11 Best Practices for Nonprofit Directors

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Effective nonprofit leaders advance their organization’s mission and contribute to its success and financial viability. Here’s how to be one of them.

Charitable organizations’ public image and reputation are increasingly impacted by their leaders’ integrity and strength. Well-run nonprofits have directors who hold the organization’s mission in high regard, understand and faithfully execute their duties and make strategic decisions that support the organization’s overall well-being.


EVERY BOARD MEMBER HAS FOUR PRIMARY RESPONSIBILITIES:



Here are 11 best practices to help you fulfill your responsibilities and be an effective nonprofit leader.

Be a mission ambassador

Board members should continually reflect on the organization’s mission and ensure its activities, programs and purposes continue to positively impact the communities and constituents it serves. It is the board’s responsibility to translate the mission into goals and strategies that can be measured and achieved.

Establish an investment policy and committee

Have a written investment policy and establish an investment committee, or hire outside investment professionals to manage the organization’s financial portfolios. The nonprofit’s investment policy should include an asset allocation strategy that meets the nonprofit’s long-term financial goals and takes into consideration the organization’s spending policy.

Maintain financial viability

Fundraising is intrinsically linked to a nonprofit’s financial and programmatic health and its ability to carry out its mission and purposes. Therefore, the board should set the strategy from which all fundraising activities flow. Fundraising activities and tactics may include galas, annual fund drives, benefit concerts, endowment campaigns, peer-to-peer and crowdfunding initiatives, grants and direct-mail donations.

Set clear fundraising expectations

Many boards require their members to participate in fundraising and to make personal donations. Fundraising expectations for board members should be clear, measurable and achievable. The board should adopt appropriate measures of success to ensure each board member is held accountable for reaching the organization’s fundraising goals.

Be an informed participant

Active participation includes attending board meetings, participating on committees and helping ensure the board keeps proper minutes, resolutions and voting policies. Board members should have familiarity with required federal, state and local tax obligations and filings, insurance coverage for the board and the organization, employer-employee obligations and environmental liability, if applicable.

Govern, don’t manage

Clearly define and separate governance activities from the staff’s management and operational activities. Board micromanagement can result in unnecessary confusion and tension leading to operational inefficiencies. At the same time, the staff should understand that its role is not to “run” the organization while the board sits on the sidelines.

Have a conflict of interest policy

Boards should maintain a conflict of interest policy requiring all directors to complete a conflict of interest disclosure form annually. An established process to address potential conflicts will help maintain the organization’s best interests and avoid breaching a director’s duty of loyalty.

Assess board performance

Assess the board’s performance on a periodic basis. This is an opportunity for directors to reflect on whether the board is meeting its responsibilities to advance the organization’s mission. This is an especially important tool if the board wants to address leadership gaps, identify training opportunities and refine participation expectations.

Confirm insurance coverage

Ensure the organization carries both general liability insurance and directors and officers (D&O) insurance. The organization’s bylaws or trust instrument should contain indemnification provisions as well. These provisions protect a director from lawsuits and any related expenses, so long as the director acted in good faith and in the organization’s best interest.

Establish an onboarding process for new directors

Implement a robust orientation program that includes a board policy manual for all new board members. This will help:

  • Introduce the organization’s mission, values, programs, finances and constituents;
  • Familiarize board members with the organization’s structure, procedures, operations, policies and staff roles;
  • Clarify expectations for board service (e.g., required time commitment, term limits, financial contribution minimums); and
  • Pair new board members with existing, experienced board members or former board members who can mentor the incoming directors.
Have a succession plan

Prioritize building a strong organization infrastructure to support the next generation of leaders, at the board level and among staff. The board is uniquely suited to identify opportunities to recruit and train the organization’s successors.



Good governance will always be the key to the organization’s success and sustainability. These best practices can further the good will generated by your commitment to the board, encourage your full participation as a nonprofit leader and provide direction and insights for your future professional and volunteer endeavors.

For more detail on nonprofit directors' responsibilities and best practices, read Know and Grow: Fiduciary Duties and Best Practices for Nonprofit Directors. And to learn more about how Northern Trust can put its expertise and resources to work for your foundation, endowment or other nonprofit organization, please visit us at https://www.northerntrust.com/FIA.

Disclosures

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.