By BoardSource

Nonprofit boards best equipped to lead their organizations are self-aware, reflective of the larger community the organization serves, and function in constructive partnership with their chief executives. They are also committed to continually improving their performance. Boards can improve their effectiveness by the intentional adoption of the following board practices.

The following practices provide a roadmap for boards to become a more strategic asset to their organization. Boards committed to adopting these practices can find extensive information about them in BoardSource’s comprehensive library of resources and publications available on our website. The practices with badges are compliance practices and likely legal requirements.

What Is Board Governance? 

Board governance refers to the systems, structures, and processes a nonprofit board uses to provide oversight, set strategic direction, and ensure the organization remains accountable to its mission and the communities it serves. Effective board governance means building a board that is engaged, informed, and equipped to make sound decisions that protect the organization’s integrity, support and evaluate its chief executive, and advance long-term impact.

Nonprofit Board Governance Best Practices

Term Limits

Regular turnover among board members encourages the board to pay attention to its composition, helps to avoid stagnation, offers the opportunity to expand the board’s circle of contacts and influence, and provides a respectful and efficient method for removing unproductive members. The most common term limits are two consecutive three-year terms. Term limits do not prevent valuable members from remaining in the service of the organization or the board in another capacity. An exception is the family foundation, which may have a limited pool of qualified and interested candidates.

Strategic Board Recruitment

The board must be strategic about member recruitment and define an ideal composition for itself based on the organization’s priorities.  A matrix for board composition facilitates the board’s strategic recruitment efforts. By analyzing the current composition of the board, the governance committee, or the full board, if no committee is needed, can best determine which qualities, characteristics, and perspectives are already present on the board. When analyzed in light of the organizational purpose and strategies, a recruitment matrix helps the board identify gaps and direct recruitment efforts to fill them.

Strategic Planning

The board has a substantive role, in concert with management, in developing, approving, and supporting organizational strategy.  One of the board’s primary responsibilities is to set the direction for the organization. Strategic planning serves as the road map for this direction and as the tool to assess progress. The full board actively participates in creating the plan and in its implementation.

Budget Approval

The board approves the annual budget. Staff is responsible for developing the annual budget. As the fiduciary body for the organization, the board ensures that the budget reflects the organization’s overall strategic direction and advances its long-term fiscal health.

Chief Executive Job Description

The board develops a written job description for the chief executive and, together with the chief executive, defines the annual expectations. The chief executive can remain accountable for their performance only if the position is well-defined and annual goals and expectations are mutually agreed upon.

Chief Executive Evaluation

The board evaluates the chief executive’s performance annually, in writing and with the full board’s involvement. A formal evaluation, based on well-defined and mutually agreed-upon expectations, benefits, and protects both the chief executive and the board. Even if the board chair or a committee leads the evaluation, the full board participates by being invited to provide feedback, approve the final evaluation, and ensure all compensation recommendations are appropriate. The evaluation may include 360-degree feedback, as appropriate, from the organization’s leadership team, giving the board an opportunity to gain additional insights from those who work closely with the CEO daily.

Audit

When revenues are received from multiple sources and include significant transactions, an independent auditor’s work can assess if the financial statements fairly present the organization’s financial position. The board is responsible for assessing the potential benefits and costs of an independent board audit and determining when to conduct one. When the organization hires a firm to perform an independent audit, it is ideal for the board to form a separate audit committee or task force, preferably with no overlap with the finance committee, to facilitate the added responsibilities of fiscal oversight. It is the board’s role to select the auditor and, as necessary, meet with them in an executive session without staff present to discuss the results. This gives auditors space to speak candidly and reinforces auditor independence.

Board Diversity and Inclusion

The board should be intentional in its recruitment and engagement of diverse board members, ensure each member feels valued, and foster a culture of inclusivity. To value diversity is to respect and appreciate all parts of a community, including different races, religions, gender and gender identity, ethnicity, nationality, sexual orientation, different abilities, age, socioeconomic status, and lived experience. Boards should commit to diversity and inclusion by establishing written policies and practices that address the strategic and intentional recruitment and engagement of diverse board members and an ongoing commitment to inclusivity, including equal access to board leadership opportunities and ensuring each member is engaged, feels valued, and appreciated.

Board Evaluation

A comprehensive annual or bi-annual self-assessment allows boards to evaluate collective performance and understand the extent of their individual responsibilities.

Board Orientation

A formal board orientation process ensures that all board members receive relevant and consistent information about their governance responsibilities, the organization, and the board’s expectations.

Bylaws Review

Nonprofit bylaws formalize the board’s structure and practices. The board’s needs evolve over time, as do the external circumstances within which the organization and the board function. It is necessary to review the clauses periodically to verify their continued appropriateness and to assess what might be missing. Consider having an attorney verify that the bylaws comply with state statutes.

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