Governance:
Basics
Featured
Articles: Managing the Risk of Board Discontent
Managing
the risk of board discontent boils down to keeping the board from
being bored or overworked. This feature articles helps keeping
your board member interested and active.
More
of this featured articles
Roles
and Responsibilities of the Nonprofit Board
Board
Composition and Structure
Conduct
of the Board
Nonprofit
Board Conflict of Interest
Relationship
between the Board of Directors and Executive Director
Recruiting
and Retaining good Board Members
Govern your nonprofit and manage less
Elected or appointed, volunteer boards of
directors who are committed to the organization's mission and
leadership govern nonprofits. A nonprofit board determines the
mission, strategic direction, and future programming of the
organization. A nonprofit board ensures and nurtures adequate human
and financial resources and actively monitors and evaluates the
organization's executive director/CEO, as well as service and
financial results. Nonprofit board members approve and
systematically implement policies to ensure achievement of the
mission of the organization and to prevent perceived, potential, or
actual conflict of interest.
ROLES
AND RESPONSIBILITIES of the NONPROFIT BOARD
Board of directors are trustees who act on behalf of an
organization's constituents, including service recipients, funders,
members, the government, and taxpayers. The board of directors has
the principal responsibility for fulfillment of the organization's
mission and the legal accountability for its operations. This means
that as a group they are in charge of establishing a clear
organizational mission, forming the strategic plan to accomplish the
mission, overseeing and evaluating the plan's success, hiring a
competent executive director and providing adequate supervision and
support to that individual, ensuring financial solvency of the
organization, interpreting and representing the community to the
organization, and instituting a fair system of policies and
procedures for human resource management.
Board members have a duty of loyalty to the organization, its
staff and other board members. While differences of opinion are sure
to arise, board members should seek to keep disagreements
impersonal. By practicing discretion and accepting decisions made on
a majority basis, board unity and confidence will be promoted.
Board members accomplish their functions through regular meetings
and by establishing a committee structure that is appropriate to the
size of the organization and the board. Ideally, board members
arrive at meetings prepared and ready to engage in thoughtful
dialogue, and there is a group process which generates and uses the
best thinking of its members.
Boards should be open to self-evaluation and regularly review
their own composition to ensure constituent representation, and
board expertise and commitment. Boards also are responsible for
evaluating and determining compensation for the executive director.
Under Minnesota law, nonprofit directors are responsible for
management of the business and affairs of the corporation. In
carrying out their responsibilities, the law imposes on these
directors specific fiduciary duties of care, loyalty, and obedience
to the law. While Minnesota state law requirements for the specific
functions description of board president and treasurer.
Please refer to Statute
317A and the document entitled “Fiduciary Duties of Directors
of Charitable Organizations.
BOARD
RESPONSIBILITIES
- The board should engage in
ongoing planning activities as necessary to determine the
mission of the organization and its strategic direction, to
define specific goals and objectives related to the mission, and
to evaluate the success of the organization's services toward
achieving the mission.
- The board should approve the
policies for the effective, efficient, and cost-effective
operation of the organization.
- The board should annually
approve the organization's budget and assess the organization's
financial performance in relation to the budget at least four
times per year.
- The board is responsible for
the financial health of the organization and should actively
participate in the fundraising process through members'
financial support and active seeking of the support of others.
As part of the annual budget process, the board should review
the percentage of the organization's resources spent on program,
administration, and fundraising, with a goal of at least 70% of
revenue used for programs.
- The board should hire, set
the compensation for, and annually evaluate the performance of
the executive director/CEO.
- If the organization employs
staff, the board should annually review its overall compensation
structure, using industry-based surveys of salaries and
benefits. The board should ensure that a livable hourly
compensation is paid to all employees, whether full- or
part-time. The board should ensure that sufficient funds are
allocated to contribute to full-time, permanent employees'
medical insurance and retirement plans. The board should
establish policies, when appropriate, on employee benefits,
vacation, and sick leave.
- The board should approve
written policies and procedures governing the work and actions
of its employees and volunteers. These polices and procedures
should address the following: working conditions; evaluation and
grievance procedures; confidentiality of employee, volunteer,
client, and organization records and information; and employee
and volunteer growth and development.
