#222 Musings Beyond the Bunker (Wednesday December 15)
Good morning!
Over the next few weeks, I’m going to include a few Musings about nonprofit organizations, the good they do and the ways in which they can perform better.
BRING YOUR BRIEFCASE
One of the most intelligent observers of non-profit management is Adlai Wertman. He has remarked that he has seen many board members, all well-meaning, who “leave their briefcases at the door” when they step into a board meeting. What he means, of course, is that many board members perceive themselves not as “owners,” but as “advisors.” And they behave as such, not raising important questions and, instead, taking a passive role. But that’s not the job. The job is to treat the job as if one is making decisions with a level of review that is equal to or greater than the level of review one would use in one’s business or personal life.
I’m not suggesting that board members should become more active in management. I’m a firm believer that boards establish mission, ensure financial responsibility, oversee management, help in development and then step aside and advise while management manages.
This being said, boards are keepers of a public trust to manage nonprofits. Boards need to pay attention and manage like it’s critical. Many of the critical support services received by those in underserved communities come from important nonprofits doing important work. It is an important calling that requires engagement.
HOW TO BE A NONPROFIT BOARD MEMBER
The following is an abridged version of an excellent summary of what it takes to be on a nonprofit board and the duties involved, written by Mark Eshman:
What is a board member’s fiduciary duty?
Simply put, a fiduciary is a person who holds a legal and ethical relationship of trust with one or more other parties. Many of our clients serve on for-profit and nonprofit boards. Whether an organization is for-profit or nonprofit, a board member must abide by the same fiduciary duties.
Well-intentioned people join nonprofit boards for a variety of reasons, but they need to be careful not to equate their volunteer status as something that may give them a “pass” on fulfilling their fiduciary duty.
In the context of a nonprofit board, the broader definition of fiduciary duty must include financial oversight and protecting the organization’s assets and reputation. They must make decisions in the best interest of the organization without subjecting it to excess risk.
Duty of care
Generally speaking, board members must pay attention. This means monitoring its activities, ensure that its mission is being advanced, and guarding its financial resources. While not every board member can be a financial wizard, every board member needs to ask questions and understand basic terminology. Moreover, they must read and judge the soundness of financial statements and be able to recognize warning signs. A board dashboard of key financial metrics is an excellent way to standardize this reporting and track trends over time.
Specific to the organization’s investments, board members are expected to show the same degree of skill and attention as any prudent investor would in a similar situation. Investment decisions are judged not based on actual results, but by the soundness of the decision-making process.
Duty of obedience
The duty of obedience requires board members to adhere to the organization’s by-laws, to comply with state and federal laws, and to be faithful to the organization’s mission. There is an implicit public trust in a non-profit organization’s ability to manage donated funds to fulfill its mission. Failure to use funds for charitable purposes can result in board removal and/or legal jeopardy.
Duty of loyalty
This refers to putting the organization’s need first…A conflict in and of itself may not necessarily be a breach of one’s duty of loyalty so long as it is disclosed and approved in advance by the board chair. The board should have a policy related to the disclosure and management of conflicts along with a robust whistleblower process in place.
Above and beyond these codified fiduciary duties, one of the most important characteristics of any board member is ethical conduct. The following is from the Nolan Committee Report on Standards in Public Life, a report commissioned by the British government…:
Selflessness. Board members should make decisions in terms of public interest. They should not do so in order to gain financial or other material benefits for themselves, their families, or friends.
Integrity. Board members should not place themselves under any financial or other obligation to outside individuals or organizations that might influence them in the performance of their official duties.
Objectivity. In carrying out business, including making appointments, awarding contracts, or recommending individuals for rewards and benefits, board members should make choices based only on merit.
Accountability. Board members are accountable to the public for their decisions and actions and must submit themselves to whatever scrutiny is appropriate to their office.
Openness. Board members should be as open as possible about all the decisions and actions they make. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands it.
Honesty. Board members have a duty to declare any private interest relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.
Leadership. Board members should promote and support these principles by leadership and example.
Despite the hard work and diligence required to fulfill your fiduciary duty, it’s important to consider this: the most important reason we join board of nonprofit organizations is the positive impact we can make. It is the mission, vision, programs, and services that drive us all. Board members play very significant roles providing guidance to nonprofits by contributing to the organization’s culture, strategic focus, effectiveness, and financial sustainability, as well as their roles as ambassadors and advocates in their communities.
Have a good day and stay safe,
Glenn
From the archives: