How to Set Up a Successful Nonprofit Board of Directors

August 1, 2020 | Article

Having a well put together board of directors is essential for maximizing the potential of your nonprofit organization. The right people, with the right training, can make all the difference in achieving success. Understanding what knowledge your board of directors will need to have will be the first step in making sure you choose the right men or women for the job.

Roles and Responsibilities for Nonprofit Board Members
Before you can ensure that your board of directors consists of the right people, you must first understand the motivations, legal responsibilities, and education that comes with being a director on a nonprofit board.

The reasons why people choose to serve on a nonprofit board of directors are as diverse as the people on the board. Some of the reasons people choose to serve include the following:

  • Civic duty
  • Charitable service
  • Parental obligation
  • Personal interest in the organization’s cause

Once an individual accepts a position on a board, they have inherently accepted certain fundamental responsibilities, in addition to a commitment of time and accountability to the organization. The key responsibility of the board is to monitor the organization on behalf of the members or the public that it serves. Bear in mind, the board possesses ultimate legal responsibility for the organization.

Laws relating to directors vary from state to state. Directors should become familiar with the laws for the state relating to the board on which they serve.

Board duties that may be included in state law for nonprofit organizations include:

  • Duty of Care
    A director must act in good faith, in the best interest of the organization and as an ordinarily prudent person would in a similar situation. Directors are entitled to rely on information presented to them by board officers, executive employees, legal counsel, public accountants and other knowledgeable professionals.
  • Duty of Loyalty
    A director possesses a fiduciary duty to the organization. A director has accountability for the organization’s assets and resources. They may not use their position on the board to advance their own private interests. Related party transactions between a director and the organization are not prohibited but are subject to greater scrutiny and should be evaluated carefully.

    Directors should review the organization’s conflict of interest policy on a routine basis and sign a conflict of interest statement.
  • Duty of Obedience to Purpose
    A director must concentrate on the charitable purpose, goals and vision of the organization. The directors should regularly assess the organization’s effectiveness in achieving its mission.

Protections for a director also vary from state to state. Directors should become familiar with the laws for the state relating to the board on which they serve.

It is good practice for the organization to cover its directors under its errors and omission insurance. If the directors are not currently covered under the policy, it should be discussed as part of a board of directors meeting. Directors also need to be prepared to address adverse actions against the organization.

Board Education & Training
Professional education and consulting can help empower your board and provide the tools necessary to set them up for success. It is essential to have consultants that can further your board of director’s development to go with the everchanging roles and responsibilities that are specific to nonprofit organizations.

Resources to help
A website that provides a wealth of information for nonprofit boards of directors is www.boardsource.org. While the rules relating to directors of nonprofit companies will vary from profit organizations, being familiar with rules that relate to directors of nonprofit organizations is good knowledge for serving on any board.

Create a Diverse Board of Directors
Board diversity aims to foster more relevant discussion and decisions by calling on diverse viewpoints and perspectives, leading to more effective decision making. Factors of diversity typically considered include age, race and gender. Less tangible factors would include education and professional experience as well as life experience.

Board diversity is so much more than simply changing the outward appearance of the board by balancing age, gender and race attributes. Board diversity is truly achieved by valuing what your board members bring to the table—diverse educational and cultural backgrounds as well as personal experiences. Remember that the goal of diversity is to foster expanded discussion and consideration of diverse perspectives, which in turn brings balanced decisions that help ensure the nonprofit’s mission remains relevant in its community.

Establishing committees with important responsibilities is a great step toward efficiency in a nonprofit. In this case, an active nomination committee is key. The committee should carefully consider the skills and expertise of current board members, then consider the additional competencies that would bring value to the organization. The committee will then need to seek candidates outside of their personal contacts and networks, and these efforts will take time.

And, once you begin to achieve diversity on your board, encourage open discussion and exchange of information so that you can realize your goal of better decision-making.

Having an audit committee within your organization can be a game changer in building operational strength for your nonprofit. Learn more about their role and the benefits of having one.

Deciding Who to Include on Your Board
It’s fairly common, and generally a good practice, for nonprofits to recruit attorneys and accountants to participate on their boards. The financial and legal backgrounds and disciplines can be of great value as boards address a range of issues from the day-to-day business of providing oversight of the financial management of the organization  to the once-in-a-lifetime challenges of going through a merger. These professionals bring invaluable skills to the table that can help an organization identify and plan for pitfalls and their associated opportunities.

However, similar to how doctors choose to specialize in specific areas, it’s important to understand that accountants and attorneys have specialties of their own too. Keep this in mind when cultivating your board and anticipating the common issues that will be discussed. Diversity within areas of specialty should be strived for just as much as diversity of the individual themselves.

Simply having an attorney or CPA advise the board of directors is not enough. In order to rely on that advice, it only makes sense that you seek the counsel of professionals with the expertise necessary to be qualified in the area of law at issue.

Your Eide Bailly professional can answer any questions you have about preparing and setting your board of directors up for success in your nonprofit. From committee responsibilities  to board education and training, Eide Bailly is here to help!

Stay current on your favorite topics

SUBSCRIBE

Learn More

See what more we can bring to organizations just like yours.

Nonprofit