Chapter 4 Nonprofit Governing Boards Elected Boards Board

Chapter 4 Nonprofit Governing Boards

Elected Boards -Board members elected by the membership of the organization -Board members approved in a pro forma vote -Ensures that the board is responsive to the members' needs -Usually changes board members frequently, which may make long-term goals difficult to accomplish -Board members may not be an accurate representation of the organization or have even distribution of skills

Self-Perpetuating Boards -New board members selected by existing board members -Used by most charitable nonprofits -Can design the board membership to fulfill specific skills -Allow for longer terms of board members than elected boards. -Could potentially become unrepresentative of the population the organization serves

Appointed and Hybrid Boards -Board members are appointed by an authority outside of the organization -Hybrid boards can be highly effective because they combine the stability, responsiveness, and accountability of the different boards. -ex officio seat is held by an individual who holds a specific duty, but is not always present -ex officio members might not be completely committed to the organization's mission

Hello!!

The Boards Functional Responsibilities 1. Appoint, support and evaluate the CEO 2. Establish a clear and institutional mission and purpose 3. Approve the organization's programs 4. Ensure sound financial management and the organization's financial stability 5. Establish standards for the organization's performance and hold them accountable

The Board and the CEO Who leads the organization? Danger in CEO being too dominant: -CEO proposes and board does not debate/discuss -CEO may know more about operations. Board members may be afraid to show ignorance by questioning or assume that the other board members are well informed. -CEO may control what information reaches board. Can plan boards' agenda.

If If CEO is totally dominant, board may be put in a position where it cannot meet its responsibilities of mission, fiscal soundness, or optimal performance. Risk that the CEO could serve self interest at expense of the organization. At the same time. . . we don't want boards to micromanage and usurp the CEO's authority. -Can be difficult attracting CEO staff or the board may operate out of its range of expertise. so. . . we get different models for how a board and CEO should relate and lead the organization. . .

Policy Governance Model The board is responsible for policy making while the CEO is responsible for implementing that policy. Board needs to focus on the bigger picture and the long term. Four areas where policy must be maintained: 1. ) Ends to be Achieved: results, goal, outcomes for the organization. What is the broadest end statement that can be created? 2. ) Means to the Ends: Boundaries that the CEO may not cross. Example: CEO cannot break the law. Allows maximum flexibility for CEO. 3. ) Board-Staff Relationship: clearly defined role of Board and CEO. Also criteria for evaluating CEO's performance. Benefit is that anyone can talk to anyone. 4. ) Process of Governance: Board defines its own role and policies for itself. Example: process by which new board members are selected. Conclusion: Board needs to focus energy on defining its policy and the distinction between the roles of management and the roles of the board.

Governance as Leadership The idea that boards currently are reactive to staff initiatives and don't really lead. Board gets stuck in operational and managerial details and the management leads instead, maintaining mission, values and vision. Roles are backwards. Solution: Break down barriers and focus attention of board and CEO together on important issues. The board uses three modes of operating. 1. ) Fiduciary mode: stewardship of tangible assets, faithfulness to mission, legal accountability. Board is addressing legal responsibilities. 2. ) Strategic mode: create partnership with management which addresses long term goals and directions. 3. ) Generative mode: creative, out of the box, visionary thinking. Insights can lead to paradigm shift in policy and operations. Necessary for setting direction. Staff must be included in the this mode. Conclusion: Board and CEO come together to address important issues instead of focussing on defining the roles of each.

Comparison between the two methods: Studies show that regardless of what model was applied to an organization, boards that had training performed better than those without training.

Psychological Centrality and Board-Centered Leadership CEOs should lead, but their leadership should support the governing duties of the board. Executive Psychological Centrality: Does not mean that CEO has all of the responsibility(success or failure) but it means they are perceived to have it. So they should use their leadership role to support the board. Board-Centered Leadership CEO facilitates the boards' work in six ways: 1) Facilitating interaction in board member relationships. 2) Showing consideration and respect towards board members. 3) Envisioning change and innovation for the organization of the board. 4) Providing helpful information to the board. 5) Initiating and maintaining structure of the board. 6) Promoting board accomplishments and productivity. Conclusion: Instead of minimizing interaction or fighting with the board, the CEO

Nonprofit Board Effectiveness • Many have said that nonprofit boards are not effective in governing organizations This opinion could come with bias about how these people think nonprofit boards should be like o Most of these opinions are based on experience, rather than research o • • Nonprofit governance in general, or just particular boards and individuals? In 2005, Board. Source assembled a panel of experts, who came up with "twelve principles that power exceptional boards. "

12 Principles that Power Exceptional Boards 1. Constructive partnership 2. Mission driven 3. Strategic thinking 4. Culture of inquiry 5. Independent-mindedness 6. Ethos of transparency 7. Compliance with integrity 8. Sustaining resources 9. Results-oriented

12 Principles that Power Exceptional Boards 10. Intentional board practices 11. Continuous learning 12. Revitalization

There is No Right Answer • • • There are no "best practices" that will work for all nonprofit organization boards. Boards need to identify those processes that are most useful to them. Key questions: Does the practice fit this board's circumstances? o Does the practice actually help the board reach good decisions? o Does the practice contribute to the organization's success? o

The Challenge of Nonprofit Governance The Board of Director's have competing responsibilities to meet expectations of society and the organization. Table 4. 2 in book! Responsibility to Society Responsibility to Organization Accountability for resources and results Advocacy and Authenticity Adherence to mission and law Protection of Autonomy Representation of community needs Fiscal stability and Sustainability Board Member Qualities Board Memeber Qualities Integrity Stature Expertise on programs and finances Influence Knowledge of community and clients Wealth or Access to wealth

Molly's information a. Pages 79 • What is the board's responsibility? And. . . • Who is accountable? • "Bruce Hopkins (2003) described nonprofit governing boards as, fiduciaries (being held in trust) of the organization's resources and guardians of its mission" (pg. 79).

Corporate board: It is clearer in the corporate world what the responsibility of board members is. Such as monitoring activities of management in the interests of the owners. Nonprofit board: In the nonprofit private sector, it is not always so clear to which owners the governing board is accountable.

The Boards Legal Responsibilities • • Some governing board responsibilities are clear-cut and defined by law. Many of the laws affecting nonprofit boards are state laws, enforced by state attorney generals and state courts. But, the federal government, more specifically the IRS, has gained increasing power over the years. There are three classified standards of legal responsibility to non profit boards: Care,

Duty of Care • • • Care: paying attention and exercising due diligence in monitoring the organization's finances and supervising the actions of it management. Lack of care can be seen through not attending meetings regularly, sleeping through meetings, or perhaps don't read through materials. The board should exercise common sense and not lose money as a result of recklessness, indifference or failure to seek appropriate advice.

Duty of loyalty • • Loyalty: means that members of the board put the interests of the organization above their own personal financial interests or that of another organization with which they may also have a formal relationship. Individuals cannot use their position on a NP board to increase their own personal business or finanical position. Conflict of interest: Example: perhaps a NP board is voting to create a new partnership with another NP and a board member serves on both boards. Conflict of interest is not illegal but must be dealt with. There are policies in how to deal with them.

• • Private inurement: a legal concept related to conflict or interest. Anyone who is an insider--generally any board member or officer of the organization--cannot unreasonably benefit from the organization's funds.

Duty of Obedience • • Duty of obedience: requires that the board make sure that the organization is complying with the law and, in addition, that any decisions or actions taken are consistent with the organization's mission and governing documents, including its charter. It is important to make sure that the organization does not drift from its mission statement. This could require vigilance.

Intermediate Sanctions • • The risks of individual board members are somewhat higher today due to legislation that passed providing the IRS with the authority to impose intermediate sanctions (approvals). Intermediate sanctions are financial penalties to punish individuals who engage in or permit improper transactions. Intermediate sanctions, known formally as "excise taxes on excess benefit transactions, " are fines that the Internal Revenue Service imposes when particular individuals associated with a tax-exempt organization receive compensation or benefits that exceed the value of services, goods, or donations they have provided the organization. Intermediate sanctions fall under Section 4958 of the Internal Revenue Code and can be levied on excess benefit transactions that occurred on or after September 14, 1995.

Sarbanes-Oxley Act • • This act placed new requirements on the governance of publicly traded for-profits corporations. Only two provisions of Sarbanes-Oxley apply as well to NP organizations: 1. Regarding destruction of documents. 2. Protection of whistleblowers. whistleblower (an informant who exposes wrongdoing within an organization in the hope of stopping it)

Form 990 Revised version of the 990 in 2009: This meant that nonprofits having at least 25, 000 in annual revenues are required to file.