Governance

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SEE ALSO: Ten Basic Responsibilities of Nonprofit Boards (Boardsource)

GovernanceWebinar2.jpg

A nonprofit board of directors is responsible for defining the organization’s mission and for providing overall leadership and strategic direction to the organization. A nonprofit board actively sets policy and ensures that the organization has adequate resources to carry out its mission. The board provides direct oversight and direction for the executive director and is responsible for evaluating his/her performance. A nonprofit board also has a responsibility to evaluate its own effectiveness, in upholding the public interest(s) served by the organization.

Duty of Care

The duty of care describes the level of competence that is expected of a board member, and is commonly expressed as the level of "care that an ordinarily prudent person would exercise in a like position and under similar circumstances." This means that a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization.

Duty of Loyalty

The duty of loyalty is a standard of faithfulness; a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization.

Duty of Obedience

The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public's trust that the organization will manage donated funds to fulfill the organization's mission.

Infrastructure Checklist

Required

Yes No In Progress Not Applicable Not Sure
Conflict of interest policy, procedures & signed forms for board, staff, & volunteers—updated annually (Sarbanes-Oxley Act of 2002; 990) US
IRS Form 1023 & IRS determination letter—publicly accessible for accountability purposes US
Articles of incorporation (Neb. Rev. Stat. §21-1921, §21-1922; Iowa Code §504.202) NE, IA
Establish within 60 days and continuously maintain a registered office and registered agent (Neb. Rev. Stat. §21-1934, §21-1935, §21-1937; Iowa Code §504.501; Iowa Code §504.1421) NE, IA
File biennial report (by April 1st, in odd years) with Secretary of State (Neb. Rev. Stat. §21-125; Iowa Code §504.1613) NE, IA
Hold an organizational meeting after incorporation to elect directors (if not named in the articles) appoint officers, adopt bylaws, and carry on other business (Neb. Rev. Stat. §21-1924; Iowa Code §504.205) NE, IA
Required officers—president, secretary and treasurer, or as indicated in bylaws (Neb. Rev. Stat. §21-1990; Iowa Code §504.841) NE, IA
Minimum of three board members (Neb. Rev. Stat. §21-1970) NE
Notify NE Secretary of State if registered agent or registered office has been changed or discontinued within 120 days (Neb. Rev. Stat. §21-19,137) NE
Minimum of one board member (Iowa Code §504.803) IA
Notify IA Secretary of State if registered agent or registered office has been changed or discontinued within 60 days (Iowa Code §504.1421) IA
Articles of incorporation must include provisions not inconsistent with law for how assets will be distributed in case of corporate dissolution (Neb. Rev. Stat. §21-1921, §21-1922; Iowa Code §504.202) NE, IA (required for IA corporations incorporated after January 1, 2005; recommended for all others)


Strongly Recommended

Yes No In Progress Not Applicable Not Sure
Board code of ethics/conduct
Board member reimbursement/compensation policy
Board resolutions/minutes book
Bylaws include board liability & indemnification language
Liability insurances (Director & Officer, general, volunteer, etc.)
Voting procedures


Recommended

Yes No In Progress Not Applicable Not Sure
Annual report
Board attendance policy
Board calendar (meetings & organizational events)
Board giving policy (100% of board members should give)
Board member handbook—policies & procedures including, but not limited to:
Board member recruitment, selection, orientation, training plans
Board self-assessment plan & forms
Board terms, rotation & removal (bylaws)
Chief executive hiring & assessment/evaluation plan
Committee charter(s)
Committee descriptions (purpose, structure, goals, activities, person responsible)
Committee policy handbooks
Compensation documentation (executive & other staff) Note: See IRS information on “rebuttable presumption” for more details on what to have.
Disaster recovery plan
Executive evaluation plan
Leadership succession & transition plan (including board & staff leadership)
Organizational chart
Process for determining chief executive compensation
Risk evaluation & management systems


Practices Assessment

Board Composition & Roles

No/Not Begun In Process Yes/ Complete Not Applicable Not Sure
We have the required number of board members (3 in NE, 1 in IA). NE, IA
We have all required officers (president, secretary, treasurer, or as indicated in bylaws). NE, IA
At least two-thirds of the board is independent, as defined by the IRS. US

A trustee is not an “independent trustee” if, at any time during the fiscal year, the trustee: (a) received compensation as an officer or employee from the corporation or a related organization; (b) received compen¬sation or other payments as an independent contractor of $10,000 or more not including expense reimbursement or payment for services as a director; or (c) became involved or had a family member who became involved in a “reportable transaction” with the corporation, whether directly or indirectly through affiliation with another organization.

Generally speaking, reportable transactions include:

  1. loans or grants to the director (or the director’s family members or entities in which the director or family members have an ownership interest, collectively “related persons”);
  2. compensation to a family member of $10,000 or more; or
  3. a business transaction with the director or related persons that exceeds the greater of $10,000 or 1 percent of the organization’s annual revenues, or multiple transactions that exceed in the aggregate $100,000 during the fiscal year.

Comply with the IRS definition of independence when filing the Form 990, but remember that independence means more—it takes into account financial and non-financial relationships that could lead a reasonable person to question an individual’s objectivity and loyalty to the organization.

The gold standard for independence should be that the board is beyond reproach, in fact and appearance.

