Nonprofit organizations serve such a wide variety of purposes that the federal government felt it was best to give them some flexibility to be able to govern themselves. There are no requirements for term limits for nonprofit organizations, but best practices indicate that term limits are the best structure for most nonprofits. Still, there are many opinions on both sides of the issue. The uniqueness of each nonprofit requires them to consider how term limits will affect the function of the nonprofit. Generally, most experts agree that boards should begin with a governance structure that includes term limits. Nonprofit advocates for and against term limits agree that dead weight can kill enthusiasm across the organization and that term limits offer the most democratic way to refresh the board.
Unproductive Board Directors Have a Negative Impact on the Board
Incompetent or undedicated board directors have a strong negative impact on the board and the organization. Signs of board director incompetence include:
- Poor attendance
- Lack of participation in meetings
- Being disruptive during meetings
- Not making personal donations
- Reducing volunteer time
- Not representing the organization well to the public; being poor ambassadors
Not having term limits makes it difficult for boards to contend with these issues over the long term. Boards should consider the following pros and cons before making a decision to incorporate term limits into their bylaws.
A Host of Good Reasons to Consider Term Limits for Nonprofits
The most obvious incentive for nonprofit boards to have term limits is that it brings new blood and a fresh perspective to the board. New board members bring their skills, talents and abilities to the board table. New perspectives may stem from best practices that encourage diversity of background, age, gender, ethnicity or other demographics.
Parts of our society are advancing quickly, especially with regard to technology. Societal or economic changes require boards to continually assess their skill sets to ensure the board remains competent. Term limits offer the benefit of adjusting board membership to adapt quickly to changing needs.
Nonprofit boards often find themselves in the position of having a member on the board whose passion starts to wane. As the fire diminishes, they can become unproductive and incompetent, perhaps even absent or adversarial. Negativity can become contagious and can cause the board to become stagnant, tired or bored. A few unproductive board members can put pressure on the rest of the board to pick up the slack and subject them to burnout.
Rotating new board directors into the boardroom and on committees prevents the board from becoming stale. The IRS favors term limits because they believe that static board membership leads to unhealthy attitudes, which can cause boards to govern out of self-interest rather than community interest. Boards that have a majority of longstanding members may intimidate newer members, causing them to hold back with new thoughts and ideas.
Having term limits makes it easy to part ways with unproductive board members and positions the nonprofit to replace them with fresh directors. Term limits also provide a way for board directors to step down gracefully when they no longer desire to serve.
Some Good Reasons for Some Nonprofits to Forgo Term Limits
There are fewer good reasons not to have term limits than to have term limits. All pros and cons are worth considering, and boards should assess each of them as they relate to the uniqueness of the board’s function.
Long-serving board directors have the organizational history and the institutional knowledge that can be of great benefit to nonprofits. These are important parcels of information when seeking grants and donations, as they tell the story of the nonprofit and the people it serves. Unlimited tenure also eliminates issues of board directors whose enthusiasm wanes as their term comes to an end.
Boards are wise to consider some of the potential losses in having too much board turnover. The loss of a board director may mean the loss of substantial volunteer hours that the organization has long depended on to do their work. As board directors step down, they may also take donors or other important stakeholders within their networks with them.
Losing even one board director places extra burden on the governance committee. The loss of a board member signals the need to identify, recruit and orient replacement members, which takes time away from regular board duties.
As board directors leave the organization and new ones replace them, it takes time to rebuild trust and cohesiveness, which weakens the leadership to some degree.
Things to Consider When Setting Term Limits
When writing their bylaws, nonprofit boards should decide on the most preferred term limits and how many consecutive terms the directors may hold. Decisions may include board discussions about how to provide alternatives for directors who want to stay involved over the long term.
Discussions about term limits should center on how to maximize board director productivity during the term. Often, one year is too short a time for a board member to get acclimated and to make a meaningful difference. One-year terms also require the board to hold elections every year, which isn’t productive either. Most boards find that two- or three-year terms work best. Staggered terms are preferred so that the board doesn’t refresh all at once. The general rule of thumb for best practices suggests that boards should turn over no more than one-third of the board seats annually.
It’s commonplace for boards to limit terms to either two consecutive terms or a total of six years and to provide additional options for board directors who want to continue serving in some other capacity.
Boards may choose to set up their bylaws so that a board director fulfills the necessary term and then takes a mandatory hiatus for a year before they can resume a board seat. Boards may also opt to assign former board directors to key committees, such as the finance committee or the nominating committee, as non-directors of the board, so the board can retain their expertise. Some nonprofits favor moving former board directors to their advisory board automatically. It’s always good to try to keep former board directors working on a volunteer basis, too.
These decisions are precisely what board portal management systems are designed to help boards with. BoardEffect designed its software with board development in mind. Whether the board needs to do recruiting, nominating, orientation, onboarding or board education, a board portal provides a software solution to support every stage of the development cycle. BoardEffect’s platform stores bylaws, manages board self-evaluations, tracks board terms, and much more so that nonprofit boards can keep their best people on the board at all times. No board is too small to benefit from board portal support that promotes good governance through nonprofit organizations.