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PART ONE

GOVERNANCE PRINCIPLES, ROLES, AND STRUCTURE

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BoardSource, BoardSource, S., & John, W. &. S. (2010). The handbook of nonprofit governance. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank') href='http://ebookcentral.proquest.com' target='_blank' style='cursor: pointer;'>http://ebookcentral.proquest.com</a> Created from ncent-ebooks on 2021-09-28 23:51:07.

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CHAPTER ONE

IN THE SPIRIT OF SERVICE: INTRODUCTION TO THE NONPROFIT WORLD

The only ones among you who will be really happy are those who will have sought and found how to serve.

— ALBERT SCHWEITZER

Virtually every society shows its voluntary spirit and philanthropic instinct by creating informal community groups, charitable nongovernmental organiza- tions, or faith - based organizations and places of worship. In countries around the world, nonprofi ts are a vibrant, essential element of national life. They struggle to reduce poverty and bring an end to homelessness. They strive to build safe places to learn and play, create inspiring art and music, and protect natural resources.

Nonprofi t organizations span a wide spectrum of mission areas, resources, values, history, and stakeholders — from small, local homeless shelters to large, international trade associations; from community foundations operating within a geographic region to educational institutions that attract students from around the country. Their funding may come from just a handful of sources or from an array of charitable contributions, membership dues, grants, fees from programs and services, and more. According to the Internal Revenue Service, the United States alone has more than 1.8 million voluntary, nonprofi t, and nongovernmen- tal organizations, with more recognized every month by the federal government as tax - exempt entities.

Economic life in the United States and many other countries consists of three sectors:

Public - sector organizations exist to serve the public good. They are part of govern- mental structures and are fi nanced largely by tax revenues.

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4 The Handbook of Nonprofi t Governance

Private - sector organizations exist to produce a profi t for their owners. To do so they must meet the needs of a constituency who will pay for their goods or services. Nonprofi t - sector organizations exist to serve a social purpose, a constituency, or a cause. To do so successfully, they must earn or raise suffi cient funds to cover expenses and safeguard the organization ’ s future. They are not prohibited from creating excess revenue over expenses, but such surplus must be used to support the organization ’ s mission, not to be distributed as private gain. In nonprofi t organizations there are no individual owners who can claim organizational assets for their own benefi t.

An Overview of the Nonprofi t Sector

The nonprofi t sector sometimes is called the not - for - profi t sector, the third sector, the independent sector, the philanthropic sector, the voluntary sector, or the social sector. Outside the United States, nonprofi ts are often called nongovernmental organizations (NGOs) or civil society organizations.

These other names emphasize the characteristics that distinguish nonprofi ts — voluntary sector to acknowledge the importance of volunteers and voluntary action, independent sector to distinguish nonprofi ts from business and government, and social sector to underscore how the activities of nonprofi ts enhance the social fabric of our country.

The nonprofi t sector in the United States is vast and diverse and touches all our lives. The nonprofit organizations in this country in 2008 employed 10.5 percent of the country ’ s work force — close to ten million paid workers.

Almost all nonprofi ts are exempt from federal, state, and local income taxes; state and local property taxes; and state and local sales taxes. They are, however, required to pay taxes on income derived from activities that are unrelated to their mission. Nonprofi ts are not exempt from withholding payroll taxes for employ- ees. Section 501(c) of the Internal Revenue Code, which outlines the types of organizations eligible for tax exemption, lists more than twenty - fi ve classifi cations of nonprofi ts, which include the major subcategories described in the following section.

Public Charities

Nonprofi ts that are exempt under Section 501(c)(3) of the tax code are often called charities, but these organizations do far more than provide free care and services to the needy. Hospitals, museums, orchestras, independent schools, public

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In the Spirit of Service: Introduction to the Nonprofi t World 5

television and radio stations, and many other organizations are 501(c)(3) non- profi ts. Most U.S. nonprofi ts are classifi ed as public charities, and in 2008 nearly 1.2 million were registered with the Internal Revenue Service.

To be recognized as a public charity, a nonprofit must be organized and operated for purposes that are benefi cial to the public interest. These purposes include

Relief of the poor, distressed, or underprivileged Advancement of religion Advancement of education and science Creation or maintenance of public buildings or monuments Lessening of the burden of government Elimination of prejudice and discrimination Defense of human and civil rights Combating of community deterioration and juvenile delinquency

A public charity must be able to show broad public support, rather than fund- ing from an individual source. Upon dissolution, its assets must be distributed to another 501(c)(3) charity. It is not allowed to engage in any partisan political activity. Lobbying is accepted but cannot be a substantial part of its activities. Individuals and corporations that give money to these organizations can deduct the value of gifts from their taxable income, provided they file itemized tax returns.

Foundations

Many individuals, families, businesses, and communities establish foundations as a way to support causes and programs that benefi t society. Foundations, which are also 501(c)(3) charitable nonprofi ts, are one of the most complex components of the nonprofi t sector. As a result of federal legislation passed in 1969, private foundations are subject to more stringent regulation and reporting requirements than other types of nonprofi ts. They are required to make grants equal to at least 5 percent of their net investment assets each year, and they generally pay a 2 - percent excise tax on net investment earnings. There are more than seventy thousand foundations in the United States:

Private foundations usually have a single source of funding (an individual, a family, or a business), and use income from investments to make grants to chari- table nonprofi t organizations. The Ford Foundation, the Carnegie Corporation of New York, and the W. K. Kellogg Foundation are well - known examples.

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6 The Handbook of Nonprofi t Governance

Corporate foundations are private foundations that receive funding from — and make grants on behalf of — a corporation. The MetLife Foundation and the American Express Foundation are examples. Many corporations have in - house corporate giving programs instead of or in addition to corporate foundations. Operating foundations are “ hybrid ” foundations that use the bulk of their resources to carry out their own charitable programs, while also making grants to other charities. The Carnegie Endowment for International Peace and the J. Paul Getty Trust are examples of operating foundations. Community foundations pool the resources of many donors and focus their grantmaking on a particular city or region. The Cleveland Foundation and the New York Community Trust are examples of community foundations. The IRS classifi es community foundations as publicly supported charities, not private foundations. These groups are not subject to excise taxes or distribu- tion requirements like private foundations, and donations made to them by individuals are tax deductible.

Some nonprofi ts, such as hospitals and public colleges, create related or sup- porting 501(c)(3) organizations that may be called foundations; these groups are fundraising (rather than grantmaking) organizations, and they typically raise money from a broad range of donors and then distribute the proceeds to the parent orga- nization. In addition, some other charities include the word foundation in their names even though they are not considered foundations according to legal defi nitions.

Social Welfare Organizations

To be tax - exempt as a 501(c)(4) organization, a nonprofi t must not be organized for profi t and must be operated exclusively for the promotion of social welfare. This means that the organization must operate primarily to further, in some way, the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). Nonprofi ts such as the NAACP, the National Rifl e Association, and the National Organization for Women are examples of social welfare or advocacy organizations. Contributions to 501(c)(4) organizations are not tax deductible, and 501(c)(4) nonprofi ts have greater latitude to participate in legislative advocacy, lobbying, and political campaign activities.

Professional and Trade Associations

Organizations whose missions focus on the advancement of the conditions of a particular trade or the interests of a community, an industry, or a profession generally qualify for tax exemption under Section 501(c)(6) of the tax code.

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In the Spirit of Service: Introduction to the Nonprofi t World 7

Although contributions to these organizations are not tax deductible, member- ship dues may be deductible as business expenses.

Many people believe that nonprofi ts receive most of their funds from pri- vate contributions. In reality, many nonprofi ts (hospitals and universities are good examples) generate revenue by charging fees for the services they provide, earning interest on investments, or producing and selling goods. Many organizations also receive funding from government, either in the form of outright subsidies or for providing services on a contract basis.

The idea of the nonprofi t sector may be abstract, but the sector ’ s role in our society is tangible and easily recognized. Freed from the profi t motive that domi- nates business and from the constraints of government, the nonprofi t sector is a forum for the creation and dissemination of new ideas, an effi cient vehicle for deliv- ering social services, and a guardian of our environment, values, and heritage.

Monitoring, Regulating, and Governing Nonprofi ts

Nonprofi ts are not immune from damage that can be caused by unscrupulous and fraudulent solicitors, fi nancial improprieties, and executives and board members who care more about their own fi nancial welfare than the mission of the organiza- tion. Problems, when they do arise, are particularly disturbing because of the nature of nonprofi ts themselves — organizations created to provide some public benefi t.

Most people are familiar with the mechanisms that safeguard the integrity of government and business. Disenchanted voters can throw politicians out of offi ce, and the branches of government view each other with watchful eyes. Businesses have shareholders or owners and are monitored by government agencies such as the Securities and Exchange Commission and the Occupational Safety and Health Administration. The media monitor both sectors and are quick to point out cases of corruption and poor performance.

Far fewer people understand how nonprofi ts are monitored and regulated. For much of its history, the nonprofi t sector has operated outside the realm of harsh public scrutiny. No government agency exists exclusively to monitor the activities of nonprofi ts, most nonprofi ts aren ’ t required to hold public meetings, and few journalists report on nonprofi ts with the same depth and focus devoted to business and government.

Nevertheless, nonprofits have many lines of defense against fraud and corruption:

Boards . All nonprofi ts are governed by a board of directors or trustees (there ’ s no real difference) — a group of volunteers that is legally responsible for making

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8 The Handbook of Nonprofi t Governance

sure the organization remains true to its mission, safeguards its assets, and operates in the public interest. The board is the fi rst line of defense against fraud and abuse. Private watchdog groups . Several private groups (which are themselves nonprofi ts) monitor the behavior and performance of other nonprofi ts. Some see their mission as advising donors who want to ensure that their gifts are being used effectively; others are industry or “ trade ” groups that provide information to the public and encourage compliance with generally accepted standards and practices. State charity regulators . The attorney general ’ s offi ce or some other part of the state government maintains a list of registered nonprofi ts and investigates complaints of fraud and abuse. Often the state attorney general serves as the primary investigator in cases of nonprofi t fraud or abuse. Almost all states have laws regulating charitable fundraising. Internal Revenue Service . A small division of the IRS (the exempt organizations division) is charged with ensuring that nonprofi ts comply with the eligibil- ity requirements for tax - exempt status. IRS auditors investigate the fi nancial affairs of thousands of nonprofi ts each year. As a result, a handful have their tax - exempt status revoked; others pay fi nes and taxes. In 1996, legislation authorized the IRS to penalize individuals who abuse positions of infl uence within public charities and social welfare organizations. Before that change, the only weapon available to the IRS was to revoke tax - exemption, which resulted in the denial of service to the clients and constituents the organization was cre- ated to help. Because they fall short of revocation of tax - exempt status, these provisions are called intermediate sanctions. Donors and members . Some of the most powerful safeguards of nonprofi t integrity are individual donors and members. By giving or withholding their fi nan- cial support, donors and members can cause nonprofi ts to reappraise their operations. Media . Most of the major scandals involving nonprofi t organizations in recent years have come about as a result of media investigations and resulting news stories. Although many nonprofi t leaders feel misunderstood or even maligned by negative media coverage, this media watchdog role has resulted in increased awareness and accountability throughout the sector.

Starting a Nonprofi t Organization

Americans are known for their pioneer temperament, community spirit, and help - thy - neighbor attitude. We show social consciousness, concern for the

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In the Spirit of Service: Introduction to the Nonprofi t World 9

environment, commitment to saving historic sites, responsibility to advocate individual rights, and an urgency to do this all as a personal vocation for a cause. This commitment often leads to a desire to start a nonprofi t organization.

Forming a nonprofit requires more than passion or devotion. One needs understanding of fi nancial management, knowledge of legal requirements, mana- gerial skills, community relations, familiarity with issues in the fi eld, friends and supporters, and more than anything, time, energy and endless patience.

Questions to Ask Before Starting a Nonprofi t

1. Is somebody already doing what I would like to do?

There is no sense in duplicating an effort that already exists. Maybe there is a possibility of working with an existing organization as a consultant, fund- raiser, employee, direct - service volunteer, or board member.

2. Is this the right time and place for starting a new organization?

How will the idea be received by the community? Is there a true need for my services? Have I tested the idea, or am I the only one who thinks it is essential? Who are the constituents?

3. How would I fi nance my organization?

Do I have the necessary seed money? If not, where can I get the initial funding? Have I developed relations with the leaders in the community? How much fundraising will I have to do? Do I understand that grant funding is highly competitive and therefore not dependable? Should the services of my organization be free, or is this how I will produce earned income? Should I form a membership organization and charge a fee? Could I associate my group with an already established organization?

4. Do I understand the steps of forming a nonprofi t organization?

There are a multitude of procedures to take care of before a nonprofi t organization is ready to function: forming a board, drafting bylaws, develop- ing a strategic plan, incorporating, applying for tax - exempt status, securing funding, setting up an accounting system, locating an offi ce, applying for licenses, recruiting staff, and so on.

5. Are my fi nancial ambitions appropriate for the cause?

Running a nonprofi t or serving as a nonprofi t board member is not going to fi ll my pockets with cash. Staff members can be compensated justly; board members normally serve as volunteers and should not seek any personal bene- fi t from this affi liation. Will I be content to serve and work for my cause, get satisfaction from the results of my labor, and always put my organization fi rst before thinking of my personal gain?

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10 The Handbook of Nonprofi t Governance

To be effective at fulfi lling its purpose, every nonprofi t organization must have a carefully developed structure and operating procedures. Good governance starts with helping the organization begin on a sound legal and fi nancial footing in compliance with the numerous federal, state, and local requirements affecting nonprofi ts.

1. Determine the purpose of the organization . Every organization should have a writ- ten statement that expresses its reason for being. Resources : Board members, potential clients and constituents.

2. Form a board of directors . The initial board will help translate the ideas behind the organization into reality through planning and fundraising. As the orga- nization matures, the nature and composition of its board will also change. Resources : BoardSource, planning and management consultant.

3. File articles of incorporation . Not all nonprofi ts are incorporated. For those that do wish to incorporate, the requirements for forming and operating a nonprofi t corporation are governed by state law. Resources : State secretary of state or attorney general ’ s offi ce.

4. Draft bylaws . Bylaws — the operating rules for the board — should be drafted and approved by the board early in the organization ’ s development. Resources : Attorney experienced in nonprofi t law.

5. Develop a strategic plan . Strategic planning helps express a vision of the organiza- tion ’ s potential. Outline the steps necessary to work toward that potential, and determine the staffing needed to implement the plan. Establish program and operational priorities for at least one year. Resources : Board members, plan- ning and management consultant.

6. Develop a budget and resource development plan . Financial oversight and resource development (for example, fundraising, earned income, and membership) are critical board responsibilities. The resources needed to carry out the strategic plan must be described in a budget and fi nancial plan. Resources : Fundraising consultant.

7. Establish a recordkeeping system for the organization ’ s offi cial records . Corporate docu- ments, board meeting minutes, fi nancial reports, and other offi cial records must be preserved for the life of the organization. Resources : State secretary of state or attorney general ’ s offi ce.

8. Establish an accounting system . Responsible stewardship of the organization ’ s fi nances requires the establishment of an accounting system that meets both current and anticipated needs. Resources : Bookkeeper experienced in nonprofi t accounting.

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In the Spirit of Service: Introduction to the Nonprofi t World 11

9. File for an Internal Revenue Service determination of federal tax-exempt status . Nonprofi t corporations with charitable, educational, scientific, religious, or cultural purposes have tax - exempt status under section 501(c)(3) — or sometimes section 501(c)(4) — of the Internal Revenue Code. To apply for recognition of tax - exempt status, obtain form 1023 (application) and publication 557 (detailed instructions) from the local Internal Revenue Service offi ce or from the IRS Web site http://www.irs.gov/charities/index.html . Though it is not essential to consult an attorney when preparing this document, many orga- nizations do seek the assistance of an attorney experienced in nonprofi t law. Resources : Local IRS offi ce, attorney.

