Board Member 101: Three Best Practices

DHG recently hosted a series of events that included participants of both not-for-profit board members and management. The two groups were asked to list important items they wanted the other group to know about board membership and service.

After hearing their different perspectives, we heard these common themes emerge:

  • Board members want management to:
    • Explain day-to-day operations and highlights.
    • Tell us the story of the organization.
    • Give us real information.
    • Keep us informed about what’s happening with the organization.
  • Management want their board members to:
    • Stay active on the board of directors (BOD) and attend all meetings.
    • Understand their responsibilities as board members.
    • Be ready to engage and share at board meetings.

After hearing these responses from our event attendees, it became apparent that a high level of engagement from the BOD is highly valued by management; however, such a level of engagement seems correlated to how informed board members are about the not-for-profit they serve.

Service on the BOD of a not-for-profit organization is often a rewarding experience for both the organization and the directors. Because of the responsibilities that are required with this service, board members should enter into the role understanding the suggested requirements set forth to the governing body of not-for-profit organizations, which can be especially helpful for those who are serving on a BOD for the first time. Therefore, this article discusses three high-level best practices for first-time and veteran board members, which can lead to a positive and rewarding experience during your time of service.

Be Informed

Knowing the legal requirements associated with board membership is a crucial first step to contributing well during your time of service. Federal and state laws and regulations create expectations for board members, requiring them to act as fiduciaries. Fiduciary responsibility is generally defined as the Duty of Loyalty, Duty of Good Faith and the Duty of Care. By acting ethically as a fiduciary based on these duties, board members have the opportunity to guide the future of a not-for-profit, making sure the organization can thrive with proper management of financial resources and other policies:

  • Duty of Loyalty – Requires board members to act with undivided loyalty that is in the best interest of their not-for-profit organization, not seeking to benefit personally from the business activities of the not-forprofit they serve.
  • Duty of Good Faith – Requires board members to act in good faith and be fair in their dealings with the notfor-profit organization, not taking advantage of the organization and its resources. Board members also should be honest and upfront in dealings with the notfor-profit, and in fulfilling other fiduciary obligations.
  • Duty of Care – Requires board members to act reasonably as a prudent person in similar circumstances would act. They should also know the not-for-profit’s activities and financial condition and agree to participate regularly in board meetings.

Board members should also know and adhere to the formal policies and procedures of the organization. Common policies that organizations may use to create governance structure include: a written code of ethics; conflict of interest policy, which requires board members to manage conflicts of interest or the appearance thereof through disclosure, recusal or other means; a whistleblower policy, which enables individuals to come forth with information on illegal practices or violations of organizational policies without retaliation; and policies and procedures to protect assets and information. Understanding formal policies and procedures not only help new board members properly understand the role they play, but such information helps them advocate on behalf of the organization during times of fundraising.

When board members evaluate their service with an exempt organization, it is important for them to ask the following questions: (1) What policies exist in the organization? (2) What policies should exist in the organization? (3) Is the governing body adhering to the policies on an ongoing basis? Asking such questions helps a board member succeed in meeting his or her fiduciary responsibility by keeping the entire board, and thus the not-for-profit itself, accountable for all policies, decisions and actions.

Be Engaged

One of the greatest assets a not-for-profit can possess is an engaged BOD. Such engagement requires connection to the organization and its mission. Being connected does not necessarily mean that you are involved in the day-to-day operations, but rather you are informed about the organization’s activities and the connection with the mission and goals of the organization.

Outside of knowing the mission of the not-for-profit, one of the most practical and easy ways to stay connected is to attend regularly scheduled board meetings, where board members can ask the right questions, make intentional suggestions and conduct business as required. Many not-for-profits have their own attendance policy for BOD meetings, and some bylaws may require a certain number of members present to establish a quorum for making important decisions. While it’s true that board members may have full schedules with other responsibilities, meeting attendance is crucial to fulfill legal and ethical responsibility to oversee the organization.

In addition to regular attendance, passion is also considered a key component for engagement in the activities and governance of the organization. Board members should ask themselves, “Why did I choose this organization’s board to begin with? What do they care about that I also care about?” Staying true to your passion for the mission as well as your original intent to offer service through BOD membership can help you appropriately channel your passion and provide the energy needed to stay engaged and motivated.

Be Independent

To effectively serve a not-for-profit organization, board members should have limited or preferably no conflicts of interest. Conflict of interest is defined as a situation that has the potential to undermine the partiality of a person; therefore, it is strongly recommended that the organization adopt a conflict of interest policy and review that policy at least annually. As board members seek to act in the best interest of the organization, being mindful of relationships that could create conflicts of interest is of significant importance. Board members may find that they need to disclose any personal or business relationships that are in conflict with a duty of undivided loyalty. In the event that you vote to approve a conflict of interest transaction, you may be held personally responsible to the not-for-profit you serve if the conflict of interest harms the organization or is otherwise unfair in some way.

Keep in the mind the Duty of Loyalty, which forbids board members from seeking to benefit personally from the business activities of the not-for-profit. Commonly, conflicts arise from compensation arrangements, payments received and loan arrangements where a benefit is received by key influencers of the organization. However, it is not uncommon for board members to receive reimbursements or reasonable compensation for services performed. An organization can create structure and safeguards with a conflict of interest policy that will provide board members with structure in how to manage both real and perceived conflicts. Such a policy would require board members to disclose any personal or business relationships that are directly or indirectly in conflict with the Duty of Loyalty, whether the conflict is actual or potential. As such, board members should always disclose any potential conflicts of interest that may arise.

Conclusion

Board members who keep these three best practices at the forefront of their involvement with an organization can satisfy their desire and need for crucial information to serve while at the same time meeting one of the most basic needs of a not-for-profit – an engaged BOD. Board members can also contribute better oversight in their role, as well as continually develop a better understanding of their role within the BOD. Engaged board members who take their role seriously can therefore lead to a higher standard of accountability within the BOD to carry out the mission and advocate on behalf of the not-for-profit within the community.

For more information or questions, reach out to us at info@dhg.com.