Good Nonprofit Board Governance By Rob Faulk and Nathan Davis

Key Steps to Good Nonprofit Board Governance

Effective nonprofit boards play a vital role in safeguarding the organization’s overall health and stability. Yet many nonprofit leaders and board members do not fully understand what good board governance entails.

As defined in The Handbook of Nonprofit Governance from BoardSource, board governance is the board’s legal authority to exercise power and authority over an organization on behalf of the community the organization serves. That means the members of your board all share responsibility for the operational and financial sustainability of the organization.

Effective Goals and Responsibilities for Your Board

Good board governance starts with ensuring that your board is focused on effective goals. This includes:

• Supporting the senior leader and executive team
• Helping establish the organization’s vision, goals, and policies
• Ensuring accountability
• Reviewing and approving budgets and financial reports
• Ensuring effective succession planning and transitions
• Representing the organization in all matters

Nonprofit board members have a fiduciary responsibility to the organization, which means that board members must act reasonably, prudently, and in the best interests of the organization to avoid negligence, fraud, and conflicts of interest.

This breaks down into three essential duties:

• Duty of Care – Care that an ordinary prudent person would exercise in a like position and under similar circumstances
• Duty of Loyalty – Placing the organization’s interests above the interest of the board member
• Duty of Obedience – Acting in accordance with the law and the organization’s articles of incorporation, bylaws, and policies

It’s crucial for nonprofit leaders and board members to understand these responsibilities and make sure they are followed.

Warning Signs of Poor Nonprofit Board Governance

There are many indications that a board is not providing good governance. Here are some of the most common and dangerous signs to watch for:

• The board does not have a manual with the proper board policies and procedures, or the existing manual is outdated.
• No board orientation is provided.
• The board does not perform self-evaluations.
• The board isn’t focused on personal development.
• Conflicts of interest are not addressed.
• There is a lack (or perceived lack) of independence between the board and the senior leader.
• Board members who are unproductive or disruptive are not removed.
• Management issues are discussed at meetings. Boards should focus on strategic issues, not operational issues that should be handled by the senior leader or management team.
• The board has become too large — or it’s too small.
• Board members have become disengaged or inactive.
• Significant risks to the organization are being ignored.
• The board is given inadequate or inaccurate reports and documentation.

If any of these warning signs are detected, take steps to address them.

Senior Leader Warning Signs

It’s also critical to understand the board’s responsibility to oversee the organization’s senior leader. There are three keys to a healthy relationship between a nonprofit board and the senior leader:

• Accountability – Set up consistent accountability check-ins to make sure the board is setting and striving toward goals that further the organization’s mission, as well as other key performance indicators. Accountability should also include the leader’s behavior and interactions with subordinates, donors, and constituents.
• Openness and transparency – There should be a strong flow of open communication between the senior leader and the board.
• Mutual respect – Boards must respect boundaries and not try to do the senior leader’s job, while leaders must respect the board’s authority and recognize that the board’s role is to help and support them and the organization.

It’s also important for boards to understand warning signs that can indicate a possible issue with the senior leader. These include:

• Lack of humility
• Too much control
• Resistance to accountability
• Insufficient transparency
• No clear expectations
• Inadequate financial transparency
• Significant travel alone
• Poor relationships with staff
• Family problems
• Self-interest

Senior Leader Care

Nonprofit leaders can experience many stresses and pressures that can lead to unhealthy and sometimes even unbiblical behavior. Proactive boards should consider providing their senior leader with access to resources such as:

• Professional and career coaching
• Personal, marriage, and family counseling
• Personal financial planning services

The board should also ensure that the leader has fair compensation to avoid unnecessary financial pressures that can create incentives or justification for unhealthy behavior.

Successfully implementing these recommendations is an important step in achieving nonprofit board health and ensuring that your board is making a positive contribution to the organization. We encourage you to learn more about the issues above and recommended next steps with our articles on nonprofit board goals and responsibilities, signs of poor board governance, and senior leader warning signs to watch for.

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Rob Faulk serves as Partner and Church and Denomination Services Director at CapinCrouse LLP, a national CPA and consulting firm devoted to serving nonprofit organizations. Rob has more than 40 years of financial leadership experience in serving both for-profit and nonprofit entities, as well as more than eight years of direct ministry experience as Executive Pastor and CFO of large churches.

Nathan Davis serves as Senior Manager at CapinCrouse LLP and has over 12 years of experience providing services and expertise to various nonprofit entities, including churches and denominational entities, colleges and universities, private schools, and international mission organizations. Nathan specializes in providing assurance services, with special emphasis in employee benefit plan audits. 

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