The Nonprofit Guide to Outstanding Board Governance
You may be wondering what the difference is between a thriving and a struggling nonprofit. Why do some organizations seem to have it all together, while others seem to constantly be in the weeds? There can be a lot of contributing factors to nonprofit success, but the bottom line is that a smoothly running nonprofit stems from good decisions. Good decisions cannot be made without strong nonprofit board governance, performed by a capable nonprofit board of directors.
If you are looking to set up your organization’s board for long-term success, here is everything you need to know.
- What is Board Governance?
- The 5 Main Governance Models
- 5 Tips to Achieve Outstanding Board Governance
What is Board Governance?
Board governance is a term that refers to a nonprofit board and its responsibilities to lead. This board is formed of individuals that are dedicated to overseeing the organization’s activities. From this group, you will typically have chosen officers that have their own specific roles to fill. These include:
President: This individual is responsible for heading the board and supervising all of its business affairs. While the President may also serve as Executive Director or CEO, these are completely separate roles.
Secretary: The secretary records and archives the minutes of all board meetings. They are also in charge of ensuring that the actions and activities of the nonprofit are in accordance with the organization’s bylaws. In addition, they are typically the member that keeps contact information for the board and informs them of upcoming meetings. Finally, the secretary, with the help of staff, develops the agenda for board meetings.
Treasurer: This officer is accountable for keeping accurate accounting records for the organization. They are also usually a signatory on bank accounts (but should not be the only one). The treasurer is responsible for presenting a detailed annual report of the organization’s financial condition. They do not have to be an accountant but should have some accounting experience.
Depending on the organization, there are other officer roles available (such as president-elect or vice president, past president, and division counselors) that may serve on the board. However, the president, secretary, and treasurer make up the typical core group of officers for any given nonprofit.
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Paying nonprofit board of directors salary is not standard practice for many organizations. At a nonprofit organization in lieu of salary, serving on the board offers prestigious recognition within their industry or profession. 501c3 board of directors rules dictate that any salary paid to individuals on the board of directors must be reported on the organization’s form 990, the federal annual tax report filed with the IRS.
Included under the term governance are the following responsibilities and expectations:
Setting the general direction of the nonprofit
Outlining the mission
Making strategic decisions
Making policy decisions
Accepting overall accountability
Monitoring overall organizational performance
Pro Tip: Be careful not to confuse "governance" with "management." While there are some similarities, these are two very different spheres of influence. Governance is aimed more at broad-view decisions, oversight, and strategy, while management focuses on the smaller, day-to-day level of operations.
The 5 Main Governance Models
While nonprofit board responsibilities and duties typically remain the same, there are a variety of approaches to governance. There are five main models, and with each, the board takes on a slightly different role. In all cases, the board acts as trustees of the organization.
With an advisory board, the board does not tend to make decisions directly but acts as advisors to the Chief Executive Officer (CEO). In turn, the CEO ultimately makes all of the decisions. In this model, nonprofit board member positions are, in a sense, consultants to the CEO, who lean on them for their knowledge, experience, and expertise. It is one of the most traditional styles of governance (very similar to that found in corporations) and is often seen in larger-scale nonprofit organizations.
Let’s review an example of how this advisory model would work in reality. The CEO is considering opening an online store to boost revenue. The board treasurer may provide input on the funds available for this website expansion while the fundraising chair offers estimates of the expected impact of the new store on income, considering both new income and any potential cannibalization of existing fundraising revenue streams. While the board members provide input for consideration, the ultimate decision on whether to move forward with the online store resides with the CEO.
As the name "patron" suggests, this model has the board act almost as a resource for the nonprofit. They use their connections to make introductions and personal donations. In many ways, a patron model is rather similar to the advisory model, but there are a few key differences.
First, the members of the board are made up of individuals with a lot of personal wealth or influence in the nonprofit’s field. In addition, the primary function of the patron board is fundraising, with board members contributing their own wealth and prompting others in their network to contribute as well. Finally, board members’ contributions are mainly financial, they have less sway over the CEO than the advisory model.
Let’s assume there are several well-known celebrities and socialites with wealth, social presence, and a desire to help a particular cause in their community. While these people may not have the accounting, marketing, or other experiences to provide technical know-how to the organization, their financial support and connections are invaluable. As such, they may sit on the organization’s board and take a key role in meeting revenue targets by leveraging their relationships to raise funds from sources that would otherwise be out of reach.
The intent of a cooperative governance board is to offer each member of the board an equal say in the decision-making process. Decisions are made by the board, but only by passing proper voting procedures. Commonly used by smaller nonprofits, a cooperative board is extremely democratic in nature. There is no hierarchy involved, only group consensus.
Perhaps your local preschool is a nonprofit cooperative organization. Every parent is assigned a job to keep the costs of the school in check. Some of those parents are assigned to help manage the operations of the school by acting on the board. Although there may be a president, vice-president, treasurer, secretary, and/or other board members, the bylaws for the organization provide each board member a vote for important topics such as teacher hiring decisions.
In this nonprofit board structure, the board members are split up into formal management groups. Each group is then responsible for a different aspect of the nonprofit. This is a popular style for small to midsize organizations.
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In a Policy Governance style board, you will typically find a larger number of members than the other types to facilitate team creation. These teams or committees will each take responsibility for a specific area such as marketing, fundraising, event planning, human resources, and other areas that require oversight.
Let’s revisit our previous preschool example. Instead of each board member having an equal vote over hiring decisions, the bylaws may require the decision be made by the "hiring committee." The school may designate a number of committees such as a fundraising governance committee, facilities team, and a group responsible for purchasing materials and equipment to spread decision-making, and overall work, more broadly through the organization.
Community engagement is a newer governance model. It relies on the nonprofit’s community as well as input from the board to reach the best possible conclusion for everyone. It is an ideal model for many nonprofits, particularly those that are small and local. To serve a specific population, there is a symbiotic relationship created between the nonprofit and the community it serves. The community can help inform services of the organization, as well as share in some of its success.
Perhaps a new local food bank started in response to pandemic needs. In an effort to be as responsive as possible to community needs, the organization decided to involve the overall community in a greater way. To do so, they determined which governance decisions (planning, evaluation, advocacy, and fiduciary care) would be made within the organization itself, at what level of the organization, and which decisions would take into account the greater community in which they serve. The organization may decide that to develop and refine, decisions about where the greatest needs are in the community and how to most effectively provide services to the people who need them the most, they need to incorporate community feedback on a greater level. Perhaps they utilize Future Search or World Café decision-making techniques and/or community forums to better engage local neighborhoods.
Pro Tip: Remember, there are no hard and fast rules when it comes to governance models. Just because your style of governance is rooted in one model, does not mean it cannot be combined with aspects of another. In fact, using hybrid models is quite common and often recommended.
5 Tips to Achieve Outstanding Board Governance
Now that you are more familiar with the styles used for board governance, let’s take a closer look at how boards can make the most impact. These practices and strategies will ensure that your nonprofit board has the strongest performance, direction, and function.
Keep Documents Updated
Always be sure that your documents reflect the latest aims and missions of the nonprofit. If there is confusion in the fundamentals, it can lead to severe issues and confusion when it comes to meetings and onboarding new members.
Make sure that you review your bylaws periodically and update as necessary. Review financial reports with the board periodically to ensure that they understand the financial impact of their decisions. Make sure you have the proper policies in place to ensure that all individuals of the organization are acting in accordance with rules and laws (for example, your whistleblower, travel, and nomination policy).
Ensure Board Engagement
It can be easy for board members to lose sight of the bigger picture when focusing on strategic oversight and decision-making. However, it is important for the board to remember the significance of engaging with their community. They may be making huge and impactful decisions on behalf of their members. If the decision-makers are not connected it could create problems within the organization and they run the risk of becoming out of touch with their members.
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It is also important to keep in mind that the board members are your nonprofit’s ambassadors. They are advocates and the face of the mission. If the board is truly engaged with the people they serve, then the organization will thrive.
Encourage Professional Diversity
One of the most practical nonprofit board governance best practices is to recruit board members from all ends of the professional spectrum. This will offer a diverse pool of knowledge to draw from as a resource when there are important decisions to be made.
A range of different life experiences, contacts, professional knowledge, and most of all different perspectives will offer your nonprofit a stronger position. Things like risk management and identifying new opportunities are better handled by a diverse group of people.
It is also worth noting that a non-diverse board runs the risk of becoming stagnant over time. If all the members are positioned in the same social and financial circles, it can become difficult to find and cultivate new board members.
Create a Board Assessment Plan
The most effective boards plan regular board assessments to help ensure that the board is always governing at the highest possible level. A board assessment should be done by a third party (typically a governance consulting firm) every 5 to 10 years.
During these assessments, consultants will interview board members, benchmark board structure to comparable nonprofits, and complete surveys to figure out what is working well vs what could use improvement. After this, they will review nonprofit governance board best practices with your team, as well as offer helpful tools to put them into place.
Ensure All Job Descriptions are Updated
Job descriptions change over time, and it can be hard to deliver strong governance if your board is unclear of its many important roles, targets, and objectives. To avoid this, it’s essential to make sure that your job descriptions are always kept up to date.
Governance board job descriptions should be reviewed annually by the staff of the organization. Make sure that your descriptions are benchmarked against other nonprofits' job descriptions to align with industry standards. All job descriptions should be up-to-date and transparent for members who either want to contact the board or join the board through the nominations process.
There are many important positions within a nonprofit, and the leadership roles of the governance structure can make or break your organization. A newer nonprofit can set itself up for success by ensuring that they create a dynamic team of non-profit leaders who are well-versed in board governance policies. With engagement, passion, and a clear vision, these individuals can make an enormous impact by guiding and amplifying your mission to the world.
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