Governance Practices for Small Not-for-Profits

Every not-for-profit organization has a board of directors to provide leadership, oversight, and accountability for staff. An effective governance model provides not-for-profit leadership with the tools needed for decision making and delivering on the mission of the organization.

Boards are most effective when they maintain their focus at a strategic level and allow management to lead daily operations. However, many smaller not-for-profits have working boards with additional responsibilities, and separating management and governance is critical.

Board Roles and Responsibilities

The board is charged with a fiduciary duty, and has three primary legal duties—care, loyalty, and obedience.

Duty of Care

Take care of the not-for-profit with prudent use of all assets, including facility, people, and good will.

Duty of Loyalty

The not-for-profit’s activities and transactions should be, first and foremost, advancing its mission. Recognize and disclose conflicts of interest and make decisions that are in the best interest of the organization, not in the best interest of the individual board member or any other individual or for-profit entity.

Duty of Obedience

The not-for-profit must obey applicable laws and regulations; follows its own bylaws; and must adhere to its stated corporate purposes and mission.

Effective boards focus on priorities or specific outcomes and are there to guide the organization strategically. Some common responsibilities include:

  • Creating, reviewing, or adopting policies
  • Approving strategic organizational plans
  • Monitoring progress—against the strategic plan, for example
  • Overseeing the executive director
  • Approving and reviewing the budget

Boards should provide accountability and adequate support to staff.

Effective Board Governance Strategies

Once a governance framework is in place, it needs to be implemented to be effective. The following areas for focus are some of the habits practiced by the most effective boards.

Set Clear Expectations

It’s particularly important on a smaller, working board to set expectations for board service and commitment. For larger not-for-profits, a board member’s role may be more focused on fundraising, while in a smaller organization there may be programmatic or administrative responsibilities.

Developing a board member job description can help to establish roles and responsibilities, expected time commitment, and the scope of a board member’s role. Remember to develop job descriptions for officers, like the treasurer and president, as well.

Evaluate Board Performance

Just as the executive director’s performance is evaluated regularly, the board should also have an annual performance mechanism in place. This can be as easy as a short anonymous survey that each board member completes, or even an interview at the end of each year, led by a governance committee member, for example.

Once the results are gathered, they should be assessed and used to identify any organizational opportunities for improvement as well as the perceived engagement of board members, which can be a way to get individuals reconnected if they’re feeling less engaged.

Keep a Strategic Focus

It’s the board’s role to ensure the organization has a clear path to carrying out its mission and vision. Setting goals creates criteria for measuring success. The strategic plan should be regularly revisited and a driving force for board agendas.

For smaller not-for-profits, revisiting the strategic plan regularly, growing intentionally, and avoiding mission creep is critical to long-term success.

Regularly Revisit Policies and Procedures

Policies should be revisited on a regular cadence. The National Council of Nonprofits identifies the five governance policies organizations should be sure to have in place:

  • Conflict of interest
  • Gift acceptance
  • Joint venture—if applicable
  • Whistleblower
  • Document retention and destruction policies

The IRS Form 990 asks whether these policies have been adopted, so they are key policies for boards to consider for adoption and regular review. There are many other policies that may need to be adopted by the organization depending on its size and complexity, such as procurement, contract management, employment, and more.

On a smaller, working board, the board may be responsible for both long-term financial planning and annual budgeting. Establishing strong budget development and monitoring policies is particularly important in this case.

The board and staff may also consider outsourcing finance and accounting, grant writing, IT, or other administrative functions to focus staff time on mission delivery. Establishing procedures in collaboration with vendors is critical to the success of those relationships.

Invest in Education and Grow Intentionally

To facilitate representation from the community the organization is serving, it might be necessary to invest in board education. For example, it may be tempting to ask a finance professional to serve as the finance chair, but with focused board member education, a community member can also gain the skills necessary to serve in that role.

Smaller not-for-profits often have smaller boards, and should be careful to add board members who align with the culture and expectations of the board.

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For guidance on evaluating and improving board governance, contact your Moss Adams professional.

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