You’ve been asked by a nonprofit organization to join its Board of Directors. With that comes a tremendous level of responsibility that goes beyond just showing up for meetings and passing resolutions. It requires an understanding of what being a Board member entails: your duties, the organization’s expectations, your legal exposure, the role you’ll be expected to play, the time and money commitment, etc. It also requires some due diligence and soul searching on your part.
It is critical to determine if you are the right person for the job. You need to look in the mirror and ask yourself some difficult questions. Remember, the organization has certain expectations of you as a director and you need to recognize exactly what these expectations are in order to conclude whether or not you’re prepared to make the sacrifice. Outlined below are some important questions and key points to consider:
Are you passionate about the organization and the impact it has on society?
Having passion for the organization and its cause is perhaps the most vital trait that someone can bring to an organization. If you don’t have passion, you may find yourself reluctant to make the sacrifices or put in the time, energy, and effort to meet the organization’s expectations. We’re all busy. Many of us have work or family obligations that hinder our capacity to offer time and/or energy to a nonprofit — even one that we have a personal passion for. You need to find out what the time requirements are, then decide whether you can and want to realistically meet those expectations.
Can you effectively contribute to the Board?
Even if you have determined that you have a passion for the cause, that still may not be sufficient. Do you have knowledge, skills, experience, contacts, or other qualities that will assist the Board in performing its functions? Perhaps those who extended the invitation can offer some insight on this. A high-functioning Board will have thought this question through in advance and be prepared to offer a detailed answer. After determining what they have in mind, contemplate whether you see your ability to contribute the same way they do.
What are the financial requirements of being Board member?
Many Boards have financial expectations for each member. A “give or get” Board policy may exist, which requires each Board member to contribute or obtain gifts of a specified dollar amount. The Board may also expect you to absorb the costs of being a director, such as the price of meals, travel, and gas. Whatever form these financial expectations take, you need to be prepared to meet them before accepting a Board position.
Finally, you need to ask yourself if you can put the interests of the organization ahead of your own.
Remember, this is part of your duty of loyalty to the organization. Regardless of your personal feelings and goals, the interests of the organization must come first.
If by now you have determined that you are right for the tasks ahead, you should then focus on whether the organization is right for you. When buying real estate or anything tangible, the prudent consumer will research the product and decide if it is right for him or her. The same is true of deciding to join the Board of an organization.
You already know what the mission and programs of the organization are; you asked this question when you were determining if you had a passion for the organization. So let’s turn to some other central points to consider:
Take a look at the other leaders of the organization. Do you know them? Are they people you respect or can respect? Are they people you can work with on a personal basis?
You need to be comfortable with the people you are sharing responsibility with. In the course of Board work, conflicts can develop even between individuals that know, like, and respect one another. Don’t compound this by choosing to be involved with people you are not comfortable with. If you’re unsure of some of the people you may be dealing with personally, ask around in your network of friends and professional colleagues to make an informed decision.
Next, turn your attention to the financial condition of the organization.
At a minimum, you should review the organization’s latest annual reports and its IRS Form 990s. These are public documents and Guidestar.org will have copies of the Form 990s if they are being filed. It would also be wise to request and review the audit results if the organization is of a size that requires an annual audit. Pay close attention to any management letter that the auditors prepared as this document will contain insights into the organization that may not be revealed in the financial documents.
Consider where the organization is headed.
The organization should have a vision and a strategic plan. Is the Board paying attention to the plan? Some organizations have strategic plans that are no more than a dusty notepad on the shelf. Others have plans that are living documents, consistently being referred to, with growth measured toward established goals. You want to be connected with an organization that fits the latter description, and not the former.
Understand how the Board operates.
Are there active committees that carry on the work of the Board? Try to ascertain whether the full Board is really making decisions, or if there is a smaller group within the Board that seems to be making the decisions and then informing the other Board members after the fact.
There will always be some uncertainties for new Board members and some period of adjustment, but the organization owes you an orientation process to develop the knowledge and understandings essential to contribute. At a minimum, you should comprehend the following:
- The organization’s legal documents, including its bylaws.
- The structure and operation of the organization.
- The key issues facing the organization now and in the near future.
- What the Board has been doing (in the form of minutes and/or reports).
- Financial documents (if you have not already reviewed them).
- How the Board conducts its business, including its operating rules, policies, agenda-setting, and meeting management rules.
This is the short list of what you should look for in the organizational orientation. If you don’t get offered such an orientation, ask for one. You don’t want to assume the legal obligations of a Board member if you are in the dark about what is really happening within the organization.
The final question that needs to be asked is what protection(s) the organization offers its directors.
This is a critical item and should be a deal- breaker for you if you are not comfortable with the protections provided. The American Bar Association’s Guidebook for Directors of Nonprofit Corporations states: “In recent years, litigation against directors of many varieties of nonprofits has increased in frequency. … All directors need to understand the action that may be taken to protect them against liability related to their service on [a] nonprofit corporation’s Board.” Two particular areas that should be examined are indemnification and insurance.
Indemnification is a term describing what the corporation might repay a director for expenses arising from a lawsuit against the director. Such indemnification is controlled by the laws of the particular state in which the corporation operates as well as by the bylaws of the organization. There are two types of indemnification:
“mandatory indemnification” and “discretionary indemnification.”
The prospective Board member should clearly comprehend what the rules are for his or her organization. The details of this very technical, legally complex subject are well beyond the scope of this short article. Suffice it to say that this is a critical topic for the prospective director and one that should be thoroughly understood before committing to an organization.
Even if the corporation has indemnification procedures, the ability of the corporation to fulfill those promises is dependent upon its financial circumstances. This is where insurance comes into play. The type of insurance you want to ask about is Directors and Officers (D&O) insurance. The coverage under D&O policies will depend upon the laws of the state involved and the terms of the individual policy offered. Prospective directors should understand what the terms of their policy are and should ideally be provided with a memorandum by the organization that outlines the D&O coverage being offered.
Deciding to join a Board is not a simple matter. There are quite a few questions and points to consider. Who would have thought when you got the invitation to join a local nonprofit Board that the process of deciding whether to say yes would be so lengthy and strenuous? Please don’t be discouraged. Most good nonprofits will pass all of the tests above with flying colors.
We commend you on your interest to give back to the community, and express our hope that your service on a nonprofit Board is both satisfying and rewarding. Whatever the process is to get you to the point of saying “yes,” once you do, the personal sacrifices and contributions you make will no doubt be much-appreciated and gratifying.
Download the full guide for Nonprofit Board Members