Many nonprofits have huge missions and relatively small budgets to accomplish them.
This imbalance isn't all that different from many private sector businesses, particularly small star-up companies with big future goals.
To help us understand how nonprofits function, this section compares them to a small business,with which you may be more familiar .
The Similarities
1) Well defined goals and mission-- everyone knows what the organizations product or services are.
2) Limited resources to accomplish goals-- the organization doesn't have unlimited resources, so it must accomplish it's goals with the available funds.
3) Accountability for achieving the mission-- organizations that fail in their missions generally aren't funded indefinitely.
4) Criteria for assessing whether goals are met-- Healthy for profit and nonprofit organizations have created a way of self evaluating to determine whether the organization is meeting its own goals.
5) A defined management or governing structure-- Like private corporations and commercial business entities, most nonprofit organizations have boards, management and various levels of staff that help keep the organization afloat.
6) Identifiable stakeholders-- just as private companies must know who their customers are and serve them accordingly, nonprofits, must ultimately satisfy the objectives and needs of their various stakeholders.
The Differences
1) Third party funding -- it's rare for someone to just give money to a for profit business. However, donations,grants, and government funding are the norm in the nonprofit world.
2) Participation of Volunteers-- For profit companies are generally staffed by employees who are hired at competitive wages. However, nonprofit organizations typically rely heavily on the donated time of volunteers.
3) Stakeholders who don't contribute financially to the organization-- Many of the people who are directly served by nonprofits contribute nothing financially to these organizations. There's a disconnect between the financial viability of a nonprofit organization and the perceived quality of the services or goods that it provides.
Legal Landscape for Nonprofits
In 2004, Senator Charles Grassley prodded the Senate Finance Committee to propose legislation that would dramatically increase federal and government oversight of nonprofits. Senator Grassley charged that nonprofit groups and individuals are "exploiting" a vacuum "in the enforcement of the laws governing tax-exempt groups to enrich themselves rather than serve the public."
To this end, Grassley publicly requested that both the Chief Counsel of the IRS and the Commissioner of the IRS tax exempt entities division look into what is happening in the nonprofit sector more closely. To regain nonprofit service to the public the IRS specifically scrutinizes the following:
1) Charges of excessive compensation-- the IRS aggressively pursues cases where it appears that board members or trustees are receiving overly generous paychecks when taking into account what they actually do.
2) Unrelated business income -- abuses of tax exempt status by no paying taxes on income that's unrelated to their exempt purposes.
3) Tax Exempt Status of Nonprofit Hospitals-- public attention has focused on the issue of whether nonprofit hospitals provide enough charity care or other reduced benefits to deserve their tax exempt status.
4) Compliance with reporting requirements by large nonprofits-- new watchdog initiatives to review how well charities with total assets of $ 100 million dollars or more are complying with the requierement that they file their federal informational returns electronically
Sarbanes-Oxely Act (USA legislation) and Implications for Nonprofits
Startup Activities List For Nonprofits
When forming a new new corporation or association (these are the types of organizations that usually have boards of directors), the board typically has several specific activities they must conduct, including meeting to:
1. Approve the mission statement (may include vision and values statements, as well)
2. Approve Articles of Incorporation (or whatever charter document is required in your state)
3. Approve Bylaws (these are not always required in every state; you should strongly consider having them anyway)
4. Select officers in the board (usually including the president or chair, vice president or vice chair, secretary and treasurer)
5. Approve (probably very rough drafts of the) strategic plan and yearly budget
Record Keeping requirements
Save your receipts ! Under the law, no tax deductions are allowed for cash contributions without a receipt, cancelled check or credit card statement. You don't need to mail these things in with your tax returns, but you do need to keep the receipts and other documentation with your copy of the return in case you are stuck wth an IRS audit. The new law also thoughens the rules for non cash donations. If you donate a car, household goods, furniture, clothing or property to a charity it must be in good condition.
