How to Set Up Your Nonprofit Board of Directors: Part Two

A nonprofit’s board of directors plays a crucial role in ensuring the organization remains ethical, legal, and sustainable. Understanding the fiduciary duties of board members is essential for maintaining trust and accountability within the organization and the community it serves. Additionally, the way a board governs can significantly impact the nonprofit’s efficiency and effectiveness. In this article, we’ll explore the core fiduciary responsibilities of a nonprofit board and examine various governance models to help you determine the best structure for your organization.

Fiduciary Duties of a Nonprofit Board of Directors

The importance of a board’s fiduciary duties cannot be stressed enough. Nonprofit boards of directors are bound by law to ensure that their nonprofit is operating legally, ethically, and responsibly. These duties can generally be broken down into three broad categories that you need to take to heart.

Duty of Care

The duty of care requires that board members act with the prudence that any ordinary person would use in a similar position. Essentially this duty means that board members are expected to act responsibly in the service of their work. But it’s important to note that this is a proactive duty. 

This means that board members have a responsibility to stay informed, read materials given to them, and attend meetings. If something confuses them, it is their duty to ask questions and bring in experts. Ignorance is no exception for lack of care. 

Duty of Loyalty

The crux of the duty of loyalty is that the nonprofit comes first. Board members need to put the interests of the nonprofit ahead of their own, and they absolutely need to avoid any conflicts of interest. Once again, this duty is proactive. If it looks like a conflict of interest is upcoming, then they need to announce it. So if they have a financial stake in a company that the nonprofit is dealing with, for example, then they need to make that clear. 

This duty also encompasses honesty and confidentiality. The board members need to understand when to be transparent, but also when to keep sensitive information about the nonprofit and its members confidential. Board members need to be ethical individuals able to put the nonprofit before their own needs. 

Duty of Obedience

The duty of obedience requires board members to do their utmost to make sure that the nonprofit complies with all laws and regulations, and sticks to its own bylaws and mission. This is perhaps the simplest duty—don’t break any rules! This includes both state laws and any laws that the nonprofit itself has established.

Nonprofit Governance Models

We’ve mentioned before that part of the duty of nonprofit boards is to provide governance. It’s only fair to note though that “governance” can mean very different things depending on the particular nonprofit. Every nonprofit will be using a different “governance model” —this refers to the methods by which the board members interact with the organization, make decisions, and oversee operations. We’ll list some of the most popular governance models here.

Advisory Model

Some boards of directors prefer to take on a mainly advisory role. This is generally the case if the executive director has retained significant control over the day-to-day operations of the nonprofit. This board can oversee the organization and offer its guidance, but does not become too deeply involved in decision-making. 

Board members are generally selected for their knowledge in the nonprofit field, rather than in the operation of nonprofits themselves. This is a suitable form of governance for a small or new nonprofit where the founder still has a firm grasp on operations. 

Patron Model

In this model, the board’s role is to be financial supporters and advocates of the nonprofit. The primary focus of the board is to concentrate on fundraising. 

Board members for this model are generally chosen for their wealth, or because they have some sort of influence that allows them to be excellent fundraisers. You will often see these kinds of board members working for nonprofits that require high levels of donations, such as museums or universities. 

Cooperative Governance Model

The cooperative governance model is one in which the board, staff members, and perhaps other stakeholders all collaborate together on running the nonprofit. No one of these groups has full authority, with management shared and decisions made through collective voting. 

This kind of governance model is often found in worker cooperatives and grassroots organizations. The idea is to not emphasize one section of the nonprofit over another and to promote democracy within.

The Policy Board Model 

The policy board model is distinguished by a clear separation between the governance functions of the nonprofit board of directors, and the management functions of the staff. The board, in this model, focuses on the bigger strategic picture and policies, while the staff handles regular operations. 

Board members in this model are expected to specialize in, and focus on, strategy and delegation. This governance model is most popular in mid-sized or large nonprofits, where micromanagement is no longer feasible.

Management Team Model

The management team model is most noted for blurring the lines between board and staff. Under this model, board members can act as directors and managers. This means that in this unorthodox model, board members will be involved not only in strategic decisions, but also in daily operations. 

Generally this entails a lean, small board, with members taking active roles in leadership and staffing. The board members tend to be right at the head of projects and finance. This governance model is often found in start-ups, volunteer organizations, or small nonprofits with limited resources, where there is an “all hands on deck” sort of attitude. 

A well-informed and responsible board of directors is the backbone of any successful nonprofit. By upholding fiduciary duties and choosing the right governance model, board members can help their organization thrive while staying true to its mission. As your nonprofit evolves, so too should your board’s structure and approach. Whether you’re just getting started or looking to refine your governance model, staying proactive and adaptable is key.