Nonprofit Boards: Their Purpose, Best Practices and Key Responsibilities

The governing board plays a vital role in the life of your nonprofit organization, providing oversight and shaping strategy. Too often, however, board members are unsure of their roles and responsibilities. This lack of clarity can lead to inefficiency, clashes with management, a loss of focus, dysfunction and even fraud.

Here to set your board up for success are James Moore Nonprofit Services Team members Tiffany Edwards and Karsten Derendorf. Together, they explain the purpose of a board, best practices for good governance, how to select board members effectively and the board’s legal and ethical responsibilities. Whether you lead a nonprofit or you’re a board member yourself, their expertise will equip your board to better advance the mission of your organization.

What does a governing board do?

Boards provide oversight and accountability and are responsible for making sure that organizations stay in compliance with laws and regulations. It is also the board’s job to set strategic objectives and create policies to help achieve them.

Board members bring a variety and depth of personal and professional expertise to the nonprofit they serve. They’re also tasked with hiring the chief executive officer, evaluating the CEO’s leadership and acting as a sounding board. Lastly, the board outlines governance processes and assesses how well the organization is meeting its objectives.

Establishing a framework for good governance

The board is responsible for establishing sound practices to govern a nonprofit effectively. There are four primary categories of governance:

• Effective governance includes the policies and procedures that provide oversight.
• Legal compliance and public disclosure encompasses policies that ensure your nonprofit complies with legal requirements and stays accountable to the public. In Florida, adhering to Sunshine Laws would be one example.
• Strong financial oversight includes principles of fiduciary duty.

• Fundraising includes policies and procedures that govern how a nonprofit solicits funds.

While the board is ultimately responsible for the organization’s actions, it should not run day-to-day operations. Leave that responsibility to management to avoid hindering your nonprofit’s ability to fulfill its mission.

“At the extremes, I tend to see boards that overstep their responsibilities and boards that are not fulfilling their objectives,” Tiffany said.

Keep your board on track by following these principles:

• Speak with one voice. Even if board members disagree behind closed doors, everyone should publicly back a decision after it has been voted upon.
• Meet regularly. While the ideal meeting frequency varies by organization, your bylaws typically include a minimum number of board meetings. Failing to meet regularly risks missing important financial data or opportunities to advance organizational goals.
• Set an agenda for meetings and the year. This gives staff a working timeline. Identify when the board approves the yearly budget, when it approves the audit and when it should sign and submit conflict-of-interest forms. Setting agendas also lets the board know which meetings are most crucial to attend.
• Prioritize diversity. Seek diverse board members not only in terms of race, gender and age but also expertise, skills and vision.
• Train your board. Set board members up for success by providing proper training when they join. This equips them to carry out their duties well. If you are a new board member, ask the CFO or controller to walk you through how to understand financial statements so you can head into meetings prepared.
• Have the courage to lead. “A core capacity for successful leadership is the willingness to act on principle in the service of the organization, even if it’s taking the unpopular position,” Tiffany said.

• Carry out a self-assessment. A self-evaluation can reveal whether the board is successfully assisting the organization in its pursuit of its mission and goals.

How to conduct a self-assessment

While boards often excel at creating a strategic plan and setting goals in motion, they sometimes skip self-reflection. However, this step should not be overlooked. Carrying out a self-assessment helps the board evaluate its own progress and identify areas for improvement.

A board should undertake a self-assessment at least once every three years. Sample assessments are available online and can be customized for your organization. Assessments can be conducted as a group meeting or as anonymous surveys.

A self-assessment should include an evaluation of the board’s size and structure. Aspects to consider include:

• Does the board have enough members, a healthy amount of diversity and the right mix of skills to adequately fulfill its responsibilities?
• Is the board is maintaining its independence?
• Are board members sufficiently trained
• How consistent is meeting attendance?

• To what extent is the board effectively carrying out its duties?

How to find the right mix of board members

Finding, cultivating and onboarding the right board members for your nonprofit can be a challenge. A good first step is to think about your organization’s needs and identify any gaps in the current board.

It’s also important to select enough board members to generate deliberation and a variety of viewpoints. Boards that automatically fall in line behind a leader without discussion can stagnate. Check your bylaws for rules on how many board members your organization can have, and consider amending the bylaws if the number is too small.

Board diversity can look different depending on the organization. While race, gender and age are factors of diversity, prioritize a diversity of expertise and qualities as well. Many boards will include members with legal experience, financial expertise and a background in human resources. This diversity of knowledge can be an asset to your nonprofit and help keep the organization in good standing legally and ethically.

