Nonprofit Boards of Directors--Chapter 4 of The Nonprofit handbook, 6th Edition
One important requirement of a nonprofit organization is the formation of a board of directors. The board has the responsibility to set policy for the organization in accordance with all applicable laws and to see to it that the policies are implemented.
The size of the board should depend on the needs of the organization. If the board’s role is strictly policy-making and the policies are implemented by a qualified staff, a small board might be more appropriate. However, if extensive board time is required for fundraising or implementing programs, then a much larger board is in order.
The number of board members is set in the bylaws. One effective technique is to set a minimum and maximum number of board members and to allow the board to determine its own size within these parameters. Then the board can start small and add members as the need arises.
The term of board members must be included in the bylaws. Board members should have fixed terms of office. One common practice is for all board members to have three-year terms, with one-third of the members being elected each year. In this way, board continuity is assured. Some boards allow their members to serve an unlimited number of terms; other boards wish to limit the number to ensure new members with fresh ideas.
The election process should also be spelled out in the bylaws.
Most organizations have a nominating or governance committee that is responsible for recommending new board members to the full board. Additional candidates for board membership can be nominated either in advance or from the floor at the election.
The titles, duties, length of term, and process for the election of officers should be spelled out in the bylaws.
The elected officers of most organizations are similar:
Chairperson, Chair, or President
Leads the meetings of the organization. Appoints committee chairs. Either signs checks or delegates this duty to another individual.
Vice Chairperson, Vice-Chair, or Vice President
Assumes the duties of the president or chair in his or her absence, or upon his or her death or resignation. In many organizations, is given specific responsibilities, either in the bylaws or by vote. In some organizations, automatically becomes the next president.
Secretary
Either takes minutes at the board meeting or approves the minutes if taken by another individual. Responsible for all official correspondence.
Treasurer
Responsible for finances of the organization. Usually makes financial reports to the board and signs checks.
Many organizations are finding it more difficult than ever to attract excellent board members. This is due to many factors, such as the large increase in the number of nonprofit boards, the increasing number of women in the work force, and the fact that upwardly mobile professionals often relocate.
To ensure excellence, many nominating committees meet several times during the year rather than just once to search for potential board members. One effective technique is to strive for a diverse board, and to list the types of characteristics desired. Some might be:
• Expertise: Some board members should have personnel management, fiscal, fundraising, or legal expertise.
• Ages: It is helpful to have older people represented, as well as youth and individuals in between.
• Races and Religions: All major races and religions in the community should be represented on a diverse board.
• Backgrounds: It would be helpful if some board members have corporate backgrounds, some are government leaders, and others have served on the boards of other nonprofit groups.
• Users of the service: Many boards include representatives of the client population being served.
The nominating committee or board development committee can search throughout the year for individuals with these characteristics, who are then asked if they want to be considered for board membership.
Each board should have a list of board member responsibilities. These might include attending board meetings on a regular basis, serving on at least one standing committee, and participating in fundraising. The list of duties should be provided to each prospective board member, and no board member should be elected who will not agree to meet these responsibilities.
One technique for keeping good board members is to require all new board members to participate in an orientation program before they attend their first board meeting.
The first step in the process is to receive and review materials that all board members should have received previously. These include―
• Articles of Incorporation
• Bylaws
• Funding applications
• Personnel, fiscal, and other board policies
• Annual reports
• Names, addresses, phone numbers, and biographical sketches of other board members and key staff members
• List of committees and committee duties
• Minutes of the last several board meetings
• Audits, budgets, and recent financial statements.
The second step is to hold a meeting with the board chair and the executive director. This provides an opportunity to ask questions about the materials received, visit the staff offices and programs, get an update of current issues, and review board member responsibilities.
Other steps to encourage productivity of board members include―
• Giving board members specific projects. A board member who serves as the chair of a committee or who has specific fundraising responsibilities is more likely to stay active.
• Keeping board meetings interesting.
• Thanking board members for their work.
• Having social events periodically, in addition to formal board meetings.
One other technique is to remove unproductive board members quickly and replace them with new and productive ones.
Other ways to increase board productivity include―
• Having a policy in the bylaws that missing a specified number of board meetings without a reason will result in automatic dismissal.
• Re-electing only board members who have been meeting their responsibilities.
• Calling board members who have not been active to ask them if there are any problems. In some cases, the chairperson should ask for their resignation if they do not agree to meet board responsibilities.
Members of boards of directors have the following duties:
Personnel
The board hires the executive director. This is the board’s most important responsibility. It then makes assignments to the executive director and monitors the executive director’s performance. It is appropriate for the board or its Personnel Committee to do a formal performance appraisal of the executive director at least annually. The board approves salary scales and job descriptions for the other staff members, who are hired by the executive director. The board approves the personnel policies for the organization.