10. File for state and local tax exemptions . In accordance with state, county, and munici- pal law, apply for exemption from income, sales, and property taxes. Resources : State, county, or municipal department of revenue.

11. Meet the requirements of state, county, and municipal charitable solicitation laws . Many states and local jurisdictions regulate organizations that solicit funds within that state, county, or city. Usually compliance involves obtaining a permit or license and then fi ling an annual report and fi nancial statement. Resources : State attorney general ’ s offi ce, state department of commerce, state or local department of revenue, or county or municipal clerk ’ s offi ce.

12. Other steps : Obtain an employer identifi cation number (EIN) from the IRS. Register with the state unemployment insurance bureau. Apply for a nonprofi t mailing permit from the U.S. Postal Service. Obtain directors ’ and offi cers ’ liability insurance.

The Board of a Start - up Nonprofi t

When setting up a nonprofi t, the founder or founders form the fi rst board for an organization. Start with a small but committed group that has the skills and exper- tise necessary to get started. Here are some suggestions:

Include people who are familiar with constituents and their needs. Include people who have served on a nonprofi t board or staff. If the organization depends on outside funding, engage someone who can help develop a fundraising plan. Find someone who understands the fi eld or mission area. Include someone who is comfortable with technology. Bring in innovative people who have new ideas. Make sure all board members can work as a team.

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Incorporation and Tax Exemption

Most nonprofi ts choose to organize themselves as corporations — a legal form of organization that is available to nonprofi ts under every state ’ s laws. A corporation offers some desirable advantages, such as limited liability protection for its manag- ers, directors, and offi cers. And, because of the relatively stable environment in which incorporated nonprofi ts function, business contractors and funders tend to prefer working with them. State statutes and common law govern the formation, organization, and ongoing operations of corporations.

Incorporation is not the same as applying for tax - exempt status. Through tax exemption, federal, state, and local governments provide an indirect subsidy to nonprofi ts and receive a direct benefi t in return. Tax exemption is an acknowledgment of an organization performing an activity that relieves some burden that would otherwise fall to federal, state, or local government. Churches are automatically provided tax exemption as a safeguard to preserve separation of church and state by preventing governments from using taxation to favor one religion over another. Categories of tax - exempt organizations are described earlier in this chapter.

Articles of Incorporation

A corporation is a legal entity that exists in perpetuity until it is dissolved. It is a “ fi ctitious person, ” separate from its managers or governors, and it is usually given many of the same rights and obligations as natural persons. A nonprofi t corporation is able to conduct charitable, educational, or scientifi c activities; it can enter into contracts; it can incur debts; it can hire employees who are eligible for fringe benefi ts; and it is legally liable for its actions.

Nonprofi t corporations are “ created ” by one or more incorporators — usually selected from among the initial board members — who sign and file the cor- poration ’ s articles of incorporation with the appropriate state agency. The incorporators ’ role ends at that moment, and the board assumes the responsibility for the organization. Each state ’ s law prescribes the content and form of this bind- ing legal document. Articles of incorporation generally include the following:

Name of the corporation The organization ’ s specifi c purpose (this should be brief and broad to allow for future evolution, but should clearly indicate its tax - exempt focus) Duration of the corporation ’ s existence (often perpetuity) Location of the organization ’ s offi ce

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In the Spirit of Service: Introduction to the Nonprofi t World 13

Number, names, and addresses of the initial board of directors Whether or not it is a membership organization Provisions for distribution of assets when the corporation is dissolved

Amending the Articles of Incorporation

Articles of incorporation should remain as general as possible within the framework of state law. The bylaws provide further detail on the governance structure, and additional policies and procedures secure the rest of the necessary guidelines for effective and ethical functioning of the organization. Sometimes major changes in status, activities, or structure of the organization require the articles to be amended. These changes include

Changing the organization ’ s name or address Substantially changing the organization ’ s mission Altering the provision for the disposition of assets if the organization is dissolved Changing the way board members are elected (formal membership structure or self - perpetuating board)

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Special Types of Nonprofi t Organizations

Not all nonprofi t organizations are structured similarly with independent, self - perpetuating boards. Other types include a federated system with a national offi ce and local chapters or formal membership organizations whose members are the main benefi ciaries of the services and in return have a say in the internal affairs of the organization.

Federated Organizations

A federated organization is a national umbrella organization that has smaller chapters or affi liates with a regional or local reach. It typically is a membership organization whose members are the chapters, but it is possible to have individual members as well. Chapters may also be membership organizations with individual members, but they may function as separate and independent public charities.

The national organization typically acts as the spokesperson for the cause and sets the overall strategic vision for the federated structure. It also provides support

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14 The Handbook of Nonprofi t Governance

for the local chapters. The chapters provide mission - related programs or services to a local area. Examples of federated organizations include the American Lung Association, Boy Scouts of America, and Habitat for Humanity.

Formal Membership Organizations

Many nonprofits have members who might also be described as supporters, donors, or friends who believe in the mission of the organization. They receive benefi ts such as discounts, newsletters, and helpful information. This is a member- ship structure that has no legal implications, and it does not need to be defi ned in the organizational documents of the nonprofit. However, if members are granted a say in the structure and priorities of the organization, they are part of a “ formal ” membership organization, and their categorization and authority levels must be clarifi ed in the articles of incorporation and in the bylaws. Formal mem- bers usually elect board members and offi cers, and they can approve amendments to the bylaws. A trade association usually is structured as a formal membership organization. Other examples of formal membership organizations include the United Way of America and the National Association of Social Workers.

Chapter Exercises

Describe how nonprofi ts intersect with your daily life. What circumstances might infl uence the growth or shrinkage of the nonprofi t sector? Defi ne public trust , and discuss why it should be important for a tax - exempt organization. Discuss what a productive collaboration between a nonprofi t, a for - profi t, and the public sector might look like. If you wanted to establish a homeless shelter in your community, what are the decisions and choices you would have to make along the way? List the different ways nonprofit tax - exempt organizations can or should self - regulate.

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CHAPTER TWO

WHAT IS GOVERNANCE ?

Whatever its size, scope, or funding, every nonprofit organization has a governing board composed of people who believe in and support the mis- sion. Board members have the pleasure — and the responsibility — of monitoring, overseeing, and providing direction for the organization ’ s pursuit of that mission. Those responsibilities, which have legal ramifi cations, call on board members to develop or hone understanding in many areas, from fi nancial management to organizational communication, from fundraising to strategic planning. Although it is impossible to calculate the precise number of people who are members of these governing boards at any given moment — nearly all of them without compensation — we do know that millions of women and men accept the fi du- ciary and other responsibilities of board service.

Governance Defi ned

Governance is the board ’ s legal authority to exercise power and authority over an organization on behalf of the community it serves. The board is authorized to establish policies and make decisions that will affect the life and work of the organization. The board is where the proverbial “ buck ” stops; it is also held accountable for the actions that follow those policies and decisions. Governance is group action. Individual board members do not govern the organization. Rather, meeting as a group confers governing status to the board as a whole.

Authority to govern an organization may be granted by a variety of sources, from organizational members and supporters to public offi cials. When an orga- nization is incorporated, the state in which the incorporation takes place assigns

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16 The Handbook of Nonprofi t Governance

responsibility for the organization ’ s affairs to a governing board. An organiza- tion ’ s articles of incorporation or constitution (see Chapter One ) and its bylaws (see Chapter Fourteen ) will specify how its board is to be constituted and organized.

Sometimes groups other than the board carry the authority to control certain board decisions. For instance, in some membership organizations, a represen- tative house of delegates must approve bylaws changes. In subsidiaries, certain decisions may require the approval of the parent organization board or must conform to a policy framework established by the parent board. Examples of such decisions include election of board members, changes in bylaws, sale or acquisition of property, hiring of the chief executive, or choice of management service provider.

There are some similarities — but many differences — between corporate boards and nonprofi t boards. Both for - profi t and nonprofi t organizations need strong board leadership and must adhere to certain legal principles that are outlined in state corporation laws. But for - profi ts answer primarily to their shareholders and focus on generating profi ts for those people. In contrast, nonprofi ts are account- able to their members, constituents, supporters, donors, and the public; their missions are not to make money but to make a difference in someone ’ s life or the world.

This chapter reviews fundamental responsibilities and principles of gover- nance: the board ’ s fi duciary responsibilities, the difference between collective and individual responsibilities, the critical place of mission at the center of gover- nance, and the guiding principles of effective governance.

Why Nonprofi ts Need Boards

There are legal, ethical, and practical reasons to build a board when a nonprofi t is created. These reasons shape the foundation for good governance.

Legal Reasons

State laws require that nonprofi t corporations have a board to assume the fi du- ciary role for the organization ’ s well - being. These laws assign overall responsibility and liability to that board. In addition to the board ’ s responsibilities as a governing body, individual board members are bound by their legal obligations: the duties of care, loyalty, and obedience (see “ Collective and Shared Responsibilities, ” later in this chapter).

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State laws generally stipulate the minimum size for a board — mostly between one and three members — and other requirements that defi ne how boards may function or be structured. Some state laws defi ne the smallest acceptable num- ber of independent board members (that is, members without specifi c personal benefi ts or attachment), but usually the laws do not address board composition. The articles of incorporation and bylaws defi ne the internal authority within the nonprofi t and clarify the board ’ s role on top of the decision - making hierarchy. (Naturally, in a formal membership organization the members have certain rights to approve major board decisions.)

Federal law is less specifi c about board structure, but it does expect the board to serve as the gatekeeper for the organization. When applying for recognition of tax - exempt status, board members for a nonprofi t must be listed to allow the IRS to determine whether proper oversight has been established. In complying with federal law, one of the board ’ s roles is to ensure that no inappropriate pri- vate inurement takes place — a situation when an insider with decision - making power misdirects organizational assets into the hands of individuals who don ’ t provide commensurate products or services in return (see Chapter Seven , Legal and Ethical Responsibilities).

Ethical Reasons

The board functions, in part, to assure the public and all stakeholders that the organization is in good hands. It assumes responsibility for the organization ’ s achievements or lack thereof. It goes beyond the legal requirements to ensure that the organization not only does things right, but does the right thing.

The board acts as the agent for the organization ’ s constituents. When a sup- porter, client, or customer relies on the organization to use its funds appropriately or provide trustworthy and quality services, the board sees to it that these expec- tations are met. Board members are not there to benefi t personally from their affi liation; during decision making they are expected to place the interests of the organization above any other considerations.

Oversight is a primary duty for all boards. They work closely with manage- ment to ensure that goals are met and that ethical principles guide all activities. As overseers, board members also spell out the expectations and evaluate the results. The board is there to go above and beyond the status quo, keeping the organiza- tion viable by reacting to and anticipating stakeholders ’ needs.

Practical Reasons

A board is made up of individuals who, at one time or another, dedicate their efforts to help the organization get its work done. Especially in start - up

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18 The Handbook of Nonprofi t Governance

organizations, boards draft the organizational documents, hunt for supplies and equipment, and procure funding. Before a staff is hired, board members usually manage the daily affairs and run the programs of an all - volunteer organization.

In most nonprofi ts, as soon as the situation allows, the board hires the fi rst staff member — often a chief executive — and delegates the daily affairs to him or her, with the necessary support and guidance. At this point the board can devote its time to governing, providing direction, and ensuring that the mission of the organization stays on course.

Detached from daily affairs, the board is able to differentiate the trees from the forest — to look at the organization as part of its larger sphere and not just as an offi ce that carries out the strategic plan. The perspectives that board members bring to the boardroom complement those of the chief executive. Together, they should be able to ask the probing questions necessary to avoid stagnation and keep the organization moving forward.

Finally, the board provides continuity. Individuals come and go, but the board as an entity remains. When good practices are institutionalized, the changing of the guard does not adversely affect the good work that has been accomplished.

Board Members as Fiduciaries

Contemporary law regarding the responsibilities of nonprofi t board members is grounded in English common - law rules for administrators of charitable trusts. This framework assigned a great deal of responsibility to individual trustees and tended to foster a fairly cautious approach to organizational affairs. A number of court cases have since placed interpretation of nonprofi t board accountability within the framework of corporate law. Now, legal responsibility in general rests with the board as a body rather than with individual board members. (For more about the legal responsibilities of nonprofi t boards, see Chapter Seven .)

Board members today are fiduciaries of the organization ’ s resources and guardians of its mission. Most state laws, by statute or court opinion, impose on board members the standards of conduct and management that, together, constitute fi duciary responsibility. Thus personal liability can result when a board member, offi cer, or key employee of a nonprofi t organization breaches the stan- dards of fi duciary responsibility.

A chief responsibility of board members is to maintain fi nancial account- ability and effective oversight of the organization they serve. As stewards of the

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organization ’ s resources, board members must exercise due diligence to see that it is well managed and that its fi nancial situation remains sound. (For more about fi nancial oversight, see Chapter Eight .) Fiduciary duty requires board members to be objective, unselfi sh, responsible, honest, trustworthy, and effi cient. They should always act for the good of the organization, rather than for their personal benefi t. They need to exercise reasonable care in all decision making, without placing the organization under unnecessary risk.

Collective and Shared Responsibilities

The distinction of legal liability between the board and an individual board member relates to the responsibility of the board for the organization and responsibility of individual board members for their actions. The board as a collective entity is responsible and liable for what happens in and to the organi- zation. As the ultimate authority, it must ensure that the organization operates in compliance with the law and its own policies. Boards make decisions in a legally structured meeting. All actions taken by a board are held to three legal standards: the duty of care, the duty of loyalty, and the duty of obedience. These collective duties, which apply to the entire board, require the active participation of all individual board members. If the board or individual board members are sued, their actions or inaction are judged against these legal obligations. These three duties set the basic guidelines for the board to act as the fi duciary and the steward of the organization. (See Chapter Seven for an expanded discussion of these standards.)

Duty of care . A standard of care in decision making that can be expected of all prudent individuals under similar circumstances. Each board member is to act in good faith and actively participate in governance. Duty of loyalty . A standard of faithfulness to the organization ’ s priorities. Board members put the interests of the organization ahead of their own professional or personal interests or those of another, and they speak with one voice in their decision - making capacity. Duty of obedience . A standard of faithfulness to the organization ’ s mission and purpose, which requires that nonprofi t board members comply with applicable federal, state, and local laws; adhere to the organization ’ s bylaws; and remain the guardians of the mission.

Generally, board members who carry out their duties faithfully and in adher- ence to the duties of care, loyalty, and obedience will not be found personally

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liable. However, the demarcation between individual and collective responsibility can often be indistinct, and in legal action under certain circumstances, an indi- vidual board member may end up paying the penalties or having other sanctions applied.

Mission at the Center

To meet the challenges of the nonprofi t environment, boards need members who understand governance as a dynamic activity. They need members who are fully and actively engaged in promoting the organization ’ s achievement of its mission, developing and refi ning its vision, and upholding its values. The fi rst order of business for board members is to understand and endorse these defi ning elements of the organization ’ s identity.

Everything begins with the mission. Mission is the foremost organizing tool for a nonprofi t, helping to build common understanding and ensuring that programs and activities are aligned toward the same goal. As part of their governance responsibilities, nonprofi t board members are the keepers, watchers, challengers, revisers, and champions of the mission.

The center - stage role of mission in the nonprofi t sector has a strong concep- tual basis. Nonprofi t organizations are founded to meet a need, and people invest time and money in these organizations to help them meet that need. People often identify fi rst with the need and the values it represents — for example, equal access to education; intelligent media; or the rights of children, seniors, or people with disabilities. They show interest in the organization ’ s work because of its expressed mission. Trade associations or professional societies have missions related to advancing the needs of their members. Individuals or corporations join mem- bership organizations because these groups represent their interests and provide unique products, services, and information.

Nonprofi t organizations are generally described as mission driven, mission focused, and values based. A mission - driven or mission - focused organization is motivated in its programs, activities, and decision making by remembering why it exists: to meet the needs of the community. To be values based means that a set of core values inspires and guides the involvement of board members, other volunteers, staff, and donors. Mission, vision, and values are the givens in establishing the framework for organizational involvement, investment, and advancement:

Mission is the reason an organization exists, the need it is meeting in the community. A mission statement captures the reason and the need and

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What Is Governance? 21

communicates succinctly what inspires the organization to meet those needs. Vision is what the organization sees in the future for its community if the orga- nization succeeds at its mission. Values are the deeply held beliefs that guide all aspects of the organization ’ s programs and operations and provide the litmus test for all decisions.

