What Is a Governance Model and Why Does It Matter?
A governance model is a framework that outlines an organization’s general leadership accountabilities and describes how leaders and members interact with other parties.
Nonprofits commonly use governance models as a basis for developing a unique governance model that suits their leadership structure and purpose. Several different governance models have emerged over the years, and they serve as standards that nonprofits can mirror or modify.
To increase your understanding of governance models, you will learn:
- Why a governance model is important
- Why governance isn’t one-size-fits-all
- Governance model examples
- How to build a governance model
Why Is a Governance Model Important?
Governance systems are multi-faceted. Changing any part of a governance system affects many other parts of the structure, including the individuals and groups that make up the system and extend to it. A governance model helps boards understand the impact a change may make on other roles within the scope of the organization.
A governance model is important for the following reasons:
- Describes how roles function and work together
- Encourages accountability and transparency
- Relates directly to the organization’s mission, vision, and values
- Sets the stage for strength and productivity
- Promotes trust in the organization’s stakeholders
Weak or non-existent governance models promote distrust and infiltrate it throughout the organization. The lack of trust can lead to financial and reputational risks, and it may also lead to legal trouble.
Governance models also incorporate ethics, integrity, and a responsible code of conduct to inspire such characteristics in all leaders, volunteers, and workers. Leadership behavior has a strong influence on how people at every other level think and act, and it influences the entity’s culture, which runs like a thread throughout the entire operation.
History has uncovered the advantages and disadvantages of traditional governance models, and we can learn much from them in establishing the most appropriate governance model for a nonprofit.
Governance Isn’t One-Size-Fits-All
The concept of governance encompasses many things, and since all organizations are unique, one size doesn’t fit them all. Imagine a community bank trying to adapt its governance structure in the same way as the governance structure for an amusement park. It wouldn’t work well because industries are so different.
For example, a community bank must focus on the following issues:
- Serving customers
- Protecting shareholders
- Managing risks
- Building wealth
- Managing compliance
By contrast, an amusement park focuses on things like:
- Arranging for the physical safety of guests
- Promoting leisure
- Providing entertainment
- Ensuring food safety
- Expanding attractions
Depending on which sector your organization operates in, that can require you to have a particular governance structure. Each organization also has its own goals and objectives and each organization has a different set of stakeholders.
Establishing a governance model takes time, effort, and collaboration. Modern governance tools, such as a board management system, brings the right talent together at the right time to make it easier for boards to engage effectively in every aspect of good governance.
Governance Model Examples
Nonprofit boards keep the organization’s mission at the forefront when directing the organization’s affairs. The mission is a primary consideration when choosing to use a traditional governance model or creating a uniquely different model.
There are five common board models for nonprofit boards:
1. Advisory Board Governance Model
A CEO who founds an organization will soon find that they need help in running the organization. An advisory board serves as the primary resource for the CEO to turn to for help and advice. Advisory boards may also exist to help and advise the board, as a whole.
Members of an advisory board are trusted advisors who offer professional skills and talents at no cost. Advisory board members typically have established expertise or credentials in the nonprofit’s field.
Organizations commonly leverage an advisory board member’s name to increase the organization’s credibility, fundraising efforts, or public relations efforts, as advisory board members may be well-known individuals.
2. Patron Governance Model
The Patron Model is similar to the Advisory Board Model. The main difference between the two models is that the primary purpose of the board members under the Patron Model is to perform duties related to fundraising.
Board members who have personal wealth or influence within the field typically serve on boards with Patron Models. The primary role of board members under the Patron Model is to contribute their funds to the organization and to use their network to gain outside contributions for the organization.
Under this model, the board members have less influence over the CEO or organization’s board than in the Advisory Board Model.
3. Cooperative Governance Model
A board that operates without a CEO uses a Cooperative Model. The board makes consensual decisions as a group of peers, making it the most democratic governance model. There is no hierarchy and no one individual has power over another. The board exists only because the law requires its formation.
This model requires that each member be equally committed to the organization while being willing to take responsibility for the actions of the whole board.
4. Management Team Model
The most popular governance model for nonprofit organizations is the Management Team Model. This model is similar to how an organization administers its duties.
Rather than hiring paid employees to be responsible for human resources, fund-raising, finance, planning, and programs, the board forms committees to perform those duties.
5. Policy Board Model
John Carver, author of “Boards that Make a Difference,” developed the Policy Board Model, which quickly became popular for nonprofits. The board gives a high level of trust and confidence to the CEO. The board has regular meetings with the CEO to get updates on the organization’s activities.
Under this model, there are few standing committees. Board members should have a demonstrated commitment to the organization and be willing to grow in their knowledge and abilities regarding the organization.
Many nonprofit organizations will adopt one main model, such as Carver’s Policy Board Model, and add one or more boards to round out the needs of the organization. For example, a health organization may form an advisory board to advise them and a charity board to work on fundraising.
Religious organizations operate under different rules than other non-profits. Churches, faith missions, and other religious organizations may add a religious board, so that they may be better stewards of their organization’s assets.
How to Build a Governance Model
We have come up with a step-by-step approach to building a governance model. Nonprofits can also use the steps to enhance an existing model.
Here are the seven steps in building a governance model:
- Review traditional governance models
- Determine the pros and cons of each
- Highlight the features of each model that will serve the organization best
- Determine whether an existing model or an adaptation of one of the models will work best
- Designate key accountabilities and who has the right to decision-making
- Establish a plan for escalating matters up the hierarchy
- Create the model and document it
When building a governance model, be sure to consider any regulatory, governance, or legal requirements. Once the model has been established, it stands as a reference for how the organization will govern itself.
If it turns out the governance model isn’t working well enough, your board can revisit it and revise it down the road.
Modern Governance Provides the Tools for Good Governance
As a crucial part of the governance model, board performance is generally a strong indicator of an organization’s potential for success. Nonprofits are interconnected with businesses, stakeholders, governments, and other entities which are increasingly scrutinizing nonprofits.
For these reasons, nonprofit leaders are more accountable than ever for their successes and failures, and the right governance model will help your board stand out as a model for other nonprofits to exemplify.
BoardEffect is designed with the unique needs of volunteer boards in mind. Our nonprofit board management software streamlines board processes, and enhances and delivers secure communication, helping you to become an efficient and effective board.
Curious to learn more? Explore how a modern digital solution to support board governance starts with a buying process designed to deliver optimal results. Contact BoardEffect to see a demo of the system today!
