Nonprofit

Management

Chapter 4: Nonprofit Governing Boards

Terminology

Governing boards -- boards that hold ultimate

responsibility for ensuring that the organization
serves its mission and for the overall welfare of the
organization itself
Alternative names for this governing board include:

Board of directors
Board of trustees
Board of governors
Governing council

Boards that lack legal responsibility for governing

their organizations are not governing boards (e.g.,
advisory boards)

Types of Governing Boards

Elected boards
Self-perpetuating boards
Appointed and hybrid boards

Board Responsibilities

Board members (directors) owe what is entitled a fiduciary

duty to the organization (Industry Canada, 2002)
A fiduciary duty refers to the obligation to act in the
organizations best interests
This includes an obligation of [utmost] loyalty, honesty,
and good faith (p. 14)
Fiduciary duty involves two primary functions:
Duty of care: requires directors to act with a duty of
skill and duty of diligence and to do so with a certain
standard of care
Duty of loyalty: requires directors to act honestly and in
good faith for the good of the organization

This duty is a personal duty and cannot be delegated

Directors cannot profit from their office (no profit rule)
They must avoid all situations where duty to organization
conflicts with personal interests (no-conflict rule)

Civil Responsibility of
Directors

NPOs, like businesses, can incorporate for

legal purposes
As corporations become their own legal entity,
they provide its directors and owner limits on
their personal legal liability
As such, directors and members not personally
liable for contracts and civil wrongs of
corporation

Important to note that directors are

responsible for breaches of fiduciary duty to
corporation

Board Responsibilities

Board members (directors) owe what is entitled a fiduciary

duty to the organization (Industry Canada, 2002)
A fiduciary duty refers to the obligation to act in the
organizations best interests
This includes an obligation of [utmost] loyalty, honesty,
and good faith (p. 14)
Fiduciary duty involves two primary functions:
Duty of care: requires directors to act with a duty of
skill and duty of diligence and to do so with a certain
standard of care
Duty of loyalty: requires directors to act honestly and in
good faith for the good of the organization

This duty is a personal duty and cannot be delegated

Directors cannot profit from their office (no profit rule)
They must avoid all situations where duty to organization
conflicts with personal interests (no-conflict rule)

Board Responsibilities: Functional

Appoint, support, and evaluate the CEO

Establish a clear institutional mission and
purpose
Approve the organizations programs
Ensure sound financial management and the
organizations financial stability
Establish standards for organizational
performance and hold the organization
accountable

The Board and the CEO

Who leads the nonprofit organization?

Extreme scenario 1 -- CEO manipulates the
board, orchestrates board meetings, and
relegates the board to the role of a rubber
stamp for his or her initiatives
Extreme scenario 2 -- Board micromanages the
organization and usurps the authority of the
CEO

Partnership between the board and the CEO as

ideal, but different views on exactly how this
partnership should be constructed and how it
should operate

Three Models of
Board-CEO Relationship

Policy Governance Model (Carver, 1990) -- need to

establish and enforce a clear line between the
boards responsibility for policy making and the
executives responsibility for implementation
Governance as Leadership (Chait, Ryan, and
Taylor, 2005) -- board should assume a leadership
role that blurs the distinction between policy and
implementation, focusing everyones attention on
what matters most
"Psychological Centrality and Board-Centered
Leadership (Herman and Heimovics, 2005) -- CEOs
should accept the reality of their psychological
centrality in the organization and provide boardcentered leadership

Twelve Principles that Power

Exceptional Boards

Constructive partnership
Mission driven
Strategic thinking
Culture of inquiry
Independent-mindedness
Ethos of transparency
Compliance with integrity
Sustaining resources
Results-oriented
Intentional board practices
Continuous learning
Revitalization

Source: Board Source, 2005

The Challenge of Nonprofit

Governance

Janus metaphor -- nonprofit boards are

positioned on the boundary between the
organization and its external environment
Inward-looking role in fulfilling
fiduciary responsibilities on behalf
of the membership or society
Outward-looking role in meeting
responsibilities to the organization
itself and advance its interests

Complex responsibilities require diverse

qualities in the individuals selected to serve
on the board

Transformational and
Servant Leadership

Can the principles underlying

transformational and servant
leadership
apply in the board context?