The Nonprofit Boardroom: New Terrain for a Couple of Business Leaders
We, Tina Dao and Kelly Smith, both entrepreneurs became friends and sisters in arms because we both said ‘yes’ to serving on a nonprofit board. The experience that began with the best intentions, ultimately led to profound lessons. Like many business owners and operational leaders, we were eager to contribute our skills to a worthy cause. However, we entered this venture without conducting the proper due diligence, a mistake that resulted in a challenging and ultimately unsustainable situation.
This experience, though difficult, has been extraordinarily insightful. We've learned a great deal about the complexities of nonprofit governance, and we want to share these insights with the business community. We want to highlight all the things we didn’t truly know and understand when we said ‘yes’ to serving, knowledge we'll definitely use in the future when making personal decisions about participating in nonprofits - as donors, volunteers, and/or board members. We share this because we believe that well-functioning, well-run nonprofits are a vital part of a community, and that strong business leaders can have a very positive impact through board service—provided they are equipped with the right knowledge and prepared for the unique challenges involved.
Navigating Nonprofit Boards: A Guide for Business Leaders
The decision to join a nonprofit board is a significant one, a step beyond casual volunteering. For business owners, it's an opportunity to leverage hard-earned skills in a new context, to apply strategic thinking and leadership to causes that resonate deeply. It's a chance to see the tangible impact of your expertise, to build a legacy that extends beyond the bottom line. Additionally, serving on a nonprofit board can provide valuable experience that can contribute to future service on for-profit business boards, broadening your leadership portfolio.
For those transitioning from corporate careers, nonprofit board service offers a bridge to a fulfilling 'third act.' It's a way to stay engaged, to continue contributing valuable insights, and to build new networks in a different sphere. After years of navigating complex corporate landscapes, the wisdom gained is invaluable to organizations striving to create positive change.
But it's not just about giving. It's also about receiving. Board service can provide fresh perspectives, new challenges, and a deeper connection to the community. It's an opportunity for personal growth, a chance to learn from diverse individuals, and to find renewed purpose. Essentially, it's a mutual exchange of value, where both the individual and the nonprofit benefit.
Things to Be Aware Of and Know: Beyond Good Intentions
Serving on a nonprofit board can be a significant commitment, demanding a clear understanding of responsibilities and a dedication to the organization's mission. Our experience taught us that good intentions alone are not enough; a thorough understanding of the following aspects is crucial. Here are key aspects to be aware of.
Legal and Fiduciary Duties: Governance
Board of Directors are responsible for overseeing the organization and ensuring it operates in accordance with its mission and legal requirements
These duties mandate acting with the highest level of care, loyalty, and obedience, ensuring compliance with all applicable laws and regulations.
This responsibility can require making difficult decisions, including strategic shifts, addressing financial crises, or, in extreme cases, dissolving the organization.
Avoiding conflicts of interest, protecting the organization's assets, and ensuring transparency are paramount.
Executive Director Management:
The board holds the critical responsibility of selecting, supporting, and evaluating the Executive Director.
This includes establishing clear roles and responsibilities, conducting regular performance evaluations, and providing constructive feedback.
The board must also be prepared to take disciplinary action, including termination, if necessary, to protect the organization's best interests.
The quality of the relationship between the board and the Executive Director is critical to the success of the organization.
Mission and Bylaws:
Constructing, adopting, and revising the mission, as well as owning and amending the bylaws, are fundamental board responsibilities.
Strategic Planning and Oversight:
Effective short and long-range planning, financial oversight, and ensuring adequate resources are crucial for the organization's sustainability.
Governance vs. Management:
Understanding the distinction between the board's governance role and the Executive Director's management responsibilities is vital.
Time and Commitment:
Board service requires a substantial time investment, including meetings, committee work, fundraising, and staying informed about the organization's activities.
Board Development:
Recruiting, electing, and assessing board members, as well as ensuring ongoing training, are essential for effective governance.
Financial Contribution and Public Image:
Board members are often expected to make personal financial contributions and enhance the organization's public image.
Effective Communication and Decision-Making:
Establishing clear processes for board business, such as consensus or Robert's Rules, and ensuring open communication are critical.
