Enhancing Governance with Effective Board Policies

A nonprofits Board of Directors should find joy in their roles, supporting a cause they care deeply about, and collaborating with others who share the same mission. However, the responsibilities can be demanding. Boards must act ethically and practically during crises and avoid conflicts of interest. A well-crafted Board governance policy can guide directors through challenges and help them make sound decisions.

Defining the Purpose

Begin your Board governance policy by outlining its purpose. Generally, the policy should provide a framework for decision-making that aligns with your charitable mission. Include your nonprofit's mission statement, which serves as a guiding principle for directors' duties. Another key purpose is to inform Board members of their fiduciary responsibilities under state law and their obligations related to your nonprofit's federal tax exemption.

Clarifying Responsibilities

Your policy should detail the responsibilities and obligations of each member of the Board of Directors, emphasizing that the Board oversees all organizational operations. This section should differentiate between the roles of Board members and staff. Additionally, the policy should advise Board members that they can rely on information and reports from staff and professional advisors who are deemed reliable and competent in specific areas.

Acknowledging Fiduciary Duties

The core of your governance policy should explain the fiduciary duties of Board members, starting with the duty of care. This duty requires directors to exercise reasonable care in decision-making and avoid unnecessary risks. Board members should act in good faith and in the best interest of your nonprofit.

The duty of care involves "reasonable inquiry," meaning directors must ask questions and seek information to make informed decisions. While they don't need to be financial experts, they should:

• Understand basic financial terminology,
• Be able to read financial statements and assess their accuracy, and
• Recognize warning signs that may indicate changes in your nonprofit's financial health.

As stewards of public trust, directors also have a duty of loyalty. They must always act in the best interest of your organization, fully comply with your nonprofit's code of ethics and conflict-of-interest policy, and avoid exploiting business or personal opportunities that arise from their position on the Board.

Supporting Governance Efforts

Some nonprofit Boards have a governance committee that oversees organizational policies and ensures compliance with governing documents. A governance committee can function effectively without a formal policy if it can coordinate the Board's governance approach.

Consider creating a Board handbook that outlines the Board's size, term limits, required committee structure (some of which may be in your bylaws), and other policies related to the Board's oversight of your organization.

Professional support is crucial for good governance. If your Board is uncertain about how to act in specific situations or needs help developing a governance policy, consult your financial and legal advisors.