For further discussion of mission, vision, and values in the context of stra- tegic planning, see Chapter Twelve ; in the context of evaluation, see Chapter Thirteen .

Characteristics of Exceptional Governance

Good governance is about providing critical capital — intellect, reputation, resources, and access — to strengthen the organization and in turn the community it serves. But a board may meet every legal requirement, adhere to proper proce- dures, and still be ineffective if it is not engaged in setting strategic direction and supporting the organization. If a board neglects the full range of its responsibili- ties, it may preclude the organization from reaching its potential. An exceptional board recognizes the impact of its leadership, and board members understand that they must be thoughtful and engaged leaders — not merely competent but passive stewards.

Boards often represent underperforming assets for nonprofi t organizations that need every resource they can muster. Drawing on observations, academic knowledge, and proven practices, BoardSource identifi ed the common traits and actions of boards that have made discernible differences to their organizations.

These boards behaved differently from other boards. To highlight these differences, BoardSource distinguishes between responsible boards and exceptional boards. A responsible board is capable and dutiful in carrying out its responsibili- ties. This is not always an easy feat, nor should it be taken for granted by board or staff members. A responsible board understands its fi duciary obligations, and it adds value to the organization by approving strategic plans and budgets, regu- larly reviewing fi nancial statements, evaluating the chief executive annually, and participating in fundraising.

An exceptional board operates on a higher level. Its members give more of their time, talent, and treasure. But they also give differently. Their time may be spent more wisely, their skills and social networks better leveraged, and their treasure more strategically deployed. Exceptional boards measure organizational impact and evaluate their own performance, discuss and debate issues, and open

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doors and make connections. The difference between responsible and exceptional lies in thoughtfulness and intentionality, action and engagement, knowledge and communication.

Three common denominators enable the board to operate at an exceptional level:

1. A frank and open relationship . The chief executive is more than competent and confident. He or she is also open and honest with the board. The board, in turn, is committed to ensuring success, while recognizing that nonprofi t organizations are complex and constantly changing. As interlocking pieces in a jigsaw puzzle that together create a complete picture, the chief executive and the board are complements, with mutual trust, respect, and appreciation building the foundation for a leadership team that can handle short - and long - term challenges.

2. Intentional . Great governance doesn ’ t just happen by accident. It takes the right people in the right place at the right time. Who serves on a board matters, and board composition is an important indicator of an exceptional board. An exceptional board is also thoughtful, self - aware, and proactive. It balances the need for long - term stability with the need to adapt its own structures and practices as circumstances change and the organization evolves.

3. Engaged . Board work requires more than mere attendance at meetings. It re- quires personal motivation and commitment, as well as intellectual curiosity and an appetite for challenge. Board members must share a passion for the organization ’ s cause. In turn, the chief executive must be ready, willing, and able to engage board members in making sense of situations, in determining what matters, and in solving dilemmas. Neither the board nor the chief execu- tive can simply go through the governance motions and expect great results.

Effective Governance in Action

FRANK AND OPEN

Working together, the board and head of an independent school created a lead- ership succession plan a few years before the head of the school was to retire. Board and staff members participated in a collaborative, holistic review process that included articulating the institution ’ s values, evaluating the school ’ s other internal infrastructure needs, and assessing the board — all before the executive search offi cially started.

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Exceptional boards add signifi cant value to their organizations, making a discernible difference in advancing the mission. Good governance requires the board to balance its role as an oversight body with its role as a force supporting the organization.

The following twelve principles offer a description of an empowered board that is a strategic asset to be leveraged. They provide board members with a vision of what is possible and a way to add lasting value to the organization they lead.

1. Constructive partnership . Exceptional boards govern in constructive partnership with the chief executive, recognizing that the effectiveness of the board and chief executive are interdependent. They build this partnership through trust, candor, respect, and honest communication.

2. Mission driven . Exceptional boards shape and uphold the mission, articulate a compelling vision, and ensure the congruence between decisions and core values. They treat questions of mission, vision, and core values not as exercises to be done once, but as statements of crucial importance to be drilled down and folded into deliberations.

3. Strategic thinking . Exceptional boards allocate time to what matters most and continually engage in strategic thinking to hone the organization ’ s direction. They not only align agendas and goals with strategic priorities but also use them for assessing the chief executive, driving meeting agendas, and shaping board recruitment.

INTENTIONAL

A university foundation board, after asking how it could add real value to the institution, shifted the foundation ’ s focus from fundraising to commercialization of intellectual property. In turn, the board populated itself with individuals who have signifi cant professional expertise in law, fi nance, and research and development. Given the foundation ’ s new role, the board also redefi ned its relationship with the university ’ s administration and governing board, as well as with foundation and fundraising staff.

ENGAGED

A board member led a process that resulted in an emotionally powerful vision statement at an environmental organization. The board and the staff were inspired to reframe strategies, elevate goals, and embark on an ambitious fundraising cam- paign. The campaign raised signifi cantly more money than expected, fueling even greater conservation success.

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4. Culture of inquiry . Exceptional boards institutionalize a culture of inquiry, mutual respect, and constructive debate that leads to sound and shared decision making. They seek more information, question assumptions, and challenge conclusions so that they may advocate for solutions based on analysis.

5. Independent mindedness . Exceptional boards are independent minded. They apply rigorous confl ict - of - interest procedures, and their board members put the interests of the organization above all else when making decisions. They do not allow their votes to be unduly infl uenced by loyalty to the chief execu- tive or by seniority, position, or reputation of fellow board members, staff, or donors.

6. Ethos of transparency . Exceptional boards promote an ethos of transparency by ensuring that donors, stakeholders, and interested members of the pub- lic have access to appropriate and accurate information regarding fi nances, operations, and results. They also extend transparency internally, ensuring that every board member has equal access to relevant materials when making decisions.

7. Compliance with integrity . Exceptional boards promote strong ethical values and disciplined compliance by establishing appropriate mechanisms for active oversight. They use these mechanisms, such as independent audits, to ensure accountability and sufficient controls; to deepen their understanding of the organization; and to reduce the risk of waste, fraud, and abuse.

8. Sustaining resources . Exceptional boards link bold visions and ambitious plans to fi nancial support, expertise, and networks of infl uence. Linking budgeting to strategic planning, they approve activities that can be realistically fi nanced with existing or attainable resources, while ensuring that the organization has the infrastructure and internal capacity it needs.

9. Results oriented . Exceptional boards are results oriented. They measure the organization ’ s progress toward mission goals and evaluate the performance of major programs and services. They gauge effi ciency, effectiveness, and impact while simultaneously assessing the quality of service delivery, integrat- ing benchmarks against peers, and calculating return on investment.

10. Intentional board practices . Exceptional boards purposefully structure themselves to fulfi ll essential governance duties and to support organizational priorities. Making governance intentional, not incidental, exceptional boards invest in structures and practices that can be thoughtfully adapted to changing circumstances.

11. Continuous learning . Exceptional boards embrace the qualities of a continuous learning organization, evaluating their own performance and assessing the value they add to the organization. They embed learning opportunities into routine governance work and in activities outside of the boardroom.

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What Is Governance? 25

12. Revitalization . Exceptional boards energize themselves through planned turn- over, thoughtful recruitment, and inclusiveness. They see the correlations among mission, strategy, and board composition, and they understand the importance of fresh perspectives and the risks of closed groups. They revi- talize themselves through diversity of experience and through continuous recruitment.

Table 2.1 compares the actions of responsible and exceptional boards. It high- lights acceptable and good practices and illustrates how an exceptional board goes beyond the call of duty.

Governance Through the Organizational Life Cycle

Nonprofi t organizational development is similar to human development in that each nonprofi t passes through stages that have foreseeable features and character- istics. Like life for humans, life for nonprofi ts is often messy and unpredictable.

TABLE 2.1. RESPONSIBLE BOARDS AND EXCEPTIONAL BOARDS

Responsible Boards . . . Exceptional Boards . . .

Establish and review strategic plans. Allocate time at meetings and between meetings to address what matters most and engage in strategic thinking on a regular basis.

Adopt a confl ict - of - interest policy. Adopt a confl ict - of - interest policy that includes guidelines for disclosure, review, and recusal; require board members to sign the confl ict - of - interest statement annually; and rigorously adhere to the policy.

Monitor fi nancial performance and receive programmatic updates.

Measure overall organizational effi ciency, effectiveness, and impact using various tools including dashboards.

Design board meetings to accomplish the work of the board.

Make meetings matter by improving meeting effi ciency, using consent agendas and meeting regularly in executive sessions — with and without the chief executive — to allow for confi dential discussion.

Orient new board members. Invest in ongoing board development to deepen the commitment of board members, and have board members refl ect on their own performance by conducting regular board self - assessments.

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The basic life - cycle model encompasses five stages. This model is only a framework that shows the typical nonprofi t ’ s journey. All organizations do not go through each stage or even need to, and the rate at which they pass through the stages varies. Organizational development has an organic, nonlinear fl ow, and an organization can make dramatic leaps — forward or back — at any point in its life cycle. The ability to achieve the mission through delivery of effective programs and services is the main determinant of the life - cycle stage. The level, quality, reach, and impact of programs and services are a better measurement of development stage than age, budget size, or number of staff.

Stage One: Start - up

A nonprofi t organization is usually conceived when one or more people see a need, formulate an idea to address it, and decide to form an organization to do the necessary work. The start - up phase generally lasts a few years, and the annual operating budget is small but growing during this period.

The founder or group of founders usually is visionary, has a passionate com- mitment to the mission, and brings a high level of energy to initiating the fi rst simple programs. If there is a single founder, this person usually acts as staff leader and assembles a small group of enthusiastic volunteers who follow and encourage the founder. If more than one person initiates the organization, they may serve as the core of the board. Most start - ups operate initially as all - volunteer organizations, meaning that there are no paid staff or managers, and the board members manage volunteers, handling all other duties themselves.

Typically, the board of a start - up organization plays a hands - on role in over- sight and management. The organization is especially vulnerable during this early period, so the leaders need to be persistent, fl exible, and resilient to allow pro- grams to take root and begin to blossom.

Stage Two: Adolescent

Nonprofi t adolescence is often accompanied by uncertainty and angst. Although age and size can vary widely, this stage often occurs between the third and sixth year of an organization ’ s existence, as the annual operating budget grows from approximately $ 250,000 to about one or two million dollars. This phase normally entails expansion of programs, broader outreach, more staff, and larger quar- ters. Frequently, the adolescent nonprofi t experiences instability when it does not adequately anticipate the systems required to support this growth.

During expansion, the chief executive and board focus on meeting early pro- grammatic goals for quantity of clients served and quality of services. They also

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What Is Governance? 27

undertake a formal self - assessment process to be sure all board members are clear about their roles and responsibilities, develop simple systems for gathering and using data about programmatic outcomes, and incorporate all of this valuable information into a strategic planning process. As the staff expands and takes on more responsibility for day - to - day tasks, the board will relinquish its operational role and focus more on advice, oversight, and long - term planning. To adapt and stay relevant, the board and chief executive need to monitor the organization ’ s progress and relate it to developments in the outside world that could infl uence its effectiveness and viability. By broadening connections with constituents and evaluating programs in simple ways, an organization can keep its pulse on how needs are shifting and whether programs are working or not working.

Stage Three: Mature

Any group that aims to deliver successfully on its mission must attain the mature stage — and sustain itself there. An organization can be said to have entered matu- rity when its programs are established and well regarded in the marketplace or community, its operations and systems are formalized, and its executive and board leadership are capable of directing a complex organization. Typical nonprofi ts reach this point some time after fi ve or six years of operations and when the bud- get exceeds one or two million dollars.

At this stage, the board further reduces its operational role and increases its policy, oversight, and fundraising role. It usually expands, becomes more diverse and more specialized, and formalizes its structure. The mature board continually assesses its own performance and modifi es its composition, roles, responsibilities, and structure to stay effective.

Maturity is a mission - driven stage. A fully actualized, mature nonprofi t should remain vital and continue to improve the quality of its programs so that it makes signifi cant progress in fulfi lling the defi ned need.

Stage Four: Stagnant

Each year, many nonprofi ts fall into stagnation. Savvy board members or execu- tives can recognize the signs: funding support diminishes, demand for services wanes, the number of volunteers declines, staff morale suffers, and key leaders and managers leave the organization. A nonprofi t may descend rapidly into this crisis, or the decline can take years as the organization begins to wither almost imper- ceptibly. Stagnation can occur at any stage, from start - up through maturity.

The good news is that even seriously ailing organizations may be able to renew themselves — a diffi cult, sometimes unpleasant, and usually thankless job

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to accomplish. The board, with cooperation and support from the chief executive, is usually required to take the fi rst steps to initiate recovery. Because adaptability and leadership are so often at fault, often the process must begin with a board shake - up. Board leaders may want to retire some disengaged veteran board mem- bers and add new people who will support the renewal effort. Board development will need to be directed toward bridging skill gaps, removing unproductive mem- bers, and creating new structures and processes to improve decision making and performance. The board will need new members who function well in adverse circumstances and who savor a challenge. (See Chapter Six , Building a Board, for principles and strategies that work when renewing the board.)

Stage Five: Defunct

Literally thousands of nonprofi ts close their doors every year. In a few situations, a group may disband because it has actually fulfi lled its mission. In most cases, however, nonprofi ts dissolve for less positive reasons, such as loss of a compelling mission focus, a chronic inability to operate programs effectively, or a lack of technical expertise in marketing and fundraising.

How do the organizational leaders determine when it is best to disband the organization rather than attempt renewal? The following conditions are impor- tant indicators:

Programs are widely considered to be ineffective, and the client base has declined signifi cantly. The board of directors is moribund, taking little interest in the problems of the organization and showing no will or ability to initiate needed change. The current chief executive is unable or unwilling to take on the task of renewal, and the board can fi nd no one else to do the job. The organization ’ s public reputation is poor and seems beyond resurrection. Management systems are not supporting the organization ’ s work.

Although the decline into obsolescence usually occurs over a period of time, sometimes one signifi cant change, internal or external, is all that is needed to send a distressed operation into a swift downward spiral.

The work of improving the performance of a nonprofi t organization is dif- fi cult and complex — there is no single right way to do it and no predetermined timeframe for completing it. Understanding where an organization falls in its cycle of development and how to build capacity along the way is an effort worth making.

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Chapter Exercises

What might be the differences between a nonprofi t ’ s initial board and the board that has been in place for twenty years? How would you defi ne the difference between a responsible board and an exceptional board? Formulate some hypothetical examples of organizations in each stage of the life cycle.

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CHAPTER THREE

GOVERNANCE ROLES

There ’ s no denying that nonprofi t organizations in the United States play a vital role in society, from assisting victims of natural disasters to beautifying our neighborhoods, from educating our children to healing the sick. To ensure that their organizations have the resources, leadership, and oversight necessary to carry out these and other vital activities, nonprofi t boards must understand and fulfi ll their governance responsibilities.

This chapter explains the governance roles assumed by the full board and by individual board members. Each section links to other chapters in this handbook that explore elements of these governance roles in greater depth. It is important to remember that because every organization is unique, no one - size - fi ts - all model of governance applies. There are, however, certain fundamental responsibilities common to nearly all boards. These responsibilities in turn provide a frame of ref- erence for assessing the board ’ s performance periodically. It is equally important to clearly articulate expectations for those who serve on boards and to use those standards to assess individual board member performance.

Board Roles

The board as a whole has three primary roles: setting organizational direction, including ensuring effective planning; ensuring the necessary resources, both fi nancial and human; and providing oversight of the chief executive, assets, and programs and services.

