On October 11, 2007, I joined Linda Deck, Director of the Bradbury Science Museum, and Carola Enriquez, Director of the Kern County Museum, in a panel discussion on best practices in governance. While I introduced the topic by speaking in general terms about basics and best practices in governance, Linda and Carola both spoke about practical applications in the contexts of their respective experiences.
Some of the issues that were raised by our discussion:
How do you deal with a board member that engages in improper self-interested transactions where the board collectively lacks the will or desire to properly address such transactions?
Board education is critical to address such a problem. Bringing in a speaker to a board meeting (perhaps a special lunch meeting) can help facilitate board members’ recognition of their responsibilities and risk exposure if they fail to meet their duties of care and loyalty to the organization. Such speaker may emphasize both the possible legal and serious reputational consequences for directors that allow such inappropriate transactions.
A Conflict of Interest policy that is annually affirmed in writing by the directors may also help. The policy may contain a provision for automatic removal for verifiable noncompliance. A governance committee of the board can review all such transgressions. Sometimes, but not always, as one audience member pointed out, just the threat of disclosure to and review by a governance committee may discourage a board member from initiating an interested transaction with the organization.
Another tool may be a provision in the bylaws that limits the number of "interested directors" allowed on the board. Some states, such as California, impose a requirement that a majority of the directors of a nonprofit public benefit corporation be disinterested. The bylaws can impose a more stringent requirement (e.g., 75% disinterested). However, boards must recognize that interested transactions may sometimes be in the best interest of the organization, such as when a director offers below-market rate rent to the organization. Accordingly, any changes to the bylaws must consider both the pros and cons of a very high percentage limitation on interested directors.
Where can I access resources for educating the board?
There are organizations that provide excellent resources for board education, including the American Association of Museums (the Museum Assessment Program comes highly recommended), BoardSource, and, here in Northern California, CompassPoint. Bringing a nonprofit management consultant or attorney may also be very effective in capturing and focusing the board’s attention on the board members’ governance obligations. Executive directors should also ensure that supporting materials are provided well in advance of each board meeting, make effective use of committees, and ensure that a discussion of opportunities and threats are part of the agenda of every meeting.