If we’ve learned anything from the pandemic, it’s that anything can happen whether we’re prepared for it or not. It’s during times of crisis that your nonprofit will learn the strength of its foundation and what it can do better moving forward. How prepared was your nonprofit board for the pandemic? Do your board members feel prepared for the next major crisis you could face? Good governance practices ensure that your board can handle anything that comes its way. That being said, how can you be sure your board is practicing good governance? To that end, is your nonprofit board equipped with the right tools to support governance best practices?
What Is Good Governance?
Governance is necessary anytime a group of people comes together to accomplish something. The primary tenets of governance are authority, decision-making, and accountability.
The structure of any organization’s governance determines the following things:
- Who holds the power
- Who makes the decisions
- How the organization holds itself accountable
- How stakeholders provide input
It’s easy to overlook the concept of governance when things are going well. Yet, that’s the time when you should be paying the most attention to it. The lack of good governance in nonprofits is glaring during the most challenging times.
Fortunately, there’s no shortage of resources and digital tools to assist your board in your quest for good governance. Your job is to seek them out, review your governance practices and revise them if necessary, and ensure that you have the right tools to do your board work responsibly and efficiently. Your state association of nonprofits is a good starting point to do your review of governance best practices.
What Are Governance Best Practices?
Your board is probably already following a few governance best practices without even realizing it. That’s a good start! At least annually, your board should be looking at what your governance practices are and work to improve on the foundation you have.
Let’s review 8 governance best practices that you can share with your board for discussion:
- Forming a highly qualified board of directors. When was the last time you took a focused look at the talent on your board of directors? Do you have the right mix of talent? Do you have a diverse board so that you get the advantage of many perspectives? Remember, diversity encompasses a wide variety of demographics including gender, ethnicity, talent, religion, professional experience, and more.
- Hiring the best talent for the executive director position. Does your board have a good process in place for evaluating the executive director, setting reasonable compensation, and succession planning? These practices are an important part of governance best practices.
- Writing, approving, and maintaining meeting minutes. Does your board take minutes of every meeting? Do you know what to record and leave out? Does your board approve meeting minutes in a timely manner and store them securely? Does your executive committee take meeting minutes? Executive committees sometimes act on behalf of the board and it’s important to document their actions and decisions.
- Establish core policies to avoid penalties and liabilities. At a minimum, it’s considered part of governance best practices to establish the following 4 types of policies:
- Conflict of interest
- Document retention and destruction
- Gift acceptance (governs how board members can receive non-monetary gifts, cash gifts, and unusual gifts)
Governance best practices also encompass reviewing these policies annually and documenting them on the IRS Form 990.
Establish conflict of interest policy, review it annually, and document it on Form 990. Document in meeting minutes when the policy is invoked.
- Approve the executive director’s compensation and benefits. There are laws regarding how much nonprofits can pay their executive leadership. The executive director’s compensation should be reasonable for the position and it should also be in line with what similar nonprofits are paying their leaders. It’s important to document how the board determined that the compensation was appropriate and not excessive.
- Perform a board review of Form 990 before the filing. The executive director usually fills out the IRS Form 990 before it gets filed with the IRS. Boards are responsible for the oversight of compliance issues, so it’s important for boards to review the document before it gets filed and make sure it gets done correctly.
- Make the nonprofit’s returns and related documents available to the public. It’s considered best practices for good governance for nonprofits to disclose the 3 most recently filed annual returns with the IRS along with any related correspondence and attachments.
- Follow regulations related to joint ventures. Nonprofits are increasingly partnering with corporations in their missions to serve others. With these types of partnerships, board members need to be aware of the rules related to avoiding private benefit.
All board members have equal responsibility for ensuring governance best practices and it only takes one board member to make a request to place these items on your board’s agenda.
Tips for Ensuring Good Governance for Nonprofits
It will take a bit of your board’s time to review your governance practices and make sure they’re up to snuff. We’ve put together some great tips to make the process a bit smoother and help you get buy-in from the rest of the board.
- Take some help from digital tools with an automated survey tool for doing annual board assessments. BoardEffect built the tool directly into its board management system. Board members can complete it using any device and do it at their own convenience. It streamlines the board self-assessment process.
- Work toward creating a culture of diversity and inclusion. A wide array of perspectives on every issue will help your board make better decisions. Be sure that everyone’s voices are heard, and your board is considering their opinions.
- Be sure that you have a board orientation process in place and that it includes topics on governance best practices. Your board management system is the best and most accessible place to store your orientation program.
- Be on the lookout for potential conflicts of interest. It’s every board member’s responsibility to do this. The best way to do this is to role-play various situations that could lead to a conflict of interest.
- Check your state association for educational programs on governance best practices and set your board members up with training. Sign up with your state’s newsletter if it has one and also sign up for the National Council of Nonprofit’s newsletter, which is free.
We live in a world where disruptive forces are constantly at work. Threats are swift and complex. Their consequences can be unnerving for nonprofit board members. The best defense against crises is to be continually prepared for the unknown. Be diligent about governance best practices and ensure that you have the right people and tools to implement them.