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Board Essentials: What Every Board Member Should Know 2

Last week, this blog addressed Parameters that a nonprofit board of directors must be aware of to conduct its business in an effective, focused way.  The Parameters include bylaws, IRS rules regarding 501(c)(3) status, and other boundaries that impact on the work of any public benefit organization with nonprofit status.

This week our focus is the Role of a nonprofit board.

  • We link to last week’s topic by noting the legal and fiduciary duties of a board of directors. By law of the State in which the nonprofit is incorporated, there are statutes that generally address the responsibility of the board to abide by applicable law. And that the assets (financial, property, value of brand) tangible and intangible must be used in ways that serve the mission and purpose; and not personally benefit a member of the board.
  • States generally require board members to pledge their loyalty to the nonprofit. This applies to prohibitions of self-dealing: serving on a board for personal gain. Many if not most boards have a policy on ethics to explicitly address this. Nonprofit organizations have a public purpose, so meetings and decisions made at meetings should be available to all interested. The loyalty issue isn’t so much about the ability of members to keep secrets. It is about awareness of intellectual property of the nonprofit that may be proprietary: for the use of that nonprofit and only to be shared by agreement.
  • Members of the board should be clear on theirRole in raising money. In the terminology of Kay Sprinkel Grace, which members are “askers”? Comfortable going on calls and asking for donations from known and prospective givers. And are all board members expected to give to the annual campaign?  Today, the majority of nonprofit boards have a giving policy that applies to the board. If this isn’t the case at your board, I do recommend that this topic get on a meeting agenda and that an open discussion follow. Boards that have a development or fundraising committee are in a good position to address this.
  • Another Role is to review the performance of the chief executive of the nonprofit, and to see to it that there is a process in place for review of all staff in a process overseen by the CEO.  Deciding who conducts the CEO review and how it’s done should be discussed with the executive. The board and executive settle on a process that works well, and assures that performance is objectively reviewed.  Committing to the concept of “continuous improvement” is a positive way to address areas where improvement is clearly indicated.

This post is not the be-all and end-all for board of directors Roles and Responsibilities. But it’s a good beginning. There are great resources to dig in for more detail.  I strongly recommend that my clients use materials published by BoardSource. Their website: http://www.boardsource.org.

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Board Essentials: What Every Board Member Should Know – Part 1

Over the past year, this blog has covered the waterfront on topics from board development to marketing strategy to basics of fundraising. For the coming weeks, I plan to focus on a series of governance topics:

  1. Parameters for a board of directors
  2. Role of the board within the nonprofit
  3. Strategic work of the board
  4. Board as Hub of the Nonprofit Network

Today, my focus is on parameters for the board.  We hear a lot about thinking “outside the box.”  That can be great fun. But first it’s good to know the box we’re living in: the bylaws, rules and regs for 501(c)(3) status, laws in the Sate where we’re incorporated, and fiduciary responsibility of boards according to accounting (AICPA) standards.

Board members must be aware of the bylaws that govern their work.  Each member should have a board manual, and prominent in the manual will be the bylaws of the nonprofit organization.  Beyond mission and purpose set forth in this document, it usually contains the rules of the road for the board: how often it meets, what it’s responsible for (usually oversight of the nonprofit tangible assets), attendance requirements, term of office, election of officers.

Board members also need to understand what the IRS  requires when it bestows 501(c)(3) status. There are requirements limiting lobbying. There are requirements to file documents with the IRS annually when it achieves a certain budget size. There can be no self-dealing where members of the board somehow profit at the expense of the nonprofit. There are areas of unrelated business income when nonprofits do, in fact, pay taxes.  The board should be aware how this applies.

Each nonprofit is incorporated in a State and must comply with nonprofit State law. There are requirements unique to each of the fifty States. The Secretary of State may have reporting requirements. The Attorney General’s office may have a department devoted to investigating and enforcing nonprofit law.  On the State website there are usually PDF’s of rules and regulations that apply.  The nonprofit executive should identify the applicable documents and provide copies of the most important ones to board members for their manual.

