Trends in Non-Profit Board Governance

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The term “nonprofit organization” is a misnomer, agreed a panel convened Tuesday by the New England Chapter of the National Association of Corporate Directors. Organizations performing public service need profit in order to be sustainable in the long-term delivery of their missions.

And beware of establishing endowment funds. Some problems are not continuous, and people like to invest in solving problems and not perpetuating them. By way of example, if you have a problem that $1,000,000 might cure, why establish a $1,000,000 endowment where the annual income at a 5% yield is $50,000? The proliferation of endowments may be inhibiting the meeting of certain mission goals.

Other panel takeaways included:

Beware of the practice of establishing “consent agendas,” the practice of sending out detailed board agendas and committee reports for pre-meeting analysis, followed by a vote adopting all corporate action required by that agenda. The argument is that this saves time for more important discussions. However, major weakness were noted, including particularly that the practice encourages board members to not read the material carefully because there would be no discussion; and, the temptation for management to use the technique to hide exactly what is going on within the organization.

Beware also, in the face of the trend of nonprofit organizations to have larger and larger boards, often driven by donor participation, that you do not place too much power in an executive committee. With larger donor driven boards, there is a tendency to view deciding everything within an executive committee as being more efficient. However, ALL board members have fiduciary duties and an executive committee is a small group. You gain benefit from discussion within a larger group. Further, concentrating power in the executive committee tends to make your better board members less attentive, as they sense they are becoming “rubber stamps.”

 


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