A not-for-profit board of directors can play one of two roles — that of a board of governance or a board of management. Both are valuable and can be highly effective. What type of board does your organization need?
Much of this depends on the current reality of your organization in this volatile time. But, more often than not, it depends on the strength, skills and expertise of the CEO/executive director. When we have been asked to assist with CEO/ED searches, one of the initial questions we ask is “What is the relationship you want to have between the board and the CEO?” Of course, the general response is that of collaboration, open and honest communication, transparency, etc.
When we think about board governance, we generally refer to the “10 Basic Responsibilities of Non-Profit Boards,” the seminal piece by BoardSource. For the majority of our clients, the board of directors is one of governance, ensuring the adoption of a mission statement, overseeing the financial health of the organization, promoting the organization, etc., and — most importantly — hiring the CEO and giving that individual the responsibility for all personnel decisions. In an established organization, a board generally serves in a governance role, using board member skills to fill in gaps with varied experiences and expertise to help advise and guide staff.
A very strong CEO — one who is independent, focused and driven — may often desire a board that is more than willing to stick to governance and stay out of operations. Enough information is shared so that board members understand the general finances, challenges, and priorities — but the less involved the better.
A board of management is generally more hands on, becoming intricately involved in making and often implementing operational decisions and contributing a great deal of time to the organization. We generally find this type of board with new non-profits, start-ups, in-crisis situations, and in organizations going through significant leadership transitions. Over time, with the right people in place, the board of management can slowly evolve into a board of governance.
Unfortunately, we have seen CEOs who abdicate their responsibilities to the board due to the fear of making decisions, a reluctance to engage in controversial discussions at the board level, or an inadequate level of skills necessary to ensure the organization’s success, leading to boards of governance slowly evolving into boards of management whether they intended to or not. And it’s hard to retreat from that position.
The one constant, however, whether a board of governance or board of management, is the requirement to assist with resource development for the organization (yes, fundraising).
The recommendations we offer below are nothing new and may seem simplistic, but implications to the board are far reaching:
Be very scrupulous in hiring the CEO of the organization in terms of the relationship desired between CEO and the board. Be clear on the expectations of the new hire; carefully identify the needed experience, skills, and behaviors; be diligent in reference checking, including reaching out to board members of the previous organization; and ensure the entire board is on the same page as to the leadership needs of the organization and the level of autonomy it will give its new leader.
Be equally scrupulous in selecting a board chair. Too many organizations have a pre-determined hierarchy, i.e., the vice president automatically becomes president and other officers line up for future succession. The board chair must be someone who meets a similar set of standards you would require in the CEO: strategic in thinking, visionary, strong and effective communicator, ability to manage change and conflict, etc.
Whether your organization has a board of governance or board of management depends on the needs of the organization as it continues to evolve. Just be sure you know which one you want.
When volunteers are providing an invaluable service to a nonprofit, it can be challenging to tell them that they have it all wrong in some critical areas — especially when they’ve been operating in that mode for years or, in some cases, decades.
That was the dilemma facing the Indiana State Museum and Historic Sites’ board of directors following a March 6, 2019, meeting in which its past board president, Greg Pemberton, an attorney, outlined the need to update a Memorandum of Understanding (MOU) Plan for the Friends groups connected to its network of 11 historic sites across the state of Indiana.
“Many of these groups have kept the state at arm’s length for several years, and some are untrusting when both the Friends groups and the Indiana State Museum and Historic Sites (ISMHS) organization both have the same goal,” Pemberton said during the 2019 meeting, before leading a board discussion on numerous areas of concern:
Friends groups cannot operate independently of the overall museum system. However, many had been acting independently for decades, developing their own branding for their websites and marketing collateral; operating board-related activities for their respective sites; and, in some cases, identifying themselves as separate 501(c)3 organizations.
Some of the groups had been inconsistently reporting tax information to the state, which is required under law.
Each group had been operating under outdated MOUs, which were drafted before the museum system became a quasi-state agency in 2011. All of these MOUs would need to be updated to align with legal requirements outlined by the attorney general’s office. The new guidelines would dictate that all funding and donations from the 12-network system, including the Indiana State Museum in Indianapolis, must come from one unified fund.
Cathy Ferree, ISM President and CEO
The board members seemed optimistic that many of these issues could be quickly addressed with new Community Partner Guidelines, and a series of discussions with its five Friends groups. By the end of the board meeting, Cathy Ferree, ISMHS president and CEO, and Kate Brownlee, then ISM chief development officer, had agreed to meet with ISMHS regional directors and friends’ board of directors over a two-month period. The ultimate goal was to have the Friends groups operating under the new guidelines by July 1, 2019.
Encountering resistance along the way
As it turns out, shifting to the new agreement wasn’t a straightforward proposition.
Overwhelmingly, the Friends groups’ response to operating under the new guidelines was, “Why do we want to change things?,” recalled Andrew Briggs, who has been an ISM board member for about 1o years.
“A lot of these groups had been set up years ago,” said Briggs, a banker from Geneva., Ind., who also serves as the chairman of the Indiana Bankers Association. “They didn’t have a structure that was conducive to a quasi-government entity. They sort of did things their own way — ‘under our umbrella and tax ID number.’”
