Governance
The board of directors is the cornerstone of a nonprofit’s success. Here are links to information on selection of board members, drafting bylaws, running board committees, board retreats, and other important board issues.
Principles & Practices Citation
V. Board of Directors
A. Principle - Board Responsibilities
Each charitable nonprofit must have a board. Except as otherwise provided (by law and the government document), all corporate powers shall be exercised by or under the authority of, and the affairs of the charitable nonprofit managed under the direction of its board. (See Iowa Code section 504.801 for nonprofit corporations, Iowa Code section 633.A4101 et seq. for trusts). The board should be active.
Practices
- A board of directors’ primary responsibilities are to determine the organization’s mission and its policies, to set the organization’s overall program for the year and engage in long range planning, establish the fiscal policy, provide adequate resources for the activities of the organization; select, evaluate and if necessary, terminate the appointment of the chief executive, and develop and maintain communication links to its constituencies and the community.
- The board should avoid involvement in day-to-day operations of the charitable nonprofit, although it is recognized that for smaller nonprofits, with no paid staff, this is not possible.
- The board sets organizational policies and monitors compliance with them. In making policies for a charitable nonprofit, a board is setting objectives against which to measure the organization. Setting and monitoring policy protect directors from liability where they act in good faith and with due care.
The Governing Board for Iowa Charitable Nonprofits by Willard Boyd.
Doing Good Better by Edgar Stoesz.
Frequently Asked Questions about Governance
Can a husband and wife be the sole board members in an Iowa nonprofit corporation?
No. Under Iowa law, a nonprofit corporation is only required to have one or more board members (Iowa Code 504.803), but the IRS, on the Form 1023 Application for Exemptions, wants to see at least three board members. The Iowa Principles and Practices for Charitable Nonprofit Excellence recommends at least five board members (V.B.3).
Can a nonprofit organization enter into a contract with a board member?
A contract between an organization and a board member is considered a self-dealing transaction. Such transactions may be permissible but only if certain precautions are taken to minimize conflict of interest. The contract should only be approved by board members who have no personal financial interest in the transaction. If it is determined that the transaction is in the best interest of the organization and if the contract presents the best deal the organization can get with reasonable effort then the disinterested board may approve the contract. Board members may be subject to personal penalties if an organization does not take the proper precautions to ensure that self-dealing transactions do not present conflicts of interest. Organizations should be sure to draft policies to deal with both real and perceived conflicts of interest.
How can a board best utilize subcommittees?
Efficient management of subcommittees can prove to be elusive and requires careful balancing. Therefore, it may be best for a new board to start doing the whole job itself and appointing committees only as necessary. Effective use of committees can make the full board’s agenda more manageable, allow more time to be spent on larger issues, and allow directors to concentrate on their particular areas of competence. However, boards should use subcommittees sparingly to avoid problems with fragmentation, dual authority, and redundancy. For details see Board Source
How involved should the board of directors be in the day-to-day activities of our organization?
Though slightly oversimplified, the functions of an organization can be divided into ends and means. Ends, or desired outcomes, are generally the responsibility of the board, while means, the method for achieving the ends, fall to the organization’s administration. There is certainly overlap between the two categories, but growth is usually stunted in organizations whose board members spend too much time doing the administration’s work.
How should our organization approach board members who are not fulfilling their responsibilities?
It is important to present potential board members with a written summary of expectations and responsibilities in order to avoid confusion or misunderstandings after persons join the board. However there are times when an organization will have to confront a board member who is not actively participating or fulfilling his or her responsibilities. When board members fail to meet their responsibilities it can usually be attributed to one of several factors. The board member might not have been well enough informed or might be confused about what is expected of him or her. The board member might not be comfortable with his or her assignment. It is possible that the member has too many other board assignments or because of too many other commitments in addition to the work he or she is doing for your board. A committee or board chair should talk with the member to determine the reasons for the problem then offer the appropriate solution such as additional training, reassignment, and so on.
What are the basic duties of the board of directors?
The Iowa Principles and Practices for Charitable Nonprofit Excellence explains that "A board of directors’ primary responsibilities are to determine the organization’s mission and its policies; set the organization’s overall program for the year and engage in long-range planning; establish the fiscal policy; provide adequate resources for the activities of the organization; select, evaluate, and, if necessary, terminate the appointment of the chief executive; and develop and maintain communication links to its constituencies and the community." (V.A.1) The board sets policy and monitors policy implementation. “Policy” generally means an articulation of some broad principles to govern particular nonprofit issues. So, for instance, a fundraising policy would usually govern such issues as types of fundraising campaigns (capital, annual corporate sponsorship, etc.,) and how those, generally, would be administered. In addition to the policy, the board is often involved in drafting and adopting “practices” which are the more detailed operational implementation of policies. The board is significantly involved in fundraising activities, and its leadership in pursuing funding goals is critical to the overall success of the nonprofit’s fundraising campaign. Budgeting is also a primary board responsibility. In assessing the budget, the board looks at such things as cash flow, the statement of activities, and the relationship of restricted and non-restricted funds to activities being funded. In analyzing the annual budget there should be a review of income and expenditure variances in the actual budget as compared to the proposed budget. Periodically, the board would also review the effectiveness of internal controls, a system designed to minimize errors in the bookkeeping and to prevent fraud. The annual budget review is usually a review of the operating budget. The board should also review the capital budget for larger equipment and facility needs.
