Nonprofit Board Governance
This article is part one of a series on the elements required of a board that can effectively lead a nonprofit organization. I am framing this series of articles as a masterclass, drawing from my experiences working with nonprofit boards both as a board member and as a consultant. Out of the gate, we must anchor this series in the fundamental board responsibility of governance. While I have written about nonprofit boards before (see here), this article series will present a structured approach to improving your board’s performance and impact.
I recently heard a story that made me cringe. The story is of an unnamed nonprofit that has had a rocky history almost since its inception. While the agency had a robust program and stable funding, the board failed to thrive. The board of directors began to decline as individuals grew increasingly uncomfortable with the management practices, perceived conflicts of interest and self-dealing. Three of the five members resigned from the board. The story is unfinished, but the point of the story can be summed up in one word: governance.
While governance is the foundation of nonprofit board service, in my experience, too often the essential responsibilities of a board are poorly understood, overlooked or minimized. Elsewhere, I have written board governance failures (see here, here, here, and here), and in this article, I wanted to share four principles for ensuring that nonprofit governance embedded in the operations of your board of directors.
Governance Must be Understood and Valued – The responsibility of oversight is a foundation of every nonprofit board of directors. Most oversight agencies distill nonprofit governance down to the three central duties of care, loyalty, and obedience (for example, see here). In short, board members need to show up prepared, be willing to ask hard questions, prevent conflicts of interest, and ensure the agency follows the law. Ensuring that every board member understand his/her oversight duties, from the moment s/he joins the board, is an essential foundation of your nonprofit’s governance.
Governance is an Active Practice – It is not enough to read an article or pamphlet on the essential duties of a board member. The oversight of a nonprofit by the board members is active and present. Do your nonprofit board members show up prepared, ask hard questions, and question decisions that might have an element of conflict of interest? If not, then it might be a sign that your board members underestimate their board responsibilities. Imagine your board reviewing your agency’s financial statement. The quarterly cash flow statement is 30% under projections, contracting expenses are double the budget because the Executive Director has hired a grant writer to write some family foundation grants. When asked, the Executive Director says, “I know this looks bad, but we are writing three grant proposals, and I think the end of the year will work out okay.” Would your board nod, say “good luck” and move on to the next agenda item or would there be a robust conversation about cost-containing strategies or scenario planning in case the grants do not work out? If you are unsure of how your board would process this example, then, use this as a discussion question at your next board meeting.
Governance is a Distributed Function – I am familiar with another story that occurred in a nonprofit. An employee leveled a false accusation towards the Executive Director (who at the time was pursuing a performance improvement plan with the employee). The employee making the charge went to the board chair and the chair immediately sprung into action by issuing an email ultimatum to the Executive Director and also met one-on-one with the employee alleging discrimination by the Executive Director. Fortunately, another board member immediately got involved and called the executive committee of the board to convene in an executive session. Behind a closed door, the executive committee developed a plan to investigate the claim and, with additional guidance from the full board, worked to resolve the issue. The board chair quit the board the following day. Unfortunately, the rogue actions of the board chair had a negative impact on the process of settling the case. The point of the story? Governance requires the engagement of the entire board and not merely one or two board members. Management and oversight require the critical thinking of the whole board.
Governance Strength is Revealed in a Crisis– The previous story of the rouge board chair not only points out the importance of governance as a distributed function but also points out that a crisis often reveals the quality of board oversight. Competent boards understand how to preventatively manage risk and mitigate potentially negative organizational challenges. How prepared is your nonprofit if a potential problem were to arise? For example, if the board chair starts dating the executive director, would you immediately and frankly discuss changes to the board leadership structure? If the executive director were to hire his/her daughter as the organization’s marketing consultant, would your board ensure that the nonprofit conducted a fair competitive bidding process and established a contract management structure that avoids a potential conflict of interest? The answer, “I think so” is not good enough.
So, part one of this board masterclass is to get governance right. If you are unsure what that means, you can jump into a self-study on the topic. BoardSource is a national nonprofit dedicated to building boards. Thier blog (here) has ongoing and timely articles on effective board practices. The National Council of Nonprofits is another organization with essential resources on the topic. (here). If you need customized support, I would be honored to work with you. Note: See how I can help (here).
It is my deep-rooted belief that a nonprofit board of directors is the anchor for thriving nonprofit organizations that make a difference. As a first step, nonprofits need to invest in strong board governance training to ensure adequate oversight and risk management of the enterprise.
As always, I welcome your thoughts.