Tuesday, 11 December 2012 11:03

Joining a nonprofit's board of directors

Passion for a cause, a love for community and a set of specific skills that can be used to help others are all great reasons to join a not-for-profit organization's board of directors. But what can you do to ensure that your membership is effective and valuable to the organization and provides a rewarding experience for all parties?

Smart Business spoke with Susan D. Krantz, CPA, a Partner at Zinner & Co. LLP, to find out.

Maintain a Proper Commitment

Through our experience at Zinner & Co. LLP, we have found that board member commitment has a significant and direct impact on the success of a not-for-profit organization. As work and personal commitments change, it becomes necessary to find that balance of time that allows you to properly support your organization.

Efficient and Valuable Communications

Communications among board members and between board members and the management team is one of the most important aspects of the position you hold. First and foremost, boards should meet monthly, or at least quarterly, with regular attendance and participation by all board members who should be familiar with the organization's major initiatives and mission statement. The board should have adequate skills in the areas of law, accounting, finance and personnel as it pertains to the organization's major initiatives, even though any one member may not be skilled in all areas.

Be Visible

Try stopping by the organization's offices unannounced for a friendly and casual visit with management. Join a committee. Board members can even have a presence in the organization without actually being physically present. Get out in the community and talk with people to gain a better idea of how your organization can better serve them.

Oversight and Approval on the Transaction Level

Board members should be involved in the oversight and approval of significant transactions and processes, such as new loans, property and equipment purchases, advances, payments to key employees and all other significant transactions. Proper board member review by designated members should include examining supporting documentation, such as purchase orders, invoices and vendor contracts, and the budget on regular basis.

Familiarize Yourself with External and Internal Factors

In the current social and economic environment, not-for-profit organizations face more risks than ever before. One of the major responsibilities of the board, as well as management, is to continuously assess and manage the risks facing the organization, both externally and internally.

The external risk assessment process primarily involves keeping up to date on changes in the political, social, economic and technological environment surrounding the organization and assessing how those changes will affect the organization's mission and funding. As a member, it will be up to you to be aware of the changes within your area of expertise in addition to the many multiple sectors of the environment the organization operates in, including new accounting pronouncement, laws and law revisions, social and administrative changes in the political landscape and compliance updates from regulatory and cognizant agencies.

During the internal risk assessment process, the organization as a whole must identify its goals and objectives in the major areas of financial reporting, level of service, and compliance. Internal controls are the key safeguards in meeting these goals. All effective internal control systems contain five attributes: a control environment that sets the tone of the organization from the top down, continuous risk assessment, control activities, information and communication, and monitoring which make certain that all internal controls are operating effectively and as intended.

A knowledgeable board member who is both involved and present is in the best position to help an organization manage risks, make informed decisions and help achieve impact. With extensive experience in the not-for-profit field, Zinner & Co. plays a key role in helping organizations and their board members to overcome a wide range of obstacles and achieve their mission.

Susan D. Krantz, CPA, is a Partner at Zinner & Co. LLP. Reach her at (216) 831-0733 or skrantz@zinnerco.com.

Published in Cleveland

A good board of directors can be a great support for a top executive regardless of company size. The most common type of board offers advice; however, other boards act as fiduciaries, which have legal liability for the company’s practices – and thus are much more actively involved in overseeing the company. In either scenario, before establishing a board of directors, a small business owner needs to be clear about why he or she wants a board and what the owner is prepared to do to get maximum value from a board.

These steps can help with developing your board of directors:

1) Get prepared. Write down what you want them do, how much time they will need to commit monthly, how long you want them to serve, where you and the company need the most advice, and what are you willing to provide as compensation to board members – if anything. Many nonprofit boards don’t offer payment beyond lunch, but for-profit entities typically provide a quarterly stipend or payment.

2) Choose broadly. Many business owners draft friends and industry colleagues to sit on their boards initially. However avoid picking carbon-copies of yourself. Look for board members with diverse backgrounds and perspectives. It is useful to have board members from a wide range of fields, including legal, finance, accounting and marketing. Organizations such as the U.S. Small Business Administration’s SCORE program of retired business executives and The Alternative Board can connect groups to potential board members.

3) Orient the board. While board members may be familiar with your organization or products, they may have only a broad understanding of your operations. Therefore, it may be useful to provide orientation for incoming board members to cover organizational structure, functional duties for each division and division head, a brief description of each product/program/service that includes its target market, as well as pie charts that display major revenue streams and expenses.

4) Share authority. Many entrepreneurs conceive and build a company according to their liking and their understanding of the customer. Owners and managers should run the day-to-day operations in alignment with the board policies. A good board will encourage the development of processes for rationally researching, analyzing and assessing all aspects of the company. Moreover, few board members want to give up their time to meet to essentially rubber-stamp every executive decision.

5) Reassess your board periodically. What you need today to help your business flourish may not be what you’ll need in three or five years. As you periodically conduct mid-term strategic planning, you should review the skills and resources presented by each board director in light of where you want to take the company. Don’t be afraid to disband and redesign your board.

Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s Entrepreneurial Winning Women, one of Enterprising Women Magazine’s Enterprising Women of the Year Award and the SBA’s Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zwgroup.net.

Published in Akron/Canton

Business leaders are usually pleased if they are asked to serve on a business’s board of directors.

They should be. Being asked to serve on a board of directors is a recognition that a business leader has achieved success and that he or she has valuable insights into how a business can be profitable. Nonetheless, business leaders should recognize that serving on a corporation’s board carries with it very real responsibilities and risks, says Tim Miller,  a partner at Novack and Macey LLP.

“If a board member fails to take the responsibilities of board membership seriously, and instead treats board memberships as an ‘honor’ without responsibilities, or as a chance to periodically play a round of golf with colleagues, it can lead to serious repercussions,” says Miller.

Smart Business spoke with Miller about how to protect yourself should you agree to serve on a board.

What are some potential repercussions of failing to take seriously the responsibilities of being a board member?

A director could be sued for millions of dollars in damages. There are actions filed every day in this country in which stockholders allege that a director breached his or her duties and that this breach cost a company millions of dollars.

Ironically, such suits are filed even when a company is successful; sometimes these suits allege that the company should have been more successful. Even if such a case is meritless, it can cost a lot of time and money in attorneys’ fees to defeat it. In other cases, governmental entities can seek civil or criminal penalties against directors.

Don’t most corporations indemnify board members against losses from such suits?

Yes, most companies agree to indemnify board members against loss suffered by reason of serving as a board member. But if a board member is found to have not acted in good faith, he or she may lose the right to indemnification. And if a corporation becomes insolvent, its promise to indemnify its directors is not worth very much.

Even if a corporation is insolvent, doesn’t insurance protect board members?

Insurance may protect a corporate director. But insurance policies are usually written with exclusions that may leave a director uninsured against particular types of suits.

For example, many policies have an ‘insured v. insured’ exception.  If the stock of an insolvent corporation is sold, new management may decide to sue the directors who controlled the company when it became insolvent. In such a situation, the suit may not be insured. Moreover, penalties are usually not insured against.

All of this means that somebody who agrees to serve as a corporate director should try to do the job he or she has agreed to accept.

What duties does a board member have?

A director’s duties differ depending on the state where a business is incorporated, but usually directors are said to owe duties of care and loyalty.

What is the duty of care?

Just as it sounds, the duty of care requires directors to carefully act on behalf of the corporation. As the standard is usually formulated, the duty of care requires that the directors exercise the same degree of care that a prudent person would exercise in the management of his or her own business.

Among other things, this means that directors should attend board meetings, inform themselves of facts necessary to make decisions, exercise their judgment and make prudent decisions.

One of the more important aspects of the duty of care is that a director should make certain that he or she has adequate information to decide matters that come before the board. For example, if asked to approve of a corporation going into a new business, the director should make sure that he or she understands enough to make an informed decision about whether it is wise for the corporation to take such a significant step.

Frequently, rosy forecasts of future profits can distract from the need to be fully informed of risks before making a decision. A director may need to question management, test the assumptions underlying projections, consider what will happen if something goes wrong and ask how risks can be mitigated to make a reasoned decision.

In other words, a director should act as though the consequences of a decision is his or her responsibility — because it is.

What does the duty of loyalty involve?

The duty of loyalty requires that directors act in the best interests of the corporation — not their own best interests. Thus, for example, if a director learns of a business opportunity, he or she may need to refer it to the corporation and not exploit it for the director’s own benefit.

The duty of loyalty also means that, in situations in which matters are brought before the board and a director has a conflict of interest, he or she should recuse him or herself from the decision. For example, if the corporation is going to retain another business in which a director is interested, the director should disclose the conflict and should not vote on that matter. Indeed, the director should attempt to cause the minutes to reflect that he or she has not participated in a decision that could benefit him or her.

Does all of this mean that somebody should turn down a directorship if offered?

No. It means that those offered a directorship should think very carefully about what being a director means and should not accept the role unless they are willing to take it very seriously.

Tim Miller is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or tmiller@novackmacey.com.

Insights Legal Affairs is brought to you by Novack and Macey LLP

Published in Chicago

In business, as in life, there’s a benefit to having guidance that’s tried and true. Most successful business owners can cite mentors who have directed their paths along the way. As companies grow, those informal relationships are usually replaced by formal boards of directors. A board of directors is a very useful method for allowing significant shareholders to feel they have a say in the strategic planning for the company.

It’s my opinion that all companies – regardless of size – need to have a board. In this two-part series, I will explore the benefits that a small company can gain from having a corporate board and how a small business owner can establish a board.

First, let’s examine the benefits:

1) A good board of directors will do what employees often are afraid to do: challenge the leader. Most employees don’t feel empowered to speak up when they think a strategy is misguided or out of sync with customers or a target market. Board directors should be willing to openly question ideas and the assumptions that guide strategic planning to help the president or CEO suss out their soundness.

