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6: The Board’s Structure and Operating Procedures

Symptoms

One of the major, yet often unrecognized, influences on how well a nonprofit organization board carries out its duties and responsibilities is the way it is organized. All boards have at least a minimum amount of formal organization and a set of policies that constrain, and support the way they operate. For example, most nonprofits have a constitution and/or a set of by-laws among which are rules regarding the role of the board, its size and composition, when and how annual meetings will be held, who has voting rights, etc. In addition, most boards create their own operating manuals (or have a collection of documents) that cover such matters as how many and what kind of board committees and board officer positions will exist and so on.

Once these kinds of structures and procedures are in place they often come to be taken for granted and their influence on the way the board governs goes unrecognized. This means they are not carefully examined when boards seek to improve their own performance and orient new members.

A high percentage of agreement with the following statements indicates a board that might have formal structures and operating procedures that are inhibiting its effectiveness:

  • The by-laws that provide the rules within which the board operates are in need of a thorough review.

  • We don’t have a board policy manual or we have one that is badly in need of revision.

  • The board seems too large and cumbersome to enable it to act as an effective decision-making body.

  • Job descriptions for the positions of board members and board officers (e.g., Chair, Vice-Chair, Treasurer, Secretary, etc.) are nonexistent or not well understood.

  • Administrative support for the board (secretarial assistance, record keeping, assistance in arranging meetings, etc.) is inadequate.

  • The board lacks access to potentially useful information and communications technology (e.g. computers, software, internet, the web and social media).

  • Most board members don’t make much use of the information and communications technology made available to them.

  • Some board committees are not very useful.

  • Some board committees are unclear about their responsibilities and/or authority.

  • Some board officers and chairs of committees lack the training or experience needed to meet the demands of their position.

  • Some committees have members who contribute very little or don’t have enough experience to be of much help.

In essence, these items can be clustered in two categories: Procedures and Structures.

  1. Issues related to matters of procedure:

    • The nature and extent of administrative and technical support provided to assist the board in carrying out its work efficiently.

    • Position descriptions for board members and officers of the board; and

    • Board manuals that contain basic information on the board’s responsibilities and operating procedures;

    • The organization’s constitution and by-laws within which the board must operate;

  2. Issues related to the formal structure of the board:

    • Committees—number, function, authority.

    • Officer positions;

    • Board size;

Diagnosis

Why do boards experience problems with inadequate structures and procedures? There are three basic explanations for these problems:

  • The most common is simply that boards fail to pay attention to the existing tools that have already been created to help them govern. When boards first come into existence they usually begin in a friendly, informal way. Creating a lot of rules and procedures seems unnecessary as everyone wants to focus on doing whatever they can to help the organization succeed. As the organization grows and the management of the organization professionalizes (i.e. it becomes necessary to create separate positions and introduce paid executives), the board often fails to realize that it, too, needs to become more professional. Instead, the original culture of informality tends to dominate governance practices without anyone realizing it even though it is no longer suitable for dealing with the growing complexity of the organization and its environment. The kinds of boards that are most likely to “drift” without being conscious of the need to update structures and procedures are those which do not make time for assessing their own performance and which do not provide training and development for their members on their roles as governors.

  • A lack of focus on developing optimum structures and procedures can also occur when the leadership provided by the board chair and/or the CEO is not conscious of the negative impact that arises when people are unclear about what to do or get into conflicts because by-laws are confusing or absent all together. In a few cases it is possible that those in leadership positions might actively seek to dominate the board by unofficially blocking attempts to increase clarity and transparency in board procedures.

  • A similar situation can arise when boards become dominated by an informal “core group” of insiders (for example a dominating Executive Committee or group of “old hands” who hold informal “backstage” meetings to predetermine board votes on contentious issues.

Treatment

Procedural Issues

Constitution and by-laws

Most nonprofit organizations that become incorporated must submit to the government body that approves incorporation a copy of their constitution and by-laws. Various publications or websites exist which provide things like sample by-laws. Note that specific requirements for the content of by-laws can vary by governmental jurisdictions—national, state or provincial.

