Do Your By-laws Do You Justice?

An organization’s By-laws lay out the basic rules for how the organization is governed.  The Board of Directors (or Trustees) oversees the organization and the By-laws oversee the Board.

Why have By-laws?

In essence, the By-laws prevent abuse and confusion.  The By-laws are a written set of rules detailing how the Board will conduct itself as a body and lead the organization.  Any time questions arise about the functions and procedures for governing the organization, the By-laws should provide the answers.

Why review your By-laws?

Most organizations have a requirement that the By-laws be reviewed and updated periodically.  We live in a rapidly changing world and organizations periodically find that their raison d’etre has changed.  Governing law and technology may also impose changes on the organization.  Or the organization may have simply grown (or shrunk).  For any one of dozens of reasons, the policies that made sense when the By-laws were last reviewed five years ago may hinder the effective operation of the organization as it exists today.  Periodically reviewing and updating the By-laws will keep the By-laws relevant and effective.

What are the consequences of simply ignoring what doesn’t fit any more?

If a non-profit’s Board chooses to ignore the By-laws and simply operates outside the prescriptions of the By-laws, the Board members open themselves to breach of fiduciary duty claims, including duty of care and duty of obedience.  Furthermore, D&O insurance (Directors and Officers insurance) will not protect Board members who act outside the scope of the By-laws.  Finally, actions of the Board, including approval of contracts (rental agreements, loan agreements, etc), can be invalidated, which has consequences for both the non-profit and for those who are entering into transactions with it.

What are the Basic Components of the By-laws?  (Fair warning: This section gets tedious.  Skip to the next section for now if you want, but come back to this later.)

Any good set of By-laws will have the following components:

  • Statements of Name and Purpose: These two sections simply give the name and state the organization’s mission, including the organization’s legal structure.
  • Statement of Membership: If the organization has members, this statement explains membership requirements and the procedure for joining.
  • Statement of the Organization’s Governing Body: Non-profits are sometimes lead by an Executive Committee that includes the Chairs of various volunteer groups plus the members of the Board of Directors.  This section states how often the Executive Committee meets, what constitutes a quorum, what notice is required for each meeting, and how special meetings can be called.  If the Board is separate from the Executive Committee, a similar section is needed for the Board.
  • Statement of Board of Directors Membership: This section details how many people are on the Board of Directors, what roles they fill, how they are nominated and elected, the length of each member’s term, and how they can be removed.
  • Duties of Officers: Officer roles (some of whom may be Board members) are critical because these are the people who can legally bind the corporation (a non-profit is a form of corporation).  This section defines which roles are defined as Officers and what their roles are in the organization (or on the Board).  At a minimum officers are the President or Chair of the Board, the CFO or Treasurer, and the Secretary.  In addition, a vice-Chair and other key roles in the organization may be designated as Officers.
  • Duties of Committees: Members of Boards often take on committee duties, such as Nominating Committee (to identify and recruit Board members) and Governance Committee (to keep track of regulations and procedures – essentially to assure compliance with laws and government rules and avoid abuse).  There may be other committees related to the mission of the organization, such as membership or fund raising.
  • Statements of Governing Rules: By-laws cannot cover all procedures for the conduct of meetings, etc, so it is common to defer to a generally accepted set of rules such as Robert’s Rules of Order.  If the non-profit is small, meetings can be run rather informally, but as the size of the organization grows and the consequences of mismanagement become more significant, adhering to agreed upon procedure becomes more important.
  • Miscellaneous Statements:  The By-laws should have clear statements of: a) how often the By-laws should be reviewed and how they can be amended, b) how the organization can be disolved, c) the beginning and end of the organization’s fiscal year, voting procedures, and a statement of books and records (what financial and meeting records the organization will keep).
  • Last but not least, the By-laws should have a statement of when they were last reviewed, amended, and approved.  This section should include a signature line for the Corporate Secretary, who is usually responsible for the organization’s legal matters.

Should a lawyer review the By-laws?

Yes.  Absolutely.  Lawyers are expected to provide pro-bono services, and drafting/reviewing By-laws for non-profits is an easy way for them to meet those requirements.  It is essential, however, that the work of the lawyer be guided by the Board, not the other way around.  It is the responsibility of the attorney to make sure that the By-laws match the mission and function of the organization, so the attorney will need clear, decisive instructions from representatives of the Board.

