Nonprofit Board Beyond Bylaws

[Mike Burns]

Here's an interesting set of thoughts from Dr. Eugene Fram who discusses nonprofit board roles "beyond the by-laws". I'm interesting in learning your takeaways. Also, as another thought, I propose that what's not contained in a board's by-laws might be contained in the board's governing policies. John Carver proposes that such policies be divided into those that are focused on mission (mission, purpose and values and strategic direction); those that are specific to the board; those that are the board's & exec's; and those that are the exec's. This is an acceptable framing in terms of pretty much convering indeed what is not in the by-laws and the process for deriving these ensures at least during the development stage, some consciousness of roles. The one exception I would pose to singularly using Carver's construct is his insistence on the limitations as the definers. I think these policies can be framed in the positive, for the most part.

Anyway, here's Dr. Fram's thoughts.

Beyond the Bylaws: A Clarification of Nonprofit Board Responsibilities

By: Eugene Fram

A nonprofit director’s duties may be much more difficult than those of a for-profit board member. Both types of directors have the same basic duties: fiduciary responsibilities; establishing, with staff input, mission vision and values; setting policies/strategies; over-viewing outcomes/impacts and conducting annual meetings.

I suggest nonprofit directors may not be fully addressing some duties specified in the bylaws and some which are culturally driven. This latter group might be called “latent duties.”

•Fundraising: Nonprofit bylaws can list fundraising as a board duty, but its execution is often left to the CEO and/or a development director. In a recent survey, 76% of 1,341 Nonprofit CEOs gave their boards academic grades of “C,” “D’ or “F’ for their fundraising efforts.* Depending on its status in the bylaws, fundraising can be an overt duty or a latent one. No matter which form it takes, in my opinion, fundraising has to be a partnership between the board and the CEO.

•Legal Requirements: Nonprofit directors have a set of legal requirements not incumbent on for-profit directors.
A nonprofit board is required to participate in development or review the IRS 990 form in detail before it is submitted each year. Nonprofit directors have more specific state regulation to which to adhere. In California for example, “ …a charity may sometimes be required to file a 990 with the Attorney General, even when there is no requirement that a 990 be filed with the IRS.” **

Additionally, I personally find it difficult to understand how so few nonprofit directors and managers are aware of IRS Intermediate Sanctions Act, related to excess benefits transactions. (Section 4958 – IRS Code). If directors or managers provide an excess benefit to themselves, an employee or even a volunteer, they can incur serious personal tax penalties!! Excess benefits might include providing above market salaries, selling something to a volunteer below market value.

•Board-Staff Relationships: As I have noted in other posts, most nonprofit organizations are relatively “flat organizations” and structurally the staff may only be one of two levels below the board. As a result, nonprofit staffs becomes well attuned to the actions of the board and the frequent rotations of board personnel. They know that these changes can have significant impacts on their work. In addition, unlike for-profit directors, they are well aware that board members rotate frequently, leaving the staff vulnerable to new influential directors wanting to make rapid emotionally charged changes.

As an example of what can happen, a friend reported that two new board members succeeded in initiating a board mandated bureaucratic Management by Objectives Program into a nonprofit’s operations. This resulted in staff spending hours completing and reviewing MBO forms, resulting in a disgruntled staff and a reduction in productivity.

To meet the requirements of this latent responsibility, boards need to seek greater contact with staffs at staff celebrations of success, on board-staff committees and at other appropriate occasions. This is a trust building requirement. Board members need to be aware, however, that these contacts can open the door to some staff making “end-runs” around management when a staff member is dissatisfied with a management decision. This problem can simply come with the territory in fulfilling this latent board duty. As a contingency, boards need to have a policy in a place for addressing the issue.

•Who Does The Board Represent? Nonprofit boards legally represent a community, professional or trade association. This allows them to function with tax-free status and acquire other benefits. Some directors can mistakenly assume their jobs are to represent the interests of the staff, not the groups that established the organization. In this instance, they misperceive a responsibility that does not exist.

Example: The field of “talk therapy” has been economically disrupted by the increased use of treatment via medications. The board of a nonprofit counseling organization attempted to keep the organization viable as client levels significantly declined because the board felt that the staff and board were part of a “family,” as one director described the board culture. The board finally closed the agency and transferred remaining staff and clients to a more economically viable agency.

I suggest nonprofit boards periodically need to review duties specified by the bylaws as well as current law to make certain they are in compliance. Gaps can arise because the bylaw duties are ignored or delegated. In addition boards need to be alert to latent duties, not readily overt, such as generating appropriate staff relationships.

* “Nonprofit Governance Index 2012, Data Report #1: CEO Survey of BoardSource Members.” BoardSource, Washington D.C.
**Kamla D. Harris (2008) “The New 990 and It’s Relationship to California Law,” Office of the Attorney General, State of California, Department of Justice.