Last week we began a series on governance and ethical behavior for nonprofit organizations. We started the series by discussing legal standards. This week our focus is on Effective Governance.
All 501(c)(3) nonprofit organizations, those that are officially registered with the IRS, are required to have a board of directors. The IRS gives the responsibility for governing the organization to the board of directors. In other words, the group of individuals who serve on the board are responsible for ensuring that the organization is fulfilling its mission and following the legal requirements established by the IRS.
Nonprofits must have a governing body that is responsible for setting the strategic direction of the organization, approving the annual budget, setting compensation packages, and developing policies. To fulfill these responsibilities, the board of directors must meet on a regular, consistent basis. For some organizations, this may mean meeting on a monthly basis while for others it may mean meeting on some other basis that is agreed upon.
Regular meetings provide the board with an opportunity to stay connected to the mission of the organization and to ensure that the organization is staying true to its mission. Since the IRS gives the responsibility of oversight of the organization to the board of directors, it makes sense then that the board meets regularly to provide governance and oversight.
It is tempting to recruit board members who are just like you, who think like you and understand you. However, best practice models indicate that strong organizations have a diverse board in terms of ethnicity, race, gender, etc. Having a diverse board increases the likelihood that you will receive a variety of thoughts and opinions in board meetings.
While the board of directors has the responsibility of evaluating the Chief Executive Officer, it is also important to recognize that the board should also evaluate itself. Such an evaluation should occur every one to two years and identify both strengths and areas of weakness within the operations of the board. Once identified, a plan can be developed to improve areas of weakness in priority order. It should be noted that it is usually very helpful to have a consultant or unbiased outsider guide this process.
Next week, our focus will be on Financial Best Practices.
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