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The Seven Sins of Nonprofit Boards

August 24, 2020
Hilary Pearson

As a long-time nonprofit director, I have reflected on what we can learn from the governance car crash that appears to be the WE Charity and its affiliated structures. I have wondered: where was the WE Charity board as this evolved? Charity Intelligence and others have pointed out the multiple failures in this situation. But does one example prove that boards of directors are the Achilles’s heel, the fatal vulnerability, of nonprofit organizations?

Without commenting further on We Charity, this is a moment to consider what I would call the “seven sins” of nonprofit board behaviour. Many of these sins stem directly from a lack of independent oversight. Others arise because the board has not asked enough questions about the policies of the organization. All of them suggest the importance of having independent and external sources of information and advice.

  1. Not changing auditors

Independent auditors are great sources of information, and advice. Their job is to ask questions. As part of their responsibilities they can suggest improvements to financial management and practices. But while a nonprofit board can develop comfort and trust in an auditing firm that is deeply familiar with an organization, especially if it accompanies an evolving and more complex organizational structure, the board needs to be willing to get fresh eyes periodically on financial issues.

  1. Limited assessment of risk

This often goes with the first “sin”. Risks evolve as situations change and especially as complexity increases. To assess risk effectively, boards need to be willing to engage regularly with outsiders whether auditors, external advisors or sector peers. Fresh eyes on risk are key.

  1. Not enough independence among directors

Boards of incorporated nonprofit organizations have a minimum of 3 directors.  Many if not most recruit more. The essential thing is to have enough independence from the organization that directors can ask challenging questions without discomfort or fear. Board directors don’t “own” their organizations. They need to be able to take some distance in order to fulfill their duty of care and not fall into the trap of over-familiarity and obligation.

  1. Disregard of conflict of interest policies

These policies are important. They shouldn’t just be a page in the board director’s manual. Directors as part of their duty of care must be conscious of the need to declare a situation where their own interests and those of the organization are entwined to their private benefit. Most directors of charities are not paid but they may have other conflicts. They need to adopt and believe in conflict of interest policies, and to declare conflicts as soon as they see them.

  1. Lack of transparency

A board’s job is not done if it commits only to the minimum of transparency in releasing annual financial statements and reports to the regulator. Board directors need to disclose who they are, and they should also ask their organization to be regularly and proactively transparent about their mission, operations and strategies.

  1. Lack of compliance with government lobbying rules

This is a component of transparency. If an organization is lobbying government for a contract, or more broadly for a change in public policies, it’s important for the board to ask managers to be vigilant about disclosing and registering activity, depending on how significant it is. It isn’t always necessary to register as a lobbyist. But if the organization is spending a lot of resources, or is working with outsiders to influence government, it should be willing and proactive in making that public.

  1. Lack of clarity on the role of the board in governance

This is the big one. If you are too close, or too far, you risk committing some of the six other sins. Boards need to find the right balance in their roles. The thing is that boards are not the only structures that “govern”. They are not the managers nor the top part of the organizational hierarchy although they do have a unique fiduciary responsibility. They are not the only shapers or custodians of an organization’s strategy, finances or reputation. Directors bring their ideas, skills, networks and critical eyes to the table. Yes, they should play a fiduciary role and also a creative and generative role, in partnership with others, most importantly the organization’s staff but also with donors, partners, and other organizations working in the same field. They should reach out, share ideas, stay connected to the context within which their organizations work. The best directors keep their ears open, use their voices and bring their sharpest thinking to the table.

I see signs of more creative thinking about the roles of nonprofit boards. The excellent ongoing work on Reimagining Governance by the Ontario Nonprofit Network and Ignite NPS puts the spotlight on the importance of broadening governance beyond the board itself. As the problem is framed by the Reimagining Governance initiative, “governance of nonprofit organizations isn’t well designed to be consistently effective and able to respond to today’s complex environment, nor the future.” Reimagining Governance suggests that boards should be considered as an important part of a broader governance “ecosystem” that shapes an organization’s mission, strategies and performance.  Governance should not be equated solely with the boards of directors. This puts too much expectation and too much burden on boards to be all things and it makes volunteer board recruitment and leadership an increasingly difficult task.  Let’s not allow the WE Charity apparent failures of WE Charity governance to make us more nervous or risk-averse about governance. Let’s hope that the discussions provoked will give fresh urgency and creativity to rethinking and broadening our views about the ecosystem of non-profit governance, especially in these demanding times.

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