2) A board can provide accountability – particularly in family-run businesses where it can be hard for an unbiased assessment of the business without familial issues clouding judgment.

3) Boards can help with recruiting, evaluating and selecting top job candidates, as well as setting compensation criteria that are fair and transparent. Since directors are removed from the daily running of the business, they can help with succession planning.

4) For companies considering a public offering, setting up a board early can help acclimate the owners to the enhance scrutiny that they will face once the company is publicly traded.

5) A board of directors is legally required for registered corporations.

Next column: How to create your own board.

Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s Entrepreneurial Winning Women, one of Enterprising Women Magazine’s Enterprising Women of the Year Award and the SBA’s Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zwgroup.net.

Published in Akron/Canton

Whether the organization is publicly-traded, a family business or a not-for-profit, boards of directors deal with many universal issues. The central responsibility of a board member is to make sure the organization prospers and fulfills its strategic mission while ensuring nothing puts the organization’s existence in detriment.

“Board members should have a solid understanding of the basic fiduciary responsibilities that need to be fulfilled and how they are going to ensure that they do so at the particular organization they are serving,” says Bob Stillman, CPA, director, assurance and business advisory services at GBQ Partners LLC. “The top priority of board members is to strategically develop a high-level course of action to ensure the preservation, existence and continued success of the entity.”

Smart Business spoke with Stillman about the essentials of board member fiduciary responsibilities and other matters that affect board members and benefit their related organizations.

What are the key fiduciary responsibilities of a board member?

When advising my clients, I routinely refer to the guidance provided by the attorney general of Ohio, who identifies four primary fiduciary duties:

  • Duty of care: meaning be active in the organization’s affairs, consistently attend meetings, keep yourself informed to determine if the policies established are appropriate and adhered to, understand how the organization functions, act diligently and in good faith, with knowledge and after adequate deliberations.
  • Duty of loyalty: really relates to acting without self-interest and resolving conflicts of interest. This takes varying forms depending on whether the organization is a public corporation, closely-held/family-owned organization or a not-for-profit organization.
  • Duty to manage accounts: relates to the financial accountability of the organization and checks to ensure appropriate internal control is established; records, reports and financial accounting are accurate, timely, sufficient, and monitored; appropriate activities are occurring to ensure sufficient funding resources and there is appropriate expenditures and risk management.
  • Duty of compliance: relating to following articles of incorporation, by-laws, other operating documents, relevant laws, regulations and filing requirements.

It is imperative that both management of the organization and the board members understand what each of these duties encompass.

How can board members understand more about these duties and take better responsibility for their roles?

The organization should provide a sufficient level of board member training that is tailored for the particular organization. People join boards having past board experience ranging from none to extensive. Providing new board member training offers an opportunity to explain what’s expected of a board member.  Management benefits significantly when their board members have a strong understanding of fiduciary responsibilities. The full board should receive a refresher annually about their basic fiduciary responsibilities.

Why is important for board members to understand and take control of their fiduciary responsibilities?

Many people view participating on a board as an opportunity to apply their personal and professional skills for the benefit of an organization and an opportunity to continue to develop their personal and professional network. However, the board’s collective decisions could have serious consequences for the organization that may reflect on individual board members. Clearly understanding the basic fiduciary responsibilities will help them be a more cognisant about that general risk as well as be a more effective board member.

You cannot abdicate your fiduciary responsibilities to another board member. Commonly, the CPA on the board takes the brunt of the details of the duty to manage accounts, but all other board members must have sufficient information to make their own decision.

Beyond fulfilling the basic fiduciary responsibilities, what other areas should a board member focus?

A well-informed and engaged board of directors will ensure an appropriate strategy is developed and implemented to enable the future success of the organization. Doing so inevitably requires the board to assess the leadership within management. This can be an uncomfortable position, however, a board member should expect to deal with this matter routinely. Also, key management personnel risk is becoming more prevalent with our aging society as professionals move toward retirement. The board needs to consider succession planning for key management personnel.

What skill sets should business leaders look for in a good board member?

A strong board needs to be well-balanced with people that possess specialized skills in certain common areas, such as legal, lending, investing, accounting, human resources, business development, insurance, human resources and technology. You also need members who will establish the tone at the top from an internal control standpoint and develop expectations with management about the quality they expect of the organization.

In the end, for any organization, reputation is its biggest asset and difficult to restore if it is damaged. Board members have a high responsibility to preserve, continue to promote and safeguard this. If they stumble, the organization could be open to negative exposure.  You want people who are well respected with certain credentials who will continue to preserve and improve the organization’s

reputation.

 

Bob Stillman, CPA, is director, assurance and business advisory services at GBQ Partners LLC. Reach him at (614) 947-5304 or bstillman@gbq.com.

Insights Accounting & Consulting is brought to you by GBQ Partners LLC

Published in Columbus