Governance in the nonprofit arena addresses the leadership, direction, and accountability of not-for-profit entitles, similar to that of for-profit corporations. However, nonprofit corporations are governed by slightly different structures than typical corporations, since they do not have shareholders in the same way that for-profit corporations do, and they often have different officer roles than their for-profit counterparts. In particular, nonprofits tend to rely more heavily on the governance of a board structure to assist in making decisions and overseeing the general direction and success of the nonprofit.
The Role of the Board
As a matter of incorporation, nonprofit entities must create a governing board to oversee the administration of the nonprofit. Under most state laws, the organization is the board, which is charged with representing the entity itself. While the board may hire staff to oversee the day-to-day activities of the organization, it is ultimately the board that is accountable for the decisions and actions of the nonprofit.
Typically the board of a nonprofit is known as a board of directors or a board of trustees. While participation on these types of boards is a relatively common occurrence, in actuality, board members take on significant roles and legal responsibilities when they assume their positions.
Board members are charged with ensuring that the organization acts in pursuit of its purposes or ideals, in a way that is “good” for the community with which it interacts. This is often very different from the governance of a for-profit entity, which is primarily concerned with enriching its own owners and shareholders. It also adds an additional layer of complexity to nonprofit governance, since the direction of the nonprofit can change over time, as can understandings of what does the most “good.” In particular, board members are typically involved in determining an organization’s mission and vision, locating a chief executive to run the organization, reviewing the performance of the chief executive and other staff members, and ensuring that the organization is properly managed.
Legal Duties of Those in Governance Roles
Individuals involved in the governance of nonprofits taken on a certain level of legal accountability for their actions. While staff and volunteers may make certain decisions or take on certain tasks, board members are ultimately responsible for the health and success of the organization. In assuming such a role, members of a nonprofit’s board of directors take on three primary legal duties:
The Duty of Care: This requires board members to make decisions and undertake actions in a way that an objective individual would find to be reasonable. Under the duty of care, board members must act with the best interests of the organization in mind and do their best to approach all decision-making in a well-researched and informed fashion. Under the duty of care, board members must also actively participate in the affairs of the board.
Duty of Loyalty: This duty requires board members to act with the best interests of the nonprofit corporation in mind and to only engage in arrangements or transactions that will benefit the entity. It also requires board members to refrain from participating in decisions where they may have a potential conflict of interest.
Duty of Obedience: This duty requires board members to adhere to the mission, policies, and bylaws of the nonprofit corporation, as well as any other rules or regulations that may be promulgated by the entity.
If board members fail to abide by these duties, they can be held legally accountable.
The Practicalities of Governance
Nonprofit boards are typically between seven and 20 members, with the average number being 17. Boards meet on a regular basis, but they are free to determine how often they meet. Some may meet bi-monthly or monthly, while others may meet only once a quarter. Boards often make use of committees or subcommittees to help divide oversight for the tasks of the organization, or to provide additional support to areas of need or concern.