Best Practices for Improving Board Governance

Best Practices for Improving Board Governance

The performance of the board of directors is integral to the continued pursuit of an organization’s mission. Effectively defining success, executive oversight and risk management are often key characteristics of influential not-for-profits. The board charts the course for the organization, and setting a correct tone at the top and periodic evaluation of the board’s performance are critical for success. Unfortunately, many boards with the potential to produce outstanding results do not perform up to par.

The roles within a not-for-profit organization are obviously very different than for a for-profit entity. The board’s role is largely focused on fundraising; as without proper funding, the organization ceases to exist. Another board role is strategic planning, a significant difference from for-profit entities where executives manage those tasks. The most important strategic decision for a board is selecting and overseeing the management team, specifically the executive director or CEO.

The board is also responsible for oversight, ensuring that the right executive staff is in place and that the organizational strategy is being implemented. As a part of this process, the board must monitor the budget, the positive and negative risk elements within the organization as well as any major decisions.

A good working relationship is very critical between the board and its CEO. A point of tension between the two can cause a rift within the organization; therefore, it is important for the board and executive director or CEO to work together well and align the power of the two. This relationship can be the determining factor of whether an organization’s performance is simply good, or whether it is great.

There is a delicate balance between an executive and legislative approach to leadership within a not-for-profit. The executive approach is more decisive, ambitious and strong willed while the legislative leader is a consensus builder who is more diplomatic and humble. Each of these traits are positive attributes if they are applied correctly, but the highest performing organizations are those that achieve a balance between the two.

An organization must implement a governance model that deviates from the traditional organizational structure that results in board members and executives in a perpetual struggle with each other. This is not sustainable for a successful organization, and a new model must be implemented that:

Defines success both inside and outside the organization
Encourages the board and management to build together toward the goal
Infuses the organization with will and humility
Emphasizing this model will help to align the mission and execution of the organization, as the failure to do so is the greatest risk facing a not-for-profit.

The perspective must change in relation to how to become a successful mission-driven organization. Not-for-profits must learn to more effectively use their time, talent and influence to accomplish their goals. Undergoing a board evaluation is an effective way to identify what processes are working and where resources may be allocated more efficiently.

The goal of the board evaluation is to promote a culture of accountability and improvement, going deep into the operations of the board, from the charitable mission to the operations of individual segments. However, many organizations avoid a board self-evaluation process in the same way many individuals avoid the doctor. It is feared because of the news that could be delivered, but it is an integral tool to either confirm that a strategy is working or highlight and diagnose potentially serious threats.

In the past, board evaluations encountered a host of problems, including being conducted poorly, managed manually; time consuming, biased, divisive and inconvenient. Today, these concerns have largely been alleviated as more sophisticated and automated processes have led to more streamlined evaluations with more dependable results.

The role of risk within an organization is an important facet of a not-for-profit board evaluation. The risk areas that the board should be aware of and managing include:

Reputation risk: What do third parties and outsiders see and what do they think of the organization?
Leadership risk: Is leadership open and do they have a good relationship with the board, management and employees?
Regulatory risk: Are effective processes in place pertaining to processes such as grants management and Form 990 filing?
Organizational risk: Are HR policies current? Is there a whistleblower policy? How is fraud dealt with?
Financial risk: How effective is the annual budget process? Is the organization audited or have internal audits been performed? Has there been any fraud internally or externally?
Security risk: Is there an awareness of the cyber and physical risks to the organization?
These are all areas of risk that the board should look at and think about when they are evaluating their organization from a holistic standpoint. As risk is redefined, it is also important to remember that risk often presents opportunities. The amount of risk that not-for-profits are willing to assume can differ substantially. Some organizations are very conservative, but when enterprise-wide risk is evaluated, it may be discovered that taking on additional risks may be beneficial.

Involving a third party in the evaluation process is unobtrusive, and results in more unbiased, anonymous and actionable results. A unique link is sent to each board member that collects survey information, and a report is developed with best practices in mind and a focus on the success of the organization’s core mission. Where the process has been a significant expense in the past, the use of technology has resulted in a much more cost effective process.

For more information and expert advice, please contact GellerRagans.