- The board should ensure that
an internal review of the organization's compliance with known
existing legal, regulatory, and financial reporting requirements
is conducted annually and that a summary of the results of the
review is provided to the entire board.
- The board should periodically
assess the need for insurance coverage in light of the nature
and extent of the organization's activities and its financial
capacity. A decision to forego general liability insurance
coverage or Directors and Officers liability insurance coverage
should be made only by the board of directors.

Return to the top
of the page
- The board members should be
personally committed to the mission of the organization, willing
to volunteer sufficient time and resources to help achieve the
mission of the organization, and understand and fulfill their
fiduciary responsibilities.
- No more than one employee of
the organization should serve as a voting member of the board of
directors and staff should not serve as chair or treasurer of
the Board.
- To allow for significant
deliberation and diversity, the majority of the board should be
made up of at least seven persons unrelated to each other or
staff.
- The organization's bylaws
should determine term limits that establish individual terms of
no more than three years, allow individuals to serve no more
than three consecutive terms, and require at least one year
intervening before eligibility for re-election after serving the
maximum number of consecutive terms.
- Board membership should
reflect the diversity of the organization's constituencies.
- Board members (who are not
employees) should not receive compensation for their board
service, other than reimbursement for expenses directly related
to board duties.
- The board nomination process
should be announced to the organization's public, so that
interested persons or community members can nominate themselves
or others.

Return to the top
of the page
- The board should be
responsible for its own operations, including the education,
training, and development of board members; annual evaluation of
its own performance; and, when appropriate, the selection of new
board members. There should be written job descriptions for
board members, officers, committees, and committee members.
- The board should have
written expectations for board members, including expectations
for full board participation in fundraising activities,
committee service, and service activities.
- The board should meet as
frequently as needed to adequately conduct the business of the
organization. At a minimum, the board should meet four times a
year with a quorum present.
- The board should have
written policies that address attendance and participation of
board members at board meetings including a process to address
noncompliance.
- Written meeting minutes
should reflect the actions of the board, including reports of
authorized board committees. The board should permanently retain
the minutes, distribute them to board and committee members, and
make them available when needed.

Return to the top
of the page
- The board should establish
conflict of interest policies regarding board, staff,
volunteers, contractors, and organizational partners or allies
and adhere to these policies in all dealings. The policies
should include an obligation of each board member to disclose
all material facts and relationships and refrain from voting on
any matter when there is a conflict of interest.
Conflicts of Interest under Minnesota state law
Under Minnesota state law, a contract between a nonprofit
corporation and a board member or members may be avoidable unless
the interested board member or members can establish that:
- The contract is fair and
reasonable;
- Full disclosure by the
interested board member or members was made to the full board or
voting members;
- A two-thirds majority of the
entire board or appropriate committees, or a full majority of
the voting membership, in all cases not including the interested
board member or members, voted in favor of the contract.
For further information, see the Minnesota statute section 317A.255.
Also, the Minnesota Attorney General's Office, Charities Division
(1200 NCL Tower, 445 Minnesota Street, Saint Paul, 612/297-4613),
publishes a booklet, Fiduciary Duties of Directors of Charitable
Organizations, which explains the law in narrative text.
Explaining Conflicts of Interest
For Board members of nonprofit organizations, conflicts of
interest occur whenever a director acts in a position of authority
on an issue in which they have financial or other interests. In
other words, when there is a dual interest or the appearance of a
dual interest for any board member, the potential for a conflict of
interest exists. For example, directors of agencies could be in
conflict of interest if they offer services to the organization on
whose board they serve even if the charge for these services is at
or below the market value. Similarly, if a board member contemplates
purchasing or leasing property that the organization may wish to
purchase, the board member may be placed in a conflict of interest
situation.
In cases of potential conflict of interest, directors must act to
preserve and enhance public trust in the organization by putting the
interests of the organization ahead of all other business and
personal interests. In addition to the public's sensitivity to
self-dealing, activities which appear to have a conflict of interest
can be the basis for lawsuits against the directors and officers.
When directors are confronted with an actual or apparent conflict
of interest, there are reasonable steps that the organization can
take to preserve its integrity. Directors need not be disqualified
from boards simply due to conflicts of interest. Perhaps the most
important step is for Board members to disclose information related
to the possibility of dual interests to others on the board.
