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For effective governance, boards must set a stronger tone

RFP
On whom can we depend to make sure that not-for-profit organizations have a clear mission and are successfully achieving it? Regulatory scrutiny helps prevent abuses. Management and staff attend to the tasks of strategizing and implementing. Stakeholders watch and provide critical feedback. But ultimately, the most critical responsibility — achievement of mission — falls to the board. If the board isn’t doing its job well, and if it doesn’t have the right membership, nothing else matters. Boards are increasingly setting their own high standards and taking action to meet them.

The new look of fundraising We anticipate that boards will focus more on fundraising than they have in the past.

Board members know that the organization’s mission can be better achieved with more resources. Trustees also understand that more funding is available as a result of an improving economy. Individual donors’ wealth has increased. Foundation resources are also on the rise. The only funding source not more flush is the government, which, while tax receipts are on the rise, continues to face extraordinary demands on those receipts.

Fundraising is also becoming more varied and complex, with the emergence of online platforms, mobile giving, social media and crowdsourcing.

For many organizations, board responsibility for fundraising is embedded in the governance culture. But other boards have an ambivalent attitude toward fundraising, viewing it as a staff responsibility. Unless those organizations are satisfied with their current resource base, their boards need to become more actively involved in obtaining funds. A board does not need to lead fundraising initiatives; that is more naturally the CEO’s job, supported by the head of development. But the board needs to set the tone and be present for critical tasks when appropriate. Board members have the stature to effectively represent the organization to the community; their willingness to volunteer their time to steward the organization makes a compelling case to donors and funders about the importance of the organization’s mission. Board members can open doors to potential donors by using their connections and their influence. They can demonstrate their full commitment to the organization by accompanying staff to donor solicitations. They can set an example, especially by their own personal commitment of money. A major statement is made when there is 100% board participation in giving.

Taking ethics beyond compliance Independent Sector, a leading trade association for the not-for-profit industry, highlighted the emerging critical importance of ethics in updating its Principles for Good Governance and Ethical Practice, generally considered the single guide to best practices.1 The update was issued, the association explains, because of changes that have occurred in the past seven years, such as significant refinements in codes of ethics and whistleblower best practices based on experience, stronger emphasis on enterprise risk management, heightened use of technology and its incumbent risks, rebalancing transparency and privacy, and the new business opportunities that not-for-profits are sometimes now pursuing.

The rules are now in place. It is increasingly rare to find a board that hasn’t established (and revised based on experience) a conflict-of-interest policy, a code of ethics, whistleblower policies, and other policies and procedures to set the highest standards of ethical conduct for boards and for the rest of the organization.

The remaining challenge is actual leadership behavior, setting the “tone at the top” for everyone in key governance roles, modeling the best possible example, and communicating the board’s commitment to high standards.

A healthy “tone at the top” can be set when the CEO and the board chair address these principles:
  • Ethical considerations in regular reports
  • Consistently applying policies rather than making toxic exceptions
  • Judiciously balancing transparency and privacy protection
  • Honoring whistleblowers, rather than just protecting them
  • Conducting an annual survey of how staff and other stakeholders perceive the organization’s culture of ethics
  • Verifying the effectiveness of the fraud prevention program
  • Assuring the accuracy not only of financial reports, but also marketing and fundraising materials
  • Annually assessing how the organization’s commitment to these high standards is being maintained and strengthened

Recognizing value in diversity
Boards are showing renewed energy toward expanding their diversity, recognizing that proper composition is critical to board and mission performance.

Diversity is manifesting itself in a number of ways, as boards acknowledge that a variety of skills, styles and experiences is essential to mission fulfillment. Boards are seeking out new members who are especially talented at imagining the future and brainstorming on strategy. They are adding those who can function as contrarians, who are skeptical and who feel no reluctance in raising hard questions. They are also adding members who understand the professional challenges faced by management in implementing the organization’s programs, and who bring a broad range of cultural and racial experiences. Boards are making sure their tables seat individuals with specific technical and professional skills, such as program expertise, IT, legal and financial knowledge.

We recommend these additional resources

Survey of not-for-profit governance practices, BoardSource: Leading with Intent, January 2015.

Article about the BoardSource survey, The Chronicle of Philanthropy: “Nonprofit CEOs Say Board Members Need to Be Better Fundraisers,” by Holly Hall, Oct. 29, 2014.

Article with advice that applies to all not-for-profit boards, The Association of Governing Boards of Universities and Colleges: Trusteeship, “The 10 Habits of Highly Effective Boards,” by Rick Legon, March/April 2014.
It’s all about leadershipHigh-performing boards require leadership from the board chair, as well as the CEO, each in his or her prescribed role. A board cannot be successful without strong, differentiated leadership from both positions.

Ideally, the board chair sets the agenda, not only by preparing the literal order of business, but also by having a clear understanding of the board’s role in policymaking without interfering with management’s role. The board chair should be highly organized and sensitive to each board member’s unique contributions. And it’s the board chair who ensures that each important board-level role is fulfilled, including getting the right mix of talent on the board and regularly assessing performance, often accomplished through the work of a nominating/governance committee.

The CEO, like the board chair, is aware of the distinction between board and management roles; he or she provides valuable information and advice to the chair in preparing the agenda.  The CEO also confirms that the board has the information it needs to make knowledgeable decisions.

In governance, a prime requisite for success is a good relationship between the board chair and the CEO. If they are on the same page — and, just as importantly, make it clear that they are — and the board upholds the high standards it sets for itself, then the organization has a foundation for effective mission-based service.

1 Independent Sector, Principles for Good Governance and Ethical Practice, 2015.

See the full report: The State of the Not-for-Profit Sector in 2015