Nonprofit Best Practices Hold the Key to Board Governance Issues
While it’s helpful to review multiple studies about a particular issue, research about nonprofit board governance issues hasn’t been studied very much. That’s what makes the 2015 Survey on Board of Directors of Nonprofit Organizations by the Stanford Graduate School of Business such an excellent tool. The report brings out some important facts about known or suspected matters and highlights a few new ones.
The good news is that nonprofit organizations can use the Stanford report as a springboard for developing new best practices in the nonprofit sector. Here’s a rundown on where nonprofit boards are falling short.
Core Governance Structures and Board Member Commitment Lack Strength
The Stanford Report brought out a host of governance issues that occurred because of a weak foundation at the cornerstone. The issues begin with little or no succession planning, weak director evaluations and a lackluster performance by the board members.
About 75% of the nonprofit board members who participated in the survey acknowledged that if their current director or CEO left tomorrow, they couldn’t even name one potential successor. Another third of the respondents said that they currently had no succession plan at all. While a large percentage of respondents admitted to not being prepared for a quick exit of their director or CEO, they readily acknowledged that it would take at least three months to find and appoint a replacement.
Another piece of concerning data centered around director evaluations. Approximately 80% of the board members surveyed reported that they follow through with an annual review of their executive director or CEO. When asked if they had performance targets to measure the director’s performance, about 40% of the respondents said that they didn’t, so the data they received was not accurate enough to properly evaluate it.
The section of the Stanford survey that researched board member performance also revealed some interesting results. About 66% of respondents said that they didn’t feel their directors had enough experience. Not quite half of the board members in the survey said that they didn’t feel their fellow board members gave enough time to the board and indicated that they thought these board members were not as reliable as they should be.
The percentage of board members who understood their organization’s mission and overall strategy was also low, at about 25%. The numbers demonstrate a low rate of board members who understand their obligations. Less than 50% of board members in the survey said that their fellow board members didn’t know enough about tax exemption laws.
Attorney Carter Ellis stated that one of the problems he sees in his practice is that board members of nonprofit organizations don’t readily understand that they have fiduciary duties. New board members may not be aware that the IRS and other government entities are stepping up their scrutiny of nonprofits, putting their organization at legal risk. Many board members don’t realize that they have liability for the board’s financial decisions, even when another board member handles them.
Ellis also reported that nonprofit organizations face problems when board members automatically defer decisions to the board chair, executive director or founder, rather than voting their own conscience.
Ellis also noted problems when board members tried to micromanage organization staff, blurring the lines between the staff and board member duties.
Nonprofit Best Practices to the Rescue
The Stanford survey makes it clear that nonprofit boards need to make a stronger commitment to improving their governance structures. One of the responsibilities of nonprofit board members is to work with the other board members to avoid potential problems and legal issues. This is where nonprofit boards can learn a lot from their for-profit counterparts, whose role is all about strategic planning and measuring impact.
Nonprofit Strategic Planning
Nonprofit boards should schedule a strategic planning meeting every three years, so that they can assess their progress and set long-term goals. During the strategic planning meeting, the board members should plan to act on key performance metrics.
The Stanford survey showed that one of the greatest weaknesses of nonprofit boards is not having a succession plan if the executive director or CEO were to leave the organization with little or no notice. The strategic planning meeting is a good time to form a committee to compose a list of potential candidates and criteria for selecting one, if needed. When this list becomes part of every strategic planning meeting, the board would at least have a list that is no more than three years old. A better practice is for a standing committee to meet at least annually to review the list of potential candidates.
Another facet of nonprofit best practices is to invest time in orienting and training board members for their service to the board. The board should form a standard procedure for welcoming new members and providing them with a formal orientation. Best practices should include setting up mentoring relationships and making a commitment to board development. As part of board training, it’s a good idea to rotate board chairs and allow the outgoing board chair to mentor the new board chair for the first few meetings.
Board members can institute best practices by performing annual evaluations for the executive director, individual board members and the board as a whole.
Much of the work of avoiding legal or other issues can be fixed by carefully documenting meeting notes and keeping bylaws updated. Board members need to take an active role and not assume that another board member is doing things correctly.
Recruiting is an ongoing responsibility for board members. A mistake that many board members make is to ask anyone that they think will say yes to joining the board. Board members should seek out quality board members who will make a good contribution to the board and not give in to groupthink.
Measuring Impact of Nonprofits
According to the Stanford survey, 45% of respondents said that they had little or no confidence that their data for performance measurements accurately measured success toward their mission.
Boards implement best practices by using benchmarks from peer groups of similar organizations to more accurately measure the performances of the executive director, board members and the whole board. Establishing a new process for measuring evaluations against benchmarks costs money and resources, which some boards may not think is worthwhile. Taking these steps will not only improve the workings of the board, but should motivate donors to honor their commitment to bettering themselves, which could be a factor in getting more donations.
Board members are trending toward making the process of board member evaluations more interactive. One way to do that is for the board member to meet with the board chair to discuss the member’s commitment of time, money and resources, and to allow the board member to give feedback on his or her own performance.
Corporate boards of directors spend the bulk of their time strategizing for performance and looking at charts and trends for positive growth. Nonprofit organizations are largely held to their own standards. When nonprofit directors hold themselves accountable to a high level of nonprofit governance, they protect themselves and their members from unnecessary legal troubles. At the same time, directors are priming the organization for long-term sustainability.
The best reason for nonprofits to make a commitment to best practices is that their donors are evaluating them when making their decisions about their favored charities and the level of financial support they decide to offer. With a commitment to good governance and best practices, directors of nonprofit organizations are continually positioning themselves for a prime spot on their donor’s sponsorship lists.
