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Home ==> Best Practices Manual ==> Board of Directors (Page 1 of 2)

 

Board of Directors

A key component of a well organized nonprofit is the board of directors. The board of directors oversees the entire organization. Both federal and state statutes require that a nonprofit organization have a board of directors. The board is where the "buck" ultimately stops. The board sets the tone for the entire organization. Many organizations seem to make the same mistakes over and over again. Even when they fix one set of problems in one aspect of the organization, the problem seems to appear in another aspect of the organization. The real problem may originate in the board of directors. Because of the importance of the board of directors, many funding sources review how a board functions, its effectiveness, and its composition.

Roles and Responsibilities of the Board of Directors

The board of director's primary purpose is to assure that the nonprofit fulfills its mission and meets its goals. More specifically, the board of directors' purpose is to set broad policy, review and approve programs and budgets developed and implemented by the Executive Director, and ensure financial stability and accountability.

Board members must abide by the powers and duties granted the corporation by Texas Law, its Articles of Incorporation, and its bylaws. Directors must act in good faith and must ensure that the interest of the corporation prevails over any personal interests. In making decisions on behalf of the agency, the board must use the reasonable care that a prudent person would use under similar circumstances.

It is recommended that the nonprofit's corporate attorney update the board of directors and Executive Director of any changes in the Texas Nonprofit Corporation Law, as well as orient new board members with the law.

Financial Responsibility

The stewardship function of the board of directors ensures fiscal accountability of all funds received and spent by the nonprofit. Therefore, the board of directors as a whole or a finance committee must regularly review actual revenues and expenditures and compare them to budgeted revenues and estimated costs.

Functional Responsibilities

The board of directors must:
  1. Ascertain that the nonprofit is operating in a manner that keeps the organization's mission and purpose focused, without becoming involved in day-to-day operations.
  2. Fulfill all of the IRS and state nonprofit reporting requirements. This includes taxes, FICA, annual reports, UBIT estimations, and operating under Section 501© of the IRS code.
  3. Employ an executive director and conduct at a minimum an annual performance review of the executive director.
  4. Review and approve programs and budgets.
  5. Set, review, or approve board policies for the organization's operation
  6. Ensure that fiscal policies are in place and followed. This means making sure that policies about cash, payables, and budget are followed.
  7. Help develop and adopt budgets. Although the board determines the final budget, all levels of staff should have input into the budget. The resources of the organization should match the mission and goals of the nonprofit. This happens within the budget.
  8. Nominate and elect officers.
  9. Represent the nonprofit in public. (Always have a media policy for both the board and staff.)
  10. Help recruit new board members.
  11. Oversee fundraising. Board of directors should help staff raise the necessary funds for the nonprofit.
  12. Perform volunteer program work. Direct volunteer work will help each board member understand how the organization functions. It is an important part of being committed to the nonprofit's mission.
  13. Assure that the nonprofit has the following documents on file for a minimum of three years and 90 days or until all litigation, claims, or audit findings are resolved, whichever is longer.
    1. Articles of Incorporation and letter granting 501(c)(3)
    2. Mission statement
    3. Brief agency history
    4. Insurance policies
    5. Bylaws containing the following
      1. statement of agency purpose
      2. board size, terms of office, term limits, rotation policy, and elections
      3. regular and special meetings, meeting notices, attendance requirements, removal for cause, and filling interim vacancies
      4. officers' terms of office, responsibilities, and election
      5. committees, their charges, size and composition (for standing committees only)
      6. quorums for board meetings
      7. bylaws amendment process
    7. Current list of board members with mailing addresses and telephone numbers
    8. Current organizational chart
    9. Program list and a brief description of each program
    10. Agency policies that include, but are not limited to, confidentiality
    11. Current operating budget and amendments and copies of budget summaries and audits of all past years
    12. List of donors
    13. Minutes of board meetings
    14. Any other documents required by law

Board Composition

The board of directors must have recruitment procedures that encourage a diverse representation of members in terms of ethnicity, age, profession or background, and communities served. No employees should be on the board of directors. No family members of employees should serve on the board of directors. It is best if the board of directors represents the diversity of clients served.

It is recommended that the board of directors recruit formerly homeless persons to serve on the board.

It is recommended that the boards of directors have a minimum of nine members and that board members not serve more than six consecutive years.

To be an effective board, it is important that the board understand the changing needs of the organization. Every organization grows and changes. Boards need to change. That means that board members should be evaluated at the end of their term. The board should recruit new board members who represent the growing and changing needs of the nonprofit.

Board Orientation

New board members must:

  1. Be provided with a board handbook which will include at a minimum:
    1. Board member job description
    2. Current list of board members with mailing addresses, telephone and fax numbers
    3. Agency mission statement
    4. Agency bylaws and a copy of the letter granting 501©(3) status
    5. Committee list with assignments of all board members and staff
    6. Committee descriptions
    7. Operating policies of the agency, including any policies affecting the board, such as board attendance policy and agency confidentiality policy
    8. Organizational chart
    9. Agency history
    10. Program services list with descriptive information and data
    11. Current budget, including funding sources
    12. List of contract or restricted grants from any public or private entity
    13. List of agencies, organizations, and governmental entities with which the agency works or interacts with regularly, including a brief description of the relationship
    14. Description of contract provisions with attorneys, auditors, or other professionals
    15. Basic information about homelessness
  3. Have access to a copy of the Texas Nonprofit Corporation Act.

If a new board member misses the annual orientation, it is recommended that the new board member meet with the Executive Director and another board member within three months of his/her term commencement to review the Board handbook and the highlights of board orientation.

An alternative method of board orientation is to take 15 minutes at every board meeting for on-going orientation. This makes orientation an on-going process in which everyone participates. Programs of the nonprofit and all the other topics listed in this section can be used to keep the board updated on the nonprofit's functions.

Some boards also use a "buddy" system for the first six months of a board member's tenure. The board President assigns a veteran board member and a senior staff person (not the Executive Director) to each new board member. These people will help the new board member get oriented with the nonprofit.

Board In Service Training

Along with the executive director, the board is encouraged to plan and conduct an annual training for all board members that includes at a minimum the following:

  1. An explanation of the nonprofit's mission, philosophy, and brief history.
  2. An explanation of homelessness that includes its causes.
  3. A description of the agency's current programs, provided by program staff.
  4. A review of the agency policies and clarification of any changes made during the year.
  5. An explanation of how the nonprofit is funded and future funding projections.
  6. A discussion of the roles and responsibilities of the board, including legal and fiscal responsibilities, meetings, attendance requirements, committee duties, structure, assignments, fund raising, and public relations responsibilities presented by the board chair or a member of the executive committee.
  7. An explanation of the agency's insurance coverage, including directors' and officers' liability insurance or notification of inability to obtain insurance.
  8. An explanation of the working relationship between the board and staff, including but not limited to which staff member is contacted regarding questions or requests and which staff members will contact board members routinely.

It is recommended that board training be combined with long-range planning or discussion of special projects.

It is recommended that nonprofits encourage all board members to attend a direct service volunteer training.

Confidentiality

Board members must:
  1. Be provided a copy of the nonprofit's confidentiality policy.
  2. Not use their position on the board of directors to obtain or access confidential client information.

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