Board Operations and Systems
Recurring, Annual Operations
Boards meet their responsibilities usually by conducting certain major activities at certain times of the year. Often, the bylaws specify when certain activities will be conducted. Activities include, for example, conducting regular Board meetings (every month, two months, etc.), conducting the Board self-evaluation, evaluating the chief executive, reviewing and updating Board and personnel policies, conducting strategic planning, recruiting new members, holding an annual meeting, reviewing and authorizing the yearly budget, conducting fundraising (in the case of nonprofits), etc. The following sample Board Operations Calendar lists typical recurring activities of the Board and suggests the timing for these activities.
Sample Board Operations Calendar
Overall "System" of Board Operations
Below, in the links about systems, are handy one-page depictions of the various inputs to the operations of a Board, the Board processes that influence those inputs, and the various outputs from Board operations. This information gives a concise "snapshot" of the recurring activities -- the loop of activities -- in a Board. The links about where Boards "fit" are to one-page depictions that indicate the role of the Board in the overall planning, development, operations and evaluations in the organization.
For-Profit Boards
Depiction of the system of a for-profit Board
Depiction of where Board activities "fit" in for-profit organizations
Nonprofit Boards
Depiction of the system of a nonprofit Board
Depiction of where Board activities "fit" in nonprofit organizations
Board Roles and Responsibilities
Resource Links
PDF Attachments
Committee Charters: Updated July 2008!
Many articles are in PDF format. Click "Get Adobe Reader" to download the free Adobe Acrobat PDF Reader.
Articles, Bylaws, Resolutions, Policies
Articles of Incorporation
The articles of incorporation (or other forms of description, such as charters, constitutions, articles of association, etc.) are established when the organization files for incorporation with the appropriate state or provincial agency. A Board of Directors gets its authority from the articles. This governing document specifies, for example, its name, the purpose or mission of the organization, place of business, primary officers, etc.
In Canada, you can form a nonprofit corporation either at the provincial or federal levels, and you might be able to form under a variety of regulations, for example, a provincial Societies Act or Companies Act, or the federal Canada Corporations Act. In Canada, it is necessary to be incorporated in order to become a charity.
For-profit Organization
Sample articles of incorporation form (the form depends on each state)
Nonprofit Organization
Corporate Bylaws
(Board's internal specification of how the Board will be organized and operated)
Bylaws specify the Board's rules of internal operation, for example, number of members of the Board, length of the terms of membership, all of the officer positions, how meetings are conducted, etc. In some states in the USA and provinces in Canada, you have to have Bylaws to file for incorporation.
For-profit Organization
What are bylaws and why are they important?"
Sample bylaws
Another sample Another sample
Nonprofit Organization
Board Resolutions
(single acts of approval for, eg, contracts, dues, etc.)
Articles, charters, constitutions, etc., and bylaws are ongoing rules. A resolution is used by the Board to draw attention to a single act or Board decision, for example, to approve or adopt a change to a set of rules, new program, new contract, etc. Resolutions are included in the minutes for the Board meeting. Here is a sample.
Sample Board Resolution
Sample Board Resolution
Board Policies
(Board's guidelines for how members will work together)
Board policies are guidelines for how the Board members can best work together, e.g., when they want to meet, how members should be on Committees, how they recruit and orient new members, how they manage for consistent meeting attendance, how the Board will work with the chief executive officer, how they will avoid conflict-of-interest, etc.
Board Policy Manuals and Miscellaneous
Board Attendance
Conflict of Interest
NOTE: Many experts believe that the conflict-of-interest terms should be in the bylaws, rather than Board policies. Often, state statute (which takes precedence over bylaws) specifies terms to avoid conflict of interest.
What is a "conflict of interest?"
What goes in a conflict-of-interest policy
My Board member says to use her/her relative as a vendor?
How Do We Safeguard Against Conflict of Interest?
Conflict of Interest
Accountability, Legal, Lobbying, Ethics and Risk
There is more emphasis on Board accountability than ever before, especially because of growing public concern in the U.S. about large salaries paid to CEOs of large, publicly traded for-profits; numerous occasions of corruption in those types of organizations; and the "Enron" debacle where the public perceived that the Enron Board did not exercise due diligence in governing that corporation. At its most basic, accountability is having to report to a certain constituency (for example, to stockholders in the case of for-profits and to the public in the case of nonprofits) about what an organization is going to accomplish and also the status of achieving those accomplishments. Accountability is being responsible and accepting the consequences of the actions of the organization, whether those consequences are positive or negative. Progressive and socially responsible organizations take that definition of accountability even further and see themselves as being responsible to "stakeholders" -- to groups of citizens who have a direct or indirect interest in the operations and effects of the organization.