If your non-profit is small and doesn’t have a lawyer, ask around for referrals.  Alumni networks, Facebook friends, LinkedIn groups, even the gang at the local barber shop or beauty salon should be able to give you a couple of names.  Call more than one and pick an attorney who makes you feel comfortable.  For larger non-profits with substantial assets and high fiduciary liability risk, find an experienced attorney and pay him/her for the time.

If possible, have the attorney sit down with the Board to discuss the By-laws when the first draft of the revisions is done and the Board as a whole has had a chance to read them.

What is the review process and how long should it take?

The process for reviewing and revising the By-laws may be laid out in the By-laws themselves.  Until formally changed through those exact procedures, whatever process is already laid out in the By-laws must be followed or the revisions are null.

In most cases, review of the By-laws is a Board of Directors responsibility.  If the Board has a Governance Committee, this group should take the initiative and the Chair of the Board should participate.  The best procedure is iterative, with the Governance Committee presenting to the Board a set of suggested changes, getting feedback from other members of the Board, and then consulting an attorney to have the changes drafted properly.  Once the Governance Committee has a set of draft changes, final approval of the changes will have to be made in accordance with the appropriate sections of the existing By-laws.  If the changes are not approved, the Governance Committee will have to assess the reasons and either re-draft or abandon the changes.

As for how long it should take….  Abraham Lincoln once said a man’s legs should be long enough to reach the ground.  The work that goes into revising the By-laws may be spread out over several Board meetings, which means the process can take a year or more.  This may sound cumbersome and painful, because it is, but By-laws are essential to the trouble free, legitimate, effective functioning of the Board, and having a set of By-laws that the Board actually follows is essential to the duty and protection of Board members.  Don’t let the review process become oppressive, but take it seriously and do it right.

 

Volunteers #3: Rewards and Motivation

Volunteers, by definition, work for nothing.  Right?

Wrong.

Yes, volunteers don’t receive a paycheck.  They don’t receive any direct remuneration for their time, expertise, or other services.  They don’t receive any form of compensation that would arouse IRS attention.  But volunteers definitely expect something back.  The compensation varies as widely as the nature of the organization and the function performed by the volunteer, but generally they fall into three categories.

1. In some cases, the reward is as basic and altruistic as having a sense of purpose.  For the unemployed, the elderly, the stay-at-home parent whose children have all grown up and moved out of the house, volunteering at a school, at a hospital, or an animal shelter provides an activity that allows the volunteer to feel s/he is making a difference to someone in some way.  My mother volunteered at Head Start programs in Washington D.C.  My uncle, retired from a long career in international business, is a docent at the Denver Museum of Nature and Science.

2. Volunteers also work for causes that are important to them.  My daughter, who is very fond of animals, especially dogs, has volunteered at a local “no-kill” animal rescue center.  A neighbor volunteers at a soup kitchen.   I have a cousin who volunteers for the local public radio station in Fargo, ND, and I often volunteer for the local library and an organization that promotes international relations through commercial ties.

3. Yet another factor that can inspire volunteer work is professional advancement.  Lawyers are essentially required by their profession to volunteer their expertise to non-profits, which gives non-profits cheap (free) access to advice on By-laws and regulatory matters that would otherwise be very expensive.  Accountants will often provide pro-bono services to non-profits as well.  While some of their motivation may be altruistic, there may well be a PR component to their motivations as well.

As another example, the economic turmoil of the last two decades has spawned various organizations (eg: MENG, FENG, HRENG, TENG, and Chem/Pharm) that have as part of their mission to help business people who suddenly find themselves out of work to find new jobs.  These organizations are almost entirely run by member-volunteers who are motivated in part to stay busy and in part to draw attention to themselves so their colleagues will think of them when an appropriate job opportunity comes along.

When a business (non-profit or otherwise) hires an employee (someone who is paid for the work they do), a necessary part of the discussion before the employee joins the team centers on salary, wage, health benefits, and other compensation.  Given that volunteers are valuable contributors to a non-profit and are also motivated by compensation of one sort or another, a good volunteer program will address the issue of rewards and motivation.

Of course, simple recognition of volunteer contribution by a verbal “Thank you” will go a long way to keeping that volunteer coming back.  This is no different from paid employees.

