.
–Keep minutes. Board minutes must capture all organization decisions, activities and planned actions. These documents are often audited, reviewed by government or requested in discovery in litigation. Minutes are part of the organization’s historical record and require care to produce and retain them. At a minimum, the time and place of the meeting, attendees, agenda items and a list of all information and action items covered, major decisions and votes held during the meeting should be recorded.
Maintaining a Sustainable Board
The long term programmatic and financial health of a nonprofit organization means attention to board member expertise, commitment and networks. A strong board is animated by the organization’s mission and its members are actively engaged in promoting it in a variety of ways.
What to Watch For
You can identify sustainability risks in three areas.
–Watch for communication, decision-making, attendance or contribution lapses by the board.
–Watch for role confusion, inappropriate communication, interference or conflicts of interest with the organization’s priorities or policies.
–Watch for flagging interest, conflicts or lapses in adherence to board and organization policy by board members.
There are telltale signs of governance and sustainability problems on a board. Alone, each may not pose a risk to the organization. Taken together, they should flag attention.
–Absence of a quorum in board or board committee meetings.
–Absent a quorum, votes are taken and business is conducted anyway.
–Change in the number or frequency of non-present board members participating remotely.
–A change in member attendance patterns. This can be as benign as absence due to illness or personal matters (car repair that disrupts a carpool) or it can indicate communication problems, dwindling interest in the organization, personality conflicts or other underlying dysfunction.
–Board members who are unprepared for meetings because no material was provided beforehand or who hold key information that is not shared with other members (such as the treasurer, with responsibility for certain reports misses meetings).
Watch for role confusion with board members.
As part of a board’s oversight, it observes and receives direct and indirect reports from the staff about the organization. Without micromanaging, strong boards monitor these reports, observe operations and regularly engage with staff as a way to assess what is actually happening within the organization. Role confusion, inappropriate communication or other dysfunction can spill over into organization’s operations in unfortunate ways.
–Necessary operations are postponed because of board member absences or inaction.
–Board members find themselves in inappropriate situations.
Watch for problems with individual board members.
Board members are entitled to respect and privacy, as well as the recognition that comes from providing uncompensated and vitally necessary service to the organization. However, when circumstances prevent an individual board member from contributing fully or that impair their functioning, there may be cause for concern. Board relations and board relationship management is a critical function for a nonprofit organization. Organizations are confronted with delicate and highly sensitive issues in board management from handling personal information about board members and their families to changes in financial position or employment status and personality conflicts between board members.
Prevention
–Board sustainability. Over time, members of the board or other governing body often change. Keeping the board strong requires continuing work to recruit and retain members. It also requires serious work to manage board turnover, engagement and training, including attention to board members who cannot or whose capacities no longer match the organization’s needs. Sometimes, long-time board members are reluctant to leave (and their fellow board members may be reluctant to suggest that course of action). A sustainable board addresses issue of recruitment, retention, engagement and training before those issues become crises. This is usually done in consultation with executive staff and the membership or nominating committee of the board.
One strategy for helping board members move on while maintaining good relations is to create special categories of membership or affiliation. This can include establishing emeritus or honorary members who are recognized for their past contribution to the organization while not impacting the number of people needed for a quorum or other board actions.
–Board member commitment. Bylaws and Board recruitment activities must make clear what responsibilities a board member is expected to fulfill. Some boards are honorary, and attendance may not be required or expected. In such a case, make certain that at least some board members do attend on a regular basis.
–Annual executive and board performance reviews. The board is responsible for an annual performance and compensation review of the executive director and of the organization’s operation. Strong boards also assess board activity and individual board member activity annually.
–Interacting with staff and the public. In general, board engagement in resolving disputes among staff or with clients is ill-advised.
–Keep rules current. Bylaws and other organizing documents should be reviewed on calendar so that they are up to date.
–Clarify boundaries for board, staff, executive director, and the public.
–Weather disrupting meetings. In climates where weather is a concern, many boards schedule multiple meetings—one for the normal meeting, and a prescheduled meeting in case the first one is rained/snowed/stormed out and canceled. One or two incidents may be coincidences or happenstance. Repeated weather disruptions that don’t have planned alternate meeting dates constitute a risk.
Summary
Legally, the board is responsible for direction, financing and oversight—what happens in the organization. Jurisdictions differ in their requirements, but good resources for board requirements are a local charities bureau and web resources such as BoardSource (https://boardsource.org). A strong board is essential.
Many nonprofit organizations are able to recruit board members whose expertise they could not hope to obtain if they had to pay for it because people with such expertise share their skills with organizations that they support. In some cases, professionals are encouraged to share their skills with community groups as part of their responsibility to the public.
Organizations can reduce risk by identifying needed skills and capacities and recruiting for board members who have them. Depending on the organization, legal, financial, insurance, fundraising, communications, and client services expertise is most valuable. Other boards recruit individuals or community members who bring prominence, personal experience, legitimacy or access to the organization. Some boards have give/get requirements that require a certain level of financial contribution or fundraising. Each organization chooses its own route, and that may change over time as circumstances change.
Moving On
Whether you have decided to start your nonprofit risk project now, are still considering whether or not to begin one, are continuing with an existing project or are planning to use the strategies in this book to restart a dormant process, we wish you well and encourage you—more than anything else—to keep going. Every organization can benefit from a fresh look and there’s much to be gained through an approach that takes nothing for granted.
Understanding and managing risk in your organization is not a sign of vulnerability or of a poorly-run organization. it is a sign of a responsible, forward-thinking leader and a future-facing nonprofit organization. We encourage you to come back to the tactics described in this book and to add new ones as you and your organization learn more about what works to keep your risks under control. We have additional information on our website at champlainarts.com/nprisk. We hope that one day soon, conversations about nonprofit risk become as ordinary and commonplace as discussions about nonprofit fundraising, board recruitment, and technology.