Accountability
Lobbying Considerations (Nonprofit)
Ethical Considerations
Insurance and Risk Management
How to Minimize Liabilities of Nonprofit Board Members
A Primer on D&O Insurance
Why Purchase D&O Insurance?
Insurance Considerations for Board Members
Risk Management Resources
Risk Management Topic in Free Management Library
Crisis Management Topic in Free Management Library
Staffing Considerations
(Size, Joining, Recruiting, Informing, Communicating, Rewarding, Removing)
One of the most important aspects of Board operations is Board staffing. Just like the careful staffing that is usually done with employees, Board members should be carefully selected, trained and evaluated, as well. In for-profits, Board members and leaders must appreciate the strong value that Boards can bring, rather than tolerating Boards as if they are some necessary evil to be avoided at all costs. In nonprofits, Board members and leaders should not approach recruitment and selection as if they are somehow lucky just to get Board members who will show up at Board meetings. Board members and leaders in those organizations must act as if they deserve a very dedicated and participative Board -- that attitude alone can make a huge difference in achieving highly effective Boards.
There are different perspectives on staffing. Some people believe that Boards should be staffed primarily with the expertise needed to establish and achieve current strategic goals (this is functional staffing). Others believe that staffing should also achieve a wide diversity of values and perspectives among members on the Board (diversification staffing). In nonprofits, members are also sought who have strong passion for the mission (passion-driven staffing). We're learning, though, that passion alone is not enough -- Board members also must have the time and energy to actively participate in the Board. Yet another pespective is to get members who represent the major constituents of the organization (representative staffing).
Ironically, many people perceive for-profit Boards as being more established and effective. Yet nonprofit Boards very often have highly involved members who take a very strong role in establishing strategic plans and in ensuring that those plans are achieved. Board members of for-profit and nonprofit organizations have much to learn from each other.
Board Size
The Determinants of Corporate Board Size and Composition: An Empirical Analysis (for-profit)
Board size and corporate performance: evidence from European countries
Choosing a Board of Directors (for-profit, includes info about size)
Term Limits
Composition of Board Members
Joining a Board (potential new member's perspective)
Recruiting Board Members
Informing, Communicating With Board Members
Rewarding / Recognizing Board Members
The following link is useful for nonprofit Boards. For-profit Board members often are compensated monetarily (see the next section).
Removing Board Members
Removing a Board Member (scroll down)
How Boards Deal with Lazy Directors
How to Remove a Board Member
How do we remove a Board member
How do we remove a Board member?
The Diversity Issue - Part 2 (scroll down)
Compensating Board Members
Members of for-profit Boards often are compensated monetarily, usually as a flat fee plus reimbursement for expenses. Often, the larger the organization and its revenues, the larger the compensation to the Board members. Members of nonprofit Boards usually are not compensated with a flat fee. They can be compensated as reimbursement for expenses.
In For-Profit (Corporate) Boards
Compensation for Board Members
Compensation for Board Members
Governance, the Board and Compensation
In Nonprofit Boards
Are Nonprofit Boards Asleep at the Wheel? (asserts members should not be paid)
May a Member of a Nonprofit Board Be Paid?
How Much Do I Get Paid to Be On This Nonprofit Board?
Orienting and Training Board Members
Orientation and Agenda
Board training conveys the knowledge and understanding needed in order to be effective as a member of any governing Board of Directors, for example, legal responsibilities. Board orientation is training about the organization-specific information in order to be effective particularly as a member of the organization's Board of Directors, for example, about where the Board meets, who's on the Board now, etc. Selection of training topics and training methods depend on the nature and needs of the organization. However, the following guidelines and sample training agenda might serve useful to the reader when designing their own training plan and methods.
