Running a nonprofit organization can be quite different from running a for profit business. Instead of a single owner(s) who can largely do whatever they like, you have a board of directors to answer to, extensive oversight from the IRS and Ohio Attorney General, not to mention keeping both donors and grant funders happy. And this wide array of stakeholders means your nonprofit needs good governance policies in place to prevent problems before the organization’s tax-exempt status is threatened.
What is Nonprofit Board Governance?
Nonprofit board governance encompasses the entire umbrella of policies and procedures that govern how a nonprofit organization is run and how key decisions are made. Of course, some of this is determined by the nonprofit’s Articles of Incorporation and bylaws. But those are both fairly high-level documents that can’t possibly address all of the details that come with running a nonprofit organization on a day-to-day basis.
For example, most nonprofit bylaws state that the board of directors will make decisions based on a majority vote of those directors at a duly called meeting. But the bylaws typically don’t address the details that can arise: What happens if one of the board members has a conflict of interest related to a matter the board is discussing and potentially taking a vote on? What happens if a board member has doubts about the treasurer’s suggestion to apply for a Paycheck Protection Program (PPP) loan? How will the board make decisions about the executive director’s salary?
Why is Nonprofit Board Governance so Important?
At this point, you may be wondering why details like these matter. Why can’t the board just make a decision “on the fly” whenever a sticky situation comes up?
The directors who serve on a nonprofit’s board have certain fiduciary duties when it to comes to the nonprofit. See O.R.C. § 1702.30(B). A director must act:
In short, the directors of a nonprofit can’t just operate on the fly; the organization needs to have good governance policies in place in order for the directors to properly do their jobs and make decisions that are in the best interests of the nonprofit.
Best Practices for Nonprofit Board Governance
If you have questions or concerns about your nonprofit’s board governance policies: