Nonprofit boards alone have leadership authority—the legal and fiduciary responsibilities—for the organizations that can invigorate the economies of our communities, protect the environment, provide access to education and health care for all, alleviate poverty around the world, and more. Given such important missions, under tough financial circumstances, let 2011 be the year that nonprofit boards get in shape.
GREATER ATTENTION TO BOARDS
The good news is that
- Many boards have become more self-aware in the past couple of decades, seeking enlightenment about the role of the board, best practices, and so on—even "assessing" themselves.
- Some philanthropic foundations are showing an interest in board effectiveness, by asking grant applicants good questions about board composition and practices. Not only does this show better due diligence on the part of funders, but it will also drive nonprofits towards better practices.
- The IRS Form 990 has added new questions about board practices, including whether the board has a conflict of interest policy and annual board member disclosure statement; keeps minutes of board meetings and decisions; has seen the IRS Form 990 before it was filed; and has a proper process to determine the CEO's annual compensation. The public has access to any organization's Form 990 via GuideStar. This additional new information, available to the public, will also help drive better practices among boards.
NONPROFIT BOARDS: RED FLAGS
Unfortunately, it's still too common to find nonprofit boards that are slow to change. Boards with red flags are:
- too large: comprised of more than 20 people
- allow the executive committee to make key board decisions, keeping the board in the dark
- meet only once or twice a year
- tolerate low board meeting attendance
- lack diversity among board members
- include board members who fail to make personal financial contributions
- have a preponderance of board members who have served on the board for 20 or more years
- have the same board chair and/or officers for 10 or more years
- fail to see clear, accurate, and understandable financials
- fail to see an annual audit and management letter, and hear the auditor's report directly from the auditor
- fail to engage in meaningful discussions about key strategic issues
- fail to understand the organization's revenue model
How can boards truly exercise their legal and fiduciary duties of care, loyalty, and obedience under such circumstances?
THE NONPROFIT BOARD MODEL: AN OPPORTUNITY
Some complain that it's the nonprofit board model that doesn't work. I disagree. The beauty of federal and state laws regulating nonprofit board governance is that the laws are minimal. Generally speaking, in addition to requiring board members to abide by the duties of care, loyalty and obedience, laws require that a board be comprised of at least three people, with a maximum of five-year terms (but no rules either way about term limits). So boards are free to determine the size, structure, officer positions, committees, frequency of board meetings, and so on—to create the model that will work best for the particular organization to achieve its greatest potential. There's no one-size-fits-all. What an opportunity.
See my next post on "Designer Boards" to learn how nonprofits can build boards to maximize their revenues and their impact, and together strengthen the effectiveness of the nonprofit/NGO sector.
In the meantime, please share your experiences, questions, and comments about nonprofit boards.