Ongoing Education
Ongoing Board Education: Ensuring Board Members Have the Knowledge They Need
Team Building (many resources listed there)
Board Committees, Task Forces, Advisory Groups and Work Plans
It's common for Board members to be organized into Committees. Some Board models, including the Policy Governance Model (a registered trademark of John Carver), minimize or avoid committees altogether. Some Committees are increasingly popular, including the Audit Committee and Compensation Committee in for-profits and the Board Development (or Board Governance) Committee in nonprofits.
Advisory Boards (or Advisory Committees or Advisory Groups) are increasingly common. They can be used as formalized means to get highly focused advice and recommendations about certain topics or even to attend to specific activities, such as researching an issue or overseeing the construction of a facility. Sometimes these groups are formed merely to "park" people who have served admirably on the governing Board or to associate "big names" with the organization. Frequently, these types of unfocused groups result in confusion and frustration for its members. For the organization to get the most value -- and for the members of the group to get the most satisfaction -- the advisory group should be almost as carefully planned, organized and monitored as the governing Board itself.
One way to organize, focus and activate Committees is by associating a work plan with each. A work plan usually includes specific goals, objectives and deadlines for achievement. Often those goals are aligned with goals in an overall strategic plan. In Board meetings, each Committee reports status on implementing its work plan.
This author realized years ago that the best way to keep good Board members is to make sure they have something to do -- and the best way to get rid of bad Board members is to make sure they have something to do. Implementation of work plans gives Board members something to do.
Board Committees and Work Plans
Activating Committees and Board
Advisory Groups
Advisory Groups
How to Form a Nonprofit Advisory Board
Harness the Power of An Advisory Board
Advisory Board Meeting Agenda
What is an Advisory Board?
Board Meetings, Meeting Process, Retreats, etc.
Members of the Board do their work, primarily in their Board meetings. Thus, these meetings should be carefully planned, facilitated and documented. Meetings can be highly participative with very focused deliberations that result in strong, strategic decisions -- decisions that are captured in meeting minutes and then closely monitored for implementation. Or, meetings can drag on with only some members participating -- participating in spotted discussions about whatever topic was first brought up in the meeting. It's often the most dedicated Board members who become frustrated with these unproductive Board meetings and soon leave the organization, leaving the rest of the members to continue this ineffective approach to Board governance.
One of the most effective ways to accomplish productive meetings -- and strong governance -- is to carefully design an agenda and then closely facilitate to that agenda. Agendas should include 1) strategic topics to address in that meeting, 2) specification of how each topic is to be addressed in that meeting (for example, to make a decision, assign further research, etc.), and 3) specific times to address each topic. Without that careful design and facilitation of the agenda, Board meetings too often result in prolonged confusion and frustration of members -- and overall ineffective governance of the organization.
Board Meeting Agenda and Minutes
(and Decisions During Meetings)
Parliamentary Procedure for Meetings
Board Retreats
Maximizing Board Attendance
Online Meetings
Executive (In-Camera) Meeting
Should the Board Hold Executive Sessions?
Board and Staff Relations
The nature and extent of interactions between Board members and staff (employees) depends on the Board model used by the organization. Often, the model is not intentionally and explicitly chosen -- it's the result of how members ended up working together. Working (or hands-on) Boards often include members interacting with employees on a regular basis. In contrast, in policy Boards, Board members and employees often do not have strong interaction with each other; however, employees might attend Board meetings to give reports or participate in certain Board Committees. In any case, it's often wise for Boards and executives to specify the nature and extent of interaction expected between Board members and employees.
In addition, there are certain practices that ensure that Board members and employees have strong appreciation of each other's roles and can contribute to each other's accomplishments. Links in this section help Board members and employees to maximize their mutual understanding and contributions in the workplace.
Board and Staff Roles
Board and staff roles
How Much Should Nonprofit Board Be Involved in Management?
Board and CEO Role and Relations
How the Nonprofit Board and CEO Are in Strategic Relationship
What should be the relationship between the Chief Executive Officer and the Board (nonprofit)
Sustaining High-Quality Relationship Between Chair and Chief Executive
Should the executive director be a member of the Board? (nonprofit)
Board Members Seeking Staff Position
Staff at Board Meetings
Board and Staff Relations
Should Staff Contact with Board Be Restricted?
