The Nonprofit Board Answer Book ebook

Table of Contents

Cover

Join Us

Title page

Copyright page

About BoardSource

Have You Used These BoardSource Resources?

Introduction: The World of Nonprofits

From the Board Member’s Perspective

From the Chief Executive’s Perspective

Common Questions, Practical Answers

Overview

Content for Every Context

PART ONE: Basic Board Functions

1. What are the basic responsibilities of a nonprofit board?

2. What are the legal duties of a board member?

3. What is the board’s role and involvement in mission, vision, and values?

4. What is the board’s role in financial management?

5. What is the board’s role in strategic planning?

6. How does strategic thinking contribute to board and organizational effectiveness?

7. What is the board’s role in fundraising?

8. What is the board’s role in organizational evaluation?

Receiving Information

Program Evaluation

9. How does the board avoid the extremes of “rubber stamping” and micromanaging?

“Rubber Stamping” Signs and Solutions

Micromanagement Symptoms and Cures

10. Why is connecting and communicating with constituencies an important task for the board?

11. How does a board function as a team?

12. What are the attributes of a high-performing board?

PART TWO: Board Structure

13. What is the best size for our board?

14. How should we structure our board?

15. What types of board committees should we have?

16. How can our committees be most effective?

Selecting Committee Members

Appropriate Roles

17. Does our board need an executive committee?

18. Should our board have advisory councils?

19. What is the role of the board chair?

20. What board officers should we have?

21. How should we select our board officers?

22. What kind of board does an all-volunteer organization have?

PART THREE: Board Member Selection and Development

23. How can we recruit active, involved board members?

24. How can we use a board matrix to identify recruitment needs?

25. What is the chief executive’s role in board recruitment?

26. How can a membership organization build an effective board?

27. How can our board become more diverse and inclusive?

28. What should we tell our prospective board members?

29. What should we include in our board orientation?

30. Should members of the same family serve on a board?

31. Should constituents serve on the board?

32. What should we do about uninvolved board members?

33. Should we have term limits for board members?

34. How can we engage former board members and chief executives?

Former Chief Executives

35. Should board members be compensated?

36. How can our board assess and improve its own performance?

Evaluation Tools

37. Should individual board members be evaluated, and, if so, how?

PART FOUR: Board and Committee Meetings

38. Is a board legally required to hold open meetings?

39. How often and where should we meet?

40. How can we improve our meetings?

Committee Meetings

Informal Meetings

Social Gatherings

41. How can we encourage debate while promoting civility in the boardroom?

Good Principles

42. What is the purpose of a board retreat?

43. Who should attend board meetings, and what are their roles?

44. How should staff members participate in board and committee meetings?

Staff Members as Board Members

45. What are the different ways boards make decisions?

46. How should board minutes be written, approved, and kept?

47. How can e-governance improve board and committee work?

PART FIVE: The Board’s Role as a Fiduciary

48. How does a board help ensure the organization’s long-term viability?

Potential Sources of Income

49. What does the board need to know about reserves and investments?

Reserves

Investment Guidelines

50. What is the board’s role in the budget?

51. What is the board’s role in the annual financial audit?

52. What are the signs of financial distress in an organization?

53. What should we do if we suspect fraudulent activity?

Appropriate Oversight

Suspicious Activity

54. What policies and practices should we adopt to manage conflict of interest?

Recommended Practices

55. How can we protect the organization—and ourselves—from lawsuits?

Six Areas to Watch

Personal Liability Checklist

56. What is a Form 990?

Questions to Ask

57. Why should every board member make an annual monetary contribution?

58. How can we develop board members’ fundraising skills?

59. How can we generate revenue beyond fundraising?

60. How does a nonprofit operate a for-profit subsidiary?

Unrelated Business Income Tax

Good Reasons to Create a Subsidiary

Setting Up Shop

Nonprofit Spin-Offs

61. What’s the best way to keep track of board policies?

Developing a Policy Manual

PART SIX: Board-Staff Relations

62. How does an all-volunteer organization make the transition to paid staff?

Potential Confusion

