How to Run a Nonprofit Board

How to Run a Nonprofit Board

The Board of Directors has ultimate responsibility for managing the activities of a nonprofit corporation. Frequently, the board will delegate this authority to its officers – the Chair, President, Secretary and Treasurer, and in some cases the Executive Director and others. However, Board members have a fiduciary duty to continue their oversight role. What actions should Board members take to exercise this oversignt and how do they go about taking them?

Every Board has a different level of engagement in the day-to-day operations of a nonprofit. Some boards – self-styled “active boards” – essentially run the nonprofit. All decisions except the most minor are voted on by the Board. Other boards delegate a significant amount of authority to officers to take care of daily management tasks, Regardless of your form of Board, or what you wish your Board could be, there are some basic decisions that Boards should always make:

  • Election of the key officers of the nonprofit, in particular the President and/or Executive Director. The power to elect, re-elect, or remove these officers is one of the most significant ways that a Board exercises control over the management of a nonprofit.
  • Amendments to the governing documents, such as the Articles and Bylaws. Amendments change the rules governing the nonprofit and its operations.
  • Adoption of policies and procedures (P&Ps), including to establish internal financial controls and legal compliance within the nonprofit. Adoption of P&Ps allow the Board to dictate the systems within which the officers can work. Common policies are expense reimbursement policies, gift acceptance policies, whistleblower policies, document retention and destruction policies, and grant-making policies.
  • Approval of an annual budget and compensation of key employees. This assists in maintaining financial control and guides the Executive Director in determining what expenditures can be made without returning to the Board for approval.
  • Significant changes to the mission or operations of the nonprofit, such as changes to the mission statement, expansion or shuttering of programmatic activities,  changes to the annual budget, or mergers and dissolutions.
  • Approval of any conflicted transactions. This is a legal requirement and failure to comply can result in hefty excise taxes and possible state investigation.
  • Approval of significant financial transactions, including purchase of real estate, sale of assets, negotiation of loans and changes to investment policies.

How does a Board make these decisions?

Boards can take action at a meeting or through a written consent form. Well-drafted bylaws will govern how meetings and consent forms are executed. If not properly executed, any action taken at the meeting or by written consent may be challenged, including by a director, officer, the Internal Revenue Service, the California Attorney General’s office, and certain other interested parties. Failure to comply with corporate formalities can also result in a loss of the limited liability nature of the nonprofit corporation and instead impose personal liability on board members. Ack!

Holding a Board Meeting

For a Board to take action at a meeting, the meeting must be properly called and noticed (with certain exceptions), a quorum must be present, and the action must be approved by the percentage of board members specified in the nonprofit bylaws.

Calling and Noticing a Meeting

There are two types of Board meeting. A regular meeting is generally a meeting set in the bylaws or via board resolution with a predetermined date, time and place. For example, the bylaws might state that the board shall meet on the first Monday of every month at 7 pm at the nonprofit’s principal office. If changes to the regular meeting occur, they must be approved by the Board at a properly held meeting. Regular meetings generally include the annual meeting to elect directors and officers, as well as to hear regular reports from the Executive Director. Regular meetings do not require notice, as notice has already been provided through a prior board meeting or the bylaws.

A special meeting occurs outside of the context of a regular meeting and arises due to a special need. These meetings must be “called.” This means that someone with authority to call a meeting sends a request to the Secretary of the nonprofit to notify the Board members that the meeting will take place.  The bylaws should describe who can call a special meeting, usually the Chair, Secretary or any two directors.

Special meetings must be properly noticed. The bylaws should describe the notice requirements. Usually, notice must be given (1) by mail at least four (4) days ahead of the meeting, or (2) by email, phone or in person at least two (2) days ahead of the meeting. If notice is given by email, the nonprofit must have an electronic consent form on file for each Board member allowing the member to be contacted and receive information via the particular email address of their choice.

If a special meeting is not properly noticed, valid actions can still be taken if:

  • All directors that are not present at the meeting sign (before or after the meeting) a waiver of notice or approve the minutes; OR
  • All Board members are in attendance and no one protests the meeting before or when it starts.

Conference Call Meetings

Many nonprofits have board members in different city, states and countries. As long as the meetings are properly called and noticed, Board meetings may be held by conference call and/or through the Internet. The only requirement is that all directors can communicate at the same time, and each director can participate in everything that is going on, including proposing or commenting on specific actions (subject, of course, to the parliamentary rules followed by the board).

Rules of Procedure

In the case of any conflict on the Board, it is extremely valuable to have adopted rules of procedure to govern how Board meetings will be run, decisions deliberated, and actions taken. Well-constructed rules allow for orderly discussion and consideration of actions before they are taken and for efficient meetings, giving everyone the right to be heard. Although many nonprofits default to Robert’s Rules of Order, a fairly archaic but widely used model, many others use Consensus Decision Making or Dynamic Self-Governance. The Board should make a decision as to which model works best for them.

The Chair, or the President in the absence of a Chair, is responsible for facilitating the meeting, unless the Board chooses someone else, such as a professional facilitator.

Approving an Action

  • Quorum: Before the Board can legally take any action at a meeting, it must ensure that a quorum is present. A quorum is the number of Board members, set in the bylaws, that must be in attendance at a meeting for the meeting to be properly held. The most common quorum requirement is a majority of directors in office. Some nonprofits require a greater number, or that a particular individual, such as the President, be in attendance for quorum to be met.
  • Approval: The bylaws will also tell the Board how many members must vote in favor of an action for it to be approved. Most common is a majority of directors present and voting at a meeting. Be careful of language here. The bylaws might alternatively require a majority of directors in attendance at a meeting.  This language will change how an abstaining director is counted, either as a no vote (if approval requires a majority in attendance) or as a reduction in the approval requirement (if approval requires a majority present and voting).

Minutes

The Secretary is responsible for taking minutes of the meeting, or in the Secretary’s absence, the Board can appoint a temporary Secretary. Minutes do not need to be a precise transcription of all comments and suggestions at the meeting. The basic elements of meeting minutes are:

  • Date, time and place of meeting
  • Those present (via conference call or in person) and those absent
  • Issues discussed
  • Actions taken
  • Secretary’s signature

If there are specific resolutions to be proposed or reports to be given at the meeting, the Board may draft and circulate them ahead of time. Those resolutions and reports should be included with the minutes as addenda. All minutes should be kept in the nonprofit’s record book.

Taking Action without a Meeting

For routine matters, or when the Board is too dispersed to hold a meeting, the Board can act through a written consent. However, all Board members in office must approve. The consent form is very simple. It is just a writing (email, word document, pdf, hand written note, papyri, or otherwise) distributed to all Board members and for which the nonprofit has written consents of all Board members on file.

If an electronic consent form for each Board member is on file, Board members can receive the written consent action and approve it via email or electronic signature. In these cases, the Secretary should be sure to be very clear in the email sent to Board members what action is being taken and how they can approve (i.e. by responding “approve” via email), and should keep copies of the email consents together with the written action.

Further Resources

It is not a daunting as it seems! There are a lot of resources out there for Boards trying to get a handle on how to operate. These include:

Written by Cameron Holland.