An example of the kinds of questions that each board needs to answer for itself, based on its analysis of its own unique environment and history, is that regarding terms of office for board members and officers of the board. Generally, it is desirable to infuse boards with “new blood” at regular intervals. This can be assured by having a by-law specifying how long a board member’s term of office will be and how many times it can be renewed before the incumbent must leave the board. A clause specifying term lengths of two or three years, renewable two or three times is common. In the absence of such a statement, it is often assumed board members can serve indefinitely, which can be problematic.

There are instances, however, when specifying term limits could be unwise; for example, when it is clear that there is a relatively small pool of qualified candidates to draw from. The same problem holds true for officer positions, e.g. Chair, Treasurer, etc. Is it good for the board to have the same leadership team year after year? Generally, no, but sometimes it is difficult to replace certain people, such as treasurers. In cases like this, by-laws can be written with qualifying words like “normally the term of office for board officers will be three years.” This allows a board to make exceptions to the rule if necessary.

Other examples of by-law variations for which there is no “one best rule” and which therefore need to be thought out in the light of the organization’s unique history and environment are:

  • Definitions of who can and cannot be a member of the organization and vote at general membership meetings;

  • How to remove members from the board and organization;

  • The authority of members—what they must approve;

  • Quorums for board meetings and annual meetings;

  • Matters which can be decided by members attending the annual meeting versus those that must be put to a vote of the whole membership via mail ballots, etc.;

  • The nature and extent of board decisions that can be made via telephone conference calls, email voting, etc.; and how to amend by-laws

Whatever the board decides with respect to by-laws, it is helpful to have an attorney familiar with nonprofit law in the local jurisdiction advise the board on them. For example, new regulations have emerged in some jurisdictions that require board procedures to be in compliance with the law in such matters as electronic voting, auditing of financial statements, records of minutes, retention of documents and conflict of interest policies. Many legal cases concerning governance decisions have been decided on the basis of the board not following them. See the following link for a nonprofit case concerning by-laws: http://www.501c3.org/blog/why-nonprofit-bylaws-matter-a-tragic-tale/

Board manual

While general guidelines on what to put in by-laws are useful, due to the number and diversity of nonprofits that exist, there are still many decisions that need to be made for which there are no universally agreed to rules of thumb. These kinds of issues should be identified and addressed in a Board Manual. This important document is invaluable for new board members to orient them to the governance role and how the board works but it is also crucial in resolving occasional disputes over how the board should handle various matters.

Position descriptions for board members and officer/committee chair positions

For many small nonprofit organizations, the idea of having written “job descriptions” for board members and officer positions such as the Chair or President, Treasurer, Vice-Chair, and Chairs of various committees may seem unnecessarily bureaucratic and formal. And indeed this might be the case especially if there is little likelihood that people might get into conflict over who has what authority After all, the desired culture most people want in a board is one of collegiality where anybody is willing to lend a hand with anything that needs doing without getting fussy over whose territory it is.

On the other hand, if no effort is made to clarify who is responsible for getting things done, even the most well-meaning team can get into trouble with things “falling between the cracks” or being duplicated. For this reason, for most nonprofits, the time required to develop, and periodically review, position descriptions is worth the effort. Position description documents, which could be incorporated into the Board Manual, should cover:

  • The responsibilities of the position—the work it does;

  • The authority that goes with the position—what matters the holder of the position is able to decide and what matters need to be decided by the board as a whole or other office holders; and

  • The qualifications and competencies required for carrying out the responsibilities of the position.

Administrative support

One of the major conditions that can lead boards to feeling ineffective is inefficient internal administrative support—minutes are not taken or not done well, records of past decisions on who is going to do what and when are not kept, meetings are poorly organized or there is not enough support to prepare for them, etc. If budgets permit, investment in professional staff to support the board is well worth it. If there is no money for paid staff, the next best approach is to clearly define the role of the volunteer board secretary as the de facto administrator then seek a volunteer who is well organized and at least somewhat detail oriented and provide them with adequate training and the equipment and supplies needed to do the job well. Time taken to develop simple, well-organized record systems is also well spent.