According to P. Garrett Adams, President/Board Chair for the T.C. Steele State Historic Site Friends group, the site in Nashville, Ind., had been operating independently for nearly 30 years. The members of the volunteer organization had developed close ties with the site staff and community, actively recruiting volunteers, raising funds for capital improvements and seeking grants to support enhancements, including a recreation of Steele’s studio wagon, and the purchase of AV equipment and golf carts for visitors.
When that model of operations was threatened to be disrupted, members of the Friends group feared that their long-term relationship with the site and its staff also would be impacted, said Adams, who is a pharmaceutical project manager for Eli Lilly & Co. “We were not as concerned about losing autonomy,” he recalled. “We needed a better understanding of the impact on members and membership benefits. The larger focus was on seeking to understand what it meant for our relationship to the site.”
Because of those types of concerns, at least one Friends group appealed to its local legislators to block the implementation of the new MOU among the historic sites, Ferree recalled. “It was complicated,” she said. “Change is difficult for people. Many of them were confused; they didn’t understand why the rules had suddenly changed.”
Many of the complexities had preceded this particular governance issue. Nearly nine years prior, the Indiana State Museum and Historic Sites undertook the steps to become a quasi-state organization, operating as a state agency and a nonprofit organization. In the face of declining financial support in state dollars, the new structure gave them the ability to apply for grants and invest in fundraising initiatives.
However, it was all new territory. “We needed to raise our own dollars in a way we had not done before. Currently, 75 percent of the organization is funded by the state and 25 percent we raise ourselves,” Ferree said.
Also, before that time, Friends groups had operated as independent 501c3 organizations, Ferree pointed out. Since the statute governing quasi-governmental entities dictated a change in the way they operated, it demanded a shift in the museum’s long-term relationships with its Friends organizations.
Another layer of complexity dated back to 2009, when then Indiana Gov. Mitch Daniels announced a plan to merge the Indiana State Museum and 11 historic sites under one new agency. Many of the Friends group members had been actively involved in their respective sites long before any of these decisions came to fruition.
“We needed to recalibrate our relationships,” Ferree said. “The collaboration had been there, but they had been able to operate more independently. It’s not bad or good. We just needed to be sure we were on the same page; there were things we still needed to do to become a full quasi-governmental organization.
“It was a difficult process,” Ferree added. “It really took a lot of conversation and listening and understanding for us to make this shift. And it’s an even more complex proposition when you’re working with different groups that each have their own culture and needs.”
Board members invest in an intensive endeavor to reach resolution
Although there was strong resistance to the new agreement, the board and staff knew they couldn’t back down, Briggs said. “We wanted to make sure everything was right, and it was time to bring everything in line to match up with IRS codes,” he said. “We had all these different groups doing their own thing. We didn’t want to take the risk of not reporting something correctly. That would put all of us at risk.”
With Ferree and Brownlee encountering significant pushback as employees of the Indiana State Museum and Historic Sites, several board members, including Briggs, embraced the challenge of reaching out to the Friends groups in what would turn out to be a series of meetings and conversations throughout 2020.
Board member Nancy Jordan said it was imperative that the board stepped in to resolve the conflict. “The board has ultimate responsibility to ensure this quasi-government agency is delivering on our mission and meeting the duties of care,” said Jordan, who is a senior vice president at Lincoln Financial Group. “We also wanted to hear first-hand the needs, thoughts and concerns of all these supporting groups. Their voice is critical to our collective success.”
William A. Browne, Jr., ISMHS board president, said it was especially important to recognize the value of the Friends group while, at the same time, being direct about the need for change.
“The Friends groups have had the good goal of taking care of these historic sites but they were not all operating under the same rules,” explained Browne, who also is principal/president of Ratio Architects, LLC. “We have to report every single dollar the sites and museum generates so we can file taxes appropriately. That became an issue over the years because each of the Friends group was operating in a free-form manner, if you will. It’s not the kind of structure that needed to be put in place for a quasi government.”
As board members started meeting with various Friends groups, they understood that the original timeline wouldn’t suffice to achieve true collaboration.
“We started to wade into this, and realized that people were very emotionally attached and we were stirring things up because we were asking them to operate differently,” Browne said. “Some people took exception with that. We had to figure out a strategy because, in the end, we knew it would be nothing but a positive thing for us.”
A focus on listening and collaboration
According to Ferree, the board’s commitment to drawing Friends group members, community leaders, and local legislators into difficult conversations was key to achieving true collaboration.
“The board members went above and beyond, traveling throughout the state, spending a lot of time talking to people and sorting things through,” she said. “They took extended time to move the institution forward in a complicated situation. They brought very different skills to the table, rallying around each other’s strengths.”
As a result of the meetings, the teams established the community partner guidelines, and set up quarterly meetings — to begin in mid-March — and attended by Ferree, board members, and other ISMHS staff. The agenda is set by site staff and the meetings will be run by site managers and regional directors. The meetings are open to anyone in the community, and will provide increased transparency at all levels, Ferree said.