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Set Organizational Direction

The demand for organizational effectiveness and effi cient use of resources is increasing. The public in general, and funding sources in particular, are challeng- ing nonprofi t organizations to prove their worth. It is clearer than ever before that boards must take responsibility for establishing organizational direction so that all efforts are geared toward shared ends.

Some nonprofi t organizations appear to work hard but fail to make a great deal of difference. Busy - ness and constant activity can mask a lack of direc- tion. People burn out because they are moving in circles rather than forward toward shared goals. Different people or groups within an organization must operate with common assumptions about what is important and what the organization as a whole needs to accomplish. Resources should be effectively apportioned so that every program or approach builds on the efforts of the others. An organization will rarely make a signifi cant difference unless it pays careful attention to the ends and outcomes of its programs. Instead of thinking only about what to do , organizational leaders should also be thinking about what to achieve .

Setting direction requires looking beyond the immediate horizon. It means asking questions. What are the issues the organization must confront in order to serve our mission in the years ahead? Where should it be in fi ve years? What is it committed to achieving? Setting direction means making a habit of strategic thinking and taking the time to engage in strategic planning to establish a framework for the organization ’ s efforts. Developing a shared vision, articulating guiding values for organizational action, establishing major goals, and outlining strategies for achieving goals are all part of direction setting.

Determine Mission, Vision, and Values

The board is responsible for ensuring that the organization ’ s mission is clearly stated and advanced. A commitment to mission should drive the board ’ s and management ’ s priorities. Organizations need a relatively brief written mission statement (the reason the organization exists and the need it meets), sometimes supplemented with a more detailed statement of vision (what the community ’ s future will look like if the mission is achieved) and values (the organization ’ s deeply held beliefs).

The board and management should review the mission statement peri- odically to ensure that it is useful, honest, valid, and current. The mission statement should articulate whom the organization serves and explain what

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Governance Roles 33

makes it distinctive. The board is ultimately responsible for the mission state- ment. Still, before developing or revising the mission, wise chief executives and boards consult with the organization ’ s stakeholders — for example, its members, volunteers, staff, clients served, or the leaders of any subsidiary enterprises.

Good statements of mission, vision, and values also serve to guide and bench- mark such undertakings as organizational planning and assessment, board and staff decisions about programs and services, volunteer initiatives, and priorities among competing demands for scarce resources. The board should periodically assess what the organization does to ensure that it is not drifting away from its intended mission and purposes. The mission, which will vary widely from one organization to the next, also sets the stage for developing fundraising strategies and serves as a benchmark for sustaining the confi dence and support of those who support the organization.

For more about mission and the board ’ s role in articulating it, see Chapter Two , What Is Governance? For a discussion of mission and strategic planning, see Chapter Ten , Strategic Thinking and Strategic Planning.

Engage in Strategic Thinking

Effective boards hone the organization ’ s direction by making strategic thinking a part of regular, ongoing board work. With guidance from management, they stay current with internal and external forces that drive change. They look backward and forward to understand what has emerged and imagine what is possible. By engaging in strategic thinking, they are able to explore the frameworks within which the organization operates and ask far - ranging questions that drive deeper, value - enriched decisions.

In collaboration with the chief executive, the board should allocate the lion ’ s share of its time to issues of substantial consequence. Moving away from report - driven formats, agendas carve out time for meaningful discussion that shapes organizational strategy and actions. Meetings are well attended, agendas feature only a few issues, and rich debate ensues. Working with senior staff, board mem- bers help clarify thorny problems, offer breakthrough insights on pressing issues, present new ways of framing challenges and opportunities, and actively generate important strategic ideas.

See Chapter Ten , Strategic T hinking and Strategic Planning, for a discussion of the concept of strategic thinking, and Chapter Sixteen , Board Dynamics, for more about incorporating strategic thinking into a culture of inquiry.

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Ensure Effective Planning

Strategically focused planning enables the board and staff to translate the mis- sion and purposes into meaningful and manageable goals and objectives, which then focus its resources and energy. Goals, which usually require new resources, also become the benchmarks for assessing the organization ’ s progress over time. Although the chief executive and staff are responsible for designing and conducting a process that provides what is, in effect, a business plan for the orga- nization, the board participates in and approves all decisions that set strategic direction.

Members of governing boards — who are, after all, part - time volunteers — often ask, “ Where and how do we participate meaningfully and appropriately in the process? ” The short answer is that board members are at their best when they ask good questions and offer ideas of their own about the organization ’ s operating environment. The board ’ s responsibilities are to

Insist that comprehensive organizational planning occurs Participate with staff in the planning process Assess the merits of the process and its results Approve the agreed - upon outcomes Use the goals as a guide for budgeting and other priorities Track the plan ’ s implementation and the organization ’ s progress

When board members are involved extensively in planning, they own respon- sibility for helping to implement appropriate goals and priorities, acquire new resources, and much more. Their participation helps to ensure that the big picture — how the organization fi ts within its larger community of interest — is considered, along with key competitive and environmental factors. By bringing their experience and professional talents to appropriate parts of the planning process, by asking good questions of other participants, and by diligently demon- strating that the governing board takes planning seriously, board members add a great deal to the process.

There are nearly as many opinions about planning and how it should be done as there are different sizes and shapes and missions of organizations, both for - profi t and not - for profi t. Each organization should determine its own approach to planning, based on the needs and life cycle of the organization. What is most important is that planning be done and that it be tailored to the organization ’ s culture, the staff ’ s competence, and the experience and wishes of the chief execu- tive, who is mostly responsible for getting the job done.

Chapter Ten explores planning in more detail.

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Ensuring the Necessary Resources

Once the board has established a sense of direction, it must make sure that the organization has four principal types of resources for achieving its goals: board members with appropriate competencies, people to do the work, money to pay salaries and other expenses, and credibility with the public on whose support the organization will depend. The organization ’ s size and complexity, structure, cul- ture, and environment will determine how resource development responsibilities are allocated.

Build a Competent Board

A nonprofi t board represents talent that the organization can draw on to fur- ther its mission. For this reason, board composition is critical to success. Many boards revitalize themselves through term limits and a well - defi ned process for recruitment that assesses future organizational needs and current board mem- ber competencies. They seek diversity in terms of personal and professional backgrounds and experiences, and they welcome differing voices and an array of perspectives. They are acutely aware of the need for members who have knowledge of the nonprofi t sector, superior fi nancial acumen, ability to secure funding, and personal characteristics and experiences that positively enrich group interaction. They also use board composition as a strategy to increase understand- ing of their constituencies and community needs. Board composition matters if others are to see the organization as a responsible and civic - minded enterprise in the service of all people.

Most boards delegate recruitment, orientation, and ongoing education to a committee — usually called the governance committee — whose purview extends beyond nominations to board development. Along with the chief executive, they recruit candidates to strengthen board capacity in terms of expertise and group dynamics. Recruitment is continuous, with individual members sharing respon- sibility for identifying and cultivating new candidates. They consciously and conscientiously inform candidates and new members of their responsibilities and expectations. It follows that clarifying expectations for individual board mem- bers before they are asked to join the board can greatly infl uence how energetic and effective they are likely to be. Recognizing the importance of board leader- ship development and succession planning, governance committee members also groom board chairs and offi cers purposefully through a transparent, participatory process.

Fresh perspectives energize the work of nonprofi t boards; in contrast, closed groups within the board risk the opposite effect. Evaluation of individual board members ’ participation, as well as term limits, are important techniques for

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36 The Handbook of Nonprofi t Governance

keeping board members aware of their responsibilities and rejuvenating the board when necessary. Boards should not hesitate to remove ineffective mem- bers to maintain a sense of shared responsibility. They can also fi nd creative alternatives — such as membership in committees, task forces, and advisory councils — for keeping valuable members associated with the organization after their terms expire.

Consult Chapter Four , Governance Structure, for the governance committee ’ s job description. Chapter Six , Building a Board, outlines the cycle of recruitment, orientation, and ongoing education. Board evaluation is reviewed in Chapter Thirteen .

Ten Resolutions That Promote Board Development

1. Remember that mission and stakeholders come fi rst.

2. Ensure the organization ’ s relevance and value to stakeholders and to society as a whole.

3. Openly debate policies, practices, and choices that further our mission.

4. Plan for a marathon, not a sprint.

5. When new members join the board, pass the baton to them, using their unique strengths to advance the mission.

6. Apply each team member ’ s assets to fi t organizational needs.

7. Contribute time and money for the organization ’ s good works.

8. Plan for the continuing contribution of those rotating off the board who still wish to be involved with the social and philanthropic goals of the organization.

9. Focus on the organization ’ s future. Don ’ t just fall in love with its past.

10. Exhibit courage, fl exibility, and willingness to change as challenges and oppor- tunities emerge.

Select the Chief Executive

After determining the organization ’ s mission and purposes, selecting the chief executive has the next greatest impact on the success of the organization. With the right person in the position, the organization will be better equipped to suc- ceed. Choosing the wrong person will have long - lasting adverse consequences. The board must choose carefully and wisely.

The process of choosing a new chief executive begins well before the search itself. It is essential to start from a clear consensus on the organization ’ s nature

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Governance Roles 37

and current circumstances, its strategic and most pressing priorities and goals that are expected to be addressed — that is, what does the board expect a new chief executive to achieve? It is easy to fall back on job announcement clich é s — “ We seek an effective communicator ” or “ The outstanding candidate will be an effec- tive speaker ” or “ We seek an experienced and proven fundraiser ” — when true leadership is actually more than the sum of a simple list of skill sets.

Addressing the kinds of issues and needs that will constitute the challenge for the new leader — and seeking the mix of experience and personal style that fi ts the organization ’ s mission and culture — is more likely to produce outstanding candidates. There is no single prescription that works for all organizations; the simple facts are (1) it is very diffi cult to defi ne leadership, and yet we know it when we see or have it, and (2) we often don ’ t know how effective our new leader is until he or she has been in the job for many months.

Especially in large and complex organizations, board leaders should remain open to the idea of identifying, developing, and promoting promising talent from within — and even encourage it, to provide a wider pool of candidates. On the other hand, the board should not conclude too quickly that internal promotion is the only possible course of action. Succession planning is part of the board ’ s responsibility to ensure that the organization is prepared for the future. When done properly — with the full commitment and assistance of the current chief executive — the odds of making a smooth transition to new leadership increase dramatically. (For more about succession planning, see Chapter Twelve , Succession Planning and Chief Executive Transition.)

When a vacancy occurs in the chief executive position, the board appoints a search committee, which may decide to hire an executive search fi rm or to conduct the search on its own. Although the committee takes the lead, the full board should be kept well informed as the search proceeds. Of course, the full board makes the fi nal decision, based on the committee ’ s recommendation. (For discussion of the chief executive search and transition, see Chapter Twelve .)

Ensure Adequate Financial Resources

Although much can and should be expected of the chief executive and manage- ment on this score, the board works closely with the chief executive to diversify and maximize sustainable revenue sources so that the organization can achieve its goals. It is up to the board to engage with management to develop and monitor a portfolio of income streams, which may range from fundraising and sponsor- ship, to earned income and for - profi t subsidiaries, to program - related and market investments.

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Relying on just one or two of these areas to generate the majority of the orga- nization ’ s income can be risky: what would happen, for instance, if the number of dues - paying members dropped precipitously? The board should be willing to advocate or approve creation of appropriate new products, services, or activities that not only have the potential for net income growth but also are consistent with the organization ’ s purposes.

The board also establishes clear expectations for member participation in development activities and individual giving. Members not only make personally meaningful annual contributions but also stretch further for special campaigns. They extend the reach of the organization by actively using their own reputations and networks to secure funds, expertise, and access.

In raising private support, the board works in partnership with the chief exec- utive and the director of development (if the organization has one). Specifi cally, the board should assess its own involvement in meeting fundraising targets and goals and should have clear obligations regarding personal philanthropy. In addi- tion to being able to report 100 - percent board participation to potential and current supporters, board members are better fundraisers when they set their own good example. After all, if board members don ’ t substantially support their own organization, why should anyone else?

The board should also be ready to help open doors, when they can, to secure resources. They can assist staff by identifying potential donors, helping to solicit support, and thanking donors and maintaining cordial relationships with them.

Resource development is a function of the full board, not just its development committee. The committee is simply the board ’ s agent to help oversee the work of all board members, the chief executive, and the development staff.

Chapter Nine addresses the board ’ s role in the critical area of fundraising.

Enhance the Organization ’ s Public Standing

Board members serve as a link between the organization and its members, stakeholders, constituents, or clients. They should think of themselves as the organization ’ s ambassadors and advocates — ideally, even after they leave the board. The challenge for the board, together with management, is how to communicate the organization ’ s story strategically and contribute to a healthy and accurate public image for the organization.

Constituents, members, and clients are invaluable resources that help to bring useful information back to the organization. Serving as an ambassador works both ways: board members are also representatives of those they presume to serve through the organization ’ s mission and activities. The executive staff and board

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Governance Roles 39

leaders should welcome feedback, suggestions for improving what board members do, ideas for doing some things better, even complaints or concerns. A healthy organization is always in touch, and board members are the vital link.

Elements of a comprehensive public awareness process include:

Clearly articulated achievements, described using a variety of electronic and print media Contributions to the public good, communicated to community and govern- ment leaders Explanations of how gifts and grants and other revenue sources are accounted for and allocated Speeches by board members to civic and community groups

Communication plans are an important part of organizational planning and strategic thinking. When asked what the organization is and does, all board members should have an elevator speech — an interesting and compelling explanation, deliv- erable in less than a minute, of the organization ’ s mission and purpose. There is no substitute for enthusiastic, even passionate board members who always man- age to insert something wonderful about the organization into conversations with friends and colleagues.

Board members should also remember that whatever they say about the organization carries great weight, whether intended or not. Thus confiden- tial information must be protected as confi dential, even from close friends and relatives.

For more about the board ’ s role in communications and outreach, see Chapter Eleven .

Provide Oversight

All of a board ’ s work involves both authority and accountability. However, in its oversight role, the emphasis is on accountability. As far as much of the public is concerned, a board ’ s most important role is to provide oversight, not only of fi nances and programs, but also of an organization ’ s legal and moral conduct and its overall effectiveness. People want to know that somebody is checking to be sure that the organization is making a difference and that resources are being used wisely. A board must take its oversight role seriously, and the organization ’ s constituencies must be made aware that the board is doing so. The organiza- tion ’ s Web site is the ideal way to provide information about the board and its work, as is an annual report.

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Support and Evaluate the Chief Executive

Selecting the chief executive is only the beginning of what everyone hopes will be a long and productive relationship with the governing board that will bring real achievement and long service to the organization. Providing personal and organizational support for executive leadership, periodically assessing the chief executive ’ s performance, and acknowledging superb service through appropriate compensation are key board responsibilities. A high - performing board gives ongo- ing attention to these matters.

The chief executive ’ s success is linked to the board ’ s determination to do its part to sustain an effective relationship — one marked by mutual respect on both sides and an understanding of the distinction between board and executive responsibilities — a distinction determined, fi rst and foremost, by open commu- nication. The board chair has an especially important responsibility, as does the chief executive, to provide the board with the bad news as well as the good. Their respect for one another ’ s different but complementary responsibilities affects how well the board itself functions. Again, there can only be one chief executive and one chair of the board; their respective responsibilities should not be confused. (For more about the relationship between the chief executive and the board, see Chapter Five .)

Specifi cally, the board ensures that the chief executive

Receives frequent, substantive, and constructive feedback (not just at the time of the annual performance review) Has confi dence that the board chair will intervene with any board members who may misunderstand or abuse their positions Feels that on - the - job performance is being assessed fairly and appropriately, without resorting to oversimplifi ed checklists, rating scales, or invitations for constituents or staff to offer critiques Is introduced by board members to key community leaders who can assist and support the organization Receives invitations to important social events, opening opportunities for the chief executive to speak at signifi cant or high - profi le community functions Receives compliments for exceptional initiatives (every chief executive appre- ciates the occasional “ pat on the back ” from board members, especially the board ’ s leaders) Is encouraged to use professional and personal leave time for renewal Feels that, at the least, the board chair is aware of and sensitive to any per- sonal situations or needs and respects the confidentiality of their private conversations

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Governance Roles 41

For more about the board ’ s role in supporting and evaluating the chief executive, see Chapters Twelve and Thirteen .

