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2: The Board’s Role and Responsibilities

  • Page ID
    2008
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    Symptoms

    While virtually everyone agrees that the role of the board in nonprofit organizations is to enable them to achieve their mission, differences arise when it comes to specifying exactly what the board’s authority and responsibilities should be. In fact, this is probably the most frequently written about topic in the literature on nonprofit organization boards. Since most nonprofits also have paid or volunteer CEOs and managers, the question arises: what should the board’s role and authority be compared to that held by these other important positions?

    A high percentage of agreement with the following statements indicates that there is a lack of clarity in and around the board as to what its role ought to be:

    • The board seems to be unclear about what its role ought to be.
    • The board and the CEO or Executive Director sometimes seem to have different ideas about the authority each should have.
    • The board tends to act too much as a “rubber stamp” for decisions made by the organization’s top management.
    • The board gets too involved in making decisions about operational details that ought to be made by management.
    • Board members are unclear about their legal liabilities and what protection they have against them.
    • A closer look at the above statements shows there are actually two basic issues involved here:

    What is the board’s legal authority? There are certain duties boards must perform because they are legally responsible for the actions of the organization (as defined by those who authorize the organization to exist or give it tax exempt status). Their primary role is that of a fiduciary, which is to say that they are entrusted to look after the interests of the organization. In practical terms this translates into making sure that the organization is achieving its mission, not wasting its money and not breaking any laws.

    However, it is usually not feasible for boards to make all the decisions. While retaining responsibility for the overall performance of the organization, the board must delegate authority to others such as the CEO. (If it is an all-volunteer organization with no paid CEO, it may still delegate authority to volunteer committees or office holders). Those to whom authority is delegated have the power to make certain decisions, which the board can review only in the context of assessing the organization’s overall performance. The question is, therefore, what matters should boards decide on and what should they delegate? This question is discussed under “Treatment” below.

    Diagnosis

    Why do boards and those who relate to them become confused about the authority of the board?

    Regarding the board’s legal authority, a lack of clarity usually exists because board members are not properly informed about the laws defining that authority and legal liability with respect to board activities. Confusion and lack of clarity about the board’s responsibilities and decision-making authority arises for a number of reasons.

    The most common cause is that boards fail to adapt to changes in the organization’s environment. Many nonprofit organizations start with very little money and few or no paid staff. As a result, volunteers conduct much of the work, and among the most active volunteers are board members. Meetings of boards often deal with everyday operating problems and small crises. When these organizations become more successful and are able to employ professional managers, many board members experience great difficulty in letting go of their involvement in day-to-day operations. At the same time the management team becomes frustrated over not knowing what they can decide and what they must refer to the board for decision. Once patterns of decision-making become established they form part of the board’s informal culture and thus recede into the background to the point that they are taken for granted and never questioned.

    The same kind of confusion can arise when an organization experiences sudden major crises such as large funding cuts or unanticipated resignations of key staff. At such times boards often find themselves pushed into making operating decisions and don’t know how or when to relinquish this role.

    In some cases, the lack of clarity exists because the CEO and key board members simply differ in their opinions about what the role of each party should be. If these root philosophical differences are never addressed directly, this situation leads to an endless series of disagreements over many issues.

    Treatment

    Lack of Clarity about the Board’s Legal Authority and Liability

    The basic knowledge about the board’s legal authority and responsibility can be most easily obtained from a few good websites or written publications. These also provide important information about the nature and extent of a board’s legal liabilities—the grounds on which boards can be sued for failure to carry out their duties properly. Normally, providing board members with orientation and simple written materials on this subject will suffice; however, if specific circumstances suggest that the organization faces any unusual situations, lawyers with specialized knowledge of this field should be consulted. It is important to realize that the laws on the duties and responsibilities of boards and their legal liability can vary from country to country and, in federated countries such as the U.S. and Canada, from one state or province to another.

