Setting Up an Effective Nonprofit Board

Nonprofit founders and executives rely upon the corporation’s directors (board members) to set the tone and example for the corporation’s operations, vision, and values. Without an effective and supportive board, corporations can become overly reliant on a single leader, which limits how far the corporation can go in advancing its mission. This is why founders and executives must allocate sufficient resources (including their time and effort) in building an effective board.

Who should the nonprofit recruit?

A very common response to this question is someone who is passionate about the nonprofit’s mission. Jan Masaoka, CEO of CalNonprofits, wisely said that instead of passion for the mission, look for passion for the work expected to be done by the director.

Many nonprofits also look for well-connected persons of wealth who are expected to provide generous donations to the nonprofit. Some fundraisers have argued that this is the most important criterion because the nonprofit will not be able to advance its mission without donations. While this argument has some validity, it fails to consider two equally important points: (1) the legal and primary responsibilities of a director and whether the candidate will dutifully fulfill such responsibilities, and (2) the inequities and power imbalance created by such prioritization for wealthy, connected directors.

A nonprofit board composed of directors who represent a diverse set of backgrounds, experiences, and skill sets may be best positioned to provide support to the nonprofit and its executive. It’s typical to hear board leadership state the board needs a lawyer, an accountant, a financial manager, a program expert, a fundraiser, and other types of professionals. It’s also typical to hear that a board’s composition needs to reflect the communities the nonprofit serves. And increasingly, we’re hearing that board’s must strive for diversity, equity, and inclusion (“DEI”), with particular attention on race. But DEI with respect to other categories such as gender identity, disabilities, and sexual orientation may be equally important to a board. See DEI and Bylaws: Board Composition.

How many directors should the nonprofit have?

There is no single best answer or best practice regarding the optimal number of directors on a board. But having too few will limit the potential power of the board to contribute to the nonprofit and having too many may lead to lack of participation by directors who have limited opportunity to join discussions at board meetings. On the latter point, imagine a board of 50 directors trying to weigh in on various matters before the board at a 2-hour meeting. It’s likely you’ll hear primarily from just a few of the directors and others may feel excluded and stop regularly attending meetings.

While there really is no such thing as a typical nonprofit, we often advise our public charity clients to prioritize who they have on their boards before how many. For startups, we often suggest a minimum of three directors at the formation stage with a goal of raising the minimum to five. Such numbers do not reflect the optimal number, which truly will differ among nonprofits and the number of good candidates they can practically find. As for a maximum, we like to speak with our startup clients about this if they plan to put into place more than 20 directors.

How should a nonprofit recruit directors?

Founders generally reach out to their networks for the initial directors of a new nonprofit corporation. While a founder may seek individuals who will support their decisions, they should also look for directors who will exercise independent judgment and add to the collective thinking and analyses.

More mature boards often use one or more board matrices in which they identify what qualities, skills, identities, and/or backgrounds they are seeking. There are several pros and cons to consider in using a board matrix (see, e.g., this BoardEffect article). But a particular risk to be aware of is tokenizing a person.

For many nonprofit boards, board recruitment should be a perpetual activity. Strong candidates that fit the nonprofit’s needs may not be immediately available when needed so the nonprofit may benefit from continually recruiting a pool of candidates consistent with a values-based policy and meaningfully engaging such candidates before formally nominating them for consideration.

Having directors simply asking their networks about possible candidates that fit skills-based needs is not a sufficient policy, yet this practice has persisted across a great many nonprofits. This is a significant reason why nonprofit boards have barely moved the needle on racial diversity for decades. See Leading with Intent 2017. Expanding the recruitment pool and building greater equity in the process may involve engaging staff, beneficiaries, and other stakeholders; developing relationships with a variety of allied organizations; and creating sufficient space for sharing power.

What type of orientation and trainings should be provided?

Orientations should be provided to both a strong candidate and a newly elected director. The candidate orientation should provide the candidate with a solid understanding of the nonprofit’s mission, values, culture, core activities, and expectations of its directors. And it should provide the nonprofit with a better idea of how the candidate may be able to contribute as a director. The newly elected director orientation should provide the new director with more detailed information about the nonprofit’s governing documents, governance policies, committee structures, programs, fellow directors, key employees and volunteers, financials, and meeting logistics.