The fourth item on today’s list is fiduciary duties of a nonprofit board. Regular financial reports from staff capable of issuing documents that give a good representation of expense and revenue, update the balance sheet, indicate cash flows for the period, and compare financial position month-to-month with the previous year, and compare actual against the budget.  The Treasurer and/or chair of the finance committee present a report on updated financials at least quarterly if not monthly.  There are members knowledgeable about finance on the board, there is a senior staff member who understands and issues the reports, and there is a capable staff member entering revenue and expense items on a timely basis.

The nonprofit board members who know these basics are best equipped to make sound decisions on behalf of the nonprofit. They know, when asked to think outside the box, what’s in the box and how comfortable they can be moving in a new direction, undertaking a new program, launching a new fundraising activity.

Board members in the know can sleep soundly. They know the deal.

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Where There Is a Will (Part 2)…

This post expands on some thoughts on Estate Planning (wills and trusts) that I discussed here initially on November 8.

Nonprofit (community benefit) organizations seek a mix of income streams so the mission isn’t dependent on one particular special event, or an annual campaign that may experience a bad year now and again.

An often overlooked source of revenue, particularly by small (budget less than $1 million) nonprofits is Estate Planning: income generated by donors who make a bequest in their will, or who establish a trust for tax or other purposes, or who make a planned gift through a charitable remainder trust.

Gifts to public benefit organizations through wills and trusts require some forethought by the donor. A donor who may be giving to your annual campaign now, and who is interested and committed to your organization’s long-term survival.  This person (more likely female than male) may have been asked by her attorney how she wants her estate to be distributed after the probate process is complete. If the benefactor takes some time to think about whom she wants to receive segments of her estate upon her death, she may be open to considering your nonprofit organization.  This is why many nonprofits have a note tucked in with or appended to the annual appeal letter, asking if the person has considered remembering the organization in her will.  Mentioning this in newsletters and other communication with donors can plant a seed that can result in a significant gift.

It is this thought process that prompts me to encourage public benefit organizations to have an Estate Plan attorney on your board of directors, or on your development committee, or serving as a special volunteer to advise you and your board.  To advise you on steps you can take to make your donors aware that a planned gift can make an important difference in what your nonprofit can accomplish.  The donor can request that her Estate Plan attorney contact you for information on options you can offer (if you participate in a charitable remainder trust, or other options) so it can be properly implemented.

I recommend that you examine and design your Planned Giving approach in compliance with all applicable law, that you adopt a gift acceptance policy (to address how you would handle real estate or gifts of common stock, and related issues), and that you have a small committee of competent people who are not seeking personal gain from these transactions (to avoid a conflict of interest).

Yes, there is a degree of complexity to Estate Planning and Planned Giving. But there are skilled people out there willing to help. I strongly urge you to find volunteers to do this work at no cost to you with a very clear understanding that their work with donors would do nothing to raise conflict of interest questions.

This is an area of giving too rich with potential to leave unattended. And it needs to be administered well, in a way that does not leave the donor wondering if you have their best interest at heart.

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What’s Your Customer Saying?

Coming off recent posts with a marketing orientation, it’s time to focus on the nonprofit customer.

Who is the customer of your nonprofit organization?  It’s a good place to start to get clarity, so you, your board, your staff, your volunteers know who the customer is, know what the customer needs are, and how your group responds to those needs.

And to do this well, everyone needs to listen. The staff, the volunteers. Everyone.  EVERY. ONE.  So, from the executive director and the board chair all through the people charged with accomplishing the nonprofit mission: all are listening.  And what we all are hearing is important to capture. And respond.

the primary customers of the nonprofit are the people benefiting from the services provided. The theater subscribers. The kids enrolled in the Boys & Girls Club after-school program. The cancer patients being taken to their chemo and radiation therapy appointments.  It’s clear to all who the primary customer is, what this customer needs, and how we’re set up to meet those needs.

