Board of Directors

Understanding the Purpose of Nonprofit Boards

A nonprofit organization serves the public interests usually in the areas of either the arts, education, heath, religious, or social service. These organizations are tax-exempt because it uses its revenue to fulfill its mission. A nonprofit’s board of directors is to ensure that the organization is on track in fulfilling its mission and vision while complying with all federal and state laws. But many nonprofits and those who serve on their boards, don’t truly understand what this means.

The Board, as a whole, is supposed to provide oversight in 4 areas:

  1. Legal
  2. Organizational
  3. Financial
  4. Programmatic

Legally, nonprofit boards are supposed to ensure that the nonprofit is operating in accordance with its mission and the purpose for which it was granted tax-exempt status. Since nonprofits can take advantage from an array of tax and other benefits, the Board must understand the various federal, state, and other local laws that apply to their organization. Oftentimes, board members don’t know if they are governing a private foundation, a public charity, or another type of tax-exempt entity. The point is, that each of these types of entities are subject to different legal limits on their activities, and the Board needs to make sure that their nonprofit is operating legally and ethically. And, if the mission of the organization changes, that the nonprofit is updating and filing the necessary governing documents.

Organizational oversight is commonly exercised through policies and procedures. Many times, boards will create policies and procedures, but aren’t ensuring that these changes are being communicated or followed. Organizational oversight is also the Board’s responsibility to select, support, assess, and when necessary remove the institutional leader. A governing board of directors is NOT supposed to micromanage staff.

Financial oversight is the Board’s responsibility to properly provide financial oversight for the organization. A nonprofit’s board accepts liability for the organization and that is why it is necessary for the board to actively understand the nonprofits assets and financial situation. Obviously, not all board members are going to be proficient in finance, but it is necessary that each member knows the basics, such as reading financial statements, judging their accuracy, and recognizing potential threats in the overall health of the organization.

The final area of oversight is programmatic. This is usually the area that most boards want to focus their time. However governing boards should not necessarily be in the weeds, but rather focusing on strategy and ensuring that the programs that are in place are aligned with the mission.

It is important to understand the purpose of a governing board, so that nonprofits can be more strategic in identifying and recruiting new board members. Without a strong board, a nonprofit will struggle to fulfill its mission.

To learn more about Boards of Directors, please contact Charmaine Torma Consulting LLC.

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