    Clarifying the Board’s Role in Decision-making

    The only way to deal with confusion or conflict around the role of the board is through education and discussion among all affected parties. This includes all board members, the board Chair, the organization’s CEO, and other members of the management team who have expectations about the board carrying out certain actions. It should also include key funders or stakeholders who might feel they have some kind of authority to make decisions involving the organization.

    Basic board responsibilities

    To clarify the board’s role, all those involved must understand the basic board responsibilities. These are described below. This material is adapted from Murray (2009).

    To deal with the problem of achieving clarity regarding board roles and responsibilities, we need an understanding of what it is that boards do. The most common areas of responsibility in which boards may become involved are:

    • Mission, values, goals, strategic priorities and performance assessment. Setting the overall purpose for the organization—why it should exist, who it should serve, what services it should provide, and what values and ethical guidelines it should follow in providing them. This area also includes the setting of objectives and the development of broad strategic plans for achieving them. To do this properly requires assessing how well the organization has performed in achieving the goals set for it as well as understanding the challenges and opportunities that lie ahead.

    • Fiscal/legal oversight and risk assessment. Ensuring that the organization behaves in a fiscally and legally responsible manner. This includes such matters as overseeing operating and capital budgets, investments, property management and compliance with various laws applying to the organization. It also includes risk assessment—attempting to identify areas in which the organization is subjected to high risk to its assets or reputation.
    • CEO selection and evaluation. Ensuring that the best person holds the position of CEO and performs it at a satisfactory level of competence.
    • Community relations (also known as “Boundary Spanning”):
    • Ensuring that the interests of key external stakeholders are made known inside the organization.
    • Building alliances and partnerships with others that benefit the community; and
    • Representing the interests of the organization to its external publics;
    • Resource development. Ensuring that the organization obtains adequate funds to enable it to achieve its objectives.
    • Management systems. Ensuring that the organization is managed efficiently and effectively, e.g., that it has the right administrative structures and policies, information systems, human resources policies, etc.
    • Board self-management. Activities aimed at ensuring the board itself is as effective as it can be, e.g., recruiting, selecting and training its members, evaluating the effectiveness of its meetings and committees.

    Roles of Board Members

    To list the areas in which boards should have some kind of involvement is important, but it does not indicate how they should be involved. This is the question of the roles the board can play in the organization. It is common in writing about boards to talk only about the role of members as decision-makers. In addition, however, they may play two other critical roles: advisor and implementer. Thus there are at least three roles for board members:

    Decision-maker/evaluator. The most important thing to understand about the decision-making role of the board is the concept of delegation. Except in the smallest of NPOs, the board cannot make all the decisions needed to get things done. It must trust staff and volunteers to make many decisions that it will never hear about. When the organization employs a CEO, the authority to make many decisions is delegated to that position and the CEO may, in turn, delegate some of that authority to others. The only decision the board makes about all these delegated matters is whether they all add up to satisfactory performance for the organization as a whole. This is the evaluation function of boards and it cannot be delegated. When the boarddoes make decisions, it usually occurs only at the level of the whole board meeting in a formal session in which it votes on motions put forward to it.

    Advisor. In this role, board members provide information and expert advice to their board and, less formally, to others such as the CEO or other management and staff. This role is usually played at the level of board committees, which may develop recommendations for the whole board or CEO. Individual members typically derive the information and advice they provide from the following sources:

    Contacts in their networks. This latter contribution—the result of board members interacting with the outside world—has only recently been recognized as a vital part of the board’s overall potential contribution (Renz, 2006; 2012)

    Knowledge gleaned through their training and experience; and

    Implementer. In a few instances, board members may actually carry out the activities required by the decisions they (or others) make. For example, they usually carry out the work of selecting future board members and selecting the CEO. They may also approach prospective donors for funds; participate in advocacy and community outreach efforts; or represent the organization in dealings with critical stakeholder groups. Implementation activities are usually carried out at the level of task forces or committees charged with specific governance functions such as fundraising or board recruitment. Occasionally, individual board members may get involved in implementing decisions such as approaching prospective donors to ask for contributions or presenting briefs on behalf of the organization to government bodies.

