Nonprofits Should Use The Best Practices For Good Governance To Ensure Organizational Compliance

What Are the Best Practices for Nonprofits?

A lot of people are surprised by how much work goes into a nonprofit organization. It shouldn’t be surprising considering nonprofit organizations have a lot at stake. The organization’s cause is at stake, as well as the good that it provides for the community and the people it serves. Board directors have a responsibility to make sure that the organization is financially stable and has a positive outlook for long-term sustainability.

These are just a few of the reasons that a nonprofit board director’s job requires due diligence and strict attention to their duties and responsibilities. The variability of our economic times makes it challenging to fulfill the duties of a nonprofit board director responsibility and effectively. National headlines have painted a negative picture of nonprofits that have committed fraudulent acts. A few mismanaged nonprofits made it more difficult for honest nonprofits to prove their worth to donors and stakeholders.

While fundraising is the major activity of nonprofits, board directors have to balance fundraising with a strong focus on governance and long-term development of the organization.

Following best practices for governance ensures that nonprofit organizations are being run according to their stated purposes and are operating in accordance with their tax-exempt status. Nonprofit boards that hold true to best practices will achieve their goals of long-term sustainability and will maintain the trust of their donors and stakeholders.

Best Practices for Nonprofit Organizations

Nonprofit organizations follow many of the same best practices as for-profit organizations. This is because best practices largely have to do with good governance. Best practices for nonprofit boards include sound practices for board development, succession planning, legal responsibilities, liabilities and handling conflicts of interest.

Board Development

Board directorship brings many opportunities to learn and grow, personally and professionally. Before committing to board service, nominees for nonprofit board directorship should be informed that their service requires continued board development. Nonprofit boards should identify and present opportunities for board directors to attend workshops, conferences and networking opportunities that will enhance their knowledge of board service.

One way that some boards comply with best practices for board development is to match board directors with organizational staff for the purpose of mentoring and potential board director succession planning. Board and staff mentoring provides a mutually beneficial relationship. It provides staff with the benefit of learning more about the inner workings of the board and how they arrive at strategic planning decisions. Such a relationship also helps to embed the organization’s mission and culture into the operations and may strengthen the employees’ commitment to the organization.

Board and employee mentoring also benefit board directors. It gives them a close-up perspective of the organization’s activities and establishes goodwill among members and employees.

Succession Planning

Nonprofit boards usually have term limits. Regular board turnover can be good for nonprofit boards because it continually brings in new skills and fresh perspectives. Best practices for nonprofit board recruitment include building a board with the necessary skills and abilities, having active and engaged board members, and having some semblance of independence on the board.

One of the mistakes that many nonprofit boards make is to fill board seats with anyone that will take them. Best practices require boards to assess the board’s needs according to the organization’s mission, vision and values statements and to recruit board directors who fulfill all of the necessary requirements as a group.

Nonprofit organizations generally know that recruiting celebrities and other people of note can go a long way toward bringing attention to their cause. Widespread attention often brings in higher amounts of grants and donations. Taking this approach can be prudent; however, it’s important not to overload the board with people just because of their name or reputation. The board needs a comprehensive skill set to be effective. It falls within best practices to appoint one or two notable people to the board. In lieu of making notable people board directors, nonprofits might consider honoring them with a place on their advisory board.

Since much of nonprofit board work pertains to fundraising, it’s important for nonprofit boards to have one or more board directors who have financial expertise. Nonprofit boards need a “go-to” person who can take the lead on fundraising, budgeting, investing and audits. Financial and strategic planning are vitally important processes to the long-term sustainability of nonprofit organizations.

Nominating committees should have conversations with recruits about their willingness to be active and engaged should they be offered a position on the board. Nominating committees should highlight the value that prospective board members bring to the board. Before offering anyone a board appointment, nominating committees should outline the recruits’ expectations and responsibilities upfront and be prepared to answer all of their questions. Nominating committees and recruits should include such topics as what it means to be a fiduciary, protecting tax-exempt status and not using board directorship for personal gain.

Best practices for for-profit corporations require that the majority of board directors be independent. It’s prudent for nonprofit organizations to have a good number of board directors who are deeply and emotionally connected to the cause. At the same time, it’s good for nonprofit organizations to have some level of independence. All nonprofit boards should include at least one board director who is neither a donor nor a beneficiary of the nonprofit.

A well-rounded nonprofit board of directors will have a mix of experience, with most board members having previous nonprofit board experience and at least a few board directors who have little or no board experience and who have the eagerness to be mentored by a seasoned board member.

Legal Responsibilities

Nonprofit board directors should have a written job description that outlines their expectations, duties and responsibilities, which includes many legal responsibilities. Best practices highlight the legal responsibilities that come with being a nonprofit board director.

Board directors should be aware that they are responsible for setting policies and providing guidance while delegating daily functions to managers and volunteers. Nonprofit board directors are legally responsible for the nonprofit’s oversight of programs and activities, as well as the organization’s financial well-being. Best practices require them to be informed and knowledgeable and to participate fully in the organization to fulfill their legal and fiduciary duties.

Liabilities

A basic best practice for nonprofit board directors is to be prudent in their decisions. This means that they must be wise, careful, discreet and sensible. They should know that they are liable for their actions and decisions that arise from their own negligence.

Conflicts of Interest

Best practices pertain to how to manage conflicts of interest. The IRS requires that nonprofits have a conflict of interest policy and reveal how the board manages and monitors it. Boards should follow the IRS guidance and instructions in implementing and following best practices for managing conflicts of interest.