There were times during my career as a CEO that I was heard to exclaim, “Why don’t they (referring to the board of directors) just get out of our way and let us run the place?” I and my team at times felt that all the work required to get ready for board meetings was interfering with getting the real work of the organization done! Managing and supporting a board of directors can be very time and energy consuming. At such times, it is very reasonable to wonder, “Why do I need a board, anyway?”
The short answer to this question is, “Because you have to!” From IRS regulations which dictate the governance requirements for a tax-exempt nonprofit organization, to state laws which regulate nonprofit incorporation, the simple fact is that accountability to officers and a board is a legal requirement of every nonprofit organization.
In addition, there are ethical and practical reasons for having a board of directors. In this article, I intend to lay out those reasons, not so much to convince you of the need for a board of directors, but to frame the roles and responsibilities of the board in the context of how the CEO can help the board understand and carry out its duties and also how the proper execution of those responsibilities can be used to your and your organization’s benefit. Instead of lamenting about the demands of supporting a board, my hope is that you can answer the question with “Because I want it!”
Legal Reasons
State laws are universally consistent and clear that nonprofit corporations need a board to assume the fiduciary role for the organization’s well-being. These laws designate overall responsibility and liability to that board. In addition to the board’s responsibilities as a governing body, individualboard members are bound by their legal obligations, namely, the duties of care, loyalty, and obedience. These duties serve in the courts as the test for their compliance if a board member’s performance or decisions ever become a legal issue.
State laws also generally require a minimum size for a board — usually between one and three members. Some state laws define the lowest acceptable number of independent board members, but normally the laws do not address board composition issues. The organization’s articles of incorporation and bylaws define its internal authority and clarify the board’s role on top of the decision-making hierarchy. In membership organizations, members also have certain rights and responsibilities to approve major board decisions. The CEO must be knowledgeable about applicable law, the content of the organization’s articles of incorporation and bylaws and be able to explain these with authority to the board and interested constituents. Pleading ignorance of the law is never an acceptable excuse.
Federal law is even less specific in determining how the board should be structured, but it does expect the board to serve as the “keeper of the mission” for the organization and function as the designated fiduciary of the organization. When applying for tax-exempt status with the Internal Revenue Service, board members for the new nonprofit must be listed to allow the IRS to determine whether proper oversight has been established.
In complying with state and federal law, one of the board’s roles is to ensure that no inappropriate private benefit takes place in which organizational assets are diverted into the hands of individuals who can influence the affairs of the nonprofit. This is what it means for board members to be “independent,” that is, they have no personal interest or attachment to the organization from which they could financially benefit. That is why regulations governing nonprofit boards designate the board as the body which must approve all major financial transactions for the organization. The CEO can support this standard by making sure that conflicts-of-interest are identified, that financial operations are regularly audited, and that the board has been sufficiently educated to read, interpret and respond to such reports and requirements.
Many directors assume their positions on a nonprofit board with limited knowledge of their individual and board legal responsibilities. Because very few nonprofit organizations compensate their board members, directors are volunteers who may resistant to exercising their duties according to laws, regulations and policies and to put in the work needed learn these so they can function intelligently in that environment. Therefore, the CEO should take an active role in making sure that new board members are properly educated, oriented and onboarded, not just to the organization, but to their legal duties as directors. CEO’s should have a set of standardized materials and resources available to use with new board members which ensure consistency of training across time. Many resources are available for such training and orientation. State-wide councils for nonprofits, consulting firms that specialize in governance training for nonprofit boards, and national organizations such as BoardSource can provide such resources
This function should be of great importance to CEOs for the reason that investing time and energy into board development will pay dividends back to the CEO in the long run. A board which understands the scope of its legal responsibilities is less likely to cross the line between governance and management and is more likely to stay focused on its primary duties. Quite candidly, I wanted my new board members to get the story of the organization in depth from me and my team, and never wanted their initiation to the board be left to chance or to a board committee. Call it control or call it covering my butt – I wanted new board members to know what I believed they needed to know in order to perform their board duties in the most effective and mutually beneficial manner possible.
Ethical Reasons
The key ethical reason to build an effective board is to create a structure that functions to assure the public and all individual stakeholders that the organization is in good hands. The board ultimately assumes responsibility for the success or failure of the organization. Its role in this capacity is to go beyond the legal requirements and ensure that the organization not only does things right, but does the right things. Of course, the board executes these “right things” through the leadership of the chief executive and his staff, but ultimately, the board is responsible for delivering on the mission.
The board also acts as the agent for the organization’s constituents. When a supporter, client, or customer relies on the organization to use its funds appropriately or to provide trustworthy and quality services, the board sees to it that these expectations are met. Board members are not there to benefit personally from their affiliation. During decision-making they are expected to place the interests of the organization above any other considerations. In this regard, I felt on occasion that it was my responsibility as the CEO to serve as the “conscience” of the board, reminding them of the mission and the constituents we served.
Oversight is a primary duty for all boards. It consists of working closely with executive leadership to ensure that goals are met and that ethical principles serve as the guidelines for all activities. The board is there to make sure the organization remains viable and has the capacity to grow. The most obvious way in which the CEO can support the board in meeting its ethical obligations is to operate the organization at the highest level of performance and quality. In my thinking, this meant never giving the board any cause to question what we were doing or how we were doing it. To make sure they understood our actions, however, we provided extensive measures of performance. We benchmarked our performance against industry standards, we detailed trends along measurable variables and we told many stories of how our programs and services led to more fulfilling lives. Although we tried hard to limit the amount of discussion in board meetings around operational quality issues, we did provide lots of operational and management information between board meetings in the form of briefing books. This allowed us to keep the board informed, but also kept them focused on the major strategic issues during board meetings.