Minimally, the director needs to inform the board of the important
facts and details and must abstain from voting on the transaction.
These actions should be recorded in the minutes to document the
disclosure.
Conflict of Interest Policies
Many organizations adopt a Conflict of Interest policy. Carver
Governance Design, Inc. (2060 Kingdom Drive, Columbus, IN,
47201) suggests the following Directors' Code of Conduct which
includes information regarding conflict of interest.
Directors' Code of Conduct
The board expects of itself and its members ethical and
businesslike conduct. This commitment includes proper use of
authority and appropriate decorum in group and individual behavior
when acting as directors.
1. Directors must represent unconflicted loyalty to the interests
of the ownership.
- This accountability
supersedes any conflicting loyalty such as that to advocacy or
interest groups and membership on other boards or staffs.
- This accountability
supersedes the personal interest of any director acting as an
individual consumer of this agency's services.
2. Directors must avoid any conflict of interest with respect to
their fiduciary responsibility.
- There must be no
self-dealing or any conduct of private business or personal
services between any director and the agency except as
procedurally controlled to assure openness, competitive
opportunity and equal access to otherwise “inside”
information.
- Directors must not use their
positions to obtain for themselves or for their family members
employment within the agency.
- Should a director be
considered for employment, s/he must temporarily withdraw from
board deliberation, voting and access to applicable board
information.
3. Directors may not attempt to exercise individual authority
over the agency except as explicitly set forth in board policies.
- Directors' interaction with
the executive director or with staff must recognize the lack of
authority in any individual director or group of directors
except as noted above.
- Directors' interaction with
the public, press or other entities must recognize the same
limitation and the similar inability of any director or
directors to speak for the board.
- Directors will make no
judgments of the executive director or staff performance except
as that performance is assessed against explicit board policies
by the official process.
4. Directors will deal with outside entities or individuals, with
clients and staff and with each other in a manner reflecting fair
play, ethics and straightforward communication.
Management Assistance
Program for Nonprofits
(2233 University
Avenue West, #360, Saint Paul, MN, 612/647-1216) provides the
following sample conflict of interest policy.
Conflict of Interest
The Board shall not enter into any contract or transaction with
(a) one or more of its directors, (b) a director of a related
organization, or (c) an organization in or of which a director of Organization
is a director, officer, or legal representative, or in some other
way has a material financial interest unless:
- That interest is disclosed or
known to the Board of Directors,
- The Board approves,
authorizes or ratifies the action in good faith,
- The approval is by a majority
of directors (not counting the interested director),
- At a meeting where a quorum
is present (not counting the interested director).
The interested director may not be present for discussion to
answer questions, but may not advocate for the action to be taken
and must leave the room while a vote is taken. The minutes of all
actions taken on such matters shall clearly reflect that these
requirements have been met.
The Charities Review Council of Minnesota recommends that
nonprofit boards have directors sign an annual statement regarding
conflicts. One potential statement is as follows:
The undersigned person acknowledges receipt of a copy of the
corporate “Resolution Concerning Conflict of Interest” dated
___/___/___. By my signature affixed below I acknowledge my
agreement with the spirit and intent of this resolution and , I
agree to report to the President of the Board of Directors any
possible conflicts (other than those stated below) that may develop
before completion of the next annual statement.
_______ I am not aware of any conflict of Interest
_______ I have a conflict of interest in the following area(s)

Return to the top
of the page
No single relationship in the organization is as
important as that between the board and its chief executive officer.
Probably no single relationship is as easily misconstrued or has
such dire potential consequences. That relationship, well conceived,
can set the stage for effective governance and management.
---John Carver, Boards that Make a Difference, 1990
The relationship between the Board of Directors
and the Executive Director is one of the most written about topics
in nonprofit literature. This document summarizes some of the
thoughtful material that has been written on this subject, including
the book cited above and information from the Board
Source and Independent
Sector.
As a general rule of thumb, it is said that in a nonprofit
organization, boards primarily govern and staff primarily manages.
This means that a board provides counsel to management and should
not get involved in the day-to-day affairs of the organization.