Protect Assets and Provide Financial Oversight

Safeguarding organizational assets, or holding them “ in trust ” on behalf of oth- ers, is one of the most important board functions. The board ensures that the organization has a clear fi nancial plan that is aligned with strategic, operating, and development or philanthropic grantmaking plans. Linking budgeting to strategic planning, it approves activities that can be realistically fi nanced with existing or attainable resources.

Financial oversight includes a constellation of concepts. The board, often working in concert with the chief executive,

Reviews and approves how the organization budgets, spends, and makes money Establishes and follows monetary policies that balance short - and long - term needs Verifi es that the organization ’ s fi nancial systems and practices meet accepted standards Ensures that the organization has adequate operational reserves for rainy days and to take advantage of unexpected opportunities Safeguards the organization ’ s reputation by making sure it operates in a transpar- ent, accountable manner, including conducting an annual independent audit Ensures that the organization is not subjected to unnecessary risk

The board can delegate some details to a fi nance committee and some to an audit committee, but the full board always retains the fi nal responsibility. For more about the fi nance and audit committees, see Chapter Four , Governance Structure, and Chapter Eight , Financial Oversight.

Board members must understand the issues important to fi nancial integrity and solvency, safeguards and procedures to protect the organization, and signs of fi nancial trouble. That means knowing how to read and understand the fi nancial information — such as distinguishing the important numbers and relationships — and, most important, making decisions based on the information. Developing this knowledge enables board members to recognize impending problems and tell the difference between minor ripples and major crises.

Of course, a board shouldn ’ t expect every one of its members to become a fi nancial expert. Board members inevitably will have differing levels of expertise. But, at a minimum, it is a good idea to ask an expert to provide training so every

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member can attain at least a basic understanding of nonprofi t accounting and the organization ’ s fi nancial side. In addition, all board members need to feel comfort- able asking questions when they don ’ t understand something and need to be able to make sense of the answers (and realize when the answer doesn ’ t make sense). Simply put, there are no dumb questions.

Financial information is not the only type of information used in decision making. But it plays an essential part in all important decisions, even those that may, at fi rst glance, appear nonfi nancial in nature (for example, should the orga- nization keep its clinic open an extra hour in the evening so people can get there after work?). Armed with this knowledge, decision makers can better protect and enhance the organization ’ s capacity to serve the community.

In 2002, after several high - profi le instances of corporate fi nancial mismanage- ment, the U.S. Congress passed the Sarbanes - Oxley Act. For the most part, this law does not impose legal requirements on nonprofi ts (though two parts of it do; see Chapter Eight for more information). But its passage profoundly infl uenced debate and discussion about the practice of nonprofi t governance. Several states have proposed or passed regulations that extend some provisions of the Sarbanes - Oxley Act to nonprofit organizations. For instance, the California Nonprofit Integrity Act of 2004 requires charities with gross revenues of $ 2 million or more to have an audit committee. Many of the provisions of the federal Sarbanes - Oxley Act — especially those related to internal controls — are generally good practices for nonprofi ts to adopt, because doing so enhances fi nancial reporting and accountability to stakeholders.

Monitor and Strengthen Programs and Services

This board responsibility begins with ensuring that current and proposed pro- grams and services align with the organization ’ s stated mission and purposes. Given limited dollars and unlimited demands on them, the board ultimately decides among competing priorities.

What the organization actually does, and how well it does it, should be at the heart of board curiosity. Board work focuses primarily on the organization ’ s impact, as determined by indicators expressed in the strategic plan. These indi- cators include the number of clients served, number of attendees at particular events, the extent to which program participants achieved the desired results, rev- enues and expenditures for individual services, and changes in behaviors or condi- tions over the long term. Board members should always ask these questions:

What data and information will help us assess our operational effectiveness, fi nancial condition, and programmatic activity? What difference are we trying to make?

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How do we know whether we are making a difference or succeeding at our mission?

Because most volunteer, nonprofi t, and tax - exempt organizations do not have board members who are program experts, professional service providers, or prac- titioners, they usually hire qualifi ed staff to execute programs and gather such data. They aim for a balance between the board ’ s responsibility to ensure quality, cost - effective programs and services and the staff ’ s responsibility to creatively initiate, conduct, and evaluate them.

At times, these different roles of board and staff can become confused — par- ticularly when board members of small organizations must, of necessity, volunteer extensively to conduct and manage programs. In particular, membership - based professional societies and trade associations often struggle with where to draw the line between staff and board functions because their board members are usually practitioners in the fi eld the organization serves. When board members ’ knowl- edge and work experience relate directly to what the organization does, ambiguity, confusion, and tension may arise unless the board remains focused on its respon- sibility to align the organization ’ s programs with its mission and purposes.

How does a board monitor and otherwise contribute to strengthening the organization ’ s endeavors, especially when a well - qualifi ed staff is in place? For most boards, fulfi lling this responsibility is always a work in progress. It includes

Periodically assessing the efficacy of program and service offerings (some boards establish a committee to evaluate programs and services) Asking good questions about proposed programs and services, especially as they relate to the organization ’ s unique mission and purposes Studying cost - benefi t ratios and outcome - based measurement data to facilitate an exchange of information and learning Occasionally recommending or authorizing management to invite qualifi ed third - party consultants to study programs or services that may be causing concern

Effective chief executives work with their boards to explore ideas, generate questions for meeting agendas, and identify the benchmark data that will show at a glance how the organization is doing. For more about the board ’ s role in evalu- ation, see Chapter Thirteen .

Ensure Legal and Ethical Integrity

Because the board is ultimately responsible for ensuring adherence to legal standards and ethical norms, its members must collectively exhibit diligence,

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commitment, and vigilance to keep their house in order. This board responsibil- ity, like several others, begins with hiring and retaining a chief executive whose moral compass and integrity are above reproach. The organization ’ s reputation and public standing require everyone to take three watchwords seriously: compli- ance, transparency, and accountability.

The term compliance is shorthand for the local, state, and federal regulatory and legal requirements that are considered part of a board ’ s fi duciary responsibility. As a result of the Sarbanes - Oxley Act (mentioned earlier), boards are taking care to

Ensure that the organization adheres to local, state, and federal laws and regu- lations that apply to nonprofi t organizations Ensure that the organization registers with appropriate state agencies as required before beginning organized fundraising campaigns Act in accordance with the provisions of the organization ’ s bylaws and articles of incorporation, amending them when necessary

Transparency refers to the need to provide accurate information about an organization ’ s revenue, how it is expended, and its due diligence. Organizations should document how executive compensation is linked to performance, and they should keep records about what other peer and other similar - sized organizations pay their top staff offi cers. Clear policies and procedures should be in place for destruction of documents, gifts from vendors and suppliers, and competitive bids for products and services. The organization should publish annual reports, and it should respond willingly to requests for information from individuals and organi- zations, including the media. Board members should also familiarize themselves with the wide range of questions asked on Internal Revenue Service Form 990, which is a public document and available to any citizen who requests it (for infor- mation about Form 990, see Chapter Seven , Legal and Ethical Responsibilities).

Although the board sets and periodically assesses the adequacy of major orga- nizational policy, accountability measures will ordinarily and appropriately fall to management. But the board needs to ensure that the organization

Adopts a code of conduct or ethical standards for board members and offi cers Defi nes what constitutes possible confl icts of interest, establishes procedures to deal with real or possible confl icts, and annually discloses any such possible confl icts for board members and offi cers Implements the organization ’ s whistle - blower policy, which should include pro- cedures for how and to whom to report allegations of wrongdoing

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Looks at annual board member and offi cer disclosure statements and acts on them through an appropriate board committee, as required by established policy Keeps detailed records of any lobbying expenditures and activities Maintains offi cial records for the time periods required Develops and maintains up - to - date personnel policies and procedures (includ- ing staff grievance protocols) Conducts annual audits of all revenues, assets, expenditures, and liabilities Publishes and widely distributes annual reports that detail the organization ’ s mission, programs, achievements, board members, and fi nances

Chapter Seven explores the board ’ s role in ensuring integrity in the legal and ethical realms.

Individual Roles

While the board as a whole has certain roles and responsibilities, the board is, after all, composed of individuals. These individuals (board member, board chair, chief executive, other board offi cers, and former board members) each play a part in ensuring that the board functions effectively; their roles are explored in the following sections.

The Board Member ’ s Role

Although governing boards have the legal authority to exercise their responsibili- ties as their organization ’ s fi duciaries, individual board members do not. Indeed, while individual board members have considerably different yet complementary responsibilities to those held by the board, they do not have the board ’ s legal authority (except when the board votes to give its offi cers or other members cer- tain and limited authority to act on its behalf ).

Clearly articulating the board ’ s corporate responsibilities and authority (pref- erably in the bylaws) and the responsibilities and expectations of board members (preferably codifi ed as a separate policy statement) is a best practice. It can be helpful to ask leading peer organizations with similar missions for copies of what they have developed. As an alternative, the list of responsibilities in this chapter (see sidebar on next page) can serve as a framework.

A clear statement of individual board member responsibilities adapted to the organization ’ s mission and needs serves at least two purposes. First, when recruit- ing new board members, it helps to clarify what the organization expects before candidates accept the invitation to be nominated. Second, it can provide criteria

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for identifying and recruiting prospective nominees and reviewing the performance of current board members who are eligible for reelection or reappointment.

Individual Board Member Responsibilities

GENERAL EXPECTATIONS

Know the organization ’ s mission, purpose, goals, policies, programs, services, strengths, and needs. Serve in leadership positions and undertake special assignments willingly and enthusiastically. Avoid prejudiced judgments on the basis of information received from individuals; urge staff members with grievances to follow established policies and proce- dures through their supervisors. All signifi cant matters coming to you should be called to the attention of the chief executive and/or the board ’ s elected leader as appropriate. Follow trends in the organization ’ s fi eld of interest and keep informed. Bring goodwill and a sense of humor to the board ’ s deliberations. Suggest to the appropriate committee possible nominees for board membership who are women and men of achievement and distinction and who would make signifi cant contributions to the board and organization.

MEETINGS

Prepare for and conscientiously participate in board and committee meetings, including appropriate organizational activities when possible. Ask timely and substantive questions at board and committee meetings, consis- tent with your conscience and convictions. Maintain confi dentiality of the board ’ s executive sessions and any confi dential information given to you. Never speak for the board or organization unless authorized to do so, but also remember that all utterances from board members carry great weight with those within and outside of the organization. Private opinion on any matter is often construed by others as the board ’ s offi cial posture whether it really is or isn ’ t. Occasionally suggest board and committee meeting agenda items to board leaders and the chief executive to ensure that signifi cant policy - related and stra- tegic matters are discussed. Follow and support the decisions of the board. Do not undermine those deci- sions if you disagree.

RELATIONSHIP WITH STAFF

Counsel the chief executive as appropriate, providing support through diffi cult relationships with groups or individuals.

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Avoid asking the staff for favors, including special requests for extensive informa- tion that may take extraordinary time to gather and is not part of ongoing board or committee work — unless you have consulted with the chief executive, board chair, or appropriate committee chair. Remember that the chief executive — not board members or the board — is responsible for assessing staff performance.

AVOIDING CONFLICTS

Serve the organization as a whole rather than any special interest group or con- stituency. Even if you were invited to serve by virtue of your relationship with a certain constituency or organization, your fi rst obligation is to avoid any pre- conception that you “ represent ” anything other than the overall organization ’ s best interests. Avoid even the appearance of a confl ict of interest that might embarrass the board or the organization; disclose any possible confl icts to the board in a timely fashion. Maintain independence and objectivity and do what a sense of fairness, ethics, and personal integrity dictate. Never accept (or offer) favors or gifts from (or to) anyone who does business with the organization.

FIDUCIARY RESPONSIBILITIES

At all times, exercise prudence with the board in the control and transfer of funds. Faithfully read and understand the organization ’ s fi nancial statements and oth- erwise help the board fulfi ll its fi duciary responsibility.

FUNDRAISING

Give an unrestricted annual gift and restricted program or project support in line with your particular interests and personal means. Always do your best to set an example for other board members. Assist the development committee and staff by helping to identify potential giv- ers and implement fundraising strategies through personal infl uence where you have it (corporations, individuals, and foundations).

AMBASSADORIAL SERVICE

Represent your organization responsibly and diligently in the community it serves by telling the organization ’ s story and presenting its accomplishments as well as its needs and current challenges. Represent your community to your organization. Bring back concerns, ideas, suggestions, and compliments when you believe they have merit or possibility.

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The Board Chair ’ s Role

The board chair is responsible for leading the board in the oversight and support responsibilities that are critical to good governance. Serving the organization ’ s interests and needs is the foundation from which a board chair operates. A vision- ary board chair understands this practice and puts it into action. He or she is a generative and strategic thinker who is vigilant about asking questions and seeking knowledge to understand the opportunities, challenges, and threats that affect the organization ’ s big picture.

Visionary leaders attract followers and motivate people, focus on the big issues, make effectiveness a top objective, have the capability to set direction, and are willing to take calculated risks. A visionary leader empowers the board to move forward and to build organizational capacity. He or she understands that the board chair role is not about serving personal ego and preference. It is about serving the organization.

The board chair must be knowledgeable about the organization — its mission, vision, values, programs, services, constituents, and resources — and understand its place in the larger framework of the community and the still - larger sphere of local and national peer organizations. With a respect for and understanding of the organization, the context for the board chair role emerges. The role incorporates exhibiting leadership skills (how the chair carries out the duties) and adhering to strong governance practices (what duties are expected). The following list works as a board chair job description incorporating this dual focus.

Responsibilities of the Board Chair

LEADERSHIP SKILLS

Personal Qualities

Be approachable and available. Be a good listener and communicator. Show integrity, respect, and humility. Be a strategist and a visionary and generative thinker. Develop group facilitation skills. Encourage open communication and constructive debate.

Commitment to the Board

Engage board members to take ownership for the work of the board.

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Celebrate the hard work and achievements of individual board members and the collective board. Promote outstanding board development and governance practices.

Commitment to the Organization

Show an understanding of and passion for the mission, values, and work of the organization. Engage board members to show the same commitment. Uphold legal and ethical standards of conduct.

DUTIES

Chief Executive

Cultivate a working partnership with the chief executive (see Chapter Five ). Oversee the hiring, monitoring, and evaluation of the chief executive.

Board Members

Ensure that every board member carries out the roles and responsibilities of board service. Be the contact for board members on board issues. Oversee a board assessment process.

Meetings

Preside at all meetings of the board and executive committee and at other meet- ings or events as necessary. Promote meaningful dialogue at board meetings, and give every board member an opportunity to contribute.

Board Committees

Appoint board committee and task force chairs. Ensure ongoing communication with the board. Serve as ex officio member of all committees except the governance committee.

Community

Cultivate relationships with individual donors, funders, and other community stakeholders. Serve as a community ambassador and advocate for the organization. Speak at the annual meeting, organizational programs, and community events, and contribute to the organization ’ s Web site, newsletter, and other communi- cations pieces.

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The board chair ’ s role is framed by the accepted legal and ethical standards of conduct for nonprofi t boards. The chair needs to stay well informed about any legal changes that will affect the functioning of the nonprofi t and communi- cate in a clear and timely way with board members about how the changes will affect them. As the board ’ s leader, the chair must set the example in adhering to legal and ethical standards of conduct. Ensuring compliance with these standards requires the chair to

Apply effective communication and facilitation skills in all board discussions and deliberations Operate according to what ’ s best for the organization Show transparency with full personal/professional disclosure Ensure that board members have all the necessary facts and fi gures (pro and con) when making decisions

The Chief Executive ’ s Role

The relationship with the board is paramount in the life of every nonprofit chief executive. In high - performing organizations, the interdependent team of board chair and chief executive develops a close working partnership. This partnership — which is critical to effective governance — is addressed in depth in Chapter Five . The chief executive ’ s management responsibilities, which are not linked directly to the partnership with the board, form a large and important part of the chief executive ’ s job.

