The Dangers of Poor Governance for Nonprofit Leaders

The recent evolution of economic and social changes means that nonprofits are more influential than ever before. The early nonprofits focused on serving the poor, and the scope of nonprofit organizations now covers a wide variety of industries—everything encompassing health, education, religion, and other specialized types of charities. Service to the public and accountability go hand-in-hand, and that means good governance is paramount.

From a global perspective, India is now mandating corporate social responsibility with the passage of the Corporate Social Responsibility law in 2014 that requires certain corporations to spend at least 2% of their profit in supporting nonprofits. Time will tell if corporate social responsibility laws will become a global trend. Such an investment means that nonprofit boards will be under an even greater level of scrutiny.

Greater nonprofit board accountability comes in the face of some of the greatest challenges nonprofits have encountered in their existence. Fortunately, there’s been a concurrent evolution in nonprofit board technology which is quickly becoming a valuable and essential tool for nonprofit boards.

What Are the Dangers of Poor Nonprofit Governance?

On the whole, people living in communities fare a lot better when they feel secure. A report by Transparency International says, “…in any civilized society the two most important factors which would be the indicators of the quality of life are firstly, the protection of life and property and secondly, the dispensation of justice.”

The major types of security that people worry about fall into the following categories:

• Economic
• Food
• Personal
• Environmental
• Health

The primary danger for nonprofits that fail to adhere to good governance principles is that donors will lose their faith and trust in nonprofits and fail to support them. Poor governance ultimately leads to failure for nonprofits, and the sense of security that the general public needs will weaken. As a result, communities will be less supported overall.

Challenging Times Make for Challenging Nonprofit Governance

Virtually all nonprofits go through challenging periods. It’s during these times that the strength of the board gets called into question. Human rights, climate changes, corporate sustainability, wildlife conservation, and public health are big issues right now that are compounding other challenges for nonprofit boards.

Current societal issues are causing the following nonprofit board challenges, to name a few:

• Reduced donor funding
• Reduced or delayed payments by state and federal governments
• Increased demand for their services
• Entities are increasingly complex
• Greater demands from donors for accountability, outcomes, and impact
• The growing impact of social media and real-time data
• Difficulty recruiting quality board members
• Employee retention and volunteer recruitment
• Decreased lack of resources

With greater needs and fewer resources, nonprofits need to work smarter and more efficiently. Evolution in nonprofit technology has created new tools for nonprofits that create efficiency so boards can spend more time ensuring oversight and accountability.

Leveraging Technology to Ensure Good Governance

Nonprofits have been somewhat slower to embrace the benefits of technology than corporations. In the interest of transparency, efficiency, and accountability, the right board management system will help nonprofit boards stand up to the demands of donors and stakeholders.

With that in mind, let’s look at some of the challenges that today’s nonprofit boards are facing and how a board management system helps boards tackle them effectively.

1. Recruiting qualified and talented board members. The first board of directors plays a very important role in setting the policies, procedures, and standards for good governance. To follow closely behind them, succession planning is another important board activity to ensure nonprofits adhere to their original mission and vision. A board management system gives nominating and recruiting committees a secure platform where they can collaborate and store resumes for board candidates.
2. Documenting job descriptions for board members, executive staff, and administrators. Written job descriptions set the accountability standards for each role and lend a level of transparency to stakeholders.
3. Establishing and documenting a Code of Ethics. It’s vital for all board members to be aware of their fiduciary duties. Nonprofit board members aren’t paid for their time, but they must still put the interests of their nonprofits before personal and professional obligations. An approved Code of Ethics policy outlines acceptable and unacceptable behavior for everyone within the nonprofit. Your board management system has the capability to store this and other policies securely in the cloud to preserve them.
4. Gathering data to support outcomes and impact. A nonprofit’s annual report must comply with regulatory and compliance matters. It’s also useful for presenting data to stakeholders that demonstrates the impact of the nonprofit’s work. A board management system makes it easy for board members to access charts, reports, and data to share with stakeholders as needed.
5. Evolving with the changes in fundraising strategies. Fundraising for nonprofits is often most effective when using social media, websites, and other digital tools. Technology allows nonprofits to leverage promotional strategies that meet donors where they’re at on social media platforms.
6. Assessing the nonprofit board’s performance. Stakeholders are looking for assurance that the nonprofits they support are practicing good governance. The functioning of the board of directors is a key indicator of the board’s commitment to good governance. Stakeholders will view how well a board functions in light of the number of board meetings, attendance rate for board meetings, timely board meeting minutes approval, and more. With BoardEffect’s board management system, you get a built-in survey tool that your board can use in various ways to conduct your annual board assessment. Board members will appreciate the convenience of being able to complete the assessment online.

Your community relies on the good work of your nonprofit organization heavily. Like many other nonprofits, your board members are motivated to do the work of your organization because of the enthusiasm and passion for your mission. The challenges you face are numerous and complex. You can face them more confidently when you use a board management system to responsibly and transparently meet the expectations of the donors and stakeholders that support your valuable work.