Ethical practice in a social service organization which is executed at the highest level of quality also dictates how employees are managed, evaluated and developed. The CEO can assure the board and the organization’s constituency of these by managing employees consistently and fairly. I made it a point to include senior staff in board meetings by having them give topical reports. We included board members in employee-of-the-year celebrations. We featured long term employees, especially those who were celebrating milestones and promotions. In short, our employees were key to communicating that their work was meaningful, their employment was joyful and they were being treated fairly. This isn’t smoke and mirrors. For us, it was a matter of integrity and honor to our mission. Providing opportunities for board members to visit program locations, to see first hand our services are delivered and to interact with employees at every level also provided assurance of ethical and fair treatment of employees.
Practical Reasons
The board’s role is not limited to control and supervision. In the beginning stages of a nonprofit’s existence, a board is likely to be made up of individuals who function as worker bees to assist the organization in getting its work done. This is particularly the case in start-up boards that, for example, help draft the organization’s articles and bylaws, draft operating documents, hunt for supplies and equipment, and procure funding. Before staff is hired, board members often manage the daily affairs and run the programs of an all-volunteer organization. They wear various hats depending on the needs of the moment.
In most nonprofits, as soon as the situation allows, the board hires the first staff person — often the first chief executive — and delegates the daily affairs to him or her, with the necessary support and guidance. At this point the board can devote more of its time to governing, providing direction, and ensuring that the mission of the organization stays on course. As organizations grow and mature, the board’s role should become increasingly focused on governing by staying attentive to its fiduciary, strategic and generative responsibilities. The lines between governance and management become much more distinct. If questions of authority arise, a capable CEO will work with the board to clarify the difference and to redirect inquiries about management practice into matters of governance.
The board also represents the stakeholders of the organization. In early stages of the organization’s life a board that reflects the constituency and its needs is probably better able to steer the organization in a direction that is helpful to those it serves. However, as organizations grow and mature and as the needed skills and assets required of the board become more sophisticated, a simple model of representation may not be of greatest benefit. In this regard, the CEO can help the board be mindful of its own evolution and provide tools and means for the board to assess its own status and to address those through an effective processes of director evaluation and candidate recruitment and vetting.
I believe it is a primary responsibility of the CEO, regardless of how the board has determined to identify and elect new board members, to make sure that there exists a pool of potential board members who met the criteria and who possess skills, knowledge and experience that would align with the needs of the board. In other words, I always wanted to make sure that the board’s governing or nominating committees had a number of highly qualified candidates. While directors will often recommend well-intentioned friends and acquaintances, making sure that the qualities of sought-after recruits fit with the board and its needs was something I needed to attend to. As my old mentor used to say, “If I don’t have anything to say about who goes on the board, then I am a deserving victim of my own poor leadership.”
The perspectives that board members bring to the boardroom should 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. This generative function can be supported by the CEO in planning focused questions and issues for the board to address and by providing learning opportunities for the board so members stay current in the organization’s areas of service. This even included, on one occasion, holding a board meeting in the Dominican Republic so directors could observe first hand our international partnership and the outstanding work they were supporting. Shaping the subject and content of the conversation was a very important tool I used to make sure the board was focused on essential issues. Ultimately, I viewed the board’s greatest resource to be its intellectual capital and I wanted them to spend it freely in generative discussions about the organization and its future.
A seasoned CEO is likely to have many connections, associations, affiliations and acquaintances in many different groups. However, I’ve never met anyone who knows everybody with potential to help their organization. I’ve never heard anyone say, “I don’t need more donors or experts in my field.” Extending this executive expectation for connectedness to the board, CEOs will seek board members who can expand the CEO’s networks of individuals and organizations that can bring support to the organization. Moreover, educating and coaching directors on how to professionally and appropriately make connections on behalf of the organization is something the CEO can take responsibility for.
Finally, the board is the body that provides continuity to the organization. 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. The CEO can help provide such continuity on the board by managing election, orientation and onboarding processes. But the CEO can also make sure that the board regularly reviews the CEO’s succession plan and updates it as necessary so that the board can act quickly and decisively when necessary to ensure continuity in the executive function.
Why do I need a board of directors? Because you have to have one? OR, is it because you have come to see the tremendous value a board brings to you and your organization and, therefore, you really want to have one!
Resources
The Minnesota Council of NonProfits is one among many state-wide associations that disseminate information and resources to support boards and executive directors in their respective states. An informative article on distinguishing between the work of the board and the work of the executive director: http://www.minnesotanonprofits.org/nonprofit-resources/leadership-governance/board-basics/the-executive-director-and-board-relationship
Bridgespan is a widely respected consulting firm that focuses on nonprofit organizations, their governance, leadership and management. An excellent article on the legal and ethical duties of a nonprofit board: https://www.bridgespan.org/insights/library/boards/why-do-you-need-a-board
The Foundation Group has been empowering nonprofits since 1995. They feature regular blog posts on issues related to nonprofit board governance, such as this article: https://www.501c3.org/nonprofits-board-directors/
