For some folks, particularly nonprofit lawyers and accountants and often execs, fiduciary responsibility is the only realm in which they believe board members matter. Conversely, these same folks believe that when a nonprofit fails it was on account of the lack of a board to fulfill its fiduciary responsibilities (oversight).
I certainly understand that failure by a board to fulfill its fiduciary responsibility can indeed have tangible consequences both from a penalty perspective and even, in the worse case, loss of the nonprofit. But I believe that a nonprofit board can also affect the well being of a nonprofit by failing in non-legal ways as well. For instance, the failure to be strategic, another generally agreed upon responsibility, can lead to having the wrong people (CEO) on the "bus". And not paying attention to market (donor or consumer trends) can lead to not fulfilling mission. And a board that doesn't want to represent the mission of a nonprofit to the public can limit the number of voices needed to ensure support is given.
The bottom line: a board, always the sum of its parts, can have a positive or negative impact that goes well beyond just fulfilling its fiduciary responsibilities.
The following article is from the Pittsburgh Post-Gazette.
Agreeing to serve on the board of directors of a nonprofit organization is a serious undertaking accompanied by a number of legal, ethical and financial responsibilities.
Most executives understand these duties in theory, but in practice may not follow through. When their work and personal schedules get busy, they may decide to skip several board meetings in a row or may not thoroughly review reports and financial statements.
A survey conducted by Stanford University’s Graduate School of Business found that 27 percent of nonprofit directors did not have a thorough understanding of the organization’s mission, and a majority did not believe their fellow board members are experienced or engaged enough to appropriately manage the organization.
Many of the boards lacked formal governance processes, with 42 percent saying they had no audit committee and that they relied on monthly bank statements to monitor their financial situation.
Many nonprofits can get along for a long time with lax governance from the board, particularly if they have a high-performing chief executive officer or executive director. But it’s almost inevitable that such loose procedures will eventually create an opening for financial fraud and organizational mismanagement that could create serious legal trouble for the organization.
A member of the board of directors of a nonprofit organization must be prepared to fulfill the following responsibilities:
— Regularly attend board meetings
— Be informed on organizational issues and exercise oversight of organizational decisions
— Use independent judgment
— Avoid conflicts of interest
— Observe the board and organization’s confidentiality obligations
Without question, serving on a nonprofit board is an excellent way for professionals to give back to society and network among peers. But board members need to seriously consider the time and effort they must give before making a commitment.
- Patricia Farrell, Meyer, Unkovic & Scott, email@example.com
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