Chief executives have many responsibilities that are distinct from those of the board, and also manage many other important partnerships — with staff, donors, public offi cials, and leaders of other nonprofi ts. Chapter Five elaborates on the following essential responsibilities of the nonprofi t chief executive:

Commit to the mission. Lead the staff and manage the organization.

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Partnership with the Chief Executive and Board Members

Oversee fi scal affairs and organizational assets. Participate in strategic planning and program evaluation. Ensure legal and ethical compliance of all board work. Practice fi scal and programmatic transparency. Install and maintain risk management safeguards.

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Exercise responsible fi nancial stewardship. Lead and manage fundraising. Follow the highest ethical standards, ensure accountability, and comply with the law. Engage the board in planning and lead the implementation. Develop future leadership. Build external relationships and serve as an advocate. Ensure the quality and effectiveness of programs. Support the board.

Other Board Offi cers ’ Roles

Besides the chair, the most typical board offi cers are vice chair, secretary, and treasurer. State laws frequently defi ne these positions. The law may also indicate whether one individual can hold more than one offi cer position. In addition, some organizations have a chair - elect, which is one way to secure future leadership.

Specifi c offi cer duties vary from board to board and are generally defi ned in the organization ’ s bylaws. Responsibilities may also be outlined in separate job descriptions. Particularly as the organization hires new and different staff, it is important to review and update offi cer job descriptions to refl ect any changes in their focus.

Vice chair . The offi ce of vice chair gives the board additional and substitute leadership. The vice chair generally fi lls in when the chair is absent and/or must leave the position permanently and without warning. The vice chair often takes on special projects, and some boards may divide various duties among two or more vice chairs. On some boards, the vice chair may naturally assume the role of chair.

Chair - elect . In some cases, a board may determine a candidate to succeed the board chair before the chair ’ s term in offi ce has concluded. The chair - elect may be given specifi c tasks, such as heading up the strategic planning task force. This position may provide a useful leadership development training ground and help to ensure a smoother transition to the role of board chair. In many professional associations, the chair - elect may be elected or appointed by the membership at large.

Treasurer . The treasurer is responsible for overseeing fi nancial operations to make certain that things are done in an appropriate fashion. In staffed organi- zations, the chief fi nancial offi cer, controller, or accountant keeps the fi nancial records. In smaller organizations with few staff, the treasurer may have hands - on responsibilities. For more on the treasurer ’ s role, see Chapter Eight , Financial Oversight.

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Secretary . Depending on the organization ’ s size and staff, the actual task of recording minutes can belong to either a board member or a staff member. In the event that a staff member fi lls the position, the board ’ s offi cial secretary should review the minutes before distributing them to the rest of the board. In addition, traditionally the board secretary acts as the custodian of the board ’ s records, although in most circumstances the board ’ s important documents are kept in the organization ’ s offi ces. In many organizations, the board combines the positions of secretary and treasurer.

Former Board Members ’ Roles

Many organizations try to keep valued board members involved when their terms expire by inviting them to continue their commitment in a different capacity. Involving them after they leave the board shows appreciation for their service and lets them know that the organization continues to need and value their wisdom, insights, and knowledge.

Boards use four typical options for continuing involvement. A board member emeritus or honorary board member is usually a former member of the board who deserves to be recognized publicly because of his or her active participation, fi nancial contribution, or strong interest in the organization. An honorary board member may also be a distinguished outsider who has an affi nity for the organi- zation and whose affi liation would be benefi cial to the organization. An advisory council is another way to keep former board members engaged in the organiza- tion. Groups that focus on fundraising, outreach, or public relations are excellent opportunities for dynamic retired board members to participate. (See Chapter Four , Governance Structure, for a discussion of advisory councils.)

Inviting a departing board member to serve on a board committee is a practical way to extend affi liation past the offi cial term limit. This gives the board member a chance to focus on a specifi c interest without the other obligations that come with full board membership. The committee also benefi ts by maximizing the use of a board member ’ s particular skill or ability. (For more about committees, see Chapter Four .)

Through informal involvement , all former board members can remain advocates and goodwill ambassadors for the organization if the organization cultivates their willingness. The staff should keep retired members informed through special mailings and invitations to events. For many former board members, keeping social contacts active is enough of an incentive to maintain fi rm ties with the organization.

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Chapter Exercises

Defi ne the differences between the respective authorities, responsibilities, and liabilities of an individual board member and those of the full board. What are some ideal ways for the board and staff to communicate with each other? What is meant by “ board - driven ” and “ CEO - driven ” organizations? What might be the distinctive characteristics of each? What might cause board members to micromanage? When a board member leaves the board, when is it desirable or wise to keep this person involved with the organization? How could this be accomplished?

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Staying Involved: Clarifying Former Board Members ’ Roles

To avoid misunderstandings, the board needs to make sure that the new role of former board members is understood:

Determine tenure. Advisory councils may set terms and renew them periodically. Emeritus positions may be for life. Articulate attendance requirements. Committee members are expected to attend meetings regularly. Clarify the fundraising relationship. As friends of the organization, honorary board members may be solicited for gifts and/or asked to solicit gifts.

Unless specifi cally provided in the bylaws, honorary board members and outside committee members do not have voting rights. Although this changes their role in decision making, it does not preclude their participation in discussions. Remember, only voting members ’ presence counts toward a quorum. Nonvoting members do not have the same liabilities as voting members. When discussing confi dential mat- ters or in executive sessions, it may be necessary to exclude nonvoting members.

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CHAPTER FOUR

GOVERNANCE STRUCTURE

Every board has a fundamental responsibility for self - management: for creating a structure, policies, and procedures that support good governance. The term board structure encompasses a variety of matters, from routine activities, such as preparing a schedule of board meetings, to actions with broader consequences, such as developing a policy about terms of service.

When aligned with the strategic priorities of the organization, an effi cient structure allows board and staff to apply their skills in concert to fulfi ll the mis- sion. This formula is neither complex nor profound, but few organizations apply it consistently or thoroughly. Those that do fi nd that while effective governance takes time, fl exibility, intention, and attention, it makes all the difference in the world to the nonprofi t organization and to the community it serves.

Board Size

According to BoardSource ’ s Nonprofi t Governance Index 2007 , the average board has sixteen members. By no means does this number represent the optimal size for every board. Each organization needs to look at its mission and the initia- tives that it will carry out in pursuit of that mission, then determine how large a board it needs to operate effectively. That is, the board needs to be purposefully constructed; it must strike a balance in which each member feels valued and appreciated, no member feels overburdened, and all board functions can be fully carried out. If the board decides to adjust the size, it must amend the bylaws to refl ect the change.

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Not every board has the opportunity to determine its own size. In many formal membership organizations, external factors infl uence the board ’ s size. For example, special mandates may require that a certain number of board seats be reserved for various constituencies or geographic regions. Or outside authorities may have the opportunity to nominate board members to represent their specifi c interests. Some of these boards may be large and may need to fi gure out their own solutions to deal with accompanying challenges.

Large Boards: Pros and Cons

One rationale for larger boards is rooted in the notion that more is better. A larger board can provide both broader representation of the organization ’ s constitu- ency and a larger base of donors and fundraisers. The more people there are to share the workload, the less burnout and stress individual board members experi- ence. Furthermore, with a larger board, more people who want to serve have the opportunity — even if willingness to join the board does not necessarily bring with it the needed expertise and perspectives that the board seeks.

Larger boards, however, are not necessarily more effective or productive. The more members who are available to contribute ideas and opinions, the longer it tends to take to build consensus — and the more slowly the board may move from discussion to action. In addition, large boards tend to leave many members feeling underutilized and unappreciated. On large boards, mem- bers may have few opportunities to speak at meetings; because their votes are diluted by so many other votes, they may feel their participation doesn ’ t matter or their time has not been valued. The chair has the responsibility to determine when the issue has been handled thoroughly, with all the sides having been presented fairly.

Small Boards: Pros and Cons

Smaller groups tend to expedite communication. The smaller the board, the more important each individual member is to the organization, and the more is expected of each member — and the more each can contribute to boardroom discussions. With smaller boards, members can communicate more person- ally and achieve consensus more easily, facilitating the move from discussion to action.

If the board is too small, however, it may lack the people needed to carry out all board tasks effectively. The board ’ s outreach capability — so essential for build- ing community relations, raising funds, and recruiting new board members — will

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Governance Structure 57

diminish as the number of active board members decreases. Furthermore, the lower the number of active board members, the greater the risk of board member burnout.

Committees and Task Forces

To manage their work, most boards create work groups to accomplish tasks that need to be done outside board meetings. These work groups — committees and task forces — may be charged with developing proposals for board action or with acting on behalf of the board. In many organizations, they do most of the board ’ s work and allow the board to keep its attention on the big picture and on decision making.

Committees and task forces foster board - staff interaction and cooperation and deepen the board ’ s understanding of the issues that have an impact on the organization ’ s life. They can be as benefi cial to board members as they are to the organization as a whole. They enable board members to contribute in ways they can ’ t often do in regular board meetings, to use their expertise to bene- fi t the organization, and to learn from each other and get to know each other better.

As helpful as committees can be, they can also be a hindrance to the board if they are not set up or used appropriately. Frequently reevaluating a board ’ s com- mittee structure and keeping it fl exible will allow the board to address structural problems as they occur or even before they start.

Committee Structure

The structure a board chooses depends on its individual needs, its strategic plan, and the board ’ s and the organization ’ s stage of development. A start - up board may have a lot of committees because the organization most likely has no staff. A small or active board may not need committees at all. When establishing its committee structure, the board determines not only the number of work groups it needs and their functions, but also the life span of each group. Not every board work group is permanent; in fact, most are not.

Each work group needs a job description, or charter, that explains its role, what it is responsible for achieving, and to whom it is accountable. This description — agreed upon by the full board — refl ects an organization ’ s vision and mission. In the case of a task force, the charter should include any deadlines and the time frame to complete the work. In addition, each work group needs an annual work plan, a timeline, and, in some cases, a staff member assigned to it.

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Standing committees deal with ongoing issues, such as fi nancial oversight or invest- ments. Committee members rotate on and off, but the committees themselves last indefi nitely because there is a continuous fl ow of work for them to accomplish. It is benefi cial for most boards to have a few standing committees because they ensure consistency in certain board practices and can serve as organizational memory. The most common standing committees are the executive, governance, and fi nance committees. Their functions are described in greater detail later in this chapter.

Task forces are established to accomplish a specifi c objective — such as reviewing bylaws or planning retreats — within a specifi c time frame. When the work is done, the group disbands. Using task forces allows boards and board members greater fl exibility. Boards can tackle immediate issues more quickly without rethinking the whole committee structure or assignments. Board members can contribute their expertise and interest in more specialized areas or more concentrated time than they may have been able to by serving on a standing committee. Traditionally these temporary work groups have been called ad hoc committees , but using the term task force can help make it clear to board members that this assignment is temporary.

Zero-Based Committee Structure

A zero-based committee structure prevents committee structures from becoming cumbersome and forces boards to constantly reevaluate their work groups. Here’s how it works:

1. The board starts each year (or every two years, depending on the needs of the board) with a clean slate of no committees.

2. At the beginning of the year, the board determines its organizational strategy and priorities. Then the board establishes committees and task forces based on its current needs. These groups are formed with the understanding that the group will disband once the objective is met or when the board decides they should at the next annual review of committees.

A zero-based committee structure may seem extreme, but it helps prevent a board from getting trapped in an outdated system. Many boards are more com- fortable maintaining a limited number of standing committees while using the zero-based approach for all other committees.

Board Committees Versus Organizational Committees

Committees can be defi ned by whether they are board committees , which report to the board, or organizational committees , which work with and sometimes

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report to the staff. Board committees take on policy and strategic work. Organizational committees work on issues that usually are part of the staff ’ s responsibility. They advise the staff, or they can help in program implementation. Marketing and public relations committees are two examples. In organizations with few or no staff, these committees often do most of the program work. Members of organizational committees can include board and nonboard mem- bers. They typically involve people from the community with special interests or expertise.

How to Keep Committee Structure Simple

Limit the number of standing committees to the bare minimum, and supple- ment them with a few less permanent work groups. Make sure each committee has a signifi cant amount of ongoing and important work to do. Disband them when they do not. For flexibility and efficiency, rely on task forces for short-term or special projects. Keep the committee structure, except for the description of the executive com- mittee, out of the bylaws to ensure that committee powers are limited. Consider including a phrase in the bylaws that says the board may establish and disband committees as needed to support its work.

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Creating New Committees and Task Forces

Before creating a new task force or committee, boards will want to consider the following questions:

How does this work group relate to the organization ’ s mission and to the orga- nization ’ s current strategy and priorities? How will it benefi t the board and the organization? Will it provide information that will help the board in decision making? Who will it report to: board, staff, or both? Who will implement its decisions? What risks will this task force or committee face? What liability issues are likely to come up? Could the work be done just as easily by one board member working with the staff ? Is the group ’ s purpose an ongoing concern? If not, when will the work group be dissolved?

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Sample Committee Structures

The following samples are not necessarily typical, in that they don’t include sepa- rate audit/fi nance or governance committees. In some nonprofi ts, the entire board may handle these functions.

A Jewish Voice for Peace (Berkeley, California) is a young, incorporated organi- zation that works for peace in the Middle East and has no paid staff. It does all its work informally through work groups, which have between four and twelve mem- bers each. None are standing committees; all are task forces lasting various lengths of time and meeting as often as needed. These groups are as follows:

Education committee Committee to prepare for upcoming events Committee to consider what kinds of direct actions to have during the Days of Awe (High Holy Days) Direct action committee Jewish Voice for Peace strengthening committee (focuses on how to support people in leadership positions within the group) Incorporation committee

Women’s Health Rights Coalition (Oakland, California) offers information, refer- rals, and support for women seeking reproductive health care information in north- ern and central California. It has three staff members, six board members, and no committees. Individual board members have specifi c assignments, taking charge of issues that committees often handle in larger organizations, such as the following:

Board development (recruiting and training potential board members) Financial issues Fundraising Human resources (creating a job description for the executive director and lead- ing the executive director’s evaluation)

Reports to the board have been informal, but now the board often receives packets with written reports before the board meetings.

Crow River Habitat for Humanity (Hutchinson, Minnesota) builds affordable houses for people in need. The one paid staff member, the executive director, works part time. Not all committee members—or even committee chairs—are board members. The executive committee meets on an as-needed basis. The board has the following standing committees that do much of the hands-on program work:

Family selection (social workers and bankers who publicize the search for poten- tial homeowners and screen applicants) Family support (assigns mentors and provides support for the homeowners)

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Committee Chairs and Members

Bylaws usually defi ne how committee chairs are appointed — for standing com- mittees, generally by the board chair, and for organizational committees, by the chief executive in consultation with relevant staff member. Authority for mak- ing committee assignments is also spelled out in the bylaws or in other board policies. Usually, the board chair, in consultation with the committee chair and chief executive, makes committee member assignments, though sometimes chairs appoint their own members.

Committee appointments usually are a mutual decision. Some committee members will be chosen for their expertise in the committee ’ s function, whereas others will bring a different perspective or fresh eye to the issue. For example, it is important for the fi nance committee to have some members with fi nancial expertise, but new board members with little fi nancial know - how could also learn a lot about the organization ’ s fi nances and the board ’ s fi duciary responsibility by serving on the fi nance committee.

Every board member should have an opportunity to serve on a committee or task force at least once during a term. Because committee meetings are usu- ally less formal than meetings of the full board, they often allow a higher level of personal engagement and therefore can be more rewarding. Incoming board members who join committees must understand that their contributions to com- mittees are just as important as their work with the full board. They should also understand that committee work, because it may be research or action oriented, may take extra time, even beyond attending meetings.