Supplementing that daily “Thank you” with straightforward rewards that meet the expectations of the volunteers is, however, essential to high moral and reliable performance.  For the volunteer who shows up principally to fill time and “make a difference,” periodic, short conversations in which the supervisor and the organization’s leadership make a point of how the volunteer has, in fact, filled a need and contributed to successful achievement of the organization’s objectives.  For the volunteer who believes in a cause, similar conversations must take place.  And for the volunteer who hopes to gain some attention, give it to him.

In fact, giving a public nod to volunteers on a regular basis (in staff meetings, at Board meetings, at annual staff dinners, at holiday parties, wherever and whenever the opportunity presents itself) is a good idea for just about all organizations and just about all volunteers.

We are all busy people, including volunteers.  Volunteers could be at home watching TV, surfing the net, talking to grandchildren on Skype, gardening, or even volunteering at other organizations.  Encourage your volunteers to care about working for you, about doing a good job, and about coming back again next time by giving your volunteers the compensation they are looking for.

Volunteers #2: Job Descriptions

If an organization doesn’t want its volunteers to be more hindrance than help, the organization needs to have a clear understanding with its volunteers regarding what is expected from each side, and the best way to do this is to write out job descriptions.  These should be written from the organization’s point of view.  Do not write the job descriptions to meet the work being done by pre-existing volunteers.  Step back and think objectively about what the organization needs to have done by the volunteers.  Does it need market research?  Does it need someone to draw blood?  Does it need ongoing advice on managing its budget or providing an annual audit to its Board of Trustees?

Write the job descriptions first and then go look for people to fill those roles, starting with your current volunteers.

The job descriptions can be short, single paragraph outlines or they can be full, detailed position statements, but the job descriptions should be clear regarding what exactly the volunteer will accomplish and how s/he will do it.  The job description must also include a statement of the skills, experience, or expertise the volunteer will need to do the job, and who in the organization is responsible for the volunteer and his/her performance.

The best job descriptions will also outline the benefits the volunteer will get in return for his/her time and expertise.  More on that later, but be clear – if there is simply no benefit other than the satisfaction of giving back, then say so.

The key points to cover in a volunteer job description are:

  • Task, including metrics for quality and completeness.
  • Time frame for completion.
  • Expected time commitment.
  • Supervisor.
  • Benefits, if any, to the volunteer.

Once the job descriptions are written, they should be carefully examined.  Is the organization simply dumping its boring, routine work on its volunteers?  If so, the job descriptions should be rewritten because dumping uninteresting, unrewarding work on an unpaid volunteer is the best possible way to ensure high volunteer turnover.  Boring, routine work should be handled by paid employees, because they are being paid to do it.  A volunteer will eventually just stop showing up if s/he has no sense that the work is worthwhile.

Volunteers #1: Get with the Program

Can you think of a non-profit that does not rely to some extent on volunteers?  The Red Cross relies on volunteers.  Big Brothers Big Sisters relies on volunteers.  Your local library relies on volunteers.

Volunteers can make the difference between success and failure of non-profit events, including fund raisers, and they can provide significant strategic professional resources, including legal advice, market analysis, and operational efficiency upgrades.  They can also fill critical day-to-day roles such as serving as museum docents, sorting and shelving books at the library, and chaperoning school dances.

In some non-profits, the core staff are employees of the organization and volunteers are hired to help out the paid staff (eg: schools).  In other organizations, the volunteers are the core staff and paid employees are hired to help out the volunteers (eg: alumni and professional associations).

In either case, volunteers are working on their own time and they are not receiving traditional compensation for their expertise and labor.  Thus, organizations that hire volunteers tend to make two serious mistakes:

  1. It assumes it has little leverage over the actions and activities of its volunteers, and
  2. It feels it has little incentive to train and supervise its volunteers.

In fact, any organization that takes advantage of volunteer effort and experience should establish a volunteer program that is as thorough and structured as its employee program.  For the organization’s leadership to do any less is a failure to maximize resource utilization.   If an organization has high volunteer turnover, struggles with volunteers doing all kinds of work other than what the organization would like them to do, or can’t get volunteers to show up and help when needed, the problem most likely is not with the volunteers themselves but with the organization’s volunteer management program.

