In August 2020, a very large number of readers had their attention caught by my blog on the seven sins of nonprofit governance. It seemed that many people were interested in how governance can go wrong. Almost two years later, as Annual Meeting time approaches again, and new boards are elected, I want to revisit a question posed in my original blog: Could volunteer boards of directors be the Achilles’s heel, the fatal vulnerability, of non-profit organizations?
Unfortunately, yes. My original list of the “seven sins” of nonprofit governance showed how boards can indeed jeopardize an organization’s sustainability if they don’t do their job properly. I focused on the need for independent oversight and solid risk management. Boards can and should be assisted by external auditors and risk management experts (including cybersecurity experts). They should also be careful to spell out and to adhere to conflict-of-interest policies to ensure that personal interests of directors are not playing a role in decision-making.
Yet, as I reflect on my experience as a nonprofit director and I think more about how boards can get it wrong, I realize that measures to guarantee independent and objective oversight must be complemented by intangible aspects of culture and leadership. If those are missing, a nonprofit board won’t be effective in helping an organization achieve its purposes. Clarity, transparency and trust are fundamentally important to well-functioning boards.
Here is my updated list of seven nonprofit governance sins, taking these intangibles into account.
Boards need to find the right balance in their roles. Boards are part of the governance structure, but they are not the whole of it. They are not the only shapers or custodians of an organization’s strategy, finances or reputation nor should they assume managerial roles. Directors bring their ideas, skills, and networks to the table. They should reach out, share ideas, stay connected to the context within which their organizations work. But they share governance, they don’t monopolize it. Many boards have a written statement of their roles and areas of responsibility including the legal and fiduciary and the strategic and generative. They are clear about how decisions are made and by whom. Without this, they risk disarray.
The board needs to evaluate itself regularly. This provides important information to board members about their own effectiveness and gives them an opportunity to contribute to improve the effectiveness of the board overall. Without a regularized (at least annual) board evaluation, boards can drift off course and will lose directors.
The Chair and Vice-Chair of the board and the chairs of committees are the leadership of the Board. They need clear statements and a shared understanding of their roles. On many volunteer boards, the question of who becomes Chair or who takes on a committee lead is often a matter of who has enough time and is willing to put up their hand. But this shouldn’t be a matter of personal availability only. The responsibilities and qualities of leadership need to be spelled out for all to know. A succession process understood by all helps directors to feel included in the leadership election process. Without full board support and trust, a leader will fail, and directors may leave the table.
This has been one of the biggest questions and most glaring weaknesses of nonprofit boards. Over the last two years, there has been much more focus on the issue of diversity in all its forms. Boards need to pay attention not just to recruitment and numbers, but to how to build more inclusive cultures and to promote conversations that bring different assumptions and experiences to enrich their conversations. Without attention to this, boards will not be able to respond effectively to the changes taking place in our society, and the new risks that rapid change will pose.
Volunteer boards too often do not take the time to orient and educate their directors. Volunteers can come from many different sectors and while they care about the mission and purpose of the organization whose board they join, they may not be familiar with the culture, responsibilities, and expectations of their board. This shouldn’t be acquired simply through osmosis. Many new directors without orientation feel left out while they try to understand their roles and the context of the organization they are volunteering for. Without a solid orientation and ongoing education, organizations and their boards lose valuable time and talent.
This is a two-way street. It comes down to trust and transparency. From the board’s perspective, directors must be able to ask questions, obtain information and have debates with the organization’s leader without being perceived as intrusive or controlling. But the board must be willing to set clear strategic direction and hold a CEO accountable. If boards do not set expectations around performance and accountability, they are not supporting the CEO.
A good working relationship with the CEO, as stated above, is essential. It starts with recruitment. This is one of the most important decisions that a volunteer board makes, and as such the process of recruitment should be well structured, well supported and well managed. Boards must take the time to think through the qualities and criteria necessary to their recruitment of a new leader. Once chosen, a CEO should have the support they need from the board to take up their roles. Without this, a board is setting up its organization for failure.
For further reflection, I recommend the excellent ongoing work on Reimagining Governance by the Ontario Nonprofit Network and Ignite NPS. They have continued to develop and test their thinking on governance. One of their new resources (which could spark an interesting conversation at the board table) is Impacts on Governance Design, which describe eleven trends affecting the nonprofit sector today and how they converge to create six impacts on governance design.
I received some valuable comments on my recent piece on the sevens sins of nonprofit governance. They prompted me to add a coda about what makes a “good” nonprofit board.
The seven sins of governance that I referred to essentially revolve around a lack of attention to the duty of care. This is a concept familiar in traditional and legal ideas of governance. The duty of care and the duty of loyalty are clearly explained in many useful nonprofit governance publications, such as Fiduciary Duty: 20 questions not-for-profit organization directors should ask, from Chartered Professional Accountants Canada. But it is enough for a director of a nonprofit organization to be familiar with fiduciary duty? It’s necessary but I think not sufficient.
Those who commented on my initial reflections on the sins of governance put their finger on elements that are less legal and more organizational. These have to do with the quality of the thinking that directors bring to the table, to the diversity and inclusivity of the group of directors as a whole, to their relations with each other, with the leadership and staff of the organization, and with the organization’s beneficiaries and partners. When we adopt the broader view of governance that is articulated in the Ontario NonProfit Network/Ignite IPS work on Reimagining Governance, we see the role of boards in that organizational context. Directors have specific legal responsibilities with which they must be familiar at a minimum. But beyond this, many board directors would benefit from examining themselves regularly in the context of the system that they inhabit.
What would this look like? What 20 questions would directors need to ask themselves if they were looking beyond their fiduciary duty? What would you want to know if you were thinking of joining a board of a not-for-profit organization in 2020?
Do the board leaders work well and closely with the leaders of the organization?Is there enough communication between them? Does the board leader engage without being overly intrusive? Does the staff leader provide enough information at the right level? Does board leadership renew itself regularly and transparently?
Do we have diverse perspectives around our table? Do we have enough of them? Do our discussions and decisions consider all perspectives? Do we have enough input and do we get it from “not the usual suspects”?
Does the board recruit thoughtfully and with attention to the needs of the organization? Does the board support and provide appropriate feedback to staff leaders? Does the board ask for staff and peer input to evaluation of the leader? Does the board have adequate policies and processes around whistleblowing, and harassment behaviour?
Does the board evaluate itself critically and regularly? Does everyone have a chance to evaluate their own contribution and that of the board as a group?
Do we have opportunities to use our imagination and creativity in service to the organization? Do we generate new ways of seeing old problems? Are we brave enough to suggest we stop doing things when it’s necessary to do so?
Do we talk to members of our community (the people who work with/benefit from the work of our organization)? Do we hear regularly from experts, critics and partners?
If you ask yourself these 20 questions (and the 20 questions suggested by the CPA), you would be well equipped to know if you are joining a board that sees itself in its wider “ecosystem”, that pursues its tasks thoughtfully and that will use you well.
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.
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.
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.
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.
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.
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.
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.
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.