Another important aspect of the internal administration of the board that is often neglected is the extent to which it makes full use of the potential of modern information and communications technology, i.e. Internet, intranet, online calendars, video-conferencing, voice over Internet-Protocol (e.g. Skype), email, social media, etc.

Boards should consider three questions when making technological decisions:

  • For what purposes are modern information and communications technology (ICT) tools needed?

  • Do we have the capacity to implement and support the use of them in our board and organization (e.g. can volunteers use them, be trained to use them, or do we need to hire people)?

  • Which tools are most likely to return the greatest value for the investment of time and effort?

In work on ICT use by boards, Harrison (2014) concludes that the key to getting the most value out of a technology is to think of it as a means to an end in terms of meeting strategic performance objectives. Once performance objectives have been established (a committee of the board or task force could develop them) and agreed upon (at the whole board level), strategies should be implemented to achieve them. With respect to future strategies, nonprofits should consider enterprise-wide solutions to align strategic and operational work. Boards need to assess the scalability and flexibility of proposed technology in order to facilitate governance and other functions. In the governance context this means the capacity of ICT tools to meet, store documents, share information, communicate, conduct performance assessments, facilitate opinion surveys, engage constituents, etc.

Board Structures

There are three important aspects of the basic formal structure of the board that, if they are improperly designed for the board’s situation, can cause major problems: (a) the size of the board; the number and nature of formal “officer positions” within the board; and (c) its committee structure.

(a) Board size

The “how-to” books on boards are fairly consistent in warning against boards that exceed 15 or so people. This recommendation arises because the greater the number of people involved in the complex business of setting strategic direction (the board’s number one responsibility), the more difficult it will be to give them meaningful roles and arrive at a consensus on contentious issues. Conversely, the smaller the number involved, the more difficult it will be to get valid representation of the views of the community the organization is serving or, in the case of working boards, enough people to carry out the work of the board. It may also be too easy for “group think” to take hold (a feeling that one should not criticize if the majority share the same point of view) thus keeping out radical ideas for change.

Nevertheless, large boards (e.g. 20 to 30 or even more) do exist. They often occur in part because it is believed that this is the way to gain the support of a lot of influential community leaders who will be useful in raising money and for other purposes. They are also common in national NPOs that feel the need to have representation on the board from many geographical regions. However, it should be realized that it is possible to get the support of prestigious people or input from all regions without resorting to the creation of unwieldy sized boards. One of the more common alternatives is to create advisory boards or funding campaign “cabinets” or “committees.”

Even large boards can be effective, however, as long as everyone recognizes and accepts that a smaller subset of board members will probably evolve to play a leadership role. Meetings of the whole board will tend to be dominated by a “core group” and others will usually have to be satisfied with less input on issues though ample opportunity for input should always be provided. The contributions from non-core-group members will come mostly at the individual and committee levels. At these levels they can provide useful advice or contacts on request though, as noted, the same thing could be provided in other ways.

Equally problematic is the very small board (five or fewer) where there is a real risk that the board will not become aware of changing conditions that threaten the organization. They are also not very effective when the board needs to be a working board. Members tend to become overloaded with work and “burn out” can occur rapidly. However, many small boards are not necessarily a problem until a crisis hits. To cope in such situations requires the small board to ensure that it has independent sources of information and expert outside advice on how the organization is doing.