63. What is the board’s involvement in staff selection and management?

64. What is the ideal relationship between the board chair and the chief executive?

It Takes Two

Special Circumstances

65. Should the chief executive have a vote on the board?

66. Should board members be hired as staff members?

67. How should we evaluate the chief executive?

How to Evaluate

What to Evaluate

68. How do we set fair compensation for the chief executive and the staff?

Chief Executive Compensation

69. What is the chief executive’s role in improving the board?

70. What is the board’s role in relation to the staff?

71. How can the senior staff contribute to board effectiveness?

72. How can we facilitate the end of a chief executive’s employment?

Retirement

Job Change

Forced Resignation

Termination

Succession Planning

73. What characteristics should we look for in a new chief executive?

74. How do we find a new chief executive?

PART SEVEN: Organizational Change

75. What is the typical lifecycle for a nonprofit organization?

Combating Stagnation

76. How do we ensure that the organization thrives after the founders depart?

77. When should an organization consider revising its mission statement?

78. When should we enter into strategic alliances with other organizations?

79. When should we consider a merger or acquisition?

Key Considerations

80. How can we expand the organization’s scope to an international level?

Key Considerations

Ways to Globalize

81. Should our charitable organization engage in lobbying?

82. How should we respond to an organizational emergency or controversy?

83. What is the board’s role in hiring a consultant?

84. When should the board consider closing a nonprofit organization?

85. How does the board keep up with organizational change?

Conclusion

Lessons Learned

Index

Copyright © 2012 by BoardSource. All rights reserved.

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Library of Congress Cataloging-in-Publication Data

The nonprofit board answer book: a practical guide for board members and chief executives. —3rd ed.

p. cm.

 Includes index.

ISBN 978-1-118-09611-6 (hardback); ISBN 978-1-118-12700-1 (ebk); ISBN 978-1-118-12702-5 (ebk); ISBN 978-1-118-12704-9 (ebk)

 1. Nonprofit organizations—Management. 2. Directors of corporations.

HD62.6.A53 2012

658.4'22—dc23

2011034051

BoardSource is dedicated to advancing the public good by building exceptional nonprofit boards and inspiring board service.

BoardSource was established in 1988 by the Association of Governing Boards of Universities and Colleges (AGB) and Independent Sector (IS). Prior to this, in the early 1980s, the two organizations had conducted a survey and found that although 30 percent of respondents believed they were doing a good job of board education and training, the rest of the respondents reported little, if any, activity in strengthening governance. As a result, AGB and IS proposed the creation of a new organization whose mission would be to increase the effectiveness of nonprofit boards.

With a lead grant from the Kellogg Foundation and funding from five other donors, BoardSource opened its doors in 1988 as the National Center for Nonprofit Boards with a staff of three and an operating budget of $385,000. On January 1, 2002, BoardSource took on its new name and identity. These changes were the culmination of an extensive process of understanding how we were perceived, what our audiences wanted, and how we could best meet the needs of nonprofit organizations.

Today, BoardSource is the premier voice of nonprofit governance. Its highly acclaimed products, programs, and services mobilize boards so that organizations fulfill their missions, achieve their goals, increase their impact, and extend their influence. BoardSource is a 501(c)(3) organization.

BoardSource provides

For more information, please visit our Web site at www.boardsource.org, e-mail us at [email protected], or call us at 800-883-6262.

For an up-to-date list of publications and information about current prices, membership, and other services, please call BoardSource at 800-883-6262 or visit our Web site at www.boardsource.org. For consulting services, please e-mail us at [email protected] or call 877-892-6293.

Nonprofit organizations are an essential part of our society. They struggle to reduce poverty and bring an end to homelessness. They strive to build safe places to learn and play, create inspiring art and music, and protect our natural resources. With more than 1.7 million 501(c) organizations spending well over $1 trillion annually, the size and influence of the nonprofit sector make it imperative that nonprofit boards operate ethically, legally, and to their fullest potential. In challenging economic times, the imperative is even greater, as boards must be prepared to ask tough questions and make difficult decisions.

