The Top 8 Board Duties to Help Improve Nonprofit Outcomes

The board of directors is a key element in the success of a nonprofit organization (NPO). The board has ultimate legal responsibility and authority for the nonprofit, but board effectiveness and conduct may vary widely.

Consider common trouble spots that can affect nonprofit boards. There are also focus areas and recommended practices for better board performance. To be successful, nonprofits should practice strong governance and management.

8 ways to improve nonprofit board performance

1. Understand the job and fiduciary duty

New board members often ask “What is board service about?” together with “How can I do a good job?”

Designing a thorough board orientation process is a good start. And while a board orientation helps, some knowledge is gained by observation and experience and is dependent on the board environment and the nonprofit’s function. Board members should understand their fiduciary duty as defined in state statutes and then act in the best interest of the organization.

2. Consider the NPO board’s dual role

Generally, the board role is a dual role. The board assists in accomplishing the mission of the organization while also providing oversight on management’s plans and conduct, adherence to policy, and performance outcomes.

The board should always consider if the organization is serving its mission and purpose. Thoughtful and comprehensive board discussions about projects, budgets, issues, and challenges can help identify weak spots, undue risk, or unreasonable objectives.

3. Craft a strategic plan and decision framework

A strategic plan defines the organization’s mission, vision, and plans and is the starting point for decision making. The strategic plan informs a nonprofit’s objectives, including annual goals and budget. The plan should also outline risks to meeting those goals, with internal and operational controls implemented to mitigate those risks.

Policy, strategic direction, and oversight are board charges — and more specifically — strategic plans, identified risks, and process controls are joint charges between the board and management. For a complete decision-making process, evaluate the strategic plan periodically to determine if progress is being made.

4. Develop a strong nonprofit team

To support the mission, the board is charged with providing adequate resources for the nonprofit organization. It’s responsible for selecting the chief executive officer and may weigh in or help the CEO as they hire other talent.

• The CEO (or executive director) has as much to do with achieving the mission as any single factor. As seen in sports, a change in one person — the coach — can yield excellent results or even a turnaround.
• The chief financial officer or equivalent performs accurate recordkeeping, oversees grant compliance, and provides management reports to monitor operations and mission. Reliability and timeliness of financial reporting is a must.
• The development director and team usually raise more money than their associated compensation.
• Program staff provide value-added services to stakeholders.

Recruit boldly for talent in these positions. This can be difficult in the current hiring environment but is vital. Hiring qualified, competent individuals brings increased chance for success. In fact, commitment to competence is a control requirement found in internal control recommendations.

Once hired, evaluate the top leader in a constructive manner annually and support that individual as they evaluate their leadership team. The board should also focus on recruiting new board members for a strong continuation of effective governance.

5. Focus on your niche and financial practices

There are many types of nonprofits, and their character varies based on business activity and mission.

An organization focused on a well-defined business niche with related products and services is better positioned for success. This focus works to conserve resources and energy. And as your organization develops a deep knowledge over time, you can better identify and solve your stakeholders’ problems and concerns.

Avoid diversifying into unrelated niches. Many nonprofits try to do too much with too little staff or money.

Create adequate financial reserves to meet unexpected business downturns
The budget is a primary tool to manage the organization and create discipline around finances. If there is satisfactory budget compliance on the expense side and planned revenues are achieved, the organization should succeed financially. If revenues fall short, the budgeted expenses can be modified to compensate, sort of like a balloon letting out air.

Key performance measures supplement the budget; they are established as the most meaningful and impactful and then monitored throughout the year. The board reviews and accepts the annual budget, which should reflect the organization’s strategy for success.

6. Identify risk and form a response

Understanding risks that may hinder achieving the mission may not be directly discussed often. The nonprofit management team is charged with risk management along with oversight by the board.

Most board members may have a working knowledge of risks based on their business or life experience. Standard risks such as property, liability, and auto can be transferred to insurance carriers. Internal risks include risk of staff turnover, noncompliance with laws and regulations, and weaknesses in internal controls over financial matters or over programs.

Fraud is a great risk as it can negatively affect reputation — and a nonprofit’s reputation is an unrecorded asset that should be enhanced and protected.

External risks can include:

• Events such as COVID
• Societal changes such as social media and artificial intelligence
• Rising competition
• Changing relationships with funding sources
• Cyberthreats

Risk mitigation strategies include insuring against risks, preventing the effects of risk events through strong internal and information technology controls, reducing risk by strong policies or by timely response to business climate changes.

Risk identification can be overwhelming. Focus on the most important risks, classifying them by probability of occurrence and magnitude of loss. Add risk analysis to committee or board agendas periodically.

7. Consider policies and culture

Boards must insist on strong policies and procedures that are documented and updated on an as-needed basis annually. Policies and procedures answer the who, what, when, where, and why for operations and ethics. They also define expectations and requirements and demonstrate the intent to comply with all external funding requirements.

Documented policies facilitate accountability and set standards for employee matters. Policies must be considered part of the internal control structure leading to correct outcomes. Formal policies affecting the overall control environment and culture include a code of conduct, conflict of interest policies, and whistleblower policies. Strong policies in these areas reflects the intent to have a sound ethical organization. Strong ethics is the right thing to do and should be considered a business strategy to enhance reputation and trust.

Lower-level controls do not function as effectively when there is not a top-down flow of desired conduct, i.e. “the tone at the top.” The board contributes to the tone at the top through policies including fraud prevention, an annual external audit, functioning committees including the audit committee, and by demonstrating ethical conduct.

The board should monitor itself against board recommended practices found in the industry literature and determine any actions to improve.

8. Watch board member conduct and red flags

Sound principles apply for board member conduct including:

• Strong preparation and attendance at meetings
• Carefully listening and respecting fellow board members’ communications
• Supporting board majority decisions
• Flagging any issues with an adverse effect on the organization or those it serves
• Declaring any conflicts of interest
• Not criticizing fellow board members
• Not divulging confidential information outside the board room
• Not interfering with the duties of the CEO or undermine authority
• Not taking personal advantage of the organization

Some red flags indicating possible concerns for a board member include:

• Management cannot articulate a clear plan to achieve the organization strategy
• The vision is not connected to concrete activities designed to achieve the vision
• Failure to emphasize ethical behavior
• Financial statements are not timely or finances change unexpectedly
• At board meetings, a lack of good questions
• High turnover in the organization
• Limited recognition of long-term donors and friends
• Programs not reviewed or programs receive poor evaluations of effectiveness
• Financial trends are weakening
• Plans are not based on better serving stakeholders but are based on meeting internal needs