    Patterns of Board Responsibility and When They are Appropriate

    Understanding the kind of matters boards might get involved in and the various roles members can play is the first step to achieving clarity about what the board should do. However, the temptation is then to assume that there is a single pattern of board responsibilities and roles that is best for all NPOs. In spite of the assertions by some “how to do it” writers on boards that there is a “one best way” for all types of boards and governance situations, the limited research on what makes for an effective board suggests that there is not. Let us look at several models or common patterns of board roles and responsibilities and discuss when each may be appropriate.

    The working board

    There are conditions when it is quite acceptable to have board members who simultaneously participate in setting strategic directions, manage the implementation of plans and actually carry out “the work.” The term for a board like this is the working board. A successful working board can exist when the nonprofit organization is new, small, or made up of all (or nearly all) volunteers and offers services that are not numerous or complex. For example, many self-help groups, small grassroots advocacy organizations, housing and food co-operatives, collectives, and sport organizations operate very successfully with working boards (Gill, 2005).

    In working boards, board members are often the most committed and knowledgeable members of the organization and have worked up to the board as volunteers or were founders of the organization. It is not surprising, therefore, that some of them bring operational concerns to board meetings. In fact, in this model of board, it may be impossible to differentiate between “strategic” and “operational” leadership issues. For example, one botched special event fundraiser or bad story about a mishandled client in the newspaper could end the organization’s existence. Almost anything and everything has the potential to be a “strategic” leadership issue. Getting established requires that the people involved are competent and have the energy to successfully wear many hats.

    All that is needed to create an effective working board is to make sure that everybody is clear about who can make which decisions and who is going to do what. There should also be basic agreement about what things are the most important (priorities). In general, whole-board meetings of working boards should still focus on governance issues—planning for the future, setting broad objectives, setting priorities and assessing performance. But time at board meetings spent on apparent “details” is not necessarily wasted if the chair or others can spot the larger strategic issues that can be buried in them. In these kinds of small organizations the board can benefit by holding periodic special meetings of all active participants (such as other key volunteers and any staff) to discuss “how well are we doing in fulfilling our mission?,” and “where do we go from here?”

    The working board is not appropriate under conditions opposite to those that fit it best, that is, organizations with paid staff and full-time managerial personnel who are operating programs competently. Most public institutions such as universities, hospitals and mid to large sized social service agencies are examples of the kinds of organizations that fit these conditions. Such organizations cannot tolerate the confusion created by board members trying to “micro manage” the organization’s affairs when others are better prepared to do so.

    The governance-only board

    A governance-only board is one that restricts itself to providing broad, strategic leadership (Gill, 2005) to the organization by focusing primarily on issues that relate to the basic strategic question of “who is to receive what services at what cost” (Carver, 2006). This means that decision-making/evaluating becomes the key role being played by the board.

    The dilemma facing the large, complex institutions for whom governance-only boards are the most appropriate, and one of the reasons they can so easily become rubber-stamp boards, is that most board members are busy civic leaders who, though great supporters of the organization, have very little time to become thoroughly knowledgeable about it or the sector in which it operates (such as healthcare, education, or the arts). This makes informed debate about major strategic issues very difficult. For example, it takes a lot of expertise to know whether an organization should merge with another (or cease to exist), whether a university should open (or close) a department or whether a hospital should convert a certain percentage of its beds from active to chronic care.

    The secret of creating an effective governance-only board lies in developing a shared understanding of basic levels of policy, deciding which of them are basic “strategic” or “landmark” governance issues and devising information systems that supply valid data on past performance and future needs in ways that clearly relate to them (see Chait et al, 2005 for a discussion of “landmark” governance issues).

    The Mixed Model Board

    Many boards in practice are neither purely working boards nor governance-only boards. They tend to be located between the two ends of the board involvement continuum. Sometimes they may become very involved in making decisions about day-to-day operations while at other times they keep their involvement limited to matters of policy and strategy. In these organizations, paid managers may make most of the operating decisions but may not have the time or expertise to handle certain functions with which they are not familiar, for example, publicity, fundraising or government relations. In such situations it might be expedient to turn to board members for expertise and implementation assistance.