One has only to look at scandals in nonprofit organizations to see what happens when boards don’t do what they’re supposed to do. They face increased scrutiny from the Internal Revenue Service and more regulations from state attorneys general than other organizations. Legislation, however, only encourages boards to meet the basic fiduciary responsibilities for their organizations. Compliance is critical, but it isn’t enough. Performance is equally essential. We need to find ways to help boards perform better so they, in turn, can help their organizations deliver on their missions.

As Peter Drucker said, “Management is doing things right; leadership is doing the right things.” Boards need to add how they govern to that maxim. They need to invest time and energy in building collaborative relationships among board members and with the chief executive. Nonprofit chief executives provide a necessary voice in the boardroom, but they cannot carry out their duties without the full support of the board. In addition, board members need to be willing and able to think strategically, challenge ideas, and probe for better solutions. Although they must bring independent thinking to decision making, they must do so collegially and with an eye toward inviting consensus. In the give-and-take in the boardroom, they must remember that governance is, fundamentally, a team sport.

From the Board Member’s Perspective

Although a board is a team, it is composed of individual members, each with different but valuable abilities. Take a moment to ask yourself why you were recruited as a board member and what particular value you bring to your organization. Perhaps you have been an enthusiastic supporter of the organization’s mission over the years, you have expertise in a particular area, you have proven fundraising abilities, or you are visible within the community.

Serving as a board member, however, goes far beyond fulfilling one or two specific functions. It also requires you to take a “big-picture” approach to the organization, seeing it in new ways you may not have considered before. You’ll be called on to think strategically and to make decisions that may affect the organization for years to come. In the process, you’re likely to develop new skills that will make your tenure as a board member even more enjoyable and personally enriching. However, board service isn’t just a hobby; it’s a serious commitment of time, thought, and contribution.

By accepting the invitation to serve as a board member, you’ve entered the world of 501(c) organizations—the terminology the IRS uses to describe organizations that are exempt from paying federal income taxes because of the public benefits they provide. Typically, 501(c)(3)s are charitable organizations, 501(c)(4)s are social welfare organizations, and 501(c)(6)s are business-related organizations such as trade associations and professional membership societies. Generally speaking, these are all considered nonprofit organizations.

If you’re familiar with corporate boards, you’ll find some similarities—but many differences—between the for-profit and nonprofit worlds. Both for-profit and nonprofit organizations need strong board leadership and must adhere to certain legal principles that are outlined in state corporation laws. But for-profits answer primarily to their shareholders and focus on generating profits for those people. In contrast, nonprofits are accountable to their members, constituents, supporters, donors, and the public; their missions are not to make money but to make a difference in someone’s life or the world.

From the Chief Executive’s Perspective

The role of the nonprofit chief executive has evolved over the past century for a variety of reasons, including the growth and complexity of the nonprofit sector, the increasing professionalism and specialization of nonprofit employees, and other changes in the paid and volunteer work force. Furthermore, the responsibilities of chief executives vary widely depending on the organization’s size, structure, and history. Yet, through time and across all nonprofits, there has been a common denominator: the chief executive works in partnership with the board.

An effective partnership between the chief executive and the board requires a delicate balance of power and authority. Finding and maintaining that balance is one of the central challenges of executive leadership. The chief executive provides leadership that engages and involves the board in governance. Together, the board and chief executive focus on the organization’s mission, with both parties bringing their appropriate skills and expertise to bear for the desired results.