(b) Formal offices

The generally accepted recommendation is to keep formal offices few in number on the grounds that many of them have no real function other than ceremonial. At minimum, however, there must be a board leader (chair, president), and someone (usually a vice-chair) to step in if the leader cannot perform her or his duties as well as learn the ropes to take over when the current leader’s term is up. A skilled treasurer is also a very important office with the role of taking the lead in carrying out the fiscal oversight responsibility of the board. As discussed above, the office of board secretary is important because of its record keeping and document retention function. Wherever possible, however, it is usually preferable to have professional staff employed to support board leadership and administrative functions. The main point is that these functions must be performed; the actual titles used are not so important. For example, in some small, simple organizations all functions might reside in the offices of chair and vice-chair.

Other formal leadership positions are usually the chairs of the board committees discussed below. The important requirement of all formal offices is that there be clear descriptions of the duties of the office and that provision be made for training those who fill these positions. Too often office holders take up their jobs without a clue as to what is required. With luck, they can learn by on the job trial and error before a major issue arises, otherwise they can get themselves and their organization into serious trouble.

(c) Board committees

At one extreme in the “how-to” literature on boards are those writers who state that the number of committees of the board should be kept to an absolute minimum. It is argued that some committees do more harm than good because they either try to dabble in operations, thereby subverting the authority of managers, or make decisions on policy issues that are the responsibility of the whole board or the CEO. The board and committees therefore end up duplicating each other’s work and wasting everyone’s time. These are real problems, but eliminating committees is not the only approach to solving them. In fact, in smaller organizations with small budgets unable to hire paid staff to manage all its programs and functions, committees may be vital to the operation of the organization.

There are two basic types of committees:

span style="break-after:auto;">Policy committees

These are small problem-solving groups, which can study important issues in depth and produce reports for the whole board with recommendations and supporting data. Note that they do not decide on policies, they only make recommendations to those with the authority to do so, i.e. the board as a whole.

span style="break-after:auto;">Working committees

These are policy implementation groups which either assist paid staff in carrying out tasks that staff cannot do alone or are used instead of paid staff because none are available. Some argue that, strictly speaking, such operational committees should not be considered as committees of the board of directors, rather they should report only to managers. This is fine in theory but, in many organizations with working or mixed model boards, the best people to head such committees are already board members. Besides, in doing their work, operational committees often must make decisions that have large-scale implications. These kinds of policy issues must be recognized and brought to the whole board for discussion. Trained and sensitive board members as committee chairs may well be the best judges of whether a major operational issue has strategic implications or not.

Even in governance-only boards, some working committees may be needed at times to help with new operational activities in which the management has little experience, e.g. implementing shared services or a merger with another organization, a new kind of fundraising activity, implementation of a pay equity program, property acquisition or investment decisions.

This said there is much to support the commonly offered recommendation that standing committees (i.e. permanent committees created by the organization’s by-laws) be kept to a minimum. Too many committees with titles such as Property Committee, Program Committee, Purchasing Committee, etc., may have no clear function as either policy or working committees. Instead they waste the time of managers who have to think of things for them to do when they are not really needed, or they necessarily confuse the lines of authority of both managers and the whole board.

Many consultants urge that standing committees be replaced by task forces or special project groups to be created on an “as needed” basis with very clear terms of reference and deadlines for doing their jobs, after which they disappear. It is important to note that a big advantage of temporary task forces of the board is that well-qualified non-board members can more easily augment their membership. At the extreme, only the chair need be a board member to bring any policy issues to the board.

Should boards using the governance-only board model have any standing committees, then? Since giving strategic direction is a key board responsibility, a good argument can be made for a planning committee to work with other strategically-oriented groups in the organization (such as the management team). It would work with these other groups to help define the issues, assemble relevant information and lay out strategic options for the whole board to consider.

Often the role of taking the lead in strategic planning is played by the executive committee so it is worth saying a few words about the risks and benefits of such a committee. An executive committee is usually made up of those holding formal offices on the board (e.g. President, V. P., Treasurer, Secretary etc.) and, in some cases, the chairs of standing committees. Its formal role is usually to look after board business between meetings and set the agenda for board meetings. The pitfall with executive committees is that they can become a powerful “inner cabinet” that arbitrarily makes decisions the board should make and filters the way issues are put before the board so as to favour a predetermined position. For this reason, some board experts advise against the existence of such a committee. On the other hand, someone must perform the function of setting the board agenda and ensuring that everything that goes before the board is of sufficient importance and is well enough prepared and supported with good information. Leaving these matters solely up to the Board Chair and/or CEO increases the possibility of just these two becoming the overly powerful “inner circle.” Hence an executive committee with strictly limited powers as to what it can decide is probably a worthwhile entity especially for governance-only boards.