The board has no more than one employee (typically the chief executive) serving on the board, and he/she does not serve as the chair, vice-chair, secretary or treasurer.
We have an established process to recruit and select new board members that ensures board members represent the best interests of the organization, the infusion of new ideas and community perspectives, and the preservation of institutional memory via staggered terms and term limits.
The board includes members with the diverse skills, expertise and experience necessary to fulfill all needed board roles, including at least one person with financial expertise.
We strive to have board representation that reflects the diversity of our community and constituency.
The board is comprised of individuals who represent the best interests of the organization.
Board members are provided with clear job descriptions and understand their roles and responsibilities.
Committee members are provided with clear job descriptions and understand their roles and responsibilities.

Governance Documents

No/Not Begun In Process Yes/ Complete Not Applicable Not Sure
We have our IRS determination letter. US
We have up-to-date articles of incorporation. NE, IA
We have an up-to-date registered agent and registered office filing with the Secretary of State. NE, IA
We file a biennial report with the Secretary of State. NE, IA
We have up-to-date bylaws which include board liability & indemnification language.
We have a code of ethics and conduct for the board.
We have an up-to-date board member policies and procedures handbook.
We have an up-to-date committee handbook with each committee’s charter (or other clear statement of authority and purpose), policies and procedures.
We carry the appropriate level of liability insurance, including Director & Officer insurance.

Board Policies & Procedures

No/Not Begun In Process Yes/ Complete Not Applicable Not Sure
We have an up-to-date conflict of interest policy and signed disclosure forms for the board, staff, and volunteers. US
We held an organizational meeting after incorporation to elect directors (if not named in the articles of incorporation), appoint officers and adopt bylaws. NE, IA
We have a clear policy on board member term limits, rotation (term staggering), number of consecutive terms, and removal written in our bylaws, and we abide by these.
Board meetings are held at least quarterly, and regular attendance is required.
We have a board attendance policy and abide by it.
The board follows the voting procedures as defined in the bylaws.
Board members are provided with an orientation and board manual.
We have an up-to-date board calendar with meetings and organizational events.
We educate the board and staff about what constitutes conflict of interest.
We regularly and consistently monitor and enforce the conflict of interest policy.
All board members receive relevant financial literacy, legal, lobbying and advocacy training as needed.
We have a process for educating board members to ensure they can carry out their oversight, fundraising and independence responsibilities.
We keep as permanent records minutes of all board meetings and documentation of any actions taken by the board without a meeting.
We keep as permanent records all financial information for the organization.
We strictly prohibit financial loans to members of the board or to personnel.
We abide by state law if/when the board takes action without a meeting. NE, 21-1981, IA, 504.822

Board Responsibilities: Oversight

No/Not Begun In Process Yes/ Complete Not Applicable Not Sure
The board conducts an annual evaluation of itself.
Periodically, the board reviews its size, composition and operational structure.
At a minimum of every two years, the board reviews the organization’s bylaws, mission statement, articles of incorporation and corporate policies and amends them as needed to reflect organizational growth and development.
The board actively participates in and approves the organization’s strategic plan.
The board conducts an annual performance review of the chief executive. The chief executive’s performance assessment is based on organizational accomplishments, and the total compensation package is reasonable, reflecting his/her performance as well as industry standards.
The board has a succession plan for the chief executive, board members and key staff.
The board has an organizational transition plan to maintain daily operations during a change in executive or board leadership.

We have a crisis communication plan written in the board manual.

Board Responsibilities: Fundraising & Development

No/Not Begun In Process Yes/ Complete Not Applicable Not Sure
All board members make personal financial contributions to the organization.
Board members volunteer their time and raise funds from external sources.
Board members are provided with fundraising training and support materials.
We provide training and education so that board members can advocate for the organization.



Board Responsibilities: Independence

No/Not Begun In Process Yes/ Complete Not Applicable Not Sure
Board members make decisions in the best interest of the organization and not in the interest of another entity, including themselves.
Each board member discloses all material facts and relationships and refrains from voting on any matter where there is a conflict of interest.
Board members (who are not employees) receive no monetary compensation from the organization.


Walking the Talk

  • Frame board orientations around the mission. Lay out specific expectations of how board members will help achieve the mission; encourage the board chair to frame all board discussions around the mission; consider a board retreat with a specific mission focus; and provide each board member with a position description developed within the context of mission achievement.
  • All board members should sign a Conflict of Interest statement, which should be updated on an annual basis to reflect any new affiliations and potential points of conflict. Once signed, the organization’s leadership needs to adhere to the Conflict of Interest Policy, and understand the appropriate procedure to disclose a conflict.
  • Review the organization’s process for recruiting and screening potential board members. Develop a script of topics to cover during an initial meeting, including the ethics and values of the organization. Provide information on the organization’s values and ethics in a written format (i.e. board manual).
  • To avoid potential conflict and confusion, your organization should consider a variety of operating policies beyond the bylaws. In addition to personnel policies, consider formal policies for technology use, confidentiality, conflict of interest, and customer grievance procedures.
  • Strive for diversity on your board to bring in fresh/alternative perspectives and approaches to achieving your mission.
  • Establish term limits for board members. Staggered terms should maintain at least a 50% incumbency rate to maintain continuity and organizational identity.
  • Establish a transition plan to prepare for an immediate change in executive director: develop a process to select an interim executive and establish a strategy and timeline for posting the position, recruiting, screening, selecting, and orienting the new executive.
  • While each board must determine the appropriate budget needed to achieve its mission, various industry benchmarks provide target ranges of 65-80% of expenditures for programs, and 20-35% for administration, fundraising and evaluation.