Responsibilities of a Nonprofit Board

by Kinga Zsofia Horvath, with some content from an earlier edition by Lisa M. Rose

Definition

Nonprofit organizations are legal or social entities, which provide goods and services for public purposes, and they do not distribute their profits (UN 2003). The variety and the size of nonprofit sector is broad: from public charities to foundations, from professional associations to youth organizations we can find more than 1,5 million entities in the United States (Anheier 2014, 100).

The nonprofit boards consist of individuals with varied backgrounds, who volunteer their time to serve and represent their own nonprofit organizations. The existence of nonprofit boards is based on legal, ethical and practical reasons as well (BoardSource 2013a). First of all, state legislation requires the establishment of a nonprofit board to accomplish the fiduciary role of the organization. Furthermore, nonprofits boards are responsible for building and assuring trust and good relations between the stakeholders, such as local government, donors, recipients, volunteers, staff, and the society. Finally, the members of the board can often help to the organization by offering their own work and resources to establish a new program or recruit new staff members.

The responsibilities of nonprofit boards are diverse and multifaceted in order to ensure that the nonprofit organizations work properly. They are accountable to achieve their goals, to operate in accordance with the local, state and federal legislation, to improve internal and external operations, and to maintain accountability for financial decisions (Anheier 2010, BoardSource 2013c). The variety of responsibilities requires a well-established and advised board with diverse background and suitable expertise.

Historic Roots

The history of nonprofit boards in the United States roots in the colonial period. The first board was created by the Massachusetts Bay Company, and 13 men were appointed based on “their honesty, wisdom, and expertise to manage the colonial government” (Hall 2003, 4). In the mid-1600s Harvard University, under Henry Dunster’s presidency contributed significantly to the evolution of nonprofit boards. The goals of the board were likely to be similar with boards today, as they were willing to represent the public interest and to ensure accountability. Harvard University was struggling to preserve and ptotect its independence through centuries when John Leverett’s argument - that independent, apolitical governing boards might ensure the good of both the institution and the public – reappeared and became a starting point of institutional government.

In the 1800s and 1900s, different arguments were raised, such as the independent and collective responsibility of board members, the representation of stakeholders, liability issues and the accumulated power of wealthy board members, or the lack of accountability. One of the most important cases from this period is Dartmouth College vs. Woodward case (1819), where Supreme Court Chief Justice Marshall’s decision led to protect corporations from legislative interference, and it established the rights of the board members.

Since the decision of the Supreme Court in 1819, significant improvement has been realized related to the right and duties of members served on nonprofit boards. Both state and federal legislation have been adopted and implemented to provide guidelines and legal framework for nonprofit boards and their members. Furthermore researchers and practitioners have also recognized that educating board members are essential to improve nonprofit board performance. However significant changes can be observed in connection with nonprofit board responsibilities, the three main functions of fundraising, selecting and supervising the executive director, and defining the mission and goals of the nonprofit organization, which they serve have remained to be the most crucial ones since the beginning of the twentieth century (Hall 2003).  

Importance

The board of trustees of a nonprofit organization ensures that its organization upholds the interests of the public. This is the foundation on which the nonprofit sector is built. When the sector is held accountable to the American people, pluralism will continue to flourish, as so eloquently put by John W. Gardner:

"Americans have always believed in pluralism - the idea that a free nation should be hospitable to the many sources of initiative, many kinds of institutions, conflicting beliefs, and many competing economic units. Our pluralism allows individuals and groups to pursue goals that they themselves formulate, and out of that pluralism has come virtually all of our creativity." (in O'Connell 1993, 14)

In addition, learning more about the sector and the roles of its boards, would further citizens' civic roles and their expectations of nonprofit organizations. Understanding the role of the nonprofit in conjunction with the private and public sector in American society is important as no sector operates in isolation, and each influences each other's actions a great deal. Likewise, knowledge of the roles and responsibilities of a nonprofit board of trustees assists in the understanding of the nature of nonprofits, their function, how they operate, and why they exist.

3Rs of the nonprofit board. Board members needs to have three Rs – roles, responsibilities, and required experience – to be able to effectively lead and steward the organization (Carlson & Schneiter 2010 in Agard 2010). Several roles and responsibilities have been identified for the nonprofit boards, but both practitioners and researches define new roles from year to year. The main areas of responsibility are: supervision and evaluation, planning, making financial decisions, organizational development (internal), and promotion (external). Thus, the roles of nonprofit boards are the followings (BoardSource 2013c, 1):

• determining mission and purpose
• selecting, supporting, and evaluating the chief executives
• ensuring effective planning
• monitoring programs and services
• ensuring adequate financial resources and providing financial oversight
• building a competent board
• ensuring legal and ethical integrity
• enhancing the organizations’ public standing.