You might also add board members with specialties that match high-priority areas for your organization, like real estate or technology. If your nonprofit serves various geographical areas, be sure these areas are also represented by your board members.

It’s tempting to pursue people with deep pockets or impressive resumes for your board, but remember that a personal commitment to your organization outweighs these attributes.

“When people can tie themselves to your mission, it makes them much more energized to work towards you meeting your goals,” Tiffany said. “It’s easy to spot the board members that have a personal connection because they go above and beyond.”

In addition to subject matter expertise, analyze potential board members’ qualities and personal style. Ideally, your board will include a variety of abilities: a member who excels at fundraising, for example, a visionary, someone who is adept at building consensus and someone who can outline a strategy. Does your board include members with personal connections to the community or who serve as catalysts for change?

Consider using a checklist to pinpoint which areas of expertise or qualities your board already has and which it lacks. You may want to assign different weights to certain categories depending on your nonprofit’s priority areas or upcoming needs, such as a capital campaign. This helps ensure you have a board that is adequate for your organization and for the goals you have in the future.

How committees can complement the governing board

Committees serve as small focus groups that meet independently to carry out work too detailed for the board to manage. Committee members are often selected based on a certain shared expertise in areas such as finance or fundraising. Some nonprofits require that committee members be on the board. In some cases, however, organizational bylaws allow exceptions to this rule. This is helpful when an organization lacks the expertise needed for particular committee work.

Some of the most common types of committees include:

• Executive committee: Acts on behalf of the governing board when it’s not necessary or possible to convene the full board for a meeting. The full board should always be informed of the executive committee’s decisions and given the opportunity to approve them at its next meeting.
• Finance committee: Reviews the monthly financials and the annual budget, monitors cash and determines the necessary reserve levels.
• Audit committee: Monitors internal controls of financial reporting, selects external auditors for the board to approve and hire, and reviews the annual audit and IRS Form 990. (Finance and audit responsibilities can be managed by a single joint committee, especially if a nonprofit doesn’t have enough board members to staff the two separately.)
• Development committee: Approves development plans and monitors the annual plan. It also encourages board involvement in fundraising, whether via direct donations from board members or through members’ networks.
• Investment committee:Oversees investment policies, monitors investment returns, selects outside investment managers and performs due diligence. This committee is common in foundations.

• Program committee: Identifies community needs and evaluates an organization’s progress toward meeting them.

Ensuring your board fulfills its legal and ethical responsibilities

The board is the legal governing body of your nonprofit organization. Providing oversight and maintaining accountability are among its fundamental responsibilities, and board members can be held personally liable for violating laws and regulations. Your board should be aware of these responsibilities and make sure your nonprofit is legally compliant and ethically sound.

Board members have three primary legal duties:

• Duty of care: The board should conduct the affairs of an organization as a prudent person would.
• Duty of loyalty: The board should ensure that the organization’s activities are advancing its mission; that it is free of conflicts of interest; and that it keeps all information about the organization and its stakeholders confidential and refrains from using it for private gain.
• Duty of obedience: The board should be faithful to the mission of the organization, follow its bylaws and obey applicable laws and regulations.

Beyond legal duties, the board should ensure the organization maintains high ethical standards. For nonprofits, ethical behavior is essential to earning and keeping the public’s trust. Even if a particular action does not break a law, it could be wrong or present the appearance of impropriety.

Evaluating decisions in light of your organizational mission can help steer you straight.

“When something seems enticing, and you find yourself rationalizing that decision, go back to your baseline,” Karsten said. “Ask yourself if it’s what your organization is here to do and whether it would contribute to you fulfilling that mission.”

You can take steps to instill ethical and legal accountability in your board and beyond.

• Honest communication: Keep deliberations and disagreements as a board and with your executive director respectful.
• Strong relationships: Foster rapport among board members and between the board and the executive leadership team.
• Internal controls: Strong internal controls prevent fraud and safeguard against unethical behavior.
• Clear expectations: Set expectations for the board, the executive leadership team and staff. Healthy nonprofits have a clear direction that is linked to their mission and strategic plan.
• Skilled, involved and informed boards: Select board members strategically. Members should proactively hold discussions and have the know-how to make appropriate decisions.
• Financial audits: Regularly and rigorously checking your numbers helps create an environment in which ethical and legal standards are upheld.

• Avoid conflicts of interest: Make sure you have a conflict of interest policy, and disclose it on your 990. Require board members to complete a conflict-of-interest form each year, and keep the forms on file.

By establishing consistent best practices for your board’s composition and operations, you’ll help ensure the success of your nonprofit.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.