Non – Board Members on Committees

By involving some committee members from outside the board, the organization can realize the following benefi ts:

Bringing in new expertise and diversity and expanding the number of people involved in the organization without increasing the board to an unwieldy size

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Site selection committee Building committee (plans and implements the building of the house) Development committee Golf outing task force (organizes a fundraiser) Executive committee Appreciation/barbecue task force (organizes a thank-you event after a project is done)

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Serving as a good testing and training ground for potential board members Giving more people a chance to get to know the organization, and adding legitimacy in the community to the nonprofi t ’ s work Providing a chance for people to be involved who don ’ t have the time to com- mit to board service, who cannot afford to give fi nancially at the level required by some organizations, or who do not want the liability of a full - fl edged board member

Committees and Staff

Board committees often — but not always — have a staff member assigned to them to provide context, explain standards in the fi eld, or help with background information. The staff member, who may be someone other than the chief executive, may also serve as secretary to the committee to take notes, follow up on administrative tasks, and coordinate logistics. However, because committee meetings can take staff time away from their focus on mission - related programs, the trend is toward fewer meetings with less extensive staff support.

The relationship between committee members and staff on an organizational committee is notably different. In an organizational committee, staff provide the leadership, and the members assist in the implementation. Although this arrange- ment is often perceived as a partnership, staff are ultimately accountable (to the chief executive) for the work of an organizational committee.

Committee Size and Term Limits

The size of any work group is related to the issue or task at hand, within reason. Large groups are usually cumbersome and may suffer from a lack of member involvement. Small groups often have an easier time making decisions; on the other hand, if a committee is too small, the board may risk overlooking signifi - cant questions or the perception that considerable power is resting in the hands of too few. A committee should be large enough to provide the required skills, knowledge, and perspectives, but small enough so that all members can be involved.

Boards usually limit service on standing committees — often to two - year terms — to allow people to serve on different committees, thereby broadening board members ’ understanding of the whole organization. When board members are appointed to committees, they should be aware of the term limits. However, in committees that deal with complicated issues that require greater expertise, it can be helpful to retain committee members for more than one term to give them time to acquire and use specialized knowledge.

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Essential Standing Committees

Many boards regard several standing committees as essential, in particular those focusing on the board ’ s own development and the organization ’ s fi nancial and ethical integrity. According to BoardSource ’ s Nonprofi t Governance Index 2007 , the most common are governance, fi nance, and executive.

Governance Committee

The governance committee is the board ’ s mechanism for looking after itself. This committee is more active and dynamic than its traditional precursor, the nomi- nating committee. Rather than focusing on nominations for annual elections, the governance committee works year - round to guarantee that the board takes responsibility for its own development, learning, and behavior; sets and enforces its own expectations; and allots time, attention, and resources to understanding its stewardship role. The governance committee does not run the board, but it makes it possible for the board to be run well.

The governance committee ’ s charge is to fi nd accomplished, enthusiastic peo- ple with the assets the board needs; teach these high performers what it means to be on the board and continually engage them in its work; evaluate the work of the board and each member ’ s contribution, watching for leadership potential; and make sure that the board is living up to its potential.

Governance committee membership . Because the governance committee will, to an extent, perpetuate the board, its members should be both visionary and strategic as well as a microcosm of the board. The governance committee should include people who

Have a broad range of backgrounds Are active in the community and in various circles Can provide wide contacts in the community Hold a variety of experiences Understand human dynamics and relationship building Have experience with organizational development Are not afraid to speak up Are respected by the board Have good judgment and insight to leave a legacy to the board Know the organization well and understand the needs of the board Have integrity Can leave personal agendas behind Are willing to bring in new thoughts and perspectives — even to question present practices

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The governance committee can especially benefi t by drawing on people with particular areas of expertise, including management consultants and organiza- tional development experts, human resource professionals, nonprofi t executives, and community activists. Individuals with this type of experience may fall more easily into the softer side of group dynamics, organizational management, and community outreach that is necessary for the committee ’ s work.

The governance committee chair needs to have experience with the board and the organization but not necessarily be a veteran. He or she should have plenty of energy, enthusiasm, and openness to new ideas, while maintaining an understanding of good governance practices. The committee chair works closely with the board chair.

Exhibit 4.1 presents an example of a job description for a governance committee.

EXHIBIT 4.1. SAMPLE GOVERNANCE COMMITTEE JOB DESCRIPTION

The governance committee is responsible for ongoing review and recommendations to enhance the quality of the board of directors. The work of the committee revolves around fi ve major areas:

1. Help create board roles and responsibilities. Lead the board in regularly reviewing and updating the board’s description of its roles and areas of responsibility and what is expected of individual board members. Assist the board in periodically updating and clarifying the primary areas of focus for the board, and help shape the board’s agenda for the coming year or two, based on the strategic plan. Establish and monitor policies for board performance, such as confi dentiality, participation in fundraising, and confl ict of interest.

2. Pay attention to board composition. Recruit new members who will be able to help achieve the organization’s strategic and annual goals. To know what types of skills to look for in potential board members, fi rst analyze the skills current board members have, and then recruit to fi ll the gaps. Develop a profi le of the board as it should evolve. Identify potential board member candidates, and explore their interest and availability for board service. Nominate individuals to be elected as members of the board. In cooperation with the board chair, contact each board member eligible for reelection to assess his or her interest in continuing board membership, and work with each board member to identify what he or she might be able to contribute to the organization.

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Finance Committee

The fi nance committee is responsible for making certain that the organization is in good fi scal health. This committee oversees expenditures and provides informa- tion and recommendations related to the annual budget and its implementation, as well as projections for the future. It recommends policies to the full board to safeguard the organization ’ s assets, ensures the completeness and accuracy of its fi nancial records, and oversees proper use of resources. It also sees to it that the organization has appropriate internal controls, conducts proper fi nancial analysis, and reports any concerns to the full board.

Financial oversight is different from budgeting, and sometimes the fi nance commit- tee gets too involved in budget preparation, which in all but the smallest organizations is the job of the staff. The fi nance committee ’ s job is to see that the board ’ s policies and strategic priorities are refl ected in the budget. When reviewing fi nancial reports, the fi nance committee asks the questions, “ Are we on track? If not, why not? ”

The fi nance committee sometimes works with the independent auditor, who is hired by the board to examine the organization ’ s books. As a form of internal control, more boards are separating the audit from general fi nancial oversight and using another work group to oversee the audit.

The fi nance committee may provide oversight relating to investments, or a separate investment committee may be created for this purpose. Foundations and

3. Encourage board development. Provide candidates with information needed prior to election to the board. Design and oversee a process of board orientation, sharing information needed during the early stages of board service. Design and implement an ongoing program of board information, education, and team building.

4. Assess board effectiveness. Initiate an assessment of the board’s performance approximately every two years, and propose, as appropriate, changes in board structure and operations. Provide ongoing counsel to the board chair and other board leaders on steps they might take to enhance board effectiveness. Regularly review the board’s practices regarding member participation, confl ict of interest, confi dentiality, and so on, and suggest needed improvements. Periodically review and update the board policy and practices.

5. Prepare board leadership. Take the lead in succession planning, taking steps to recruit and prepare for future board leadership. Nominate board members for election as board offi cers.

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organizations with large portfolios might fi nd it especially useful to separate the two committees.

Beginning with the orientation of new members, the fi nance committee facili- tates the board ’ s understanding of the budget and fi scal issues. The committee also makes sure that all board members get the fi nancial statements in a timely manner and that board members know how to examine and understand the reports. All board members should have a term on the fi nance committee to learn about their fi nancial responsibilities.

Finance committee members may include the following:

The board treasurer, usually as the chair or as an active member Members of the development committee, if there is one Members with expertise in accounting, banking, or business Members who are familiar with programs

If the organization has a chief fi nancial offi cer, he or she works closely with the fi nance committee by answering questions and preparing reports for committee review. However, because staff and the committee work so closely together, committee members need to distinguish their roles from the staff ’ s to avoid micro- managing. In general, staff monitor income and expenditures on a daily basis and prepare the budget. The fi nance committee provides oversight by reviewing fi nancial statements and the budget.

Exhibit 4.2 presents an example of a job description for a finance committee.

Executive Committee

The executive committee is a small group, commonly with authority to act on behalf of the full board between meetings or in an urgent situation. Usually the executive committee includes the board chair and other offi cers. Committee chairs may also sit on the executive committee, and the chief executive serves as an ex offi cio member. If the executive committee is allowed to act on behalf of the board, its membership, functions, and authority level must be specifi cally stated in the organization ’ s bylaws.

Not all nonprofi t organizations need an executive committee. Small boards and the boards of start - up organizations, for instance, rarely do, because all board members can be convened relatively easily and need to be involved in decision making. For large and/or geographically dispersed boards, the existence of an executive committee whose membership can be convened quickly and make decisions effi ciently may prove critical in emergency situations. However, the full

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Governance Structure 67

board — not the executive committee alone — always makes signifi cant decisions such as amending the bylaws, electing or removing board members, hiring or fi r- ing the chief executive, and approving the budget.

An executive committee has two inherent dangers:

Because a smaller group is more effi cient, the board may be inclined to del- egate responsibilities to the executive committee that are properly handled by the full board.

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EXHIBIT 4.2. SAMPLE FINANCE COMMITTEE JOB DESCRIPTION

The fi nance committee helps the board ensure that the organization is in good fi scal health. The committee’s work revolves around six areas:

1. Ensure that accurate and complete fi nancial records are maintained. Monitor income and expenditures against projections. Review and recommend fi nancial policies to the board, including ensuring adequate internal controls and maintaining fi nancial records in accordance with standard accounting practices.

2. Ensure that accurate, timely, and meaningful fi nancial statements are prepared and presented to the board, quarterly or monthly.

3. Oversee budget preparation and fi nancial planning. Propose for board approval a budget that refl ects the organization’s goals and board policies. Ensure that the budget accurately refl ects the needs, expenses, and revenue of the organization.

4. Safeguard the organization’s assets. Review proposed new funding for ongoing fi nancial implications, recommend- ing approval or disapproval to the board. Ensure that the organization has the proper risk-management provisions in place.

5. Help the full board understand the organization’s fi nancial affairs. Ensure that the board as a whole is well informed about the organization’s fi nances. Educate the board about fi nancial matters.

6. Ensure compliance with federal, state, and other requirements related to the organization’s fi nances.

Ensure that the organization maintains adequate insurance coverage. Ensure that the IRS Form 990, other forms, and employment and other taxes required by government entities are fi led completely, correctly, and on time.

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When a select group handles many of the major deliberations and deci- sions, other board members may begin to feel underutilized, unwanted, or disenfranchised.

Recognizing these dangers, some nonprofit organizations have amended their bylaws to eliminate the executive committee as a standing committee of the board. Others have refi ned the executive committee ’ s role so that it carries out specifi c functions, such as the performance review of the chief executive, that are best handled by a small, knowledgeable group that can act effi ciently and maintain confi dentiality. Still others have redefi ned the executive committee ’ s role signifi cantly. One board, for example, recast its executive committee as a strategic think tank for the board itself, not to make decisions in the board ’ s place. Composed of committee vice - chairs, this redefi ned executive committee models a think tank practice for all other committees to emulate.

The reasons why some boards choose to have an executive committee include the following:

If the board is large, a smaller group authorized to act on its behalf in certain circumstances can speed up decision making. If board members are scattered all over the country or the world, it is easier for a core group to get together to make quick decisions during an emergency, although this problem can sometimes be solved by using e - mail or teleconfer- encing involving the whole board. The executive committee can approve an action after issues raised by the board have been resolved. The executive committee can be involved in approving grant requests. When the board needs a place to test controversial ideas, an executive commit- tee can study important issues and present the fi ndings to the full board. A task force could also accomplish this purpose. If the board needs to make frequent decisions, an executive committee that can meet more often may help. Certain fi nancial and legal matters may not require full board meetings and can easily be attended to by an executive committee.

Often the role of the executive committee is defi ned by what it cannot do. To avoid delegating essential powers away from the full board, the executive committee should not

Amend bylaws Determine its role in the organization

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Elect or remove board members Hire or fi re the chief executive Approve or change the budget Make major structural decisions (add or eliminate programs, approve mergers, or dissolve the corporation)

The bylaws determine who is on the executive committee. Often it is the board chair, other offi cers, and sometimes committee chairs. The board chair usu- ally chairs the executive committee, and the chief executive usually serves as an ex offi cio member. Whether or not the chief executive has a vote on the committee is up to each board. Some organizations choose to elect other representatives to ensure diversity in decision making and to avoid concentrating too much power in the hands of too few board members.

When there is no executive committee . Every board does not need an executive com- mittee. In fact, every board should fully justify its identifi ed need to form one. If the board is small enough, the work can be done by a committee of the whole. Board offi cers, or any board member with a special acumen, can act as advisors for the chief executive or the board as an entity. If there is a formal standing com- mittee structure, the duties can be dispersed to other board committees. Here are some other alternatives:

An informal group of committee chairs to coordinate committee work and ensure effi ciency of structure and activities. A board leadership group made up of board offi cers to provide guidance to the chief executive in between meetings, to focus the attention of the board, and to address their roles in the leadership of the board. A task force of board offi cers and committee chairs who can convene quickly in the case of an emergency. Consider involving some key community mem- bers in this task force that can add value to the group.

Exhibit 4.3 presents an example of a job description for an executive committee.

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EXHIBIT 4.3. SAMPLE EXECUTIVE COMMITTEE JOB DESCRIPTION

The executive committee is responsible for working in support of, or occasionally in place of, the full board. The work of the committee revolves around three and pos- sibly fi ve major areas.

1. Handle urgent issues, resolving any emergency or organizational crisis (such as a loss of funding or the unexpected loss of the chief executive).

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2. Perform policy work, carrying out specifi c directions of the board, and taking action on policies when they affect the work of the executive committee or when the full board directs the committee to do so.

3. Act as liaison to the chief executive. Nurture the chief executive by providing counsel, feedback, and support when needed. Facilitate annual assessment of the chief executive by the board and report the results of the assessment to the chief executive. Review compensation and benefi ts for the chief executive.

In some organizations, the executive committee takes the lead in two addi- tional areas:

4. Help develop a strategic plan. Initiate the board’s involvement in establishing a strategic framework or direction. In organizations with no staff, lead the board’s efforts in developing the stra- tegic plan.

5. Conduct executive searches. Assume the lead in the search for a new chief executive or delegate the respon- sibility to a task force. Conduct the research necessary to determine an appropriate salary for the chief executive. Seek approval from the full board before hiring a new chief executive.

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Best Practices for Executive Committees

A board must fi nd an appropriate balance between the effi ciency of the executive committee and the larger value of the full board. Here are some best practices to ensure that the committee adds value without overstepping its bounds.

Make board decisions intentional: The full board determines whether an executive committee is needed and if so, what its role should be. Clarify authority levels: The full board agrees to the authority given to the com- mittee, and the bylaws clearly state the limitations given to the committee. Understand the special nature of this committee: Unlike other board committees, the roles and boundaries of the executive committee should be defi ned in the board’s bylaws. Delegate cautiously: The board should be judicious and specifi c about the powers that it delegates to the executive committee. Separate the committee from the board: The board should avoid having commit- tee meetings act as dress rehearsals for full board meetings. Communicate: The board should establish policies and procedures for commu- nications between the executive committee and the full board.

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Other Work Groups

In reviewing the work required to accomplish the organization ’ s strategic goals and prepare for a healthy future, a board may need committees other than its standing committees. Some of the more common additional work groups are described in this section.

Development Committee or Task Force

Development committee members are active in planning for and conducting fundraising. The group works closely with development staff, and the committee chair boosts the participation of the rest of the board. This particular structure for a development committee is still the most common in fundraising nonprofi ts.

Some boards, however, simply decide to act as a fundraising committee of the whole. The entire board shares the duties and carries the load. Eliminating a separate development committee is sometimes a deliberate effort to stress each board member ’ s duty to participate in fundraising and not simply leave it to development committee members.

An organizational development committee works directly with the development staff and may be composed of staff members, community leaders, fundraising specialists, helpful volunteers who want to be involved and who have special skills, and board members who have particular expertise and aptitude in representing the organization to their funders.

