Nonprofit organizations play an important role in addressing societal issues and providing services to communities. The board of directors is a critical component of these organizations, as they are responsible for overseeing the organization’s strategy, finances, and operations. In this article, we will explore the role of a nonprofit board of directors, their responsibilities, and how they can effectively lead their organization towards success.
A nonprofit board of directors is a group of individuals who are elected to govern and oversee the organization’s operations. The board is responsible for setting the organization’s mission, strategy, and goals, and ensuring that the organization operates in compliance with legal and ethical standards. The board of directors is also responsible for ensuring the organization’s financial stability and sustainability.
Virtually all nonprofit organizations have a governing board of directors. Some, but not all, nonprofits will also have a governing membership in place, as well. But even in member-led organizations, the board is the primary governing group of individuals.
The board of directors plays a critical role in the success of a nonprofit organization. The board is responsible for setting the organization’s strategic direction and ensuring that the organization has the necessary resources to achieve its goals. The board is also responsible for ensuring that the organization operates within legal and ethical guidelines.
We’ve talked about the fiduciary duty of nonprofit board members before, so I highly recommend you check out our full article and video on that subject. It’s such an important issue, we need to highlight it here, as well.
One of the key responsibilities of the board is to provide financial oversight. The board is responsible for approving the organization’s budget, making sure that the organization is operating within its means, and ensuring that the organization is in compliance with all financial regulations. The board is also responsible for ensuring that the organization has adequate resources to achieve its goals and for overseeing fundraising efforts.
But it’s not just oversight. Fiduciary duty means you have to treat the organization’s assets like they’re your own. You, the nonprofit board member, are fully responsible for the management, or mismanagement, of those resources.
The board of directors is also responsible for hiring and overseeing the organization’s executive director or CEO. The board sets the CEO’s compensation, evaluates their performance, and provides guidance and support to ensure that the organization is operating effectively. More on that below.
Legal and Ethical Concerns
Another important role of the board is to ensure that the organization operates in compliance with legal and ethical standards. The board is responsible for ensuring that the organization is complying with all laws and regulations, and for ensuring that the organization is operating ethically and with integrity.
Finally, the board of directors is responsible for ensuring that the organization is fulfilling its mission and achieving its goals. The board is responsible for setting the organization’s mission, vision, and values, and for ensuring that the organization is making progress towards achieving its goals.
A key principle to highlight here is that most boards function best when they limit themselves to governance. Governance is high level: strategy, oversight, accountability. By contrast, management is the day-to-day operations of a nonprofit.
Ideally, a nonprofit’s governance team is different from its management team, which is made up of paid or volunteer staff members. While many small nonprofits…especially those in the startup phase…have board members serving in management positions, the ultimate goal is to have board members separate from paid staff members as much as possible. The board of directors, as a governing body, should focus on the organization’s mission, strategy, and goals. Staff members are responsible for the implementation of the mission.
Having dual-capacity board members can sometimes lead to problems between a nonprofit’s mission and how it operates. However, we have to quickly acknowledge that is not always possible in very small organizations. I served for many years on a neighborhood homeowners association board of directors, and my fellow directors and I did pretty much everything. Is that ideal? No, not at all. But sometimes it is reality in micro-sized nonprofits.
Organizations should also have Officers, typically chosen from among the board members, who are given a higher level of responsibility compared to other board members. Initial officers are elected by the board; this vote usually takes place during the organization’s first meeting. Much like board members, officers usually serve terms.
Typically, a nonprofit has three officers serving the role of President, Secretary, and Treasurer. Officer roles and their terms should be specifically defined in the organization’s bylaws.
The President. The President heads up the board and supervises all of the business and affairs of the board. While the President can also serve as the CEO or Executive Director of the organization, keep in mind that these two roles are separate. Returning to an earlier point, the role of President is a matter of governance, while the role of CEO/ED is management.
The Secretary. The Secretary records and archives the minutes, or record of discussion and votes, of each meeting of the Board of Directors. Additionally, the Secretary is responsible for keeping track of the organization’s activities to make sure the actions of the organization are in accordance to the organization’s Bylaws. The Secretary is usually the officer who keeps board members’ contact information in order to inform them about upcoming meetings of the board.
The Treasurer. The Treasurer is the officer accountable for keeping accurate accounting records of the receipts and disbursements of the organization. This person is usually a signatory on all bank accounts, though he or she shouldn’t be the only signatory. Additionally the Treasurer is responsible for keeping track of the organization’s financial condition. This is an important role because it keeps the other officers and board members informed about the financials.
Though officers are typically chosen from among the current roster of board members, there are no statutory guidelines or requirements that an individual from outside the board cannot be elected to be an officer for the organization. That is, assuming the officer roles described in the organization’s bylaws do not state otherwise. It is possible for an individual to hold two separate offices, with the exception that the President cannot also serve as the Secretary, which is prohibited in most states’ nonprofit corporate law.
Board members should meet periodically to discuss and vote on the affairs of the organization. A question we are often asked is, “How often should we meet?” Well, a common answer to every question around here is, “It depends!” Same with the question of board meetings.
At a minimum, an annual meeting must occur with all board members present. That’s probably not often enough, however, to adequately plan and oversee everything that the board is responsible for. Additional meetings should take place throughout the year so board members can discuss and make other necessary decisions.
Board memberships are not set up to be permanent positions; most organizations have terms set up for board members, which typically fall between two and five years. That said, most states allow nonprofit board members to serve indefinitely, and the IRS doesn’t say anything about that subject at all.
But even if your nonprofit wants board members to serve for a long time, we recommend setting up reasonable term lengths, say 2 or 3 years, and reelect those members whose terms are expiring, but there is mutual interest in their continued service.
Don’t be fearful of bringing new members, however. Sometimes fresh ideas are exactly what a nonprofit needs in order to thrive.
Being an effective nonprofit board of directors requires a deep commitment to the organization’s mission and a willingness to devote time and energy to the organization’s success. Here are some tips for being an effective nonprofit board member:
- Understand your role: It’s critical to understand the responsibilities of being a board member and to be prepared to fulfill those responsibilities. Board members should be knowledgeable about the organization’s mission, goals, and strategy, and should be fully aware of the organization’s finances and operations.
- Attend meetings: Boards typically have to meet at least annually, but effective boards will meet much more often than that. Board members should attend all board meetings and come prepared to actively participate in discussions and decision-making.
- Support fundraising efforts: Board members should be willing to support fundraising efforts, whether through personal donations or by helping to identify and cultivate donors.
- Provide transparency and accountability: Board members should promote transparency and accountability by ensuring that the organization is operating in compliance with legal and ethical standards, and by being open and transparent about the organization’s operations and finances.
- Engage with stakeholders: Board members should engage with the organization’s stakeholders, including staff, volunteers, donors, and community members. This includes listening to their concerns and feedback, and working to build relationships and partnerships that support the organization’s mission.
There are no IRS guidelines in place to determine who is certified to be on a board; most any individual can become a board member. It is best practice to find individuals within the community who have the passion and experience that aligns with the nonprofit’s mission. In addition, you probably want to choose board members who have experience in overseeing business affairs at some level. These persons will be better prepared to advise your nonprofit, compared to those with no management experience.
There are few components of a nonprofit organization more critical than that of a high-functioning Board of Directors. Your success depends on a board that is fully invested in seeing your mission accomplished. Choose your board members wisely!
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