Question:
I’m new to the nonprofit world and trying to figure out what I need to know about creating a board of directors. What are some of the main things I should know?
Answer:
An active board provides invaluable oversight and foresight to a nonprofit organization. The board steers the organization towards a viable future when it adopts sound, effective policies, and ensures the organization can obtain adequate resources to pursue its mission. Read on to learn about some of our most frequently asked questions concerning a nonprofit’s board of directors (BOD).
1. How does a non-profit board differ from a for-profit board?
A for-profit corporation focuses on collecting capital for shareholders, whereas a nonprofit organization focuses on pursuing its mission for the public’s benefit. Even though a board of directors runs both types of entities, they manage with different goals.
A nonprofit BOD must act in the community’s best interests, while a for-profit BOD must act in the shareholders’ best interests. Nonprofit organizations are “owned” by the public; for-profit corporations are owned by their shareholders.
2. What is the board responsible for?
The board manages and pursues the organization’s overall vision. In doing so, it represents and communicates the organization’s interests to the community, gathers human and financial resources, inspires others to invest in the organization’s mission, and enhances the organization’s public integrity. For those organizations with an executive director (ED), the board supports and evaluates the ED by ensuring he or she has adequate moral and professional support to further the organization’s goals. More importantly, the board helps secure adequate financial resources so the organization can effectively pursue its mission.
3. How does a board operate?
The law requires the board to act as a group. This means individual board members cannot make decisions—but rather the board must decide together, usually during a regular meeting through a majority vote or consensus, whichever method the bylaws specify.
4. How often does the board meet?
Typically, the board meets quarterly, but it can meet more often if needed or call “special meetings” to discuss a specific program or event.
5. How many board members and officers does California law require?
California law requires a nonprofit to have at least two directors, but more than two directors are often needed to run a viable organization. Required “officer” positions are: board chair/president, secretary, and treasurer/chief financial officer. Two of these can be combined for the secretary and treasurer, but the president position cannot be combined with another position for conflict of interest purposes. Additionally, California law requires nonprofits to have a majority “disinterested” board, meaning that no more than 49 percent of the board can be (1) related, either through family or business ties, or (2) paid by the nonprofit.
6. What is the recommended number of board members?
The size of the board varies widely between organizations, and non-profit experts disagree as to the perfect board size—this largely depends on the organization itself. Three to fifteen members are often quoted numbers—but some boards are much larger. Experts do agree, however, that a well-run organization requires an active board made up of committed people from the community.
7. Can board members be paid?
Yes, but it’s unusual. A nonprofit could pay board members a “reasonable compensation,” but this isn’t standard practice. National charitable standards recommend board members serve as volunteers with occasional reimbursements for actual expenses of attending meetings.
8. Can board members be employees?
As mentioned above, under California law no more than 49 percent (in plain language, less than half) of the board of directors of a nonprofit public benefit corporation can be employees. Again, while this is legally permissible, it is a rare practice to have employees serve on the board of directors, with the possible exception of the executive director.
9. What about all-volunteer organization boards?
In an all-volunteer organization, there is no paid executive director or other staff. The board is responsible for the organization’s legal, financial and community obligations, and for managing the organization’s day-to-day activities, leading other volunteers, and getting the work done.
10. Who should be on the board?
The IRS does not provide guidelines on who is qualified to sit on the board of a nonprofit. In fact, anyone can sit on the board. It’s best to look for people with passion and experience in line with the organization’s mission.
Wrapping It All Up….
Those are our top FAQs, but perhaps you still have your own questions. That’s fine! Send bertie@inbetterwetrust.com an email to set up a free 30-minute consultation with our team.