The severity of the risks associated with not-for-profit board shortcomings came fully into focus for Cheryl Olson, CPA, CGMA, while she was having coffee earlier this year with Elizabeth Grant.
Grant is attorney-in-charge of the Charitable Activities Section in the Civil Enforcement Division of the Oregon Department of Justice. The section oversees the 18,000 charities that are registered in Oregon, and in her work there Grant has observed the hazards that ineffective board governance can pose for not-for-profits.
"We believe almost all nonprofit failures stem from a lack of board oversight," Grant told Olson, who recalled the conversation for the JofA. "This is due to board members being inactive or not being trained on their financial stewardship responsibilities. Really, no one is minding the store."
Developing effective not-for-profit board governance is hard work. The painstaking effort needed to maintain a high-quality board may seem to drain some of the resources needed to pursue the not-for-profit's mission. But the reality is that without a strong board, the long-term success of the organization's activities may be endangered. With this in mind, a not-for-profit's mission depends on results in three key governance areas:
* Recruiting board members who are engaged and highly skilled.
* Training those board members on how to provide effective oversight.
* Retaining board members and keeping them engaged throughout their tenure.
"You're not just looking for bodies," said Olson, who is based in Oregon and is director of not-for-profit consulting for Clark Nuber. "You're looking for people that are going to bring something of value to the board. And then there need to be clear expectations on what's required."
Just about everybody in the not-for-profit sector understands what a fundraiser is. Michael Forster, CPA, CGMA, the COO of the Woodrow Wilson International Center for Scholars, a nonpartisan policy forum in Washington, said it's also a good idea for not-for-profits to schedule events called "friendraisers." These are functions hosted by somebody who is engaged with the organization and invites his or her friends to socialize and give the not-for-profit an opportunity to speak about its mission and strategy.
"That friendraiser, that environment, gives you an opportunity to circulate among the folks, gauge their interest, get them motivated to support you," Forster said. "And then you can actually, in reverse, gauge whether they might either immediately or downstream be a good target to cultivate as a strong and active board member."
In general, recruiting not-for-profit board members is challenging because the position description isn't appealing at first glance. Candidates are often being asked to spend many hours fulfilling their governance duties, and many times they either donate their own money or solicit donations on behalf of the organization. Meanwhile, the time commitment needed to exercise oversight duties is significant. So boards often struggle with this issue; nearly one-fourth (23%) of not-for-profit board chairs participating in the 2017 National Index of Nonprofit Board Practices survey by not-for-profit governance advocate BoardSource said their boards need to strengthen recruitment of board members to improve board performance. More than half (52%) of board chairs said it's difficult or very difficult to find board members.
By highlighting the benefits of board membership...