Organizational Structure

Your First Board

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Every nonprofit corporation needs a board. To be able to enjoy the various benefits of a nonprofit status, the state laws require articles of incorporation designating a board that stands for the organization. The board is the accountable body that:

  