Dec 11, 2006

Board of Directors-3 (Q&A)

What should I know before joining the board?
Questions Prospective Board Members Should Ask
Serving as a board member is one of the most challenging and rewarding of volunteer assignments. While appointment or election to a board is an honor, board members have important legal and fiduciary responsibilities that require a commitment of time, skill, and resources. Prospective board members do themselves a service and show that they are serious about the commitments they make by asking some basic questions before joining an organization's board. You can find the answers from the board member who issues the invitation to join; the chief executive of the organization; the board chairperson; other board members, current and former; or written materials. Long-time board members might also benefit from an organization review that answers these questions.
Ask questions about the organization’s programs
• What is the organization’s mission?
• How do its current programs relate to the mission?
• Can I visit the organization to observe a program firsthand?
• Does the organization have a strategic plan that is reviewed and evaluated on a regular basis?
Ask questions about the organization's financial status
• Is the financial condition of the organization sound?
• Does the board discuss and approve the annual budget?
• How often do board members receive financial reports?
Ask questions about the organization's clients or constituencies
• Whom does the organization serve?
• Are the organization's clients or constituencies satisfied with the organization?
Ask questions about the structure of the board
• How is the board structured?
• Are there descriptions of the responsibilities of the board as a whole and of individual board members?
• Are there descriptions of board committee functions and responsibilities?
• Who are the other board members?
• Is there a system of checks and balances to prevent conflicts of interest between board members and the organization?
• Does the organization have directors and officers liability coverage?
Ask questions about individual board members' responsibilities
• What are the ways that you think I can contribute as a board member?
• How much of my time will be required for meetings and special events?
• How are committee assignments made?
• What orientation will I receive to the organization and to the responsibilities of board service?
• Does the organization provide opportunities for board development and education?
• What is the board's role in fund-raising?
• Will I be expected to make a specific annual financial contribution?
• What role will I play in soliciting donors?
Ask questions about the board's relationship to the staff
• Is the board satisfied with the performance of the executive staff?
• How do board members and senior staff typically work with each other?
Evaluate Your Interest in Serving on the Board
Once you are satisfied with the information you have received, it is time to evaluate your own interest in serving on the board. Ask yourself the following questions:
• Am I committed to the mission of the organization?
• Can I contribute the time necessary to be an effective board member?
• Am I comfortable with the approach and tone of the organization's fund-raising efforts?
• Can I contribute financial support consistent with the organization's expectations of board members and with my own means and priorities?
• Can I place the organization's purposes and interests above my own professional and personal interests when making decisions as a board member?
Background Materials
Selected background information can provide a useful overview of the organization, the board's work, and the responsibilities of board members. Helpful material includes:
• the organization's annual report
• the most recent audited financial statement
• the long-range program and financial plan
• a list of current board members, titles, and all affiliations
• a description of board members' responsibilities
• a board organization chart
• a staff organization chart
• the organization's newsletter, brochure, or other publications
• newspaper or magazine articles about the organization
• a brief biography of the chief executive
How should the board be structured?
Every board has a fundamental responsibility for self management: for creating a structure, policies, and procedures that support good governance. The term "board organization" encompasses a variety of tasks, from routine matters such as preparing a schedule of board meetings to actions with broader consequences such as developing a policy about terms of service. Here are some of the most frequent questions board members ask about board organization:
How Can We Contribute to Effective Board Organization?
To set the stage for efficient board and committee work:
• Prepare a written job description for individual board members.
• Develop an annual schedule of meetings, determined a year in advance.
• Circulate clear and thorough information materials, including an agenda, to all members two to three weeks before each meeting.
• Maintain complete and accurate minutes of all meetings.
• Keep meetings brief and well focused. Stimulate the broadest possible participation by members.
• Ask each board member to serve on at least one board committeeor task force. (For new members, one committee assignment is sufficient.)
• Acknowledge members' accomplishments and contributions in a variety of ways in the organization's newsletter, at meetings, in minutes.
To encourage smooth functioning committees, follow these additional steps:
• Prepare written statements of committee and task force responsibilities, guidelines and goals. These organizational documents, which should be approved by the board chairperson, should be reviewed every one to two years and revised if necessary.
• Make work assignments according to the background, expertise, and schedule of each member.
• Distribute tasks among members so that everyone participates but no one is overloaded.
• Create a system of checks and balances to monitor committee members' work and assure that tasks are completed on schedule.
• Assign an appropriate staff member to work with each committee.
How Large Should Our Board Be?
The organization's structure and needs are among the factors that determine board size. In considering the size of the board, keep these points in mind:

Every board needs a sufficient range of expertise to accomplish the organization's mission. If a board is too small, its members may be overworked and unproductive. If a board is too large, every member may not have the opportunity to participate actively.
What Should be the Length of a Board Member's Term?
There are no hard and fast rules for determining board members' tenure. Many organizations do, however, limit members to two consecutive terms and require a hiatus of one year before a board member may be reappointed. Many organizations also stagger terms of service so that one half or one third of the board are elected every one or two years for terms of two to four years. Such policies encourage institutional renewal because a board can profit from the experience of veteran board members while welcoming the fresh perspective that new members offer.
What Committees Should Our Board Have?
Much of the work that a board does is accomplished through its committees and task forces. With the exception of the Executive Committee, which acts on the board's behalf, committees recommend action to the full board for discussion and action. Most boards need only a few standing committees - the rest of the work can be accomplished by task forces created for a specific purpose. Common standing committees include
• Governance Committee
• Audit Committee
• Finance Committee
• Executive Committee (if needed)
How Should Committee Members be Chosen?
Every board member should serve on at least one but preferably no more than two committees or task forces. Members are appointed by the chairperson in consultation with the Governance Committee. Committee size depends on the needs of the board and the organization and a common sense assessment of how many people are needed to carry out the committee's work.
Make committee assignments based on the experience, skills, interests, and available time of board members. Each member must make a serious commitment to participate actively in the work of the committee. If a committee is too large, a small group of members may have a disproportionate amount of responsibility. If a committee is too small, there may not be enough people to get the job done. Board committees may include people who are not board members.
Should the Chief Staff Executive be a Member of the Board?
Some nonprofits decide to make the chief staff executive an ex officio member of the board, sometimes voting and sometimes nonvoting. This decision should be made carefully. Some believe that board membership is a good idea because it enhances the executive's position of authority within the organization and strengthens the working partnership between the board and the executive. On the other hand, some feel that board membership blurs the distinction between the board's responsibilities and the executive's responsibilities and makes it difficult for the board to assess the executive's performance objectively. Whatever the executive's official status, his or her insights into the daily operations of the organization are essential to board decision making by the board.
How do we safeguard against conflict of interest?
When the personal or professional concerns of a board member or a staff member affect his or her ability to put the welfare of the organization before personal benefit, conflict of interest exists. Nonprofit board members are likely to be affiliated with many organizations in their communities, both on a professional and a personal basis, so it is not unusual for actual or potential conflict of interest to arise.
Why must we be concerned about conflict of interest?
Board service in the nonprofit sector carries with it important ethical obligations. Nonprofits serve the broad public good, and when board members fail to exercise reasonable care in their oversight of the organization they are not living up to their public trust. In addition, board members have a legal responsibility to assure the prudent management of an organization's resources. In fact, they may be held liable for the organization's actions. A 1974 court decision known as the "Sibley Hospital case" set a precedent by confirming that board members can be held legally liable for conflict of interest because it constitutes a breach of their fiduciary responsibility.
Does conflict of interest involve only financial accountability?
No. Conflict of interest relates broadly to ethical behavior, which includes not just legal issues but considerations in every aspect of governance. A statement by INDEPENDENT SECTOR describes three levels of ethical behavior: obeying the law; decisions where the right action is clear, but one is tempted to take a different course; and decisions that require a choice among competing options.

The third level of behavior can pose especially difficult ethical dilemmas for nonprofit board members.
What can we do to prevent conflict of interest situations?
Self monitoring is the best preventative measure. Institute a system of checks and balances to circumvent actual or potential conflict of interest, beginning with well defined operating policies on all matters that might lead to conflict. Most important, create a carefully written conflict of interest policy based on the needs and circumstances of the organization. Ask each board and staff member to agree in writing to uphold the policy. A conflict of interest policy should be reviewed regularly as part of board self assessment.
What should be included in a conflict of interest policy?
A policy on conflict of interest has three essential elements:

1. FULL DISCLOSURE.
Board members and staff members in decision-making roles should make known their connections with groups doing business with the organization. This information should be provided annually.

2. BOARD MEMBER ABSTENTION FROM DISCUSSION AND VOTING.
Board members who have an actual or potential conflict of interest should not participate in discussions or vote on matters affecting transactions between the organization and the other group.