Regular trainings (perhaps every 2-3 years) should also be provided to the board on the roles of the board, fiduciary duties and how to best meet them, and relevant legal and policy issues. Additional periodic trainings should be offered on financials, programs/operations, and fundraising.

Roles of the Board

A nonprofit corporation is governed by a board of directors that, as a group, is ultimately responsible for the management and direction of the corporation. The board’s roles include, but are not limited to, oversight, and certainly not just financial oversight. Oversight should also include reviews and assessments of the nonprofit’s mission, vision, values, programs and programmatic impact, legal compliance, governance and other policies, board performance, executive performance, and external environment (e.g., legal/policy environment, physical environment, allies, donors/funders/supporters, vendors, online/social media). In addition, the board should actively participate and engage in planning and directing the nonprofit’s future course. Further, the board should act to protect the nonprofit’s charitable assets from diversion, misuse, attack, or waste, through policies, enforcement, and accountability.

Legal Duties of a Director

Each director on the board owes fiduciary duties of care and loyalty to the corporation that demand that the director actively participate and stay informed about the corporation’s management and direction. Minimally, directors should be expected to:

  1. Regularly attend board meetings;
  2. Assure receipt of adequate information before taking appropriate board action (e.g., by requesting materials and asking questions);
  3. Review the materials provided in connection with board meetings, particularly those used in reference to any contemplated board action;
  4. Be familiar with the corporation, its legal structure, governing documents (e.g., articles of incorporation, bylaws), exempt purposes (as represented in its governing documents, exemption applications and marketing materials), activities, and key stakeholders (including, but not limited to, staff);
  5. Be familiar with, and share with the corporation’s leaders, external forces that may help or harm the corporation or are already doing so;
  6. Review and establish with other key stakeholders the mission, vision, and values of the corporation;
  7. Avoid prohibited conflicts of interest and other actual or perceived conflicts that would result in net harm to the corporation;
  8. Maintain confidentiality;
  9. Take all actions as a director in the best interests of the corporation even ahead of their own individual interests;
  10. Be familiar and actively assure the organization’s compliance with general laws applicable to the corporation.

See Nonprofit Boards: Duties And Responsibilities; DEI and Fiduciary Duties.

How does a nonprofit let go of a director?

Building an effective board may at times require the subtraction of a director. Removing a director, however, can be very difficult and many boards will not have the appetite for acting to remove a director except in the most egregious circumstances.

If the nonprofit has a voting membership structure, state laws may vary in terms of a board’s power to remove a director. For example, in California, the Code offers little guidance as to the board’s authority to remove a director with cause beyond certain circumstances where the board can declare such director’s position vacant. This is one reason why boards may prefer to remove a director without cause (if they have the inherent power to do so) rather than with cause, which might require the board to prove cause and defend itself from charges of defamation.

A director’s voluntary resignation may be a far more appealing option than removal. A tactful, private conversation with a director, in some cases sweetened with an honorific title (e.g., emeritus director) or advisory committee position, may allow a director to resign with a sense of dignity. Of course, not every parting deserves to be cordial so boards need to balance considerations of proper governance, board culture, public relations, fundraising, and possible litigation.

Diversity, Equity, and Inclusion

DEI was discussed in the context of board composition, but these principles and values, if truly embraced by the nonprofit, should be integrated throughout the governance and operations of the organization. Action steps that can be used in various contexts should include:

  • Evaluation and identification of undesired gaps and discrepancies with respect to particular identity groups;
  • Development of plans to address such unintended gaps or disparities; and
  • Allocation of appropriate resources to implement these plans consistent with the organization’s core values.

Key Resources

Fundamental Topics of Board Service & Resource Library (BoardSource)

The Four Principles of Purpose-Driven Board Leadership (Anne Wallestad, Stanford Social Innovation Review)

Attorney General’s Guide for Charities (CA)

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