The first step in setting up a volunteer program is to identify what the organization needs from its volunteers, starting with the big picture:  Are volunteers going to be filling in the gaps for the paid staff or are the volunteers going to be the core of the non-profit’s service offering?  Many museums, for example, have large contingents of docents who volunteer time to guide visitors and still more volunteers who help with fund raising, but the security personnel, the collection specialists, and the operational staff are usually full time, paid employees.  The volunteers have specialize roles but they fill in for the staff.

Laying out an org chart with volunteer positions clearly marked can help with the process of identifying the nature and strategic value of the volunteer roles.

All volunteers need some form of systematic training or orientation.  A bird can push its fledgelings out of their nest and expect that eventually they will figure out how to fly.  Genes encode an amazing amount of information on which plants and animals can rely without ever having to be taught what to do.  But what may seem obvious to the long term non-profit employee is not obvious to the volunteer who steps forward to take on a new role.  There is no gene for each volunteer position.  Even if a volunteer has held a similar role in a different organization, each organization has its own way of doing things and the volunteer needs to be taught what that is.  You can’t just have a volunteer show up and figure out what s/he is supposed to do.  Teach, observe, correct, reward.  It’s that simple.

The more critical or complicated the role, the more carefully and thoroughly the organization should train its volunteers.  Just as it would its employees.

A volunteer program also benefits from job descriptions and a clear understanding of how volunteers are compensated.  (Yes.  Volunteers are compensated.)  Look for these subjects in upcoming posts.

Metrics and Non-Profits

Businesses use all kinds of metrics for all kinds of purposes.  The business that does not use metrics is not being managed; it is merely executing.  The key to using metrics effectively is to identify what measurable activities and outcomes will indicate whether the organization is achieving its stated mission.  The Board should then set goals for the organization to raise, lower, or maintain those measurements on a quarterly or annual basis.

It is not possible to know whether an organization is progressing or falling behind without using carefully selected metrics.  Responsible parties should report metrics at each Board meeting and the Board should note and discuss changes in the metrics as well as the organization’s performance relative to targets.  In larger non-profits, one of the responsibilities of the audit committee is to assess the veracity of the reports on metrics.

There are dozens, possibly hundreds, of possible metrics for any given organization.  To choose which metrics to follow, first look closely at the organization’s mission and ask yourself what measurable activities or outcomes will tell you whether the organization is achieving that mission.  Second, identify ways in which the organization needs to change to better achieve its mission, and then, once again, ask yourself what measurable activities and outcomes will tell you whether the organization is changing.

Metrics can be applied to individuals, departments, and the organization as a whole.

If your organization has not been tracking metrics carefully, avoid treating the initial numbers with either jubilation or dispair.  Look at them over time and use them to adjust behavior.  The fact that one particular metric is a lot lower than you’d like is not in itself bad.  It is merely an indicator that something has to change to improve that metric.  Dispair should only set in if the metric stays low or gets lower.  Jubilation is only warranted if a poor metric improves or a good metric stays good.

Don’t just focus on the metrics that indicate problems.  The metrics that indicate things are going well need attention, too, because if they start to fall, even while they may still be good or acceptable, the downward trend means it’s time to figure out what’s going wrong.

Here are a few basic metrics.  Keep in mind that metrics are a dime a dozen.  The key is to pick the ones that are relevant.  Non-profit Boards would do well to choose the ones that are most appropriate to the organization and adapt the metrics to the organization’s needs.

Metrics for the Organization

1. ROB (Return on Budget).  ROB measures the benefit obtained for the dollars spent.  For example, a non-profit that feeds the poor can measure ROB by the cost of feeding each person or family.  If, for example, the organization has an annual budget of $2 million dollars and it serves 100,000 meals in the course of year, then its cost of each meal is $20.

2. Overhead Ratio.  The overhead ratio is another measure of efficiency and it is easily calculated.  Simply add all the routine operating expenses (utilities, rent, salaries, depreciation, maintenance, insurance, travel expenses, legal and accounting expenses, advertising and promotional expenses, etc) divided by the organization’s income.  Ideally, the operating ratio is kept as low as possible but there is no “ideal” number.  The operating ratio is highly dependent on the mission of the organization and should be assessed accordingly, but variations on the overhead ratio are used by large donors to assess the efficiency of the non-profit and determine the extent to which their contributions are or will be effectively spent.