    Other times that a governance-only board might revert to a mixed model state is during a major crisis such as the loss of large grants, financial mismanagement, serious labor unrest or the actions of militant client groups. Insofar as the paid manager has trouble handling these situations, the temptation on the part of the board to get involved in the direct management of them can be strong; indeed managers may ask for it and it may be necessary. Once the crisis is over, however, it is easy to allow things to continue in an inappropriate mixed model state rather than reverting to the prior governance-only model.

    It is possible to sustain a mixed model form of governance that can work well. In this situation, certain board members or committees take responsibility for managing specific operational leadership functions. These would typically be seen as working committees and their chairs become de facto operating managers. At the level of the whole board, effort must still be made to focus primarily on strategic issues. Insofar as possible, the operational committees and board members with specific operational responsibilities should work under the authority of the Executive Director.

    The mixed model is a difficult one to implement successfully because there are so many occasions where confusion can arise, especially as the organization’s environment continues to change. The secret of success lies in exceptionally full and open communication in which all parties feel free to raise questions over gaps or overlaps in authority and responsibility. There must also be high levels of tolerance for ambiguity. For example, even though the primary purpose of meetings of the whole board should be for discussing major issues of policy and strategy, some board members will want to talk about matters pertaining to their responsibilities as operational managers. They may thus seem to be cluttering the meetings with “managerial” details and undermining the authority of the CEO. The key to success lies in training everybody—management and board alike—to recognize what is “strategic” and redirect the non-strategic matters to the CEO.

    Summary

    In summary, there is no “one best way” of structuring the roles and responsibilities of a board of directors that fits all situations. The board cannot avoid its legal requirement of exercising due diligence in ensuring that the organization achieves its mission, has a strategic plan and does not get into financial or legal difficulties. However, the way it gets involved in the other responsibility areas discussed above, can be highly variable. The important thing to understand is that the board is part of the whole organizational system that includes paid mangers, staff, volunteers, and external stakeholders. All have roles to play in the process of deciding what to do and then implementing those decisions. Everyone must be clear about who will do the deciding, who will have input into those decisions, who will do the implementing and what information will be obtained to assess how well the decisions have worked out.

    Table 1 contains numerous links to useful information and resources to increase governance effectiveness in the area of the board’s legal authority and fiduciary responsibilities.

    Table 1: Additional resources on the board’s legal authority and responsibilities

    Topic

    Country

    Source Website

    Legal Duties and Liabilities of Directors

    U. S. A.

    National Council of Nonprofits

    http://www.councilofnonprofits.org/resources/resources-topic/boards-governance/roles-and-responsibilities-nonprofit-boards

     

    Britain

    Government of the United Kingdom

    http://www.charitycommission.gov.uk/detailed-guidance/trustees-staff-and-volunteers/the-essential-trustee-what-you-need-to-know-cc3/#i1

     

    Canada

    Industry Canada

    https://www.ic.gc.ca/eic/site/cilp-pdci.nsf/eng/cl00693.html

     

     

    Carter’s Law

    http://www.carters.ca/pub/article/charity/govset/A-duties.pdf

     

    Australia

    Institute of Community Directors of Australia

    http://www.communitydirectors.com.au/icda/tools/?articleId=1362

    Basic Board Responsibilities

    U.S.A.

    National Council of Nonprofits

    http://www.councilofnonprofits.org/resources/resources-topic/boards-governance/roles-and-responsibilities-nonprofit-boards

     

    Britain

    Know How Nonprofit

    http://knowhownonprofit.org/leadership/governance/getting-started-in-governance/the-responsibilities-of-company-directors/?searchterm=board%20of%20directors%20responsibilities

     

    Australia

    Our Community

    https://www.ourcommunity.com.au/boards/boards_article.jsp?articleId=1310