Better board effectiveness Featured

7:00pm EDT February 24, 2008

Many executives offer their expertise to the community by serving on the boards of nonprofit organizations.

While CEOs might be skilled and experienced with board interface from their responsibilities as chief executives, a different level of expertise is required when the roles are reversed and CEOs find themselves sitting in a board member’s chair.

“It’s important that board members understand their respective roles,” says Greg Moser, partner with Procopio, Cory, Hargreaves & Savitch LLP. “It isn’t unusual to find that board members, particularly in nonprofit organizations, have no previous board experience, so they need to be trained and educated to make sure they know how to support management and execute their roles as policymakers and don’t become micromanagers. In addition, board members have fiduciary responsibilities and the potential for personal liability, so it’s vital to understand both your role and your responsibilities when serving as a board member.”

Smart Business spoke with Moser about how nonprofit board members should support management and execute their roles and responsibilities.

What constitutes a board member’s fiduciary responsibilities?

The fiduciary duties of a nonprofit director are the duties of care, loyalty and financial oversight. Breaching any of those duties can subject the nonprofit board member, even an unpaid volunteer, to personal financial liability. Most commonly, an ex-employee or third party with a claim against the corporation will name directors in their suits. Directors will generally have immunity and be entitled to indemnification from the corporation as well as defense from their directors’ and officers’ liability insurer, unless they have breached one of their duties.

While there are no shareholder suits, oversight of nonprofits is provided by the state attorney general and often the nonprofit’s parent organization. Additionally, the nonprofit corporation can pursue individual board members who have violated their fiduciary duties.

What are the board member’s primary roles and responsibilities?

Board members are accountable for selecting auditors, overseeing the compensation of the organization’s executives and making strategic decisions, such as decisions to expand the organization either by acquisition or by devoting time and resources to a new service offering. In larger nonprofits, it’s the responsibility of the board to establish a compensation committee as part of their fiduciary responsibilities. The duty of loyalty includes both an obligation to keep proprietary information confidential and to avoid conflicts of interest. Board members also play a key role in labor-management relations by setting the tone and the philosophy for approaching employee relations and how the organization will be positioned in the marketplace relative to similar organizations, which has a profound impact on employee turnover.

How can board members support the organization’s management team?

The board should help decide the strategic direction of the organization, while the business plan should be crafted by the management team. By conducting a SWOT analysis, which stands for strengths, weaknesses, opportunities and threats, the board can provide an outside view of the organization and help management decide where to take the organization in an effort to optimize its strengths and minimize its weaknesses. Besides having the benefit of knowing how the organization is perceived externally, board members are often the best source for new board members, and having those recommendations come from the board reduces conflict of interest concerns for management. Board members should hold management accountable for the execution of the plan, but they should not be involved in the details.

How can board members get the requisite training?

Initial training for new board members should be conducted by management, who will provide an orientation, a tour of the facility and a general overview of board duties as well as the goals and history of the organization.

Retreats offer an ideal setting to conduct in-depth board member training and to work on the strategic plan. High-functioning boards will use an outside facilitator and take the opportunity afforded by the retreat to build relationships and to set expectations of one another because regular board meetings generally aren’t conducive to this type of interface. Boards should use information from the SWOT analysis to conduct crisis management and contingency planning, which might be required to survive unanticipated changes, such as a major cut in funding. The strength of the board really shows through when they are faced with a crisis and are called upon to lead the organization through difficult times. If the board has merely been rubber stamping things and going through the motions, it won’t be effective under crisis conditions. If the board members trust one another, understand their roles and can work together as a team, they’ll be able to lead the organization through any challenge.

GREG MOSER is a partner with Procopio, Cory, Hargreaves & Savitch LLP, advising a wide variety of nonprofit organizations, including hospitals, schools, and other charitable organizations and foundations. Reach him at (619) 515-3208 or gvm@procopio.com.