Metrics for the Board

1. Functional Diversity.  Does the Board include people with functionally different experience?  At least one person should have expertise in finance or accounting.  Another should know about marketing and advertising.  Depending on the size of the organization and its mission, experience working with foreign nationals may be appropriate.  A lawyer or someone familiar with regulations related to the business would make sense.  Create a table with the names of the Board members down the left side and the key functional areas that would benefit the organization across the top.  Now put a check mark in each box satisfied by a Board member.  Which columns have no check marks?  Which columns have multiple check marks?

2. Independence.  How many of the Board members are tied to either each other or have potential conflicts of interest?  For example, are any of the Board members married to each other?  If so, independence is questionable.  As another example, do any of the Board members provide professional services or products to the organization (other than pro bono)?  If so, there is significant potential conflicts of interest.

3. Participation Rate.  Who persistently misses meetings?  Keep an attendance sheet.  Anyone who fails to attend at least half of the Board meetings in any given 12 month period may not be pulling his or her weight.  Use the attendance sheet to have a conversation with the individual about why he is not attending meetings and whether it makes sense for him to stay on the Board.

 

And Now for the Money Management…

The Treasurer is the third of the standard triumvirate of corporate officers.  Fortunately, the Treasurer’s job is a good deal more straight forward than the Chair’s or the Secretary’s.  Most people are aware of the Treasurer’s basic responsibilities and how they are carried out: The Treasurer makes sure that money coming into the organization gets put someplace safe and stays safe until it is properly dispensed.  For the smaller non-profit, that’s as simple as managing a checking account and making sure that the account has two or more authorized signatories.  If you can manage your home checking account, you can be your local non-profit’s Treasurer.

The organization doesn’t have to get very large, however, before the role gets a little more complicated and a bit busier.  But it is still relatively easy.

Money is money and it’s a very liquid asset, which means it’s very easy to move around from one account to another and from one person’s hands to another’s.  Worse, once it’s gone, it’s very hard to get it back.

As soon as an organization’s assets exceed a few thousand dollars, one can imagine how the cash becomes tempting.  There are many ways to skim the till.  It is the Treasurer’s additional responsibility to make sure that protections are in place to prevent any funny business and it is the Board’s responsibility to both that the Treasurer puts those protections in place and doesn’t steal any funds him/herself.  As the organization gets even bigger, the Treasurer has no direct contact with the funds and the former responsibility becomes more important as the latter responsibility becomes less important.

First and foremost, the Treasurer should make regular reports to the Board of all income and expenses.  This gives the Treasurer an opportunity to look closely at the records and identify any odd patterns, and it allows the Board to do the same thing.  The process itself is important because it prevents petty misbehavior.

Second, the Treasurer should make sure basic procedures are put in place to prevent misuse of funds.  Talk with your banker or an accountant (most accountants are happy to provide this advice for free or at a low cost to a non-profit) for simple ideas such as dual signature checks having volunteers who handle cash work in pairs who don’t yet know each other well (it’s good for social interaction within the organization as well as for preventing pocketing of cash).

Third, have the books audited once a year.  It sounds like a big deal, but for a small organization, it only takes a few minutes and for a larger organization, it’s another check against simple fraud or mismanagement.  Non-profits should have no trouble finding an accountant who will provide the service pro-bono or very cheaply for a charity.

Also, if the assets are large enough, say $100,000 or more, it’s a good idea to have the Treasurer bonded, so in case some of that highly liquid asset (money) does manage to make its way out of the right bank account into the wrong bank account, the organization can be reimbursed for the loss.  Bonding the Treasurer is like carrying insurance against malfeasance and the Board carries the cost for the bonding.

Yet another responsibility of the Treasurer is to stay on top of the ways the organization’s liquid and capital assets are used.  The Treasurer is, if you will, Chief of Spend-the-Money-Wisely.  While all Board members bear some responsibility for this, the Treasurer is should be the first to look closely at each spend and comment on whether or not it is a good use of the organization’s money.  The Treasurer should be deeply involved in discussions about capital purchases, loans, and any contract that requires an outlay of significant funds, whether purchasing consulting services, renting office space, or leasing a car.