Finance
The board approves budgets for the organization. No funds are expended unless the funds are included in a budget approved by the board. The board approves spending reports, which are submitted on a regular basis.
Fundraising
All applications for funds are submitted to the board before being submitted to funding sources. The board also approves plans for special events fundraising, and board members are expected to participate in fundraising events.
Planning
Board members approve short- and long-range plans for the organization. They then monitor the effectiveness of the organization’s programs to see if it has met the goals outlined in the plans.
Board Development
The board selects new board members and adopts procedures to see that excellent board members are selected and continue to serve.
Public Relations
Board members are aware of all of the organization’s activities and encourage participation in appropriate activities by the community.
Advising
Board members advise the executive director on policy implementation as requested.
Boards set policies only through a majority vote of their members at board meetings, unless the bylaws provide otherwise. For boards with staffs, one effective method of policy-making is to ask the staff to draft proposed policies. These policies are then sent to a board committee for review.
The chair of each committee should be a board member appointed by the board president. Members of committees are usually selected by the committee chair and may include non-board members.
All committees are advisory, except that the bylaws may permit the executive committee to act on behalf of the board between board meetings. Once a committee has approved a proposed policy, it is submitted to the board for approval. The board may delegate authority to committees to implement some decisions.
Board members who want a policy to be adopted begin the discussion by making a motion that it be approved. If another board member seconds the motion, discussion can begin; if not, the motion fails.
Once a motion is seconded, the chairperson opens the floor for discussion. Members are recognized by the chairperson before they may speak, and they can discuss only the motion on the floor. When the discussion has ended, the chairperson announces that a vote will be taken.
The easiest way to vote is by a show of hands. The secretary can then record the vote. If a majority approves a policy, it becomes the board’s policy (unless the bylaws provide otherwise). It is the responsibility of the executive director to implement that policy.
The executive director receives instructions from the board at a board meeting. It is improper for individual board members to give assignments to any staff member without prior board authorization.
One key factor in getting and keeping excellent board members is the quality of the board meetings. If board meetings are unproductive, board members tend to be unproductive.
An important technique for improving board meetings is to do as much planning before the board meeting as possible.
This might include:
• Sending a notice of the date, time, and location of the meeting to the members several weeks before the meeting. Even if the board meets the same day of each month at the same place and time, a reminder notice is important.
• Giving the board members the telephone number of the individual (usually the chairperson) to call if they cannot attend the meeting. This way, the chairperson can get input on important items from individuals who cannot attend the meeting. Also, if a quorum will not be present, the meeting can be canceled in advance.
• Notifying members of important items to be discussed at the meeting. For major items, information or issue papers might be included in the meeting notice packet.
• Including as many written items as possible with the meeting notice rather than distributing them at the meeting. This may include the minutes of the previous meeting and the treasurer’s report, for example. Members then have an opportunity to read items before the meeting, and members who do not attend the meeting are kept up-to-date more effectively.
• Developing a preliminary agenda before the meeting. Committee chairs who will be asked to report at the meeting should be notified. Background reports should be developed for important issues.
The board meetings should start on time. Once the members know that every board meeting starts on time, it is much more likely that they will be prompt. Each board meeting should start with the distribution of a written agenda. The agenda should be as detailed as possible, listing each separate item to be voted on.
Once the secretary announces that a quorum is present, the chairperson asks all those present if there are any additional items for the agenda. Thus, there will be no surprises, and the chairperson can run the meeting more effectively. The chairperson has the option of referring new items to committees or postponing items until future meetings.
A typical order of business at a board meeting is as follows:
• Approval of the Minutes of the Previous Meeting. A formal vote is needed to approve the minutes. Minutes should be distributed to all members and should not be read aloud at the meeting.
• Chairperson’s Report. The chairperson should state before each item whether it is informational only or requires board action. The chairperson should remind the members that only policy-making recommendations require board action.
• Executive Director’s Report. This report should be in writing. If it is lengthy, it should be distributed before the meeting. The executive director should then highlight important aspects of the written report and take questions.
• Committee Reports. Committee reports should be in writing unless they are very brief. After giving the report, the committee chair should make specific motions when board action is required. Only policy items require board action; no board action is required when the committee chair is simply providing information.
• Unfinished Business. The only items belonging in this section are ones raised at previous board meetings. The chairperson should remind the members when the item was raised originally and why it was postponed.
