Article originally published by the American City Business Journals on May 3, 2021
Have you considered becoming a director of a nonprofit board but don’t know much about them? I recently spoke to a group of mid-career and retired professionals who were looking for this type of opportunity and shared critical insight into being a board member and how to choose an organization to join.
Expectations of directors
Nonprofit boards look for directors/trustees who can provide the three Ts – time, talent and treasure. A nonprofit organization will expect you to participate in annual fund and capital campaign initiatives, as well as fundraising projects initiated during the year. When raising money from outside sources, many donors will expect 100% board participation.
Fiduciary duties
Nonprofit directors have the same fiduciary duties as those of for-profit organizations, as follows:
- Duty of care – acts in the best interests of the organization
- Duty of loyalty – acts in good faith and avoids conflicts of interest
- Duty of obedience – ensures the organization follows regulations and doesn’t violate the law
Fulfilling these duties will help avoid liability and damage to the reputation of the organization and its directors.
Relationship between the CEO and directors
The primary job of both for-profit and nonprofit boards is to hire the CEO, and if it is in the best interest of the organization, to part company with them. Don’t join a board if a personal friendship with the CEO prevents you from making the latter decision.
The job of a director is governance, not operations. Don’t get involved in operating decisions. It only undermines the CEO. The board and the CEO set goals and the CEO is held accountable for results. Wise CEOs recognize that directors are a valuable resource of experience and expertise, and asks for their views. Directors hold the CEO accountable not for the path, but for results.
Evaluating the performance of the CEO
In addition to financial performance, the CEO needs to be evaluated for their tone at the top and the organization’s culture, both important determinants of an organization’s success. How do board members assess tone and culture? They get to know the employees reporting to the CEO. If a CEO prohibits this contact, it’s a red flag.
An important measure of CEO performance is their response to hotline reports to the audit committee of the board. If a hotline report concerns unethical or illegal actions or a tyrant manager within the organization, the CEO needs to be held accountable for how they deal with the issue.
Perform due diligence
Before joining any board, perform due diligence. Research the organization’s reputation, financial condition and the incumbent directors’ level of board experience. The more board experience the incumbents have, the higher the likelihood that the governance process is effective. Ensure there is adequate directors and officers (D&O) insurance.
After joining for-profit and nonprofit boards, I have often wondered why the incumbent directors had ignored a glaring issue. I use this experience to assess my own performance as a director. I don’t want a new director joining our board to ask the same question.
The primary reason for joining a nonprofit board is you have a passion for the organization’s mission. Many nonprofit board members feel they want to give back to an institution or to a cause that played a role in helping them become successful. Nonprofit board membership is a way to give back, and it is a rewarding experience.
Stan Silverman is founder and CEO of Silverman Leadership and author of “Be Different! The Key to Business and Career Success.” He is also a speaker, advisor and widely read nationally syndicated columnist on leadership, entrepreneurship and corporate governance. He can be reached at Stan@SilvermanLeadership.com.
