Board Governance – Part 2

A Not-for-Profit board is charged with the responsibility to set and oversee the strategic objectives of the Organization, in order for the Organization to accomplish its mission. Governance is the shared responsibility between the board and management of the Not-for-Profit Organization. While the responsibility is shared, the board has liability for the Not-for-Profit Organization, and ultimately is the final authority.

Governance is a set of responsibilities and practices applied by the board and management that provides strategic direction, makes sure objectives are achieved, appropriately manages risks, and ensures the Organization’s resources are used responsibly.

In October 2007 (updated in 2015), the Panel on the Nonprofit Sector published a report titled “Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations” (The Good Governance Model).  The report identifies 33 principles, which are organized under 4 main categories.  These principles should be considered by all charitable organizations as a guide for strengthening its effectiveness and accountability.

This Board Governance Series provides a high-level summary of each of these principles, as broken down into 4 main categories: 1) Legal Compliance, 2) Effective Governance, 3) Strong Financial Oversight, and 4) Responsible Fundraising.

In Part II, we summarize Effective Governance:

• Board Responsibilities
  • A Not-for-Profit board of directors primary responsibilities include reviewing and approving the Organization’s mission, strategic goals, annual budget and other key financial decisions, compensation practices and polices as well as other governance policies.
• Board Meetings
  • Board meetings should be held regularly enough for the board to conduct the business of the Organization. It is recommended that boards have an attendance policy to require members to attend meetings regularly.  Clear, concise minutes of meetings should be kept and should include decisions and actions taken at the meeting to provide sufficient documentation to answer any questions about how a decision was made.
• Board Size & Structure
  • Board size and structure should be noted in the organizational documents of the Not-for-Profit Organization. Depending on the size and structure of the Organization, this policy should be reviewed periodically.
• Board Diversity
  • A board should be made up of individuals with diverse backgrounds, experience, and organizational and financial skills to further the Organization’s mission.
• Board Independence
  • A substantial majority of the board, meaning at least two-thirds of its members, should be independent. Independent members should not: (1) be compensated by the Organization as employees or independent contractors; (2) have their compensation determined by individuals who are compensated by the Organization; (3) receive, directly or indirectly, material financial benefits from the Organization except as a member of the charitable class served by the Organization; or (4) be related to anyone described above (as a spouse, sibling, parent or child), or reside with any person described as such.
• CEO/ED Evaluation and Compensation
  • The board of directors has the authority to delegate responsibility of day-to-day operations to a CEO or Executive Director (ED). When this happens, an important responsibility of the board is to hire, supervise and determine compensation for this role. An annual evaluation of the CEO/ED should happen prior to any change in compensation.
• Separation of CEO/ED, Board Chair and Board Treasurer Roles
  • Not-for-Profit organizations with paid staff should make certain that the position of CEO/ED, board chairperson, and board treasurer are held by three independent individuals. Those Not-for-Profit organizations without paid staff should be sure that the board chair and board treasurer positions are held by two independent individuals.
• Board Education and Communication
  • Every board member should receive a copy of the Organization’s governing documents as part of board orientation. A clear orientation process provides guidelines for the duties and responsibilities of each member of the board, including the attendance policy for board meetings, expected preparation and participation, as well as their legal and ethical responsibilities.
• Evaluation of Board Performance
  • A board evaluation as a group and as individuals should be conducted periodically. Policies should be in place to remove non-performing board members.
• Board Member Term Limits
  • Term limits of board members should be included in the governing documents of the organization.
• Review of Governing Documents
  • Governing documents should be reviewed at least every five years; this includes the articles of incorporation and bylaws.
• Review of Mission and Goals
  • The board of directors should review the Organization’s mission periodically to ensure the programs, goals, and activities of the Organization work to advance the mission of the Organization.
• Board Compensation
  • Not-for-Profit board members are typically expected to serve without compensation. Some organizations may reimburse travel costs and other expenses necessary for the member to participate in board functions.

Our goal is to provide you with information that provides insight and impact to your Not-for-Profit organization. Board Governance is crucial to the success of an Organization – we hope you have found Part II of this series useful. Be sure to stop back for Part III – Strong Financial Oversight.

If you would like additional information or need assistance with board governance, reach out to the DBC NPO Niche today.