3. STAFF MEMBER ABSTENTION FROM DECISION-MAKING.
Staff members who have an actual or potential conflict should not be substantively involved in decision-making affecting such transactions.
For a sample conflict of interest policy and disclosure form, see the BoardSource booklet, Managing Conflicts of Interest
What are some examples of actual and potential conflict of interest?
• Organization policy requires competitive bidding on purchases of more than $1,000, but a printing firm owned by a board member's spouse receives the $25,000 contract for the annual report and no other bids are solicited.
• A board member serves on two boards in the community and finds himself in the position of approaching the same donors on behalf of both organizations.
• A staff member receives an honorarium for conducting a workshop for another group in the organization's field of interest.
Should an organization contract with a board member for professional services, such as legal counsel or accounting?
Attorneys, accountants, and other professionals can contribute valuable expertise to a board. Due to the potential for conflict of interest, their contributions should be voluntary. At the very least, a board member who is associated with a firm competing for a contract should abstain from discussion and voting in the selection process. If a competitive bidding process results in the selection of that board member's firm, he or she should disclose the affiliation and abstain from voting on future board actions connected with that firm's contract with the organization.
What goes in the board manual?
The Board Manual: An Orientation and Resource Tool
The foundation of a committed, knowledgeable, and effective board is orientation and education. As an essential companion to orientation and education, every organization should have a thorough, easy-to-use manual that board members can use throughout their terms. A board manual serves two functions. For the new board member, it is an orientation handbook that provides useful information about the organization, board structure and operations, and fellow board members and staff. For the balance of a member's board service, the manual then becomes an indispensable working tool and a central resource about the organization and the board. Materials can be added and removed to create an up-to-date reference. The board manual is developed by staff in consultation with the board chairperson and other officers. Present it to board members in a durable, attractive loose-leaf notebook with a table of contents and clearly divided and labeled sections. Date every item and replace material when necessary. Insert stationery, brochures, and similar items in pockets of the notebook.

To develop a working manual that board members use and rely on:
• Don't overwhelm new board members with too much information. When several examples are available (e.g., current press clippings), include only one.
• Keep each item brief. A two-paragraph biography of the executive director is preferable to a four-page resume, for example.
• Use the handbook as a "textbook" during board orientation.
• Encourage board members to read and ask questions about the material.
• Ask board members to evaluate the usefulness of the manual each year.
• Revise the contents or format based on their comments.
Board manual contents checklist
A thorough board manual can include the following materials. (Remember to keep each item as concise as possible.)
The board
• Board members listing and bios
• Board members terms
• Board statement of responsibilities
• Committee and task force job and descriptions
Historical references of the organization
• Brief written history and/or fact sheet
• Articles of Incorporation
• Bylaws
• IRS determination letter
• Listing of past board members
Strategic framework
• Mission and vision statement
• Strategic framework or plan
• Current annual operating plan
Minutes from some recent board meetings
Policies pertaining to the board
• Policy on potential conflicts of interest
• Insurance policy coverage
• Travel/meeting expense reimbursements
Finance and fundraising
• Prior-year annual report
• Most recent audit report
• Current annual budget
• Form 990
• Banking resolutions
• Investment policy
• Current funder list
Staff
• Staff listing
• Organization/team chart
Other information
• Annual calendar
• Web site information
• Promotional material (membership brochure, information brochure, advertisements, etc.)
How do we keep board members informed?
Designing a Board Information System
Good governance depends on enlightened decision making. Board members in turn need to be knowledgeable about the organization's status and needs if they are to make sound decisions that advance its mission. But boards often say that the information they receive hinders rather than facilitates good governance and strong leadership. They protest that they are overwhelmed with large quantities of irrelevant information, that they don't get enough information, or that they receive material too late to devote serious attention to it. An effective board information system should focus decision making, stimulate participation, and support an appropriate balance of responsibility between board and staff.
Types of board information
Management consultant John Carver describes three types of board information:
• Decision information is used to make decisions, such as establishing selection criteria for the chief executive. It looks to the future and is not designed to measure performance.
• Monitoring information enables the board to assess whether its policy directions are being met. It looks to the past and provides a specific survey of performance against criteria. An example is an annual review of an organization's strategic plan.
• Incidental information is for the general information of the board and not related to board action. Committee reports are frequently in this category.
Too often, board information is primarily incidental information. Although such material is useful for maintaining an overall impression of the administration of the organization, it is not usually specific or substantive enough to help board members make decisions or monitor the organization's success at carrying out its mission.

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