• New Business. Major items of business are discussed as part of the chairperson’s report, executive director’s report, or committee reports. At the beginning of the meeting, members are asked if they have additional agenda items, and the chairperson has the option of placing some of these items under New Business.
• Good and Welfare. Many organizations provide an opportunity for members and guests to make short announcements, raise issues to be discussed at future meetings, or comment on items of interest.
• Adjournment. No formal action is needed. The chairperson announces the date, time, and place of the next meeting, reminds the members of steps to be taken before the meeting, such as committee meetings, and adjourns the board meeting.
After the board meeting, the minutes are sent to board members for their review. The minutes must include a list of attendees and the motions made and votes taken. Additional information may be included at the pleasure of the board. Many organizations include only the minimum required, and the minutes do not include individual comments made at the meeting. While the minutes need not be taken by the board secretary, they should be distributed under the signature of the board secretary.
Legal Responsibilities of Board Members
Being a board member of a nonprofit organization is not an honorary position. Laws in every state hold board members accountable for violating accepted standards of conduct and decision-making. Although each state regulates board member behavior differently, there are some common themes in what constitutes illegal conduct. Generally, boards may make bad decisions with impunity. But they are required to have made those decisions believing at the time that they were in the best interests of the organization rather than themselves, and consistent with the organization’s mission.
Among the legal duties of board members are―
• Duty of Care. They must take reasonable care when making decisions for the organization.
• Duty of Loyalty. They must act in the best interest of the organization.
• Duty of Obedience. They must act in accordance with the organization’s mission.
• Avoid Conflicts of Interest. They must not participate in decision-making in which they have a personal interest that may constitute a conflict of interest (Source: Non-Profit Board Responsibilities by Estela Kennen, http://www.suite101.com/content/nonprofit-board-responsibilities-a14806).
Former Pennsylvania Attorney General Tom Corbett (the current Governor), in a booklet Handbook for Charitable Organizations, explains the “duty of care” standard he has enforced as―
When performing their duties, board members, senior management and members of committees must use the degree of care, skill, caution and diligence that a prudent person would use in handling corporate affairs. Decision-makers are required to make reasonable inquiries when analyzing contracts, investments, business dealings, and other matters. An individual who is acting in conformance with this standard will:
• attend and participate in board meetings on a regular basis;
• attend and participate in committee meetings when the individual is a member of the committee;
• diligently read, review, and inquire about material that affects the corporation;
• keep abreast of the affairs and finances of the corporation; and
• use independent judgment when analyzing matters that affect the corporation....
Board members, trustees and senior management have a fiduciary responsibility when handling finances and investments. That simply means, they must exercise the degree of care, caution and diligence that prudent persons would exercise in handling their own personal investments and finances. Individuals who have or claim to have special knowledge or skills in the area of investment will be held to a higher standard. Fiduciaries who carelessly or negligently invest funds may be personally liable for any losses sustained.
He explains “duty of loyalty” to be―
Board members and senior management must always perform their duties in good faith with the best interests of the organization in mind. This means that they must not seek to derive private gain from business transactions that involve the nonprofit corporation or advance their own interests at the expense of the corporation. Acts of self-dealing constitute a breach of fiduciary duty which may result in personal liability to the nonprofit organization. Board members, trustees, and senior management should avoid conflicts of interest and even the appearance of impropriety. Individuals who take advantage of corporate opportunities to make profits for themselves at the expense of the corporation may be liable for the profits they received at the organization’s expense.
With respect to avoiding conflicts of interest, he writes that―
... It is particularly important for board members to disclose the following facts:
• whether they have a potential conflict of interest with respect to any transaction, business decision or other matter in which the organization is involved;
• whether they have a financial, business or personal interest in an entity with which the nonprofit organization is or will be doing business;
• whether individuals related to them have a financial, business or personal interest in an entity with which the nonprofit organization is or will be doing business; or
• whether they serve as a director, member or employee of either a competitor of the corporation or a corporation with which the nonprofit organization is or will be doing business.
The board should proceed with caution when any of the above facts are present because there may be a conflict of interest. An individual who has a potential conflict with respect to a particular transaction should disclose it to fellow managers and board members and abstain from participating in the negotiations and decisions surrounding that transaction. To avoid the appearance of impropriety, the individual who has the conflict of interest should not be present in the room during any discussions that relate to the transaction. (See: http://www.attorneygeneral.gov/uploadedFiles/Consumers/nonprofitbooklet.pdf)
In 2010, Mr. Corbett successfully prosecuted the Democratic Minority Whip of the Pennsylvania House of Representatives for, among other charges, conflict of interest with respect to a nonprofit. That official is now serving a 6-14 year prison sentence in a state correctional facility.
The board of directors sets policy for the organization. Several examples of the types of policies set by the board are provided above. The only way policy can be set is by a majority vote of the board at a board meeting (unless the bylaws provide otherwise).
The executive director (or chief executive officer) attends all board meetings, and is responsible for implementing the policies set by the board. The executive director hires other staff members (whose salary levels and job descriptions have been approved by the board) to assist in implementing these policies.
When an item arises at a board meeting, the chairperson rules whether the item is a policy matter. If so, a vote of the board is required for action to be taken. If the item is not a policy matter, no board vote is taken. The purpose of the discussion is to provide guidance to the executive director on non-policy matters.
The executive director researches sources of funds and develops grant applications. Before a grant application can be submitted to a funding source, it should be approved by the board.
Certain types of communications between board members and staff members are not appropriate. For example, individual board members may not give assignments to staff members. Assignments are given to the executive director by vote of the board at a board meeting. The executive director is responsible for assigning tasks to other staff members.
Staff members should not complain to individual board members about programs, assignments, or policies. Complaints should be made according to specific procedures established by the board.
When a board member volunteers to help out in the office, that person must be treated as a staff person and no longer wears the “board hat.” The executive director remains the person to make assignments to that person.
Board meetings of nonprofit organizations may be formally or informally conducted, but its decisions made consistent with law and its bylaws are legally binding and may be enforced by a court. At times, decision-making can be a contentious exercise. Without an acceptance of basic rules for conducting meetings by those who attend, a meeting could become highly dysfunctional, with meaningful decision-making becoming impossible. Members may all decide to speak at once, may disagree on whether a decision has been really been made, may refuse to accept decisions made by the chair, or otherwise become frustrated when they don’t feel that their participation has been treated respectfully and have been given a fair opportunity to voice their opinions and advocate for their positions.
Over the centuries, a set of standardized, basic rules for conducting meetings fairly has been developed. The standard used by many nonprofit organization boards is based on Roberts Rules of Order, first published in 1874. Henry M. Roberts, a West Point Graduate, based his manual on a 15-page set of parliamentary rules he developed to help him, his wife, and others who served on the boards of various nonprofit organizations (source: Darwin Patnode, History of Parliamentary Procedure; http://eagle.orgfree.com/parliamentary.society.of.toronto_40rogers.com/Presentations/History_of_Parliamentary_Procedure.htm). Roberts was influenced by the writings on the topic by Thomas Jefferson (Jefferson’s Manual, which still serves as the rules of debate for the U.S. House of Representatives) and others that governed the debates of the Senate. And of course, these rules are based on rules of the English Parliament, from which the term “parliamentary procedure” derives its name.
Several other parliamentary procedure manuals are in use, among them the Standard Code of Parliamentary Procedure by Alice Sturgess (1950), George Demeter’s Demeter’s Manual of Parliamentary Law and Procedure (1969), and Modern Parliamentary Procedure by Ray E. Keesey (1974).
In nonprofit organizations, in which participants volunteer their time, it makes some sense to follow parliamentary procedure a bit more loosely compared to legislative bodies, keeping an eye on the objective of keeping meetings civil and assuring that decisions made by the board truly reflect either a consensus of members, or at least a majority. The more participants there are at a meeting, the more likely that increased formality will be productive.
There are clear advantages to conducting meetings using parliamentary procedure, including―
• There are procedures to ending debate, which in some cases could otherwise drag on interminably.
• Everyone with something to say has the opportunity to be heard.
• Debate on any issue remains on topic, and new topics are considered only after there is closure on the previous topic, or there is agreement to postpone closure.
• There is a procedure to reconsider decisions that may have been made in haste and without complete information.
• There are rules to deal with destructive, personal confrontations.
Typically, board meetings are conducted by the President (or Chair) of the board. It helps when that individual has a basic understanding of parliamentary procedure, although some organizations will hire a Certified Professional Parliamentarian with specific knowledge of parliamentary procedure to advise the chair. See: http://www.jimslaughter.com/pdffiles/ASAEMatching99.pdf
Many organizations will indicate in their bylaws that meetings shall use a particular form of parliamentary procedure, such as―
The rules contained in the current edition of Robert’s Rules of Order Newly Revised shall govern the organization in all cases to which they are applicable and in which they are not inconsistent with these bylaws and any special rules of order the organization may adopt.
For an explanation of Robert’s Rules and details about how it works in practice, see the Robert’s Rules Web site at: http://www.robertsrules.com/
a. The executive director alone
b. The executive director, in consultation with the board
c. The executive director, in consultation with the board chairperson
d. The board alone
e. The chairperson alone
f. A committee of the board.