The supporting customers are those folks supporting the mission: stakeholders in the mission who donate, who volunteer who make it possible for the nonprofit to execute the mission: to deliver the essential service that’s provided.

How do we know we’re doing the best possible job we can?  We ask our customers. We design ways to gather information, the feedback that tells us if we’re on course or not. You can count on someone (at least one someone) to question the value of asking. It takes time. It takes use of some resources. Shouldn’t every available dollar go to our service? That’s a hard point to argue. But I urge you to counter the argument with: “How do we know we’re meeting the need we think we’re meeting if we don’t ask?  If we don’t listen to what our customer is saying?”

Just before writing this blog post, I read Micheal Stein’s “Internet Strategies for Nonprofit Sector.”  He’s good. He tweets as @mstein63. His latest post cited research by Convio, the fundraising database experts. He focused on step #4 of their ten steps to grow the constituent base (your donors): “segment your welcome messages.”  So in your communication with new donors, you tailor your message to the demographic and psychographic information you can collect so what you say has meaning to your donor: so it in a way reflects back what you hear them saying to you. This will help build a relationship. And donor loyalty.

It’s part of effective marketing strategy.  And if you’re thinking and behaving in this way, you’ll be many steps ahead of your competition.  Because all too many of your competitors are only thinking “outgoing.”  Not “incoming.”

You’ll be glad you did. Listen. To What Your Customer is Saying.

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The Board as Your Nonprofit Marketing Team

When resources are spare and the cupboard seems bare, take a close look inside your nonprofit organization for resources to build your capacity.  I mean your capacity to deliver your mission, to do the good your donors expect you to do: to serve your primary customers (clients) and change behavior for the better.

This concept applies for social service, health, arts…you name it.  All manner of nonprofits.  Your business is to make life better. To somehow be able to manage change…for the better. And to engage resources that build your ability to deliver.

Start at the core of your nonprofit…your public benefit organization. Help your board of directors become marketing agents. Make this part of the board  job description.

My primary source for this concept is Gary Stern’s Champions With a Cause: The Nonprofit Board Member’s Role in Marketing. This booklet was published in 2005 by First Nonprofit Education Foundation. Find it. Get permission to reprint. Get busy putting the concepts to work. #1 of the Ten Things Every Board Member Should Know is: begin with your mission and focusing on your primary customer. Take a step-by-step approach to build board competence so they can act in a more deliberate way to help advance the mission and advance the brand.

Build in to this effort some focus on Social Media. There is lots of great, helpful tools to help make Facebook, You Tube, Twitter, blogs and more work to your advantage. For some New England-based expertise on this subject, I go to Bob Cargill who tweets as @CargillCreative, and whose blog, A New Marketing Commentator, is chock full of useful thinking going well beyond Social Media. Take a look at Bob’s Ten Ways to Succeed in Social Media at http://bit.ly/hRhA7g. His tip #5: “Work as a Team” fits right in with Gary Stern’s approach to turn the board into your fundamental marketing advocate.

You will want the fundraising perspective to fit well in this marketing platform you’ll build. And to do this well, I recommend you check out Gayle Gifford (http://www.ceffect.com/blog). She blogs as The Butterfly Effect. Her post #32 (of 100) things we need to learn: http://bit.ly/eKmHSv: tips for business people joining a nonprofit board.  It’s good for business people to get their heads clear on the values of nonprofit “business” and how these compare/contrast with the for-profit side.  For example:  prudence is generally valued over risk-taking in the public-benefit sector. Not to the exclusion of taking risks. But generally, this is the deal.

So, friends, become acquainted with the tools of effective marketing practice, apply them. You shall be fruitful and multiply.

If I can help in this effort, you know how to reach me.

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