Finally, a good Treasurer will find ways to safely get a return on liquid assets.  Even an organization with cash reserves as small as a few thousand dollars may find it appropriate to put some of the money in CDs or short term bonds, where the capital loss risk is low and the returns are better than keeping the cash in a checking account.  A simple trick for very small non-profits is to put surplus cash in a series of four CDs, each with a six month maturity, with one maturing (and automatically renewing, unless the funds are needed) each quarter.  That way a solid block of the organization’s cash assets

  • Earn a higher-than-checking-account return.
  • Stay safe from large scale fraud, embezzlement, or simple mistake (because they are not liquid).
  • Regularly become available for emergency needs (one of the four CDs matures each quarter).

Taking on the Treasurer’s role in a small non-profit is a great way to get started in responsible leadership because the duties are clear-cut and the opportunity for mistakes are actually rather small.  As long as the individual is honest and conducts his/her responsibilities in a transparent manner, it’s easy to have a good time with the role.  Unlike some other roles on non-profit Boards, the work load is relatively light and predictable.

The Two Most Important Jobs on the Board (Part 2)

The Chair (or President) of the Board organizes and leads Board meetings and establishes the culture of the organization.  These two tasks take enough time, energy, and thought that Chairs simply should not be expected to do anything else.  The following is a list of the key responsibilities of the Chair:

  • Influence corporate culture.
  • Determine Board meeting agendas, including what gets on it and how much time is allocated.
  • Manage development of mission and strategy.
  • Operate through and should assure adherence to the organization’s by-laws.
  • Direct the execution of Board functions.

The Chair sets the tone for the Board and, through the Board, the rest of the organization.  If the Chair is a dynamic “Procedure-be-damned, get the job done!” type of leader, that’s the style the rest of the Board and the organization as a whole will adopt, and both staff and volunteers can expect a lot of movement but also frequent changes and occasional friction drifting down from the leadership.  If the Chair is a careful consensus maker who seeks common ground among and between management and the Board, the organization is likely to have less risk and less friction, but it will also progress or change more slowly.  The corporate culture of the organization affects its ability to attract and keep talented people as well as achieve its mission effectively.

The Chair wields power primarily through control over meetings.  Within the constraints of the by-laws, the Chair decides when and where Board meetings will be held and what will be on the agenda.  In addition, the Chair decides how much time will be allotted to each item on the agenda.  Depending on the Boards rules for discussion, the Chair has considerable influence over who speaks and how long they speak.  It is, therefore, quite possible for the Chair to squash some topics and nurture others according to his/her priorities for the organization.

One important agenda topic that the Chair influences through the agenda is strategy.  All members of the Board, in cooperation with the organization’s Executive Director, are responsible for strategic direction, but the Chair of the Board has responsibility for guiding that discussion, which gives the Chair considerable influence over the outcome.  Some individuals are naturally good at thinking about strategy and conducting the ongoing discussions around it.  A Chair who is thinking strategically can recognize gaps in the talent pool available in the Board and management team and either work with the nominating committee to find people who fill those gaps or bring in outsides expertise to advise the Board and management.  Once again, the Chair’s control over the agenda gives him/her the opportunity to insert input from experts who can provide the Board and management with information, ideas, or skills that match the Chair’s view of what is best for the organization.

Within the context of the organization’s mission and strategy, among the bigger decisions the Board has to make are decisions around budgets, especially capital budgets.  Board review and approval of budgets and capital purchase requests by management should never be a foregone conclusion and this is a place where, again, the Chair has considerable influence by setting the agenda.  Capital expenses requiring Board approval can get squashed if the Chair doesn’t like them.  The Board is responsible for the organization’s assets, including capital, human resource, and brand, and an experienced Chair can affect whether they are squandered, underutilized, or put to work to maximum effect in the achievement of the organisation’s mission.

Another aspect of Board function that falls under the jurisdiction of the Chair is the bylaws.  An organization’s bylaws dictate how the Board operates, and the Chair, along with the Secretary, is responsible for seeing to it that the Board follows the procedures set out in the bylaws.  This is both a limiting factor on the influence of the Chair and a means by which the Chair (and the Secretary) achieve harmony and coordinated action on the Board.

