In our large nonprofit audit and tax practice, we have the opportunity to interact with all types and sizes of boards of directors overseeing the operations of our clients. We sometimes are asked to comment about best practices for boards based on what we see in the sector and we thought it might be a useful exercise to discuss the topic here in our Nonprofit Advisor. Of course, the realities of nonprofit board governance is that there are limited resources available and it often becomes a cost-benefit analysis exercise in determining what practices to implement.
It is useful to start at what the responsibilities for boards of directors for nonprofit organizations actually are. They are many, which can be a challenge when limited resources come into play. The board’s primary focus is to preserve, reshape (as necessary) and achieve the institution’s mission, vision and values. The board is charged with assessing mission effectiveness, constituent benefit, quality and excellence of service. It represents the organization to the external world and provide input to its strategic direction. It is tasked with selecting the chief executive and ensuring that the organization in well managed. It approves key policies and practices and ensure appropriate succession plans are in place for management. It helps to protect the organization from external threats in part by exercising financial stewardship and transparency. It makes sure the make-up of the board has the right skills and practices to do its job. It reviews and evaluate the results achieved by management and make sure the organization complies with laws and regulations. It works towards minimizing the risk of fraud and conflicts of interest and protects the reputation of the organization in no small part by setting the proper tone of integrity at the top.
High-performing boards lead to high-performing organizations. In our experience, there are recurring characteristics in high-performing boards. Often, what separates high-performing boards are a) the choices of what topics on which the board chooses to focus (emphasis on strategy and risk), b) how the discussion, deliberations and decisions are undertaken, and c) its ability to adopt a continuous learning and improvement model.
These characteristics are empowered by principals such as passion for the mission, constructive partnership between management and the board, strategic thinking and a culture of high information. The board must put the interests of the organization before the interests of any specific party and demonstrate its ethical pursuit of these principals via a policy of transparency. The board has to be results orientated but, at the same time, recognize that it must ensure a balance of strategic priorities and capacities to extend the organization’s reach, network, funding and longevity.
Experts on this subject suggest that boards that have structured practices that transcend any individual board member’s preference have more consistent performance over time. Likewise, the board needs to always be looking for continuous learning and be cognizant of the need for occasional revitalization through planned turnover, thoughtful recruitment, and identification of future leaders.
Boards need to find the right balance of engagement and oversight to be effective. As such, there should be thoughtful policies about what responsibilities the board reserves for itself and for what management is responsible. Typically, the board would set broad policy principals and approve major policies. It would review and approve organizational strategy and long-term financial goals. It would oversee selection, oversight and compensation for the chief executive. It would approve the budget recommended by management and it would have accountability for the integrity of financial reporting, controls and assessment of business risk as well as oversight of any endowment.
Effective board meetings should have robust agendas, distributed in advance (along with supporting material). The meetings should have discussion, dialog and debate with relevant staff support. The board composition should be small enough to make decisions efficiently but large enough to bring in diverse experience and expertise. There needs to be an appropriate mix of talent and experience and there should be set term limits and board succession planning.
In conclusion, often what we see is that when committed and talented board members work both as a team and as individuals to develop a shared vision and shared values and deploy carefully chosen good governance practices, it can lead to great governance. In addition, when we have a culture of constructive partnership with management to add value to the work of management, the board often achieves great organizational results.
If you have questions or would like more information about nonprofit board governance, please contact Michael Barloewen at firstname.lastname@example.org or 844.4WINDES.