People who serve on a nonprofit board are held to the same legal standards as those who serve on a corporate board, which boils down to the Duty of Care, the Duty of Loyalty, and the Duty of Obedience.
The overarching idea is to hold board members accountable for acting in the best interest of the organization.
The Duty of Care means making the right decisions for the organization. It is the board’s responsibility to make decisions that support the organization’s mission, ensure its sustainability, and make sure that all of the organization’s assets are used wisely.
To exercise their Duty of Care, members must use reasonable caution, good judgment, and the best information available to arrive at decisions. As such, members can be expected to:
- Understand the organization’s priorities, including its vision, mission, strategic goals, and working programs.
- Attend all board meetings and take part in all board votes.
- Attend certain organizational functions (e.g., fundraising events).
- Be familiar with the organization’s financial state.
- Establish systems for staying informed about the organization’s operations (e.g., through committees, regular reports from the ED and/or other leaders, etc.)
- Consult available information, seek further information where needed, and participate in rigorous discussions.
The Duty of Loyalty means fidelity to the mission and to the organization: Putting the organization first when in the board role. That includes avoiding all conflicts of interest while sitting in their board seat by declaring any potential conflicts, recusing oneself from votes in the case of a conflict, and signing an annual conflict of interest statement pledging to take those steps, as required by the IRS.
The Duty of Obedience means following the bylaws of the organization and any other legal documents, policies, and procedures approved or established by the board, IRS, and state nonprofit laws. As a legal document, bylaws are to be followed or they should be changed to reflect the practice of the board.
The most high-performing boards, as part of the Duty of Care, excel at board recruitment and new member onboarding, knowing that among their most important roles is to identify, recruit, and onboard those who can provide needed skills and passion for the mission. These boards do their own annual assessment (or survey) to review their performance and constantly improve their work. They also ensure that their approach to hiring, supervising, and annually assessing the chief executive avoids micromanaging or otherwise engaging in the daily work of the organization.
In addition, board members must make an annual contribution to the organization, and ensure the board has a donor policy for board giving and donations. Every board needs 100 percent participation from board members in donating to the organization. Today, board members must also actively participate in fundraising: through peer-to-peer campaigns using their own personal networks and contacts, as well as by identifying new resources, making introductions, and being ambassadors in their communities – complete with a ready elevator pitch.
Board members are responsible for governing the organization. The key commitments involved in effective governance are:
- Engagement. Participating fully in governance activities requires understanding the context and specific information related to board actions, advice, and support. This is fostered by meeting attendance, reading and understanding materials, seeking additional information when needed, understanding how external stakeholders perceive the organization, and participating in supporting the organization – including personal giving, asking for funds, and sharing connections.
- Approving strategic decisions. This means ensuring that the work, programs, and services of the organization meet the mission; leading the update or refresh of the mission as needs and communities evolve; establishing and approving long-term strategy; approving goals and targets; and reviewing data – in the form of staff presentations, outcomes dashboards, and more – in order to monitor programs and evaluate their success in meeting the organization’s goals.
- Financial oversight. This includes approving financial policies, strategic expenditures, and the annual budget, as well as reviewing financial performance, from regular financial statements to the annual audit or financial review (as conducted by a CPA firm).
- Selecting and motivating the chief executive. The board is tasked with recruiting, hiring, and onboarding a new CEO as well as terminating the CEO when needed and appointing interim leadership.
- Supporting and counseling the chief executive. Board duties extend to overseeing goal setting as well as appraising performance annually (using a clear and consistent process) and providing decision support and advice when needed.
- Ensuring compliance. This includes making sure that the organization meets regulatory compliance, manages risk appropriately, and has the mechanisms in place to communicate with key stakeholders (such as annual reports).
- Participating in fundraising. A key responsibility for every board member, this duty may be fulfilled by making an annual contribution, mounting peer-to-peer campaigns through social media, and working with staff to make introductions, seek out funding, and/or volunteer for events.
- Ensuring sustainability. The board is responsible for the sustainability of the organization and should provide its time, talent, personal financial support, connections, and influence to help achieve that mandate. The board is also responsible for financial planning and policies – including budgeting, investment policies, and other financial and asset management-related policies – that promote accountability and sustainability.
- Evaluating board effectiveness. Board evaluation is done through an annual or biannual assessment, covering the board’s functionality and the ways it gets work done. This is often conducted through an annual survey, with a board retreat scheduled to share results and develop a work plan to address needed improvements.
You can use the following chart as a handy reference to the hand-in-hand governance responsibilities of the board and the chief executive.