Non-profit Board Governance Models

Nov 122008

Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com

Demands on non-profit boards are greater today than at any time in recent history. Scandals at venerable organizations coupled with apathy and difficult economic times make fund raising and funding streams uncertain. Boards of directors must constantly assess priorities in keeping with corporate ethics. Charitable organizations must insist upon a transparent governance model that keeps donors informed and recipients needs confidential.

Successful fund raising charitable organizations conduct their activities transparently. The directors must be credible, competent, and dedicated to the issues the organization is addressing for the fund raising activities to be successful. Leadership and leadership development is a key to sustaining non-profit organizations, because turnover on non-profit, volunteer boards is very high. The high turnover among directors requires the succession committee to conduct frequent leadership assessments. Leadership development should focus on the mission of the organization and the difference the organization is making in addressing its constituency.

Non-profit boards have adapted over the years as issues regarding confidentiality have changed. Regulations have tightened the rules protecting recipient’s identity and requiring organizations to conduct thorough assessments of policies and practices surrounding the issue of confidentiality. Even pictures of anyone entering a building for free health care screenings require a signed release statement by the subjects in the picture.

The governance models of non-profit boards are increasingly similar to the for-profit models. Boards delegate decisions further down the chain of command. With greater demands on time, management has greater authority to make decisions within the strategic plan parameters. Directors act more as ambassadors and focus energies on fund raising and gaining good will for the organization. Audit committees are called on to exert greater efforts to ensure finances are managed fairly and reported accurately- most often with the assistance of outside auditors.

A frequently occurring model involves the establishment of an umbrella organization to act as a fundraising arm for several smaller service providers. The umbrella organization carries out the fiduciary responsibilities for the service providers, meets regulatory and reporting requirements, and files the necessary forms for donors to receive the maximum tax benefit of their donation. The service organizations gain more time to focus on serving the needs of their clients, and the umbrella organization’s board of directors becomes compliance management experts on issues surrounding tax reporting, and record keeping for 501(c)(3) organizations.

Good corporate governance requires directors to enhance shareholder value. Non-profit directors are working to increase the impact on the issues or activities that the non-profit was formed to address. In uncertain economic times and with budgets stretched, corporate management is pressured to justify their donations more than ever before. Non-profits, depending on corporate donations to reach their budget targets, must clearly demonstrate the value the corporate donor will receive from a donation. For instance, a non-profit addressing the issue of illiteracy may assess the number of new potential employees a corporate donor may have to choose from if illiteracy rates dropped by 10 percent. Fact-based statistics corporate management can quote to their board of directors can work to the advantage of the non-profit and their corporate management donors.

Corporate boards meet ten to twelve times per year and expect their CEO and corporate management to carry out established policy. Professional governance requires the directors to hold the CEO accountable for the performance of the company toward enhancing shareholder value. Non-profits are often community based. The directors, the staff, and the recipients often interacting on a number of critical community based issues. The governance of one non-profit is often coordinated with the governance of another non-profit. Transparency, communication, and coordination become critical for non-profit community directors to assess priorities to allow the non-profits to carry out their mission and allow corporate management to continue to donate and receive value for their donation dollars.

If you are a board member of a non-profit organization and want to learn more about effective board governance, send me an e-mail and we will arrange a time to talk.

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