Non-Profit Corporate Governance: The Role of the Board
In rare instances, non-profit board directors get paid for their time, but by and large, they serve as volunteers without pay. Non-profit board directors usually have a special connection to their non-profit organization that has deep personal meaning for them. Non-profit board directors are typically motivated by their passion for the organization’s mission. Some non-profit directors bring seasoned board experience with them from the corporate world. Others benefit by board orientation, training, and mentoring to competently serve on a board. Whether non-profit directors lead by design or by experience, they all have specific duties and responsibilities to their peers on the board and the whole organization.
Much like corporate directors, non-profit board directors have the primary responsibilities of strategic planning and organizational oversight.
Non-profit board oversight includes overseeing the financial health of the organization over the long and short terms. While non-profit board directors are typically volunteers, it’s customary and expected for them to make regular, personal financial contributions to the organization.
Non-profit board directors play a distinct role in being active, vocal, and visible advocates for building the reputation and advancement of the mission.
The Impact of Corporate Law on Non-Profit Organizations
Non-profit organizations typically aren’t as greatly affected by the economy as their for-profit counterparts. However, it’s prudent for non-profit board directors to be aware of economic trends that change positively or negatively. Fluctuations in the overall economic climate can affect the flow of donation activity, which has a direct impact on strategic planning.
The aftermath of the economic crisis of 2008 caused the federal government to take action to protect stockholders. Congress wrote and passed the American Competitiveness and Corporate Accountability Act in 2002, which regulates the financial controls of corporate boards. This federal law is more commonly known as the Sarbanes-Oxley Act.
Non-profit entities are exempt from the Sarbanes-Oxley Act, but the law sets forth some sound practices that non-profit boards can adopt to help protect the organization and the individual directors. Best practices for governance include board and committee oversight, avoiding conflicts of interests, proper document retention, performing regular audits, and instituting whistleblower policies. Boards that commit to these practices are more likely to stay in compliance with laws and regulations at every level.
Non-Profit Duties Related to Governance
Non-profit board directors should be well-acquainted with the mission, vision, and purpose of the organization. Many non-profit boards make a practice of reading the organization’s mission aloud at the start of every board meeting.
All board directors need to be familiar with the process for selecting and hiring an executive director, as outlined in the bylaws. As part of this duty, board members will set compensation levels, oversee the executive director, and monitor his or her performance. Board directors will need to support the efforts of the executive director and collaborate regarding board decisions as they get implemented. Part of the responsibility for overseeing the executive director is to provide an annual, objective executive director evaluation.
One of the more important roles of non-profit board directors is to work collaboratively with other board directors to write and adopt sound policies according to ethical and legal governance. Financial management policies should always be written clearly and be consistently implemented. These practices ensure effective planning and protect the organization from undue liabilities.
Occasionally non-profit activities get off to a rousing start and then lose their steam for various reasons. Sometimes this happens because of the lack of available volunteers. The board holds the responsibility for monitoring and strengthening programs and services–activities which require regular oversight.
Fundraising is one of the primary activities of non-profit organizations. As such, it needs the primary attention of the board. Incoming funds from donors and members sustain the financial health of the organization. In its strategic planning, the board needs to actively participate in fundraising from start to finish. For example, board members decide on fundraisers and take a role in the planning activities such as marketing, registration, accounting, and volunteering working at events. Taking a vested interest in fundraising helps form the foundation that ensures adequate financial resources to advance the mission.
Part of the board director’s fiduciary responsibilities includes protecting the non-profit’s assets. Board members need to make prudent decisions when approving the use of facilities or other property of the organization. Responsibility in this area also includes evaluating the volunteers’ strengths and talents and putting them to the best use for the organization. Donors look for assurance that their donations are being used wisely and board members have an obligation to fulfill their expectations.
Effective boards aren’t built in a day. Nonetheless, in the interest of good governance, non-profit boards have a responsibility to build a competent board. Targeted recruiting is the first important step towards gaining expertise around the non-profit boardroom. Orientation should be an expectation rather than an option, and it should include communicating governance policies, legal responsibilities, fiduciary duties, and any special issues regarding the organization. Current board members should impress upon newer board members the importance of ensuring legal and ethical integrity. Integrity is inclusive of obeying laws, adhering to the bylaws, aligning activities with the mission, and avoiding conflicts of interest. Board members should hold each other accountable for making decisions in the best interest of the organization, rather than individual members.
Finally, individually and collectively, board members need to enhance the organization’s public standing at every opportunity. Potential donors exist in every setting and walk of life. The demeanor of board members in their public and private lives are a reflection of their involvement in the organization. In addition to acting responsibly at all times, board members should actively promote and highlight the organization’s benefits and achievements.
Some Final Thoughts on the Role of the Board in Non-Profit Governance
Governance is the process or power of governing. The decision-making policies form the processes that the administration plans and strategizes for the growth and success of the non-profit. Good governance practices work for everyone’s benefit including members, donors, the community, board members, and paid or volunteer staff. Board members who are diligent and committed build on their existing strengths and talents to effectively monitor and oversee the organization’s goals.