Finally, the Board necessarily divides its responsibilities among its members.  Some responsibilities are specifically assigned, such as those of the Secretary, the Chair, and the Vice-Chair (if there is one).   Other responsibilities are distributed by setting up committees that are responsible for handling one of the Board’s detailed functions.  For example, the compensation committee shoulders a large portion of the Board’s duties relative to negotiating the salary, bonus, and perks for the organization’s top management.  Also, the audit committee coordinates with the organization’s auditors as well as performs specific audits of the organization’s finances and activities as requested by the Board or the Chair.  In many cases, the Board Chair appoints the committee chairs and sometimes s/he has substantial influence over who sits on the committee.

A Board’s Chair rarely has direct influence on outcomes, but s/he bears ultimate responsibility for the success of the organization because the Chair controls both the corporate culture and the agenda.  Through these two devices, the Board Chair influences the organization’s ability to achieve its objectives in an effective and efficient manner.

The Two Most Important Roles on the Board (Part 1)

Ask yourself the question, “What is the most important role on the Board?”

The obvious and easiest answer is the Chair.  Yet there is another role that is consistently under-rated, principally because it is consistently misunderstood, but is actually just as important: the role of the Board Secretary.  Often, due to the nature of the job, the Board’s Secretary is a lawyer, and everyone knows that lawyers are no slouches when it comes to knowing where the real power lies.  Lawyers usually don’t let themselves get trapped into menial jobs either.  Corporate Secretaries even have their own non-profit organization supporting and advising them: The Society of Corporate Secretaries and Governance Professionals.

Board Secretaries have two areas of responsibility:

  1. Internal communication
  2. Legal and regulatory compliance.

It’s the second of these that catches most people by surprise, but the first is also very important.  While the Board Secretary may or may not actually take the notes that become the minutes of the Board meetings, the Secretary is responsible to see that the meeting minutes are produced and s/he has initial responsibility for determining what goes into the minutes and how the minutes are phrased.  If you think about it, that’s a good deal of influence right there.

In addition, the Board Secretary is responsible for distributing communications, including minutes, agendas, announcements, reminders, etc.  Again, in some cases, the Secretary may or may not do the actual leg work him/herself, but s/he is responsible for getting the communications to the people who need them.  Board members have fiduciary responsibilities and, in some cases, are compensated for their time and expertise, so they have a moral, legal, and sometimes financial obligations to follow through on their commitments.   It falls to the Secretary, however, to do the reminding and follow up.

The surprising responsibility that many Board members by surprise is that of legal and regulatory compliance.  In the for-profit world, this includes Sarbanes-Oxley and Dodd-Frank reporting requirements, but in the non-profit world it still includes knowing the difference between what is allowed of a 501(c)(3) non-profit and what is allowed of other non-profits, distinctions that can sometimes be nuanced.  If the non-profit is a public institution, such as a library, the regulations and requirements are different again.  In a larger non-profit, while the Board may have separate audit and compensation committees, each with its separate responsibilities to conform to regulatory and disclosure requirements, the Secretary still has an advisory role to play.  Hence the common practice of having an attorney fill the role of Secretary.

The person who eventually accepts the role of Secretary may not be a lawyer and s/he may not be perfectly briefed on all the rules that affect an organization, but that person enjoys a good deal of influence and responsibility.  The Secretary on a Board is not a low-level operative with mindless note-taking and typing as his/her principal duties.  The Secretary holds a critical position with significant influence and the Board should take care to respect and support the Secretary.  Any individual who accepts the role of Board Secretary should avail him/herself of the resources available, including the SCSG, and, for the very small non-profit, s/he must not be afraid to ask attorneys and accountants for pro-bono advice and services.  We’ll talk more about that in a later post.

Who are the Stakeholders for a Non-profit?

One of the hardest jobs for any non-profit Board member is determining how to balance the needs and expectations of the organization’s various stakeholders.  Generally, each non-profit has three groups of stakeholders.  As with other organizations, vendors, local communities, and other stakeholder groups exist, but the principal stakeholders are the following three.