Understanding these responsibilities and dynamics is crucial for effective board service, enabling individuals to contribute meaningfully to the nonprofit's mission.
Responsibilities and Remuneration: Defining Your Role and Due Diligence
Serving on a nonprofit board is a commitment of time, talent, treasure, and passion. While the rewards are primarily intrinsic, it's essential to understand the scope of your responsibilities and conduct thorough due diligence. We cannot stress enough how vital this step is. Our failure to adequately investigate the organization's operations and governance led to significant challenges.
Typical Responsibilities:
Participating in board meetings and actively contributing to discussions.
Serving on committees and taking on specific assignments.
Contributing to strategic planning and policy development.
Overseeing financial management and ensuring accountability.
Participating in fundraising efforts and cultivating donor relationships, which includes required personal donations.
Acting as an advocate for the organization and its mission.
Evaluating the Executive Director.
Working to ensure the organization's legal compliance.
Key Questions and Investigations:
Governance vs. Management: Clarify whether the board operates in a governance or management capacity.
Commitment Expectations: Understand the expected time commitment, financial contributions, and fundraising responsibilities.
Bylaws and Mission: Review the organization's bylaws to understand its mission and purpose.
Financial Transparency: Examine the organization's IRS Form 990 filings for the past several years, and compare them with internal financial documents provided by the treasurer.
Application Process: Inquire about the application process and consider volunteering or shadowing board meetings before committing.
Onboarding and Role Clarity: Request an onboarding packet that includes job descriptions for the board and the executive director.
Remuneration:
Nonprofit board service is typically a volunteer role, with no compensation for time.
Organizations may reimburse reasonable expenses related to board activities.
The primary reward is the satisfaction of contributing to a meaningful cause.
Hard Decisions: Navigating Difficult Terrain
Serving on a nonprofit board isn't always smooth sailing, as we learned the hard way. Board members must be prepared to make tough decisions that can significantly impact the organization's future.
Strategic Shifts: Organizations must adapt to changing circumstances, which may require significant strategic shifts. Board members must be willing to consider and implement new directions, even if they are unpopular.
Executive Director Termination: In some cases, the board may need to terminate the Executive Director's employment. This is a difficult decision that must be made with careful consideration and in the best interests of the organization.
Dissolving the Organization: In extreme situations, the board may need to consider dissolving the organization. This decision is typically made when the organization is no longer able to fulfill its mission or when its financial situation is unsustainable.
Addressing Financial Crises: Nonprofits can face financial hardships. The board must be prepared to address these crises, which may involve difficult choices about budgeting, fundraising, and program cuts.
It's important to remember that these decisions are not made lightly. Board members have a fiduciary duty to act in the best interests of the organization, even when it means making difficult choices.
Red and Yellow Flags: Recognizing Warning Signs
Before committing to a nonprofit board, it's essential to be aware of potential red and yellow flags that may indicate underlying issues. Looking back, we now recognize many of these warning signs, which we initially were completely unaware of or overlooked.
Red Flags:
No board insurance.
No application process for board members.
No clear requirements for donations or fundraising.
Consistent financial instability or lack of transparency.
Frequent turnover in leadership or board membership.
Significant legal or ethical issues.
A lack of clear mission or strategic direction.
A board that does not appear to be engaged.
Executive Director that is not able to produce or share requested documentation.
Yellow Flags:
No clear roles and responsibilities or performance review cadence for the executive director.
No onboarding packet or process for new board members.
A history of conflict or infighting among board members.
A lack of diversity or representation on the board.
An unclear or unrealistic strategic plan.
A reluctance to provide financial or operational information.
A board that is focused on management instead of governance.
Primarily paper-based records with no electronic record strategy.
Being recruited directly into an officer position.
If red flags are identified, we recommend declining the board position. Yellow flags should prompt further investigation and careful consideration before making a commitment. Trust your instincts and prioritize transparency and accountability.
Risks for Business Owners: Considerations Beyond the Bottom Line
While serving on a nonprofit board can be incredibly rewarding, business owners must carefully weigh the potential risks before committing.
Personal Liability: Board members can be held personally liable for group decisions, particularly concerning financial management and legal compliance.