“We realized that we needed to formalize the communications in a way that held us accountable to the Friends’ groups,” she said. “If we were going to ask them to help us do things systemwide, we need to be transparent.”
Jordan said the resulting collaborative approach resulted in a win-win outcome. “A great intangible benefit has been the opportunity to bring the Friends/supporting groups together to learn from each other,” she said.
Browne said the key to any successful partnership lies in the ability to communicate and connect. “With the right framework for that communication to be able to occur, you can bridge a lot of gaps and issues,” he said. “Just setting up a communications strategy is really critical to having a successful relationship and dialogue across distance.”
As a result of that collaborative approach spearheaded by the ISMHS board, the Friends groups are overall pleased with the outcome, Adams said. “We were able to get to a very good place,” he said. “The board did very well in bringing everyone together, talking through ideas, concerns and questions. It worked out very well. We are all now looking through a common lens, and we’re excited about things moving forward and the future of our collaboration.”
By Annmarie Novotney, senior audit
manager, Blue & Co.
A strong board of
directors will oversee implementation of strategic objectives for the
organization, but also has ultimate responsibility and liability. Building a
strong board is challenging, yet crucial to setting the right tone for success
of your organization.
Have you assessed
your organization’s overall governance model recently? Generally, it’s best
practice to review governance policies regularly but at least every three to
five years. For newer organizations, this time period may be shorter as
circumstances and strategic positioning may change more frequently.
As you review your
organization’s governance model, consider the following:
Board size: The IRS generally requires a minimum of three board members but
does not have requirements on term limits. Many organizations have at least
five members, with an average throughout our client base of 15. As you consider
what board size is right for you, also consider if term limits are appropriate.
If your review determines changes to board structure need to be made, be sure
to amend your organization’s bylaws (for maximum board members and term
limits).
Type of board: You may also consider whether your board is a working board or a
governing board. Working boards have members that are heavily involved in the
implementation of the mission, and often perform duties that paid staff would
perform. Governing boards have a big-picture focus and work to delegate tasks
to staff in an effort to govern the strategic mission, not implement it
directly.
Skillsets needed: A diverse and skilled board of directors can serve its
organization more effectively. In all areas, ensure that you are focused on nonprofit
(NFP) expertise. Attorneys and accounting professionals are especially
important in this regard as nonprofits are unique in many ways. Some examples
of areas include:
Financial – This expert
would be able to provide guidance on the creation of a budget, financial
statements, and accounting policies and procedures, and insurance
considerations.
Legal – As there are
many requirements for a nonprofit organization, a legal expert can ensure
the board stays up to date on all compliance requirements and provides
guidance on any legal matters that may arise.
Marketing – Ensuring your
organization is well-known throughout the community can provide
significant growth opportunities for recognition and future funding. An
expert in marketing can help accomplish this.
Technology – A technology
expert can ensure the organization is doing its best to protect its assets
and information from cybersecurity threats. Cybersecurity threats continue
to plague NFP organizations of all sizes, so having an expert here could
keep the organization up-to-date on security options and policy ideas.
Fundraising – An expert in
fundraising is a must for any NFP board. This person should not only have
connections in the community, but also know how and be willing to ask for
donations in an effective manner.
Program/Industry– Having a
board member familiar with your programs, or with industry knowledge that
could assist in growing or expanding current programs, can be an asset to
review plans for future programming within your organization. He or she
can review and identify red flags in planning, as well as provide
realistic expectations on how quickly a program can be started or
expanded.
Board committees: Board committees are also an important part of a Board of
Directors. The size and responsibilities of committees vary greatly between
organizations based on their needs. For some committees, it may be best to have
a committee chair, responsible for communicating decisions to the board and
ensuring the committee remains focused on its goal. The following are suggested
committees, but should be tailored to your current needs and long-term goals:
Executive – This group acts
on behalf of the entire board as the steering committee and prioritizes agendas.
They also manage urgent matters between meetings.
Finance – These individuals take on an expanded role of the financial
expert mentioned above. Preparing or assisting with the budgeting process,
reviewing internal financial statements, and presenting these items to the
Board would be included in the responsibilities of the finance committee. This
committee can also provide insight on whether goals are achievable based on the
financial performance of the organization.
Audit – If an audit becomes necessary for the organization, having
an audit committee can ensure it is clear who is responsible for staying
current on financial requirements, chooses the audit firm, ensures there is no conflict of interest and has a
clear understanding of the audit results.
Fundraising/program – This committee is
focused on driving and monitoring the organization’s fundraising performance
and can also track the effectiveness of specific programs to determine if any
changes need to be made.
Governance/nominating – This group
determines the requirements and qualifications of board members, nominates
them, and ensures they receive proper training. This committee also drives
board expectations and performs regular self-assessments of the board.
Annmarie Novotney is an audit senior manager in Blue
& Co.’s Carmel, Indiana office. She’s been with the firm for over nine
years and works exclusively with nonprofits, specializing in assurance and
consulting services.
If you are
considering a review of your governance policies, or if you have questions or
need guidance on how to incorporate these suggestions, please contact Annmarie
Novotney (anovotney@blueandco.com) or your local Blue & Co. advisor.