To accomplish the responsibilities mentioned above, the board members have to meet the primary legal responsibilities of the board (Anheier 2014):

• duty of care - being competence in decision-making
• duty of loyalty - acting in the best interests of the organization
• duty of obedience - focusing on the organization’s mission and building public trust
• fiduciary duty - handling financial resources properly.

Furthermore, the board can establish committees – such as the development committee – which can focus on certain responsibilities. The committee members can a continuous overview, while they engage other board members, help the staff members and motivate the volunteers to achieve their goals (Tempel 2004). Additionally, not only the board, as a unit but also its members have several individual roles and responsibilities: attending board meetings, being informed in organization-related issues, taking special tasks, making personal financial contribution or promoting the organization among others. Therefore board members need to be able to think analytically, to take responsibilities, to gain experiences in certain fields (such as working with volunteers or strategic planning) and they might be open-minded, tolerant and passionate to serve the community (BoardSource 2013c).

Ties to the Philanthropic Sector

Boards, as the cornerstone of nonprofit organizations. Nonprofit organizations are the bricks of the philanthropic sector. Often neither the government nor businesses can provide adequate services for the public’s demand, so nonprofit organizations help to supplement the services provided for the public good. Nonprofit organizations work to meet with varied public demand, to promote trust among the society and often to support the government providing better social services. Thus, nonprofit organizations often provide services and products in fields where trust and confidence are important, such as health care, education or elderly care. As a result, nonprofit organizations have a fiduciary duty to stakeholders, especially to clients and their relatives. Indeed, high quality standards, well-considered financial decision-making, accountability and trust – which are the board’s responsibility – might improve the organization’s performance and lead to a more effective philanthropic sector in the long term.    

Board members, as volunteers. Board members are most often individuals - who carry out voluntarily their roles on the board - who act philanthropically to support their nonprofit organizations. The members offer their time and resources to improve the organization’s performance and usually they need to financially contribute to the organization as well. These individuals have critical roles and responsibilities, which are essential to create an effective, well-functioned philanthropic sector. Indeed, promoting the organization’s mission and programs, offering financial overview and accountability, building public relations and trust might contribute to the success of philanthropic sector.

Fundraising by the nonprofit board. The fundraising work of board members is essential, as they have the general understanding about and a commitment towards their nonprofit organization. Indeed, their knowledge and skills can build trust and engage others to make gifts. However, the roles of fundraisers and members who are responsible for fundraising are different and it requires clear communication and training in order to strengthen each other’s work. Furthermore board members need to act ethically and be accountable because they are the faces and stewards of the organization.

Key Related Ideas

Required skills and experiences in board composition. The variety of skills, resources, and interests might lead the organization to provide better performance. However, it is important to focus not only on different leadership qualities (see: Board Recruitment Matrix in: https://boardsource.org/board-recruitment-matrix/) to improve board performance, but also on engagement to involve as many stakeholders (recipients or volunteers) as possible therefore the organization can positively benefit from the diverse composition of the board (BoardSource 2013b).

Relationship between board performance and organizational effectiveness. The operation of nonprofit boards is crucial not only to accomplish the legal and ethical obligations, but to improve the organization’s service provision. Several studies claim that there is a positive relationship between nonprofit board performance and nonprofit organizational effectiveness, especially if board members are passionate about their commitment and their organization’s mission. Thus, it is important to develop the nonprofit board’s performance through diverse recruitment, self-improvement, and common commitment. Indeed, clear and distinctive definition of roles and responsibilities and continuous training and feedback can improve board engagement among the members (Carlson & Schneiter 2010 in Agard 2010).

Voluntary vs. paid members in the board. It is highly argued whether nonprofit board members should be paid or not. According to the Panel on the Nonprofit Sector “board members are generally expected to serve without compensation” (Principles for Good Governance and Ethical Practice 2007 updated in 2015). However, a significant percentage of nonprofit organizations compensate financially their members. Supporters of board compensation argue that adequate compensation might be able to attract outstanding individuals to create a more diverse board by “opening service up to individuals from different cultures, classes, ages, or personal situations who might not otherwise be able to serve as volunteers” (Bryson & Schulz 2003 in Shambra 2008). In contrast, opponents believe that a nonprofit board member should provide financial contribution besides his/her voluntary work. Additionally, the relationship between the board and the management might be harmed in case of paid board membership  (Shambra 2008).