Audit Committee or Task Force

This work group arranges to hire an independent auditor and serves as a link between the auditor and the board. It ensures that the auditor has full access to fi nancial and related records, reviews the auditor ’ s report and submits it to the board, and arranges for the full board to meet with the auditor once a year. Once the board has reviewed the audit, the task force is disbanded. An audit task force is usually a small group — typically three to fi ve people — appointed by the board chair with an eye to involving a mix of people with audit task force experi- ence and those who have not served in the recent past.

See the discussion of fi nance committee responsibilities, earlier in this chap- ter, for a rationale for separating the audit responsibility from regular fi nancial oversight responsibility.

Investment Committee

The investment committee ensures that the board ’ s investment policies are up - to - date and appropriately implemented. The committee proposes policies, but

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the board is responsible for adopting them. The investment committee oversees investment performance and recommends changes to the investment approach, as appropriate. It may also be authorized to make decisions within the scope of policies established by the board, such as hiring a professional to manage the organization ’ s investments.

Investment committee members often have related expertise, such as invest- ment managers, bankers, and tax attorneys with knowledge of nonprofi t law. Sometimes that expertise can be found among non – board members. Investment committee members should not have a fi nancial interest in the way the organiza- tion ’ s funds are invested.

Public Policy or Legislative Committee

An organization involved in public policy matters may decide to have a work group to sort out the issues involved, advise the board on recommended posi- tions, or alert the board or staff to possible effects of impending changes in public policy. If staff are assigned to public policy and/or legislative matters, the com- mittee is defi ned as an organizational committee . If public policy is important to the overall mission but not an integral part of programs and services, this committee might be a board committee assigned the responsibility of tracking and raising public policy issues.

Marketing and public relations committee . This committee develops, oversees, and often implements a plan for reaching the community with the organization ’ s mes- sage and involving segments of the public in its work. An important function for committee members is to serve as eyes and ears in the community to help evalu- ate the organization ’ s image and the effectiveness of its public relations strategy. Because marketing and public relations are staff functions, if a special committee is seen as necessary, it should be an organizational committee reporting to staff, not a board committee. It can serve in an advisory and support capacity to staff or as adjunct volunteer staff.

Other Special Committees

Special committees can meet certain ongoing board needs that do not fi t into the scope of other committees. They never should micromanage the related staff functions. Examples include the following:

A program review task force established in preparation for strategic planning to identify the strengths and weaknesses of current programs and propose changes for the future

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An institutional relations committee that might assist the board of a national federated organization in promoting appropriate communication with the affi liate or different constituent parts An accreditation committee established to prepare for and maintain organi- zational accreditation A strategic planning task force charged with preparing for the board ’ s partici- pation in strategic planning and for ensuring the appropriate follow - up

Advisory Councils

Some boards enlarge their organization ’ s reach by creating advisory councils: voluntary collections of individuals typically assembled to supplement the gover- nance activities carried out by governing boards or the management tasks carried out by staff members. Overall, advisory councils provide a specialized expertise that may be missing from the board or staff. Advisory council members can serve as ambassadors for the organization, building bridges into the community and fos- tering a sense of accountability. They can bring outside support and expertise to an organization and link it to everything from grassroots community concerns to celebrities and potential funders. When well organized and given a clear sense of its goals, a successful advisory council can do much to help an organization fulfi ll its mission.

It is important to remember that advisory councils are not boards. They are not legal bodies and cannot assume responsibility for the governance of an orga- nization. Advisory council members generally have no legal responsibilities. They have no vested right to serve and no immunity from removal.

Most nonprofi ts fi nd it helpful to include language pertaining to advisory councils in their bylaws. The language should not spell out all of the condi- tions governing formation of an advisory council — that might paint the board into a corner when an unforeseen incident arises and lead to the laborious task of rewriting the bylaws. It is advisable, however, to give the board the option of creating advisory councils when appropriate.

Advisory councils can perfor m a variety of jobs, many of which are central to an organization ’ s activities. They can provide technical exper- tise and survey the need for new programs. They can also review funding applications, make resource allocation recommendations, raise funds them- selves, and conduct evaluation and oversight activities. Advisory councils may help organizations maintain accountability or meet the demands of an external constituency. Sometimes they serve more as an honorary than a func- tional group.

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Advisory Council Functions

Advisory councils have been established by educational institutions, museums, performing arts groups, human service and advocacy organizations, health care agencies, and other nonprofits to serve many functions. Here are some examples:

Provide oversight and accountability for projects, programs, and services funded by government agencies and foundations. Raise money for unrestricted use or for a specifi c program. Serve as advocates, facilitate access to policy makers, and help shape public policy that benefi ts the organization. Serve as ambassadors for the organization to the community. Provide credibility, especially for start - up organizations. Review, monitor, or assess a specifi c program. Evaluate the performance of the organization as a whole. Provide a means for involving people who are willing to give critical assistance but have limited time (such as public offi cials, celebrities, infl uential business- persons, or individuals with access to potential large donors). Enlist help from others without enlarging the governing board. Create an oversight mechanism when an organization launches a new venture or converts to national or international scope before the composition of the governing board changes. Provide technical expertise. Gather input from or serve as a liaison with key constituencies. Build a corps of outside, experienced experts whose interest and support are important (including possible future board members or former board members who can continue to make a contribution to the organization). Provide an independent, unbiased sounding board for brainstorming, creating new ventures, or identifying institutional strengths and weaknesses as well as external opportunities and threats. Review applications for funding. Incorporate additional layers of diversity and new perspectives within the organization.

Characteristics of Successful Advisory Councils

An advisory council can be almost any size and perform almost any task. The only generalization that can accurately be tied to thriving advisory councils is that each must meet the expectations of both the nonprofi t and the group itself.

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Governance Structure 75

High - functioning advisory groups often share the following characteristics:

A clearly written statement of purpose that explains the goal of the advisory council. It notes the size as well as the membership selection, process, terms of offi ce, and responsibilities. A strong and knowledgeable chair who understands the group ’ s purpose, is committed to giving more time than others, and is skilled at conducting meetings. Clear and consistent communication between the board and the advisory council. Although the board should not micromanage, it shouldn ’ t ignore the group either. The board should be apprised of developments and should check that the group is not duplicating staff work. Good communication can also help identify group members who might make strong candidates for future board seats. Even after a group disbands, the board should continue to show gratitude for its members ’ hard work.

Advisory Council Structure and Membership

The exact structure of an advisory council — size, meeting frequency, reporting mechanisms — varies from organization to organization and from advisory council to advisory council. An advisory council ’ s purpose should determine its membership. In general, members are people in the community who can add value to the orga- nization. Advisory council membership can give potential board members an inside look at the organization, which may help them decide whether they want to continue their affi liation and take their commitment deeper into board service. For board members, an advisory council can be a way to identify board prospects. Observing people in the advisory council setting before they are considered for nomination is a good way to get a sense for their energy, enthusiasm, and level of interest.

Staffi ng an Advisory Council

A crucial ingredient in building a successful advisory council is the involvement of staff. When the professional staff member charged with staffi ng the advisory council devotes time to orient, educate, motivate, and engage members, these busy advisors will make progress on the group ’ s goals and feel a sense of con- nection to the organization. Too many nonprofi ts overlook the staff time and expenses required to inform, educate, and nurture advisory councils. The costs (particularly in staff time) should be projected in advance. Advisory council devel- opment should be viewed as an ongoing process that must be established and maintained, rather than a single event that produces transformation.

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When Not to Form an Advisory Council

Many advisory councils make substantial contributions, but others never have a meaningful impact. An unsuccessful advisory council may well have been formed for the wrong reason. It might have simply sounded like a good idea. Or it may have provided a useful “ parking lot ” without a defi ned constructive purpose for former offi ce holders such as board members who have served their maximum terms. The fervor with which these groups are established can ebb quickly. They suffer from a gap between expectations and performance.

Nonprofi ts cannot mistakenly believe that an advisory council is the answer to their diversity issues. Forming a diverse advisory council simply to satisfy demands from foundations or communities to enhance diversity efforts does little to promote a truly diverse organization. It leads to a group whose advice is neither sought nor valued. An isolated attempt to diversify an organization is meaningless. True change requires an organization - wide commitment to a shift in culture.

Membership Organization Boards

A formal membership organization (see Chapter One ) grants its members specifi c rights to participate in its internal affairs. (This structure should not be confused with “ supporter ” memberships, whereby individuals, for a fee, receive special dis- counts, newsletters, or other benefi ts.) These rights are established in the articles of incorporation and are defi ned in more detail in the bylaws. Usually, members elect the board and/or offi cers, approve changes in the bylaws, and authorize major transactions such as mergers and dissolution of the organization. Members have a strong interest and voice in the future of the organization, not only in the tangible benefi ts that they may receive as members. For example, trade associa- tions and business leagues are membership organizations in which the members rely on the organization to advocate for better business opportunities for their line of business.

The board is the governing body of a membership organization. Members have signifi cant input in the governance of the organization by electing at least part of the board. But for any board to be effective, it is important to have a cohesive group that works well together. In purely representational boards, to which members elect representatives from their own regions or sectors, consensus building may become tougher. It is important to seek competent candidates and inform members objectively about board member expectations to facilitate the election of qualifi ed board members.

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Governance Structure 77

Board members in a membership organization need to see the association as an entity, not as an agent for their particular constituents. Political favors and strict representational quotas may not produce an effective board. Elected board members need to be able to leave their personal and professional agendas behind and make decisions only for what is best for the entire organization.

Members elect the board during annual meetings. Proxy voting is a common practice because it is often impossible to get the entire membership together at the same time. Preparing the slates and administering the meeting is a major task in a membership organization. The costs and time involved can be a demanding feature of this governance structure.

National Boards of Federated Systems

A federated system consists of a national organization and its affi liates or chap- ters. A board governs the parent organization, and each chapter has its own local board. Working together, the objective for the parent and its affi liates is to accomplish their mandate more effi ciently and effectively than would be possible for several independent organizations working alone. Examples of federated orga- nizations include United Way of America, Habitat for Humanity, and Planned Parenthood.

Role of the National Board

As the governing body of the parent organization, the national board

Defi nes the mission and mandate for the federated system, which is adopted by the affi liates. Clarifi es how the parent organization fi ts into the federated system and how it will carry out its mission. Envisions the future of the organization. The board ties the organization to its environment, to society in general, and to the external forces that may have an impact on its future. Serves as the primary advocate for the cause. The board pioneers the mes- sage and purpose of the organization. Its concern is about the organization ’ s impact using the most effective tools to campaign for its beliefs, principles, and convictions. Defi nes the brand and standards for the organization, communicating them to affi liates and monitoring their implementation.

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Supports the affi liates by providing helpful resources (funds, materials, informa- tion, training) that aid the work of the chapters. Pays attention to its own development. If it does not care about its own capacity, it will have diffi culties in fulfi lling the responsibilities just enumerated.

Board Composition

One of the toughest challenges for federated organizations is to fi nd the right balance between the needs of constituents and the development of the govern- ing body. There are numerous approaches, from multilayered governing bodies to affi liate members appointing and electing their own agents to the national board. Here are some examples of how federated organizations link to their chapters:

Separate representational membership bodies (national council, house of del- egates) may have varying powers but work closely with the governing board to incorporate the affi liate view. Chapters or regional areas may have board representative quotas. The board may also include at - large members. Chapters elect all board members. Local or regional advisory councils provide feedback to a self - perpetuating board.

Board Focus

The chapter - elected members of the parent board must differentiate their roots from their present function. They do not serve merely as the advocates for their own causes. Rather, they bring to the table all the ideas, concerns, opinions, and feedback received from the home front, listen openly to similar presentations and views by fellow board members, and, after appropriate deliberation, help to form the direction the full board adopts in its efforts to fairly and wisely serve the entire constituency.

Every chapter - elected member of the board has a duty of loyalty to the par- ent organization. When he or she accepts the call to board service there is the expectation of a transformation from local advocate to national spokesperson — a focus change from local problems to major strategic issues. If a board member is not able to make this transition because of the incapacity to work with the big picture or diffi culty in dealing with any duality of interest, that person may not be the best possible choice for serving the parent organization.

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Education

The federated system board ’ s governance committee has a big task. It educates board members on their roles, clarifi es the expectations of their service, and pro- vides the necessary tools and training to ensure that the full board is able to fulfi ll its mandate effectively and without bias. But the education needs to begin with the bodies that nominate board member candidates and determine the slate for election. If the local chapters are not able to envision the demands of serving on the parent organization ’ s board, they are not able to choose the best individual for the job. The governance committee needs to reach out to the fi eld and articu- late the ideal characteristics of its board members and educate nominating and electing bodies on the burdens of confl icts of interest or duality of interest.

Chapter Exercises

How should a board define its optimal size? What issues influence this choice? When should a board consider forming a governance, development, audit, membership, and compensation committee? Or should any of these be task forces? What might be the challenges of a board member serving on an organizational committee? What can happen when an executive committee has too much power and autonomy? What are some potential roles for advisory councils? How can organizations use these groups effectively? Why would a founder decide to form a membership organization rather than choosing a self - perpetuating board? When might this structure be essential? When might it be an unnecessary challenge? Discuss the ways in which a federated system can be formed. What are the key roles of the national board and the chapter boards? How do the national staff and the chapter staff best relate to this structure?

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CHAPTER FIVE

THE BOARD – CHIEF EXECUTIVE RELATIONSHIP

Creating a climate of openness, and the transparency that accompanies it, is critical to nonprofi t organizational success — especially in an era marked by heightened accountability for performance and, in many cases, increased compe- tition for resources. That climate depends on agreement about the distinctive roles of the board and the chief executive and, by extension, of the staff. When roles are clear, these players can take steps to create the environment for constructive leadership partnerships.

A successful working partnership between the board chair and the chief executive is at the heart of board - staff partnership. In combining resources, any partnership ’ s whole becomes greater than its individual parts. This partnership has the capacity to transform an organization and move it forward. A positive, productive partnership signals direction, purpose, and excitement about the orga- nization ’ s mission, whereas a lackluster or confrontational relationship will have a detrimental effect on the board and on individual members ’ commitment. While being mindful that the board hires the chief executive, who serves at the pleasure of the board, both the chair and the chief executive need to make their partner- ship work and use it to the organization ’ s advantage.

The chief executive ’ s relationship with the board as a whole should also be a constructive partnership in which the executive provides essential leadership that engages and involves the board in governance. An effective chief executive is the catalyst whose active participation ignites the partnership and helps board

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performance move from ordinary to extraordinary. The board can ’ t do its job without information, direction, administrative support, and encouragement from the chief executive. Carefully crafted meeting agendas, committee structures that are aligned with the needs of the organization, and thoughtful and strategic discus- sions will not spring into existence out of the raw material supplied by the board members, no matter how much energy and goodwill they bring to the table.

The Board Chair and the Chief Executive

The power and potential of the board chair – chief executive team rests with mission. These two leaders are the foremost stewards of the mission. The most successful leadership teams fi nd organizational approaches that continually revisit and reaffi rm the mission of the organization. They fi nd ways of inspiring passion for the mission, communicating the organization ’ s core purpose, and measuring performance relative to the mission. In short, they fi nd a way to live the mission and to make it part of the organizational DNA.

Principles and Goals for Success

Like any relationship, the board chair – chief executive partnership requires com- mitment and effort from both partners. Each should take responsibility for his or her behaviors and actions and be open to constructive feedback not just on the tasks at hand, but on the partnership itself.

Three basic principles are the foundation of a strong partnership: mutual respect, trust, and support for each other and the partnership; reciprocal com- munications; and shared purpose. With these principles in place, the board chair and chief executive should be equipped to understand one another ’ s perspectives as they build the leadership partnership. Their goals include the following:

Adapting to differences in personality, temperament, work style, communica- tion style, and time commitment Keeping ongoing tasks and responsibilities running smoothly during board leadership transitions Setting mutual expectations for the working relationship Establishing clear boundaries for roles and responsibilities and understanding where they overlap Agreeing on what sound governance practices are and how to apply them Developing a shared interpretation of what constitutes the best interests of the organization

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