Board of Directors
Role of the Board – A group of individuals appointed or voted to sit on a committee that is responsible for the strategic direction, policies, and governing decision making of the organization.
Duty of Care: Take care of the nonprofit by ensuring prudent use of all assets, including facility, people,
and good will.
Duty of Loyalty: Ensure that the nonprofit's activities and transactions are, first and foremost, advancing its mission; Recognize and disclose conflicts of interest; Make decisions that are in the best interest of the nonprofit corporation; not in the best interest of the individual board member (or any other individual or for-profit entity).
Duty of Obedience: Ensure that the nonprofit obeys applicable laws and regulations; follows its own bylaws; and that the nonprofit adheres to its stated corporate purposes/mission.
Role of a Board Member – A Board Member is responsible for staying informed about the organization, operating within legal boundaries, focusing on the overall operations and not the day-to-day details, maintaining a safe and secure environment, and securing a positive reputation of the organization. They lead the organization in the following areas: Governance and Oversight, Strategic Decision-Making, Risk Management, CEO Selection and Evaluation, Financial Oversight, Fundraising, Stakeholder Relations, and participating in Board Committees including recruiting other members.
Board Structure – IRS requires three board members, and the State requires five board members in most situations. It is best practice to have an odd number of members as this will help avoid any voting ties. It is required all Board of Directors have a President, Secretary, Treasurer. Bylaws should be created to by an organization to establish its internal management by setting out the rules and responsibilities for shareholders, directors, and officers. The bylaws set the rules for meetings, specify voting procedures, establish officer positions, time limits, and responsibilities.
Board Criteria - The Board Members should be selected based on their ability to participate and give to the organization – Time (volunteer support), Treasure (fiscal support), and/or Talent (special gift or insight). When selecting board members, the organization should look at areas needing to be covered including those you serve – age, gender, race, class, career, geographical location, passions, connections/networks/community, experience, etc.
Best Practices – There are some best practices to follow when building your Board of Directors to avoid conflict of interest or reduce risk to the organization.
Criminal background checks for each board member
Resume review and interview of each board member by at least two other members on the board
Discuss, nominate, and vote for board members
Create time limits for each role on the board of directors
Job descriptions for each board role and for a general board member reviewed and agreed to by members
Compensation for Board Members – Even though there are no governing laws in the State of Ohio regarding compensation for a nonprofit Board and only that any compensation should be reasonable (determined by the IRS), it is best practice not to pay a Board Member for their work. This is particularly true if the payments are based on the success of the organization as no one individual should benefit financially from a nonprofit organization in accordance with state and federal law.
Employees as Board Members – There is no law against an employee being a member of the Board of Directors. It is not best practice to have an employee as a member on the Board of Directors. This can be seen as a direct conflict of interest and the employee would be required to remove themselves from any vote that may interfere with their position or personal interest. Decisions of the Board often impact employees directly, employees may lead the board to discuss day-to-day operations versus oversight, and it is important to keep duties separate and not related (example: accountant as employee/Board Treasurer – both manage finances).
Employees often attend Board of Director meetings, give reports, or answer questions. However, they typically do not vote on any decisions made by the Board.
What is a Working Board? – A board that not only makes governing decisions, but also participates in the day-to-day operation. These typically are volunteer boards. If there is compensation, it should be addressed in policies and outlines on the maximum amount and how they will be compensated. It is important to understand that in some cases, being paid as an employee may cause the board member to lose immunity as a volunteer in lawsuits. Overall, it is always important to understand that a nonprofit is not to benefit any specific individuals but financial further the mission of the organization.
For more information and assistance developing your Board of Directors, contact Variegated Solutions CLICK HERE TO SCHEDULE A FREE CONSULTATION
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