Serving on a nonprofit board is serious business

“We make a living by what we get, but we make a life by what we give.”

This sentiment expressed by Winston Churchill so long ago is heartily embraced by many Americans today. In fact, nearly 27 percent of adults volunteered 15 billion hours in 2009 to U.S. nonprofits. Of these, many are proven business leaders who choose to contribute wealth, wisdom and clout by serving as nonprofit board directors.

Corporate executives can lend valuable expertise to guide strategy and offer sound business advice. But serving as director of a nonprofit board requires the ability to oversee, rather than manage — an important distinction.

Although the board is the highest authority in a nonprofit organization, it doesn’t concern itself with day-to-day operations. Instead, it hires a chief executive to implement strategy and manage the staff. Unfortunately, all too often well-intended corporate executives fall into the trap of trying to lead from their board seats in the same manner as they lead their companies. At best this creates confusion, at worst it leads to conflicts between board directors and paid chief executives. Board directors can maximize their contribution and ensure a mutually satisfying experience by taking time to understand how nonprofits operate and embracing governance best practices. .

Effective nonprofits establish job descriptions that articulate the respective roles and responsibilities for board directors and chief executives. In these organizations, Board directors annually assess their own performance as well as that of the chief executive.

Unlike a business that drives to the bottom line, nonprofits are formed to fulfill purposes (missions) that promote the betterment of society. In this sense, nonprofits are said to “hold public trust.” As a result, nonprofits and their board directors are subject to strict ethical guidelines and public scrutiny. Board members’ basic oversight duties are:

Duty of Loyalty

Duty of Obedience

Duty of Care

The Duty of Loyalty requires sole commitment to the organization. Examples of actions that violate the Duty of Loyalty are self-dealing (using a board position for personal gain) and favoring the interests of a particular stakeholder group above the interests of the entire organization.

The Duty of Obedience is to ensure that operations and resources are aligned to fulfill the mission. For example, the board should periodically review the mission to make certain it is still relevant in the current environment and that programs and services are serving stakeholders appropriately and well.

The Duty of Care requires responsible financial and legal stewardship when making board decisions. This includes:

Approving budgets

Hiring independent auditors to conduct annual audits

Approving any loans, accumulations and restricted accounts

Overseeing, bank accounts, investment advisors and/or endowments

Monitoring sales transactions

Overseeing compensation and benefits

Approving capital campaigns and fund raising goals

Complying with legal and fiduciary laws and regulations

Instituting, monitoring and enforcing ethics and conflict of interest policies

Ensuring that the constitution and bylaws are up-to-date

Effective board directors are well aware of fund raising goals and understand and agree to fund raising expectations specific to board directors. In addition to soliciting funds from others, it is a standard best practice for every member of the board to contribute personally. Prospective funders often inquire about the board’s level of giving. Funders are fond of saying, “If everyone on your own board doesn’t support your nonprofit, why should we?”

Last, but not least, board directors who contribute best believe in the mission. They are willing to offer their time, talent and business savvy because they are fired up about the “cause.” Nonprofit board service is a meaningful contribution to the greater good, and brings much personal satisfaction. But it requires a different mindset and approach to leadership than many executives use in the daily management of their businesses.

Kae Rader is president of Rader Consulting, LLC. Reach her at kae@raderconsult.com.