Numerous questions about Board and staff relationship (nonprofit)
Board Staff relations
Board versus management conflicts
Building Trust Between Boards and Staff
Evaluating the Board and Members
One of the most powerful practices for Board members is to evaluate the quality of their Board operations. Many times, Board members do not know what they do not know about their own Board. For example, they might be terribly ineffective because they all have fallen into a rut in their operations -- and they have not even realized it. Or, they might have gotten side-tracked into attending to certain urgent matters (for example, the latest crisis reported by the Chief Executive Officer), and are ignoring very important matters (for example, strategic planning that would have avoided those crises altogether).
Board members who claim that they do not need evaluation and Board training are like obese people who claim that they do not need advice about eating because, after all, they are already experts at eating. Experienced and highly effective Board members have learned that it's critical to regularly conduct short, practical evaluations of the quality of their Board operations and then to attend to the results of those evaluations during the year. Evaluations need not take a long time -- many times, even 15 minutes a year from each Board member to complete a short questionnaire, followed by half an hour to discuss results, can be transformational for a Board.
Reasons to Do, How to Do
How to Evaluate Executive Director (nonprofit)
Hiring, Evaluating and Working With Your Executive Director (nonprofit)
Sample Procedures
Board Self-Evaluation
Checklist to Evaluate Health of Board
Nathan Garber's checklist
Quick Assessment of the Five Dysfunctions of Your Board
Individual Board Member Evaluation
Individual Board Member Evaluation
Individual Board Member Self-Evaluation
Board Member Self-Evaluation
Advanced Topics
Board Models
As mentioned above, Board members often adopt a model or way of working together. Many times, the model is not intentionally or explicitly selected by Board members. They just ended up working together in the same way. There are several types of Board models and others are emerging; however, the research is not conclusive about which models are best to use and when. Perhaps the most valuable result for Board members from reading about models is first learning the many ways that members can work together and then by reflecting on their own Board operations.
Board Development
It might help the reader to understand the concept of Board development by comparing it to Board orientation and Board training. Here's one interpretation. Board orientation is orienting Board members about the unique aspects of the organization, for example, its history, products and services, other Board members, etc. Board training is training members about the standard roles and responsibilities of members of any governing Board. In contrast, Board development is raising the quality of Board operations up another level, including by using a Board pre-assessment, Board orientation, Board training, coaching of Board members, and closing with a Board post-assessment to measure any improvement from the Board development. The following links provide a range of advice about improving the quality of Board operations.
Some Types of Broken Nonprofit Boards
Why Board Training and Team Building Alone Seldom Fix Broken Boards
General Principles for Restoring Nonprofit Boards
The Cost of Governance
>Founder's Syndrome: Who? Me?
Founder's Syndrome: How Organizations Suffer -- and Can Recover (a manual)
Make Your Board Room an Oasis
Why Boards Micromanage and How to Get Them to Stop
Board's Evolving Role: From Management to Governance
Has Your Organization Outgrown Its Board?
Dysfunctional Board or Council?
Enhancing The Board's Monitoring Role
Good Governance and Crisis
Good Governance
Moving to Good Governance: Digging Into Organizational Change
Policy-based Governance: If It's So Great, Why Isn't Everyone Using It?
The Top Reasons to Use Policy Governance (copyright of John Carver)
Policy Governance in 2002
A Checklist for Determining the Extent Policy Governance® is Being Used by a Board
Desirable Board Member Attributes Under Policy Governance®
General Resources Nonprofit Boards
General Resources For-Profit Boards
Corporate Survival Guide
Corporate Governance Codes & Principles
The Lawyer on the Board - Playing a Dual Role
Founder's Syndrome -- How Corporations Suffer -- and Can Recover
Corporate Governance At The Speed Of Light
Corporate Governance
Corporate Library
Global Corporate Governance Forum
International Corporate Governance Network
Corporate Governance Magazine