Decision-making in nonprofits: board vs. management. While the board’s responsibility is to select the chief executive, to plan and evaluate programs and to ensure adequate financial resources, the operational responsibilities and duties related to the implementation is incumbent on the staff. The roles of board members and managers might compound and confront with each other, especially in the case of fundraising, which may results conflict of commitment and tension inside the organization (Tempel 2004, Anheier 2014). Thus, training and communication might be essential to build trust and common understanding between board and staff members in order to develop an inspiring and effective environment within the organization.

Important People Related to the Topic

President Herbert Hoover (1874-1964) was an outstanding advocate for board governance in the era when business managers took charge of new nonprofit organizations (e.g.: Red Cross) after the First World War. In the beginning of the twentieth century the society started to shift towards nonreligious values and secular institutions and the gap between the rich and the poor was increasing partly because of the industrialization. In this circumstances President Hoover helped to familiarize Americans to board governance and to democratize and spread its use. President Hoover has been the most philanthropic president in the United States as a result of his charitable giving and advocacy work (Hall 2003).

John Carver, Ph.D. (1938-) is the creator of the Policy Governance^® model, which aims to clarify the differences between board and management responsibilities by offering concepts and principles for governing boards. Dr. Carver is a well-known and acclaimed author in board leadership and he has gained international consulting experience in the field. His books – such as Reinventing Your Board and Boards That Make a Difference – has contributed to the development of board effectiveness and board-staff relationship in the nonprofit sector. See more: http://www.policygovernance.com

Steve Culbertson (1957-) is the CEO and president of Youth Service America (http://ysa.org). Mr Culbertson has been advocating engaging youth in service and leadership since he was a board member with voting right by the age of 19. He was named twice to the list of “The 50 most powerful and influential leaders” by The Nonprofit Times highlighting that “Culbertson has helped to position volunteering and young people as an issue and a national priority” (ysa.org 2016). Indeed, he believes that “the empty chairs at the table [of a nonprofit board] belong to young people” (Green, 2015). Listen the podcast: https://www.nonprofitready.org/home

Related Nonprofit Organizations

Association for Fundraising Professionals, formerly National Society of Fund Raising Executives, is an excellent resource for professional fundraisers. AFP encourages the development and understanding of philanthropic practices at the community level by "advancing philanthropy through education, training and advocacy" (http://www.afpnet.org).

BoardSource is a national nonprofit organization with the aim to strengthen nonprofit board leadership. Their mission is “to inspire and support excellence in nonprofit governance and board and staff leadership” (BoardSource 2016). See more: https://boardsource.org

Council of Michigan Foundations is a community of philanthropists with the mission to grow the impact of philanthropy in Michigan, and beyond. CMF, as an intermediary organization works together with nonprofit organization to improve their leadership, inclusion and effectiveness and to advocate the importance of cooperation. See more: https://www.michiganfoundations.org

National Association of Nonprofit Organizations & Executives is a nationwide member-based organization for nonprofit leaders to advocate and support innovative solutions for capacity-building and effective leadership in the nonprofit sector. See more: https://nanoe.org

Youth As Resources is a nonprofit organization focusing on grant-making, community organizing and leadership development to help youth address the problems associated with living in poverty. It is a youth-led nonprofit organization with a majority of youth (ages 14-24) in the board. See more: http://www.youthasresources.org/board/

Reflection Questions

Youth on nonprofit boards. The increasing number of youths who volunteers might raise the question of their role as nonprofit board members. They mainly serve on the board of youth-service organizations, but their legal duties and responsibilities are questionable and the minimum age of a board member might be addressed by state regulation (Chan 2012). Discuss why minors should or should not be members on nonprofit boards and what kind of roles and responsibilities they could take? What kind of skills, experiences could they bring to the board?

Family members on the board. Family members are often appointed to being board members in family foundations. On the one hand higher level of trust in family members and stronger relations to the mission might be advantageous, on the other hand lack of experience and expertise, dependency, and lack of accountability might be argued. Check the board composition of a local family foundation and discuss the advantages and disadvantages of family members serving as board members.

Bibliography

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This paper was developed by students taking Philanthropic Studies courses taught at Grand Valley State University and IUPUI's Lilly Family School of Philanthropy.