There are several mistakes that we see over and over again in nonprofit governance. Many of these mistakes could be easily avoided with appropriate planning and foresight. A key oversight/mistake made by many boards is to lose sight of the mission of the organization. The mission must be kept as a primary focus in order for the organization to remain true to its formative documents and original purpose. A great way to manage this is to periodically review the mission of the organization and review key decisions to verify they fully support the mission statement. New board members and/or directors should also be fully informed as to the mission of the organization. This will ensure the furtherance of the organization’s purpose, beyond the original board or director.
Many boards fail to stay informed of laws and legislation affecting their organization. This includes tax laws. It is ideal for board members and directors to conduct regular research into the laws affecting their organization. This can be done by joining organizations that provide updates on these topics, through general research of topics and laws relating to the organization, or by personally speaking with individuals well versed in the laws and legislation related to the organization. An informed board is key to a well-functioning nonprofit.
As in a for-profit corporation, it is advisable for a nonprofit organization to review their governance documents periodically. If anything is out of date or out of compliance with applicable laws, changes should be made. Each board member should be responsible for review of the documents on their own, with each bringing any suggested changes or amendments to the attention of other board members and the director. By maintaining relevant and up-to-date governance documents, board members and directors avoid many potential problems.
While it is sometimes beneficial to have board members or directors with a corporate background, it is imperative that these individuals understand there are significant differences in corporate for-profit organizations and nonprofits. Nonprofit organizations rely heavily on volunteers, which brings a need for those well-versed in recruitment and management of volunteers. Nonprofits also rely heavily on fundraising and/or grants. It is helpful to have individuals in place who understand the need and can further these areas of the nonprofit. In the same vein, fundraising is not always as successful as hoped. Therefore the board may need to work within a tight budget. Having those available who can assist in budgeting and making dollars go further may be key to the success of a nonprofit organization.
Accountability is a major concern for directors and board members in a nonprofit organization. It is easy for a passionate director to be given free reign by a supportive board. However, this is never in the best interest of the organization. The board members are in place to ensure the decisions made are furthering the purpose of the nonprofit, and that the nonprofit will be continuing its purpose for years to come. While a passionate director may be furthering the purpose of the nonprofit through their actions, they may not be doing so with the longevity of the organization in mind. Checks and balances are key in preserving the organization for future years. It is advisable for boards to maintain objectivity in the midst of passionate pleas to take certain actions. Consider all of the facts present, and make decisions accordingly.
Nonprofit organizations with a supportive board typically function well. It is the responsibility of the board to ensure they are providing what is needed to further the purpose of the organization. This is done through open communication between the director and board members as to the needs of the nonprofit. It is also important that new board members or directors be fully apprised of the history of the organization and key decisions that have been made. This builds continuity and helps maintain an effective board throughout the life of the organization.
Many nonprofit organizations flounder when faced with issues outside of the expertise of the director and board members. It is imperative that outside consultants are brought in to review these issues and offer advice. When looking at financial issues, or tax laws that change periodically, a knowledgeable accountant or attorney can offer nuanced advice that may not be available by speaking as a board on the topic. Additionally, even if a board member is knowledgeable in an area, it could be considered a conflict for them to offer said advice to the other board members and/or director. Soliciting outside counsel is typically the best route to take in this situation.
Maintaining a diverse board is essential to a well-functioning nonprofit. When there are people from all walks of life serving on the board, it is easier to have more in depth discussions on topics that may arise. There is less likely to be a “yes-man” board when there is diversity among the board members. Each has their own special expertise and life experience to bring to the table, and a nonprofit can profit from this type of diversity.
The last item I would approach in governance mistakes regards mistakes of a financial nature. This can evidence itself in many ways. Board members and directors can be too trusting in who they allow to handle the money. There may be a lack of checks and balances in the financial process of the organization. The organization may allow for one individual to sign the checks, as opposed to requiring two signers as a check on power. The board of an organization may not pay sufficient attention, or fail to inform themselves, of the financial status of the organization. This can be evidenced by ineffective perusal of financial reports, failure to review financial distributions, failure to ensure correct usage of donations, or excessive compensation of directors or staff. It is imperative that boards and directors remain informed, question any discrepancies, and constantly work to ensure full compliance with financial legalities.
If you have any questions regarding board governance, or wish to schedule a board training, please contact us today at 501-819-2553.