  1. The recipients of the organization’s products and services constitute one set of constituents.  These are, if you will, its customers.  Heifer International, for example, provides livestock from rabbits to water buffalo to geese to families in need of food and income.  The objective is to create independence by providing the resources to create food and income rather than by providing food itself, which would tend to create dependence.  Heifer’s Board has a duty to see that the organization is properly tuned to provide appropriate livestock to people who actually need it and can sustain that livestock.  Those people constitute Heifer’s principal constituency.
  2. Non-profits do not have income or investments the way private organizations do.  They are dependent on donors, members, or endowments to provide financial resources that allow them to pursue their missions.  The individuals and companies that provide these financial resources are also stakeholders and the Board needs to make sure that they are happy, because financial resources are essential to the successful achievement of the non-profit’s mission.  The Board must see to it that the needs and expectations of these stakeholders are met, as long as meeting them does not compromise the organization’s mission or compliance with good governance.
  3. Non-profits rarely have the resources to pay fat salaries and bonuses to their employees.  In most cases a non-profit’s management and workers are devoted to the organization’s mission and provide labor, expertise, or both for remarkably little compensation, or for free as volunteers.  The employees and volunteers, therefore, also form a significant constituency that the Board should recognize as stakeholders in the organization, and the Board should see to it that this constituency is heard and rewarded within the constraints of the organization’s mission and good governance.

Guidance on how to balance the needs and expectations of the various stakeholders can usually be found in the organization’s mission statement.  The ICRC, for example, has a mission statement that says it is “an impartial, neutral, and independent organization whose exclusively humanitarian mission is to protect the lives and dignity of victims of armed conflict and other situations of violence and to provide them with assistance.”  Clearly the recipients of the ICRC’s services are its first priority.  Furthermore, it has a narrow range in which it can work to make donors happy; nothing in its efforts to please contributors can get in the way of being “impartial, neutral, and independent”.  Finally, it’s mission is to help “victims of armed conflict and … violence,” so as much as it tries to keep its workers safe, the work is bound to be hazardous.

Most non-profits don’t operate in the extreme circumstances that the ICRC has targeted for its mission, so most non-profits can do more for their donors and for their employees/volunteers, but there is another restricting factor on what can be done for these constituencies, one that falls generally within the purview of good governance, which is avoiding waste and abuse.  Spending more lavishly than necessary on benefits for donors reduces the resources available for achieving the organization’s mission.  Similarly, providing nice perks for management and employees not only reduces the resources available for achieving the mission, it abuses the intent of the donors.  On the other hand, some donors expect benefits and can be motivated to give more if they receive them, and small perks that don’t cost much may make the difference between a volunteer contributing that extra hour each month or not.  One element of oversight by the Board is to see that those balances are optimally maintained so the stakeholders get what they need and the organization achieves its mission.

What is the Role of a Non-Profit Board?

In principal, the Board of Trustees or Board of Directors (the Board) for non-profits serves one primary purpose: To protect the interests of the organization’s stakeholders.  All the other responsibilities and activities of the board, ranging from chasing down donations to reviewing audit reports, boil down to this basic responsibility.

The majority of stakeholders in a non-profit are primarily interested in seeing that the organization achieve its mission.  What follows in this and future posts on this blog must be seen in the context of this goal.  Stakeholders in non-profits are not interested in making vast financial returns on their investments of time and money; they want to see blankets and food delivered to the cold and hungry, education made available to the illiterate, medical supplies and care provided to the sick and injured, the arts protected and promulgated, or whatever the organization has staked out as its mission.

The organization’s Board plays a critical role in how well the organization achieves its mission, and any list of a Board’s specific duties would have to include:

  1. Hire, supervise, compensate, and (if necessary) terminate the organization’s executive director (president, CEO, etc).
  2. Define the organization’s mission and assess the organization’s success in achieving that mission.
  3. Assure that the organization adheres to applicable laws and regulations.
  4. Assure the proper management of the organization’s assets (people, cash, reputation, etc).
  5. Provide advice, guidance, and resources useful to the organization that the organization does not have in-house.

Depending on the nature and purpose of the non-profit, Board members may also have responsibility to:

  1. Raise money.
  2. Advocate on behalf of the organization.
  3. Perform any additional functions as defined in the organization’s by-laws.

Many people working on non-profit Boards are not aware of the fundamental implication of the above list: The organization (especially the Executive Director, CEO, or whatever) works for the Board of Trustees, not the other way around.  As the representatives of all the collective stakeholders, the Board members are responsible to supervise the organization to assure its activities are in the best interest of the organization’s mission as defined in the by-laws by the Board.