Several years ago, I was asked to join the board of a local nonprofit. Because I knew and respected many of the board members and believed in the organization, I didn’t spend much time on my personal due diligence efforts prior to serving.
The board members and executive directors were sensible citizens, quite popular within the community, and many were my friends.
As a new board member, I looked forward to the partially scheduled meetings to catch up with the other members.
Within a few short months, I realized that I was in more than I thought. Board members were easy to work with and agreed to action to be presented at monthly meetings. In retrospect, perhaps even accepted.
Over the same period, I also found that working with one of the paid senior employees was not easy. This person agreed to fulfill all requests made by board members to support the data, but rarely completed the action item for presenting the data at the following board meeting.
There was always a reason the task was not completed, and it was always someone else’s fault. Additionally, the documents submitted were not consistent from month to month and the data was incomplete, incorrect or absent from meetings.
Eventually, we learned that, behind the scenes, the senior staff member was scolding and intimidating the support staff. We later learned that many staff members were afraid to speak when asked at board meetings. The senior staff members were able to control the fallout by intimidating the staff.
Unfortunately for this person, board members soon realized that something could be wrong. He started asking deeper questions and requested to review bank and credit card statements. It ended with the unpleasant discovery that the senior employee was embezzling from the organization.
Before committing to a nonprofit’s board service, familiarize yourself with the culture, governance, and finance. Take some time to do your research and ask questions about the organization.
Before agreeing to serve, consider the following:
due diligence
Even if you are willing, never commit to serving on the board without spending some time researching the organization. Don’t assume that you are personal friends with board members just because the organization is well managed. Often board members don’t ask questions, especially when it comes to finances.
Review bylaws, current financial statements and recent board meeting minutes, and attend a meeting or two as an observer before joining the board. Are the meetings professionally run? Are board members engaged? Are they asking good questions? Are the financial statements current?
If you’re interested in joining the board after seeing how meetings are managed and data presented, ask the following:
-Does the board host an annual board orientation to which new and returning board members are invited?
-Is there a history of documenting communications to the Board to keep the Governing Body apprised of Board programs, major contractual agreements, staffing changes, threats or ongoing litigation, and finances?
-Is there an employee handbook and other written employment policies?
Are there any prior or pending litigations?
— Does the organization have an appropriate annual audit report?
— Has the Board been apprised of the steps it has taken to protect the nonprofit and its operations team?
– How are board members held accountable for their commitments?
– Have board members been educated about their responsibility to disclose actual and potential conflicts of interest? Is there a written conflict of interest policy?
Does the organization have insurance?
What risk management practices does the organization have in place to prevent or reduce the risk of litigation? The organization must hold general liability coverage, professional liability coverage and directors and officers liability insurance.
Sometimes a board will carry general liability and professional liability insurance but will not purchase directors and officers insurance. If you plan to serve on the board of a nonprofit, always ask if a current D&O policy is in place. Remember: Your personal experience is when serving as a board member. Directors and officers insurance helps to reduce your personal risk.
Can you commit?
Never agree to serve as a board member without first asking the question. Do you believe in the cause the organization supports? Are you willing to put your personal interests aside when voting on the issues presented to the Board? Do you have the time and resources to support the mission of the nonprofit? Are you ready to donate to the organization, look for sponsors, and fundraise?
Additionally, before accepting the opportunity, make sure you are serving for the right reasons. And if you don’t have the time or commitment — or you question the integrity of the organization — then respectfully decline an invitation to service.
Nonprofit executive directors have many diverse daily responsibilities. In addition to managing their employees, they handle finances, enlist donors and serve the needy. Their focus is on implementing the organization’s mission, so they may not have the time to properly focus on managing the risk to which board members are exposed.
Make sure you have the time, commitment to the cause, and adequate protection against risk so that you can focus on helping the organization accomplish its mission. Then, it is a win-win for all.
Terry Parker is the Vice President of CAPTRUST Financial Advisors. He has practiced in the field of Financial Planning and Investment Management since 2000. Reach [email protected] via email.
