Are Charity Boards Ready for Tough Times Ahead?

The headline of the November 12, 2009 edition of The Chronicle of Philanthropy ("The Chronicle") asks "Are Charities Ready for Tough Times Ahead?"  The article answers the question as follows:

While opinions are mixed, many philanthropy experts say the short answer is no; charities and foundations are too complacent in the face of the economic upheaval and only a few have embraced the radical thinking that is needed to maintain, and potentially strengthen the nonprofit world.

While nonprofit groups may be considering new ideas to generate revenues or looking for ways to do more with less, there seem to be few signs of the big changes that will be required, these experts say.

From a governance perspective, the question may be slightly altered to ask "Are Charity Boards Ready for Tough Times Ahead?"  Board members must understand their roles during challenging periods and how they may be in a better position in some ways than their executives in leading the organization.  For example, while some executives may be weighing their own interests along with the interests of the organization and its stakeholders in leading the organization, independent board members may be free from worrying how major decisions changing the way the organization is organized and operated will affect their own financial interests or their relationships with the staff.

Board members have two primary fiduciary duties:  the duty of care and the duty of loyalty.  Generally, they must govern their organizations with reasonable care and good faith in the best interests of the organization.  While a board may delegate management of an organization to its executive, the activities and affairs of the organization must be managed under the ultimate direction of the board.

During challenging periods, board members must continue to use reasonable care in directing the organization.  But the organization's environment has changed.  And continuing on the same course may very well be detrimental to the organization and its ability to further its charitable mission.  If an average reasonable person responsible for steering the organization would change course under such circumstances, then that's what board members must consider.  A board may ultimately decide not to change course, but the directors have a legal and ethical duty to carefully study the relevant issues and considerations, and affirmatively decide how to respond.

A companion article in The Chronicle states:

To adapt, management experts say, the best leaders will change the rules of the game, restructure parts of their operations, and redefine the way people work.

While in many cases "the best leaders" will be executives who have more experience and expertise than their board members in leading charities and championing change, board members must consider whether they have such an executive in place or whether the board will need to initiate the change.  A board must provide sufficient support to the executive during tough times, evaluate the executive's performance, and provide regular and frequent feedback to the executive.  An executive is less likely to be complacent about making necessary changes if he or she is supported by a board that understands changes are necessary.  Similarly, a board is less likely to be complacent about supporting an executive and a radical change to the organization and its operations if it is educated by a strong executive.  Having said that, from a legal perspective, it is clear that a board of a struggling organization cannot be complacent.

Also see More on Charity Boards and Tough Times.