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October 25, 2020
 
Nonprofit Boards Excel by Adopting Best Practices
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Nonprofit boards best able to lead their organizations are self-aware, function in constructive partnership with their chief executives, and work to continually improve their performance #147; and do all that by adopting best practices.

Following are eight "essential practices," as defined by BoardSource in Washington, DC., which aims to inspire and support excellence in nonprofit governance and board and staff leadership.

  1. Meeting Attendance. Every board member must make it a priority to attend all board meetings and to miss a meeting only under exceptional circumstances.

    Meetings are when boards exercise their governance authority. One of the legal obligations for all board members is the duty of care. Without attending meetings—and preparing for them conscientiously—a board member is not able to participate in educated and independent decision making. As state corporation laws allow, the board may accept limited participation via teleconference, but such participation should not be considered a substitute for regular, in-person attendance. Board service is a commitment, and accepting a board position means the meetings must take priority over other obligations except in exceptional circumstances. Every board should have a meeting attendance policy and enforce it.

  2. Term Limits. The board should adopt term limits.

    Regular turnover among board members encourages the board to pay attention to its composition, helps to avoid stagnation, offers the opportunity to expand the board’s circle of contacts and influence, and provides a respectful and efficient method for removing unproductive members. Seventy-one percent of nonprofit boards have term limits for board members, and the most common are two consecutive three-year terms. Term limits do not prevent valuable members from remaining in the service of the organization or the board in another capacity. An exception is the family foundation that may have a limited pool of qualified and interested candidates.

  3. Strategic Board Recruitment. The board must be strategic about member recruitment and define an ideal composition for itself based on the organization’s priorities at any given moment.

    A matrix for board composition facilitates the board’s strategic recruitment efforts. By analyzing the present composition of the board, the governance committee—or the full board if no committee is needed—is able to best determine what qualities, characteristics, and perspectives are already present on the board. When analyzed in light of the organizational strategies, a matrix helps the board identify where gaps exist and then direct recruitment efforts to fill those gaps.

  4. Strategic Planning. The board must play a substantive role with management in developing, approving, and supporting organizational strategy.

    One of the board’s primary responsibilities is to set the direction for the organization. Strategic planning serves as the road map for this direction and as the tool to assess progress. The full board needs to actively participate in and own the results of strategic planning.

  5. Budget Approval. The board must approve the annual budget.

    Staff is responsible for developing the annual budget and, in conjunction with the finance committee, presenting it to the board for approval. As the fiduciary body for the organization, the board must ensure that the budget reflects the overall strategic direction and advances the long-term fiscal health of the organization.

  6. Chief Executive Job Description. The board must develop a written job description for the chief executive and together with the chief executive define the annual expectations.

    The chief executive can remain accountable for his or her performance only if the position is well defined and annual goals and expectations are mutually agreed upon.

  7. Chief Executive Evaluation. The board must evaluate the chief executive’s performance annually; the evaluation should be written and involve the full board.

    A formal evaluation, based on well-defined and mutually agreed upon expectations, benefits and protects both the chief executive and the board. Even if the board chair or a committee leads the evaluation, the full board must participate by being given the opportunity to provide feedback, approve the final evaluation, and ensure all compensation recommendations are appropriate. The evaluation should include 360-degree feedback from the organizations leadership team so the board has an opportunity to gain additional insights from those working closely with the CEO on a daily basis.

  8. Audit. Every charitable organization (excluding houses of worship and those exempt from filing Form 990) with $1 million or more in revenue should undertake an audit annually.

    It is the board’s role to select the auditor and meet with him or her in an executive session without staff present to discuss the results.

    The board is responsible for assessing the potential benefits and costs of an independent audit and determining when it is time to conduct one. When revenues reach the level of $1 million, the organization is usually engaged in multiple and/or major financial transactions and must rely on an independent auditor’s clarification that the financial statements present fairly the financial position of the organization. If the organization conducts outside audits, the board should ideally form a separate audit committee or task force, with no overlap with the finance committee, to facilitate the added responsibilities in fiscal oversight.
Used with permission of BoardSource. For more information about BoardSource, visit www.boardsource.org or call 800-883-6262. Content may not be reproduced without written permission from BoardSource. Access and download all of the BoardSource Recommended Governance Practices.


July 2019
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