Because the board’s responsibility for fiscal oversight is so critical, there is also usually need for a finance committee, provided it can be kept from making de facto strategic decisions when it reviews the accounts and budgets. Organizations with unique characteristics may well identify other areas where constant operational assistance from volunteer directors is required, thereby necessitating standing committees.

Finally, most boards need help to ensure that they manage themselves well. This self-help is sometimes provided in part by a standing committee of the board such as a nominating committee. It attempts to locate the best possible people to stand as potential board members. The trouble is that the conventional nominating committee does not go far enough. Who will arrange to have new board members oriented and trained? Who will take the lead in assessing the board’s performance or deal with the cases of individual board members who fail to live up to the role expectations? In some cases, these very important matters are the responsibility of the executive committee. In others, the terms of reference of the nominating committee are expanded and it is renamed as, for example, the “Board Development” or, better, the “Governance Committee.

Table 6 contains links to additional useful information and resources to increase the governance effectiveness of the organization through board structures and procedures.

Table 6

Additional Resources Related to Board Structures and Procedures

Topic

Country

Source Website

General Board Structures

U.S.A.

The Bridgespan Group

http://www.bridgespan.org/Publications-and-Tools/Nonprofit-Boards/Nonprofit-Boards-101/Nonprofit-Board-Structure.aspx#.U2bn0oFdX84

 

 

U.S. Internal Revenue Service

http://form1023.org/how-to-draft-nonprofit-bylaws-with-examples

 

 

The Foundation Group

http://501c3.org/blog/nonprofit-bylaws-the-dos-and-donts/

 

 

Mondaq

http://www.mondaq.com/unitedstates/x/287604/Charities+Non-Profits/New+York+NonProfit+Revitalization+Act

 

Canada

 

Public Legal Education Association of Saskatchewan

http://www.plea.org/legal_resources/?a=259&searchTxt=incorporation&cat=28&pcat=4

 

Britain

 

KnowHow NonProfit

http://knowhownonprofit.org/leadership/governance/governance-structure-and-roles/trustee-board-composition-and-structure

Board Policy Manuals

U.S.A.

Free Management Library

http://managementhelp.org/boards/manual.htm

 

Canada

Industry Canada

https://www.ic.gc.ca/eic/site/cilp-pdci.nsf/vwapj/Primer_en.pdf/$file/Primer_en.pdf

 

Canada

Muttart Foundation

http://www.muttart.org/sites/default/files/downloads/publications/drafting_revising.pdf

Position Descriptions for Board Members and Officers

U.S.A

Free Management Library

http://managementhelp.org/boards/manual.htm

Board Committees

U.S.A.

Free Management Library

http://managementhelp.org/boards/manual.htm

 

 

Blue Avocado

http://www.blueavocado.org/content/boards-should-only-have-three-committees

Board Administrative Support

Canada

Ontario Ministry of Agriculture and Food

http://www.omafra.gov.on.ca/english/rural/facts/08-059.htm

Conflict of Interest Policies for Boards

U.S.A.

Nonprofit Risk Management Center

http://www.nonprofitrisk.org/library/articles/board120307.shtml

 

 

National Council of Nonprofits

http://www.councilofnonprofits.org/conflict-of-interest

 

Canada

Community Sector Council of Newfoundland and Labrador

http://communitysector.nl.ca/board-development/conflict-interest-policy

 

Australia

Australian Centre for Philanthropy and Nonprofit Studies

https://wiki.qut.edu.au/display/CPNS/Conflict+of+interest+policy