What are the legal responsibilities of nonprofit boards?
The fact that most board members are not compensated and serve out of a sense of civic duty does not absolve them from accountability. Board members have an obligation to always act responsibly and with the organization’s best interests in mind. Board members are held to certain standards of conduct most commonly known as the following:
- Duty of Care--Board members have an obligation to perform their responsibilities “in good faith and with a certain degree of diligence, attention, care, and skill.” This is not to say, however, that directors must always make correct decisions. As long the director fulfills his or her duty of care, a court will not review the action, even if the action is harmful to the organization.
- Duty of Loyalty--Board members have an obligation to act in the organization’s best interests. Included in this obligation is a prohibition against using one’s position as a director to improperly obtain a personal benefit. The director is to place the interests of the organization above his or her own interests.
- Duty of Obedience--Board members must remain true to the organization’s mission. They must carry out the purpose of the organization as it is expressed in the articles of incorporation or the certificate of incorporation. If the directors desire to depart from the purpose in a substantial way, the articles and bylaws must be amended.
For more, see The Principles and Practices, section V.F.
What is a political subdivision?
The term "political subdivision" denotes any division of any state or local governmental unit which is a municipal corporation or which has been delegated the right to exercise part of the sovereign power of the unit.
Find a detailed discussion of "political subdivision" and related issues here.
What is the board of directors' role in outcome measurement?
The board of directors of your organization can decide what outcomes to create. To do this, they must first identify the intended beneficiaries of your organization's programs and what services your programs can provide to them. The members of the board should ask themselves, "what do we want to be true of our program's participants during and after the program?” The answers to this question will be the outcomes that you want. It is helpful to put the answers into written statements with your program's participants as the subjects of the statements. An example of an outcome statement would be, "adults completing [our] literacy program are able to read at the sixth-grade level."
Learn more: United Way Outcome Measurement Resource Network
What should be included in the meeting minutes?
Minutes are more than just a convenient record of what was discussed at the last meeting—they are legal documents. Courts will hold directors to certain standards of reasonableness, so it is important that enough information is provided in the minutes to indicate that the board came to its decisions reasonably. The secretary of the board is usually responsible for taking minutes during meetings. Minutes from the previous meeting should be approved at the next meeting, and copies should be filed and kept with the governing documents.
What should go on the agenda for the board of directors meeting?
If not diligently kept on track, board meetings may be boring and even worse, ineffective. Some common reasons for ineffective meetings are: 1) board members did not have sufficient time to review materials before the meeting; 2) poor participation at the meetings; 3) time is not properly managed at the meeting. A well-written agenda that is distributed to members two to three weeks before the meeting can go a long way to remedy these problems. Rather than simply listing committee reports on the agenda, the reports should be incorporated into the context of the main discussion. The agenda should be organized by topic or project with supporting reports included at the appropriate time. This format is sometimes referred to as a strategic agenda. It is important to stay on time. If it appears that a discussion will exceed the allotted meeting time, then fifteen or twenty minutes before the scheduled end of the meeting the chair should have the group decide if it wants to stay later. If staying later is not an option, then the current discussion should be ended in favor of any issues that must be resolved in that particular meeting.
Learn more: The Free Management Library: Sample Board of Directors Meeting Agenda
What should the relationship be between the board of directors and our organization?
The board of directors serves the organization; it does not own it. The organization is really owned by those who have a stake in its operation: employees, members, donors, beneficiaries, and so on. Directors serve as proxies for the true owners. Thus, the board is truly a collection of stewards in whom the rights and duties of ownership have been vested and the authority to make strategic decisions has been given.
When selecting our board members what should we consider?
Iowa Principles and Practices for Charitable Nonprofit Excellence provides this list of skills and talents to consider in finding board members:
a. Operational area—includes management, finance, investment, law, accounting, public relations, fund raising. Together board members should have a range of operational competencies needed to carry out the duties of the board.
b. Program understanding—knowledge of and informed insight on the organization’s programs.
c. Connection to constituencies—should include representation from groups the organization directly serves. Widespread support requires a diverse board.
d. Advocacy leadership—access to resources and influence with constituencies important to the charitable nonprofit organization.
e. Inclusiveness—age, sex, ethnicity, religion, sexual orientation, socio-economic background, and geographic location of prospective board members.
f. Commitment—give time and funds and participate in fundraising.
g. Supportive—support mission, vision, and values. " (V. B. 4) When nonprofit corporation boards do not have the skills necessary to deal with a particular issue, reasonable reliance on outside experts such as accountants and lawyers is allowed without breach of fiduciary duty. Iowa Code § 504.831(5) For trustees, the Iowa trust code provides, “A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has special skills or expertise, has a duty to use those special skills or expertise.” Iowa Code § 633.4205.