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Rules of the Road in Board Governance

Perhaps you checked out this link to a recent article in Chronicle of Philanthropy about the brouhaha at University of Virginia regarding board action to dismiss the University President.  As I understand it, the board chairperson acted out-of-line, and informally approached individual board members to get their vote of no confidence in the President.  Clearly, an act lacking in transparency. An act that got the whole campus in an uproar and out of kilter.

Members of nonprofit boards of directors should know the parameters that circumscribe their actions.  The concept of “governance” isn’t something carried out by the whim of a disgruntled board member.  If there are grounds for dismissal of the nonprofit President/CEO, there should be procedures set out on what constitutes grounds for dismissal, and how the dismissal process will work.

For everyone’s sake (meaning all stakeholders in that nonprofit, whatever its size or shape) there needs to be clarity on the rules of how the nonprofit will operate in certain challenging situations so all the players know there are standards and that those standards are being upheld by leadership.

Good governance encompasses a number of things that comprise “parameters” for the nonprofit.  These parameters include:

  • Bylaws of the nonprofit organization, which include duties and responsibilities of the board and the CEO
  • If the bylaws don’t encompass duties of the CEO, then the job description does
  • IRS requirements for nonprofit organizations that have tax-exempt status
  • State law that covers corporations, particularly nonprofit corporations
  • Understanding financial reporting as required by CPA standards that apply to all nonprofit corporations
  • The personnel policies and all other policies adopted by the board of directors

The nonprofit board of directors should conduct a review or update in training on these parameters each year, to remind all of the rules of the road that govern how a nonprofit will operate.  The duty of loyalty and the duty of care require that members stay up-to-date on the rules. When members take things for granted, mistakes happen that can undermine the effectiveness of the nonprofit in delivering its mission.

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