Nonprofit boards and effective governance
Questions every board member should ask about processes and procedures
Directors and trustees of nonprofit organizations are often unclear about the scope of their responsibilities and the questions they should be asking in meeting them.
Here are 10 basic questions related to effective nonprofit governance. If a trustee or director of a nonprofit answers "no" to three or more of these questions, then it may be advisable for the board to revisit its governance processes and procedures:
1. Is the board setting the direction for the organization? A charitable organization's governing board is vested with the overarching responsibility to ensure that the organization is fulfilling its mission in a prudent and responsible manner. While boards must rely on executive management, they nonetheless retain the ultimate responsibility and authority to actively set the direction for the organization.
Board governance is fundamentally about leadership. A board that is not leading is not meeting the full scope of its responsibilities.
2. Is mission fulfillment a standing item on the board's agenda? The fundamental purpose of any charitable organization is the fulfillment of its charitable mission. This is inherently important work that should invoke feelings of pride and emotion for the organization's leadership. While attention to matters of financial management is critical, governing boards need to also stay closely connected to mission fulfillment. A well-functioning nonprofit board should not allow its meetings to become mundane and uninspired.
3. Is the board regularly evaluating community need? At its core, a charitable organization exists to serve important and virtuous public needs. Any successful organization needs to adapt to the rapidly-changing world around it. A charitable organization's governing board should systematically review community need and adjust its strategy where necessary to ensure that community need is being met in a manner consistent with mission.
4. Is the board informed on its legal obligations? From avoidance of conflicts of interest to executive compensation and regulatory compliance, governing boards are charged with understanding the major legal issues facing their organization and ensuring that systems are in place to maintain compliance with all legal obligations.
5. Do meetings allow for robust discussion and dissent? The challenges that charitable organizations face — particularly in these unprecedented times – are complex and difficult. To meet their full potential, organizations need to leverage the full depth of talent of their governing boards. Robust discussion, debate and, in some instances, dissent, are constructive and necessary. Effective boards encourage such debate in a spirit of compromise and respect for opposing views.
6. Is there a strategic plan that the board truly understands? In today's environment, a charitable organization cannot simply exist. It needs a proactive and verifiable plan to fulfill its mission, meet community need, and remain financially sound. A governing board needs to understand the plan, as it will drive critical decisions.
Further, the board needs to regularly monitor – preferably using objectively verifiable data – the effectiveness of the plan in meeting mission and addressing community need.
7. Does the board seek out disconfirming information? High-functioning leadership teams seek out disconfirming information and alternative viewpoints in order to ensure that important decisions have been fully vetted and all alternatives fully considered. This is necessary to avoid situations where predetermined outcomes are funneled through board process. This may involve inviting the viewpoints of key stakeholders from outside the organization to ensure that the board is fully informed about all facets of an important issue.
8. Does the board truly understand the organization's financial condition? Although virtually all organizations have a financial reporting function, governing boards of charitable organizations in distress often realize the depth of the problem only after it is too late to "right the ship." All trustees and directors must, at a minimum, approve a realistic and responsible annual budget, understand the key drivers of financial success and the primary risks of failure and regularly monitor performance as compared to budget.
A trustee who is in the dark on the organization's financial condition is not meeting his or her responsibility.
9. Is the board functioning with transparency and integrity? While most charitable organizations are private organizations, they are nonetheless accountable to the public. As a result, their governing boards should make decisions in the spirit of openness and transparency — with eyes focused on public accountability — and on the assumption that their actions may, at any time, become exposed to public scrutiny.
10. Has the organization lost its charitable "feel"? There is no precise definition of what is or is not "charitable." The question involves a mix of all of the issues identified above including, staying connected with community, functioning with openness and integrity, and responsibly using and protecting charitable resources. If a nonprofit director or trustee is concerned that an organization no longer feels charitable, even though they may not be able to identify precisely why, then the organization has a problem that needs to be addressed.
All nonprofit organizations need a governing board that is fully engaged in and supportive of the mission and direction of the organization.
Donald Crandlemire, a shareholder and director with the law firm of Shaheen & Gordon, can be reached at 603-225-7262 or DCrandlemire@ShaheenGordon.com.