In an ideal world, every nonprofit board’s organizational strategy, governance, finance, and operations would run seamlessly, with the members, executives, and management team doing what was expected of them. All executive and volunteer team members would have a sense of purpose, a feeling of moving forward with the mission and would genuinely feel that their time was well spent. There wouldn’t be the “Why didn’t the board stop this?” or the “How could the board not know what was happening?” questions. There wouldn’t be the feeling of time wasted or struggling with unproductive meetings.
Sadly, many nonprofit boards exhibit signs of dysfunction, leaving directors frustrated.
Part of any board’s fiduciary responsibility is to be on the watch for red flags that need to be addressed, many of which appear long before the board becomes dysfunctional.
Here are a few red flags that can have a big impact when left unattended:
Policies and Procedures
Dysfunction can be created when board members make decisions without the proper organizational context or history. It’s important that all board members not only know board policies but have read and approved them. These policies, which form an important backbone of the organization’s governance, could include policies on personnel, emergency planning, social-media use, gift acceptance, etcetera. They create guidance and direction in terms of decision-making. If board members don’t know them, board decisions might violate an established policy. If the board doesn’t know them or hasn’t read them, why? Is it because the policies do not even exist? Or maybe they haven’t been shared with the board recently.
Do you have the right people on the bus?
Does your board have the right people on the team? Did you select prospective board members based on their qualities and the ability to be on the board team? Is your board following its bylaws about the number of people that need to sit on the board? If so, do these members have the right volunteer mindset? Relevant skills? Are there any conflicts of interest? Is the blame game often happening? Are there board members repeatedly pointing the finger at someone else and declaring him/her responsible for a fault or wrong? The answers to these questions can often reveal red flags.
When your meetings are held, do they comply with your bylaws? Does executive or management staff attend? If they don’t, why not? And if they aren’t in attendance, how does the board receive information from the functional areas represented by the executives or managers? Is the board standard to only obtain information from one source? Does the executive director respond to questions? Are the answers direct or indirect? Are the right issues being discussed during meetings, or is the focus on non-material issues that don’t create long-term value?
Making good decisions and fulfilling the board’s fiduciary duty to ensure your organization’s long-term financial viability requires you to understand the financial implications. If your board is receiving financials last minute or is feeling rushed to review and understand them in advance of a meeting, this needs to be addressed.
Do you feel that you understand the financial statements? Does the treasurer offer a good overview, or does someone in the finance department only truly understand it?
Attention should also be paid to any financial reports that are consistently missing, late, or inaccurate. Also, is there an audit committee on the board of directors?
Other items of consideration:
- Does the organization have both organizational and departmental budgets? If so, can members request and receive these budget reports promptly?
- Are there more than or fewer than three months of operating reserves?
- Are policies in place for cheque or purchase requests and authorization?
- Are appropriate financials being sent by the organization to necessary funders and regulators? Is it being done by the deadline?
When it comes to required delivery, tracking, or reporting guidelines, are they based on what vertical market the organization is in (i.e. health care, children’s services, domestic abuse aid)?
When the board examines staff turnover in the organization, is it higher or lower than the industry average for comparable positions? If it’s higher, are exit interviews happening and is the information taken from those interviews being acted upon?
Does your board have quite a few members that have left before their term is over? Has your board looked into why this is happening and how they can change it?
Issues with board retention often happen when a member is feeling:
- Like the board is wasting their time
- That the time commitment is more than expected
- Undervalued by the organization
- Out of alignment with the organization’s goals
Asking the right questions
Part of the board’s role is to take care of the organization’s resources and assets so that it can continue to fulfil its mission and vision for years to come. It means that board directors must not remain silent if something seems amiss. It is imperative that directors ask the right questions and attend to red flags in a timely fashion.