Time Commitment: The time required to fulfill board responsibilities may exceed initial expectations, potentially impacting business operations.
Social Capital Risk: Hard and challenging decisions can affect a business owner's social capital and public relations, potentially damaging their reputation.
Financial Risk: Unexpected expenses, such as legal fees or personal contributions, can exceed anticipated costs.
Personal Decision for Each Opportunity: Finding Your Fit
Ultimately, the decision to join a nonprofit board is a personal one. Each opportunity presents unique challenges and rewards, and it's essential to find a fit that aligns with your values, skills, and availability.
Self-Assessment and Alignment:
Reflect on your personal "why" for wanting to serve on a board. What do you hope to gain from the experience?
Evaluate how the organization's needs align with your skills, abilities, and capacity to contribute talent, time, and treasure.
Assess whether the organization appears to be in a healthy enough state to warrant the level of responsibility required.
Values Alignment: Ensure that the organization's values and mission resonate with your own. You'll be more engaged and effective if you're passionate about the cause.
Time Commitment: Honestly assess your availability and ensure you can dedicate the necessary time and effort to board responsibilities.
Skill Utilization: Consider how your skills and expertise can be best utilized to support the organization's goals.
Personal Growth: Think about what you hope to gain from the experience. Board service can be a valuable opportunity for personal and professional growth.
Take the time to thoroughly evaluate each opportunity and ask yourself if it's the right fit for you. A well-considered decision will lead to a more fulfilling and impactful board experience.
Mindset for Board Service: Navigating New Terrain
One of our biggest lessons from the experience is that once you've found a good fit and decided to join a board, it's important to adjust your mindset for this new role. Unlike the decisive, singular decision-making often found in business, board service requires collective contemplation and decision-making. Things tend to move at a slower pace, with a less aggressive approach to growth and risk-taking than many business leaders are accustomed to. This shift in mindset was one of the many adjustments we had to make on our journey.
Therefore, consciously shifting your mindset from "business mode" to "nonprofit mode" is crucial. While your skills and strong decision-making are valuable assets, recognizing and adapting to these differences will help you navigate this new terrain more successfully. And, as we learned, navigating this terrain with eyes wide open is essential for both your and the nonprofit's success.
Call to Action:
We hope that more business leaders will engage and contribute to strengthening nonprofits in their communities. To assist you in this endeavor we created a checklist and decision worksheet, please download our Nonprofit Board Service Worksheet and Checklist. Best of luck as you explore this rewarding opportunity.
About the Author
Tina Dao is founder and CEO of Liberated Leaders, she partners with business owners and decision-makers to ease the burden of company leadership and embrace the discipline needed to create long-term value. She is a trusted advisor to multiple CEOs, helping them navigate challenges, optimize their businesses, and achieve sustainable growth.
About the Author
Kelly Smith is co-owner and CCO of Thayer Financial, which provides multi-family office services to its clientele through a team of CFP® professionals. Kelly leverages her experience from leading wealth management firms and running a family business to deliver an unparalleled client experience to business owners.
Thayer Financial, L.L.C. (“Thayer Financial”) is a registered investment adviser offering advisory services in the States of North Carolina, Tennessee, Texas and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. All content is for information purposes only. Opinions expressed herein are solely those of Thayer Financial, L.L.C., unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness.
Note: This blog was 80% human generated and 20% machine (AI) generated.
Information sources:
BoardSource is a national organization dedicated to strengthening nonprofit board leadership. They offer several resources:
A checklist for the board's role in reviewing Form 990, which covers key areas such as compensation of board members, mission and programs, and delegation of authority.
Guidance on nonprofit board governance best practices, including:
Ensuring programs and activities focus on the nonprofit's mission
Creating job descriptions for board members and officers
Conducting annual board assessments
Reviewing and approving the IRS Form 990 before submission
Good sources provide information about roles and responsibilities for serving on a nonprofit board in North Carolina:
The North Carolina Center for Nonprofits offers a comprehensive "Guidebook for Boards of Directors of North Carolina Nonprofit Corporations." This resource covers topics such as board composition, legal responsibilities, and bylaws.