Confusion and tension can arise when this rule is put to use
practically, because the distinction between management and
governance is not absolute. In order for this rule to work
effectively, each party in this relationship needs to understand its
own responsibilities and those that fall in the other's purview, and
the way in which the board and staff conduct their business needs to
reflect this understanding. Clear expectations for the board and the
director need to be established and maintained, because a board that
is overly active in management can inhibit the organization's
effectiveness.
A nonprofit's Board of Directors has very specific duties that
are distinct from those of the Executive Director. Directors have
fiduciary responsibilities and they are required to act within their authority
primarily for the organization's benefit. Directors do not have
power or authority individually. A board's decision-making ability
lies in its group structure. While at times an individual board
member may become extensively involved with one particular program
area and be working with staff, this is usually temporary, and
information regarding the need for increased attention by that board
member should be relayed regularly to the full board.
Nonprofit boards generally have the duties of selecting and
working with the executive director, amending bylaws, approving the
annual budget and long-term strategic plans, and ensuring its own
succession. The board often establishes committees to accomplish its
activities, including financial, personnel, fundraising and planning
functions. Through such committees, the board assists management in
policy formation and strategic planning. While nonprofit staff may
conceive, develop and implement the organization's plan, the board
will often monitor the process and provide counsel. However, it is
often true that in smaller, younger nonprofits with limited staff
positions or experience, or in more grass-roots type organizations,
board duties may include more tasks typically associated with
management.
Ultimately, the ideas and actions of the Executive Director,
perhaps more than the will of the board, will influence the nature
of the dynamic that characterizes this important relationship.
Because it falls to the Executive Director to help determine which
issues the board will address and to assemble the information that
shapes the discussion, this individual can guide the board towards a
true governance role. The following are three specific methods that
the Executive Director can take to help the board govern more and
manage less:
- Use a comprehensive strategic
plan that has been developed in conjunction with the board, and
supplement it with regular progress reports. This can be a
useful tool for the board as it develops its own annual work
plans, and will keep the board's sights focused on the long term
goals and mission of the organization. Regular reports based on
this plan will keep board members appraised of progress toward
organizational goals, and provide part of the basis for
evaluation of the executive director.
- Provide the board with
relevant materials before board meetings, and explain why the
materials are coming to the attention of the board. Let board
members know how specific agenda items relate to the
organization's larger mission, and what kind of action or
discussion is desired of the board on each item.
- Facilitate board and board
committee discussions so that the board stays focused on the
larger issues. Refer to set policies that define the limits of
the board's decision-making power, and strive to engage the
board in a dialogue among themselves that leads to
consensus-building.

Return to the top
of the page
An effective board should include active
members of the community the organization serves, and accurately
reflect the diversity of that community.
Clear bylaws —
Include clear information about the board of directors election
process in the organization’s bylaws.
Create job
descriptions — Develop board member job description, including
meeting and time commitments.
Clarify duties —
Make sure potential board members understand their legal and
fiduciary duties.
Develop officer
positions — Officer positions can and should be designed to
meet the needs of specific organizations, Minnesota law requires
that a nonprofit fill the offices of president and treasurer.
Establish a board
governance or nominating committee — A special committee can
be established to analyze the needs of the board (professional
skills, community connections, representation) and oversee the
election process.
Once
an organization has effective members on its board of directors, it
becomes essential to retain those directors. Here are some tips on
how to ensure effective board members continue their vested interest
in the organization.
Prepare new board
members — Staff and existing board members should provide an
orientation. New board membership should be given collateral
materials about the organization’s current and recent activities,
as well as any information that will be useful in their position.
Thank and recognize
board members — An appreciative environment can help sustain
job satisfaction for volunteer board members.
Lead by example —
Ensure staff and board officers maintain good attendance and an
active role. It is important to deal effectively with inactive board
members.
Conduct exit
interviews — When a board member leaves, either mid-term or
after his or her term has ended, conduct an interview to learn more
about their board experience, positive or negative.
Maintain
relationships — As a general rule of thumb, it is said that in
a nonprofit organization, boards primarily govern and staff
primarily manages. Keeping this relationship intact, between board
and staff and board and executive director, is key.

Return to the top
of the page
|