Common Questions, Practical Answers

Whether you’re new to nonprofit boards or already have some experience in the nonprofit world, you’re sure to have questions about the best way for your organization’s board to function. That’s where this comprehensive handbook will prove its value. In fact, the 85 questions answered in this book represent the queries that BoardSource most commonly receives, so you’re sure to find information on whatever is on your mind these days. Most of the questions apply to all tax-exempt organizations that, by law, must have a governing board. Here and there, you’ll find questions related to a specific type of organization. For example, most 501(c)(3) organizations engage in fundraising activities, but 501(c)(4) and 501(c)(6) organizations generally do not because they cannot receive tax-deductible donations. And, while a 501(c)(3) cannot engage in any partisan campaign activity, a 501(c)(6) is permitted limited participation.

Overview

This book has seven parts, moving from general questions about nonprofit boards to more specific inquiries.

Part One: Basic Board Functions

Part One details the basic responsibilities of serving on a nonprofit board, plus the board’s special role in various areas, such as strategic planning and fundraising.

Part Two: Board Structure

Part Two covers topics related to the board’s internal organization, including the appointment of standing committees, the selection of board officers, and the key role played by the board chair.

Part Three: Board Member Selection and Development

The third part provides practical information on how to recruit, retain, evaluate, and engage board members so that both they and the organization benefit from their board service.

Part Four: Board and Committee Meetings

Strategies offered in Part Four guide board members in making the most of their time together, whether in the boardroom or on a retreat.

Part Five: The Board’s Role as a Fiduciary

Part Five tackles the nitty-gritty details of safeguarding an organization’s financial assets, such as the board’s proper role in budgets, investments, and revenue generation.

Part Six: Board-Staff Relations

Part Six clarifies the various roles filled by staff members, with a special emphasis on the board’s responsibility to select and adequately compensate the chief executive.

Part Seven: Organizational Change

The final part addresses issues that often arise as an organization matures, such as how to proceed after the founders are no longer involved with the organization, when to consider a strategic alliance or merger, and how to keep pace with organizational change.

Board service is so multifaceted that it is difficult to com­partmentalize the many areas it covers. The selection and development of board members (Part Three), for instance, influences how the board is structured (Part Two). Throughout the book, you’ll find cross-references to related questions.

Content for Every Context

This third edition of The Nonprofit Board Answer Book expands on the content of its two predecessors, both perennial best sellers among board members, staff members, and students of governance. BoardSource owes a debt of gratitude to Robert C. Andringa and the late Ted W. Engstrom for writing the first edition and for their role in promoting the book to a wide audience.

Think for a moment of the best conversations you’ve had with friends and colleagues. You were honest with one another—not shy about speaking up but relaxed, even if the topic being discussed was serious in nature. That’s the type of conversation The Nonprofit Board Answer Book aims to have with you in the pages that follow. It follows a question-and-answer format, enabling you to quickly find an answer to a burning question you have right now. At the same time, it’s easy to pick up and read straight through, either cover to cover or one section at a time.

At the end of each question-and-answer pairing, you’ll find suggested action steps. These offer ways to put the information to a practical use on your own board and within your own nonprofit organization. Implementing some of these steps may lead to more questions as you become even more committed to fulfilling your responsibilities as a board member.

Remember that behind every good answer lies a good question. So keep asking those questions. Your own board service—and the collective experience of your board colleagues—will be richer as a result.

Nonprofit organizations come in endless variations. They range from small, local homeless shelters to large, international trade associations; from community foundations operating within a geographic region to educational institutions that attract students from around the country. Their funding may come from just a handful of sources or from a wide array of charitable contributions, membership dues, government grants, fees from programs and services, and more.

Whatever its size, scope, or funding, every nonprofit organization has a governing board composed of people who believe in and support its particular mission. As a member of a governing board, you have the pleasure—and the responsibility—of monitoring, overseeing, and providing direction for the organization’s pursuit of that mission. Those responsibilities, which have legal ramifications, will call on you to develop or hone your skills in numerous areas, from financial management to organizational communication and from fundraising to strategic planning.

If you could observe the board meetings of hundreds of nonprofit groups, you would be struck by how different they are in terms of structure, strength of leadership, working style, and relationship with the staff. But despite their diversity, most boards share the same basic duties:

SUGGESTED ACTION STEPS