Good decision-making is essential for boards to successfully oversee a nonprofit organization. While mistakes may seem insignificant at the time, they can have longstanding effects on your nonprofit and its reputation. Has your board taken stock of the ramifications of nonprofit board governance mistakes?
Nonprofits are under greater scrutiny than ever before, so the topic of preventing oversight mistakes makes for a great addition to your board’s agenda. By being proactive about preventing leadership and oversight mistakes, your board can focus more heavily on best practices for good governance, so your nonprofit is healthy and sustainable over the long run.
1. Board members that don’t know or understand their fiduciary duties.
There are two sides of the coin when it comes to fiduciary duties—knowing and acting responsibly on fiduciary duties and accepting all potential liabilities that stem from not acting on them appropriately.
How to avoid this mistake: Require your board members to have ongoing training in the area of fiduciary duties and arrange for educational opportunities for them at their convenience.
2. Board members don’t understand how board oversight responsibilities work.
Effective boards delegate tasks when necessary, but they’re still responsible for oversight. Your policies and procedures are a guiding light for how everyone connected with your nonprofit should speak and act.
How to avoid this mistake: Make it a regular practice to review your financial statements and Form 990. Also, annually review policies for conflict of interest, executive compensation, travel and expense reimbursement, whistleblower, and any other important policies. The shared calendar in your board management system is a valuable resource for ensuring your board doesn’t neglect these oversight responsibilities. Document conflicts and policy-related issues in your meeting minutes and store them in your board portal.
3. Deferring all decisions to the executive committee or other influential individuals.
Your executive committee, board chair, and founding members serve important roles but they shouldn’t have undue influence over the other board members.
How to avoid this mistake: Develop job descriptions for your executive committee, board chair, executive director, and board members so duties are clear and don’t allow the executive committee to operate as a “mini-board.” Store the job descriptions in your board management system.
4. Avoid micro-managing your executive director and other staff members.
If you’ve hired quality, capable people and provided them with a job description, your board shouldn’t need to follow them around to be sure they’re doing what’s expected.
How to avoid this mistake: Rely on financial and executive reports to learn how the nonprofit is running. Don’t be shy about asking probing questions of the executive director especially if you’re noticing any red flags.
5. Be willing to tackle the hard questions.
The tone of the boardroom should be collegial, but that doesn’t always mean that it’s comfortable. Board members should be asking tough questions to vet all sides of an issue and be willing to listen to multiple perspectives. Groupthink is a bad thing for decision-making.
How to avoid this mistake: Be sure your board is committed to diversity and inclusion and ensure everyone’s voices get heard. Encourage a free exchange of ideas no matter how bad or outlandish they may seem.
6. Failure to address conflicts of interest incidents.
It’s easy for conflicts of interest to surface and no one notices. That doesn’t relieve the board from having accountability for them.
How to avoid this mistake: All board members should avoid conflicts of interest if at all possible. Every board member should be looking for incidents of conflicts of interest and speaking up when something is in question. If a conflict exists, be sure to document it and the basis for the board’s decision surrounding it.
7. Board members aren’t aware of the laws governing nonprofits.
Nonprofits get tax benefits and other programs that help them do their work. Board members need to know what they are.
How to avoid this mistake: All board members should receive training on the state, federal, and local laws governing nonprofit organizations. As part of their training, they need to know the penalties they could face for overcompensating the executive director, unlawfully engaging in lobbying or political activities, participating in tax shelter transactions, making bad financial decisions, and not meeting the public support test.
8. Failing to update their governing documents.
As societies change, laws change with them. Your nonprofit’s mission and purpose may have changed at the same time. When you don’t update your governing documents, your governance practices may fall out of line with your original governing documents.
How to avoid this mistake: Conduct annual reviews of your governing documents and put them on your board calendar so you don’t forget. Check your bylaws before you elect new officers or directors, create new committees, and adopt amendments.
9. Tolerating board members that engage in disagreements outside the boardroom.
Transparency, confidentiality, and trust are important considerations for strong boards. Those things will be compromised when board members fight outside board meetings.
How to avoid this mistake: Make it a practice to develop a culture of, “What happens in the boardroom, stays in the boardroom.” If board members aren’t willing to support board decisions they don’t agree with, it’s best for them to resign.
10. Failing to develop a qualified, diverse board.
It’s common for nonprofit boards to recruit people they’re regularly acquainted with from their business networks and in their communities. If this is a problem in your board, you won’t be able to leverage the best talent or the most diverse perspectives—both of which your board needs to make better decisions.
How to avoid this mistake: Set up a recruiting and nominating committee and give them clear instructions on how to recruit the type of talent the board needs. The committee should be looking at people from all walks of life who bring a variety of skills, backgrounds, and experiences with them. Your board management system gives your recruiting and nominating committee a secure place to do their work.
Your board can avoid these nonprofit board governance mistakes and any others by implementing a board management system by BoardEffect. Your board management system has a built-in calendar where you can set up reminders for important board activities like reviewing policies and other governing documents. Your board management system creates efficiency by allowing you to create board handbooks online and distribute them. The granular permissions feature ensures that only the appropriate people have access to various parts of the portal. With unlimited cloud storage, you can safely store all of your governing documents, meeting minutes, policies, job descriptions, and much more. With a board management system that’s designed for nonprofits, you’re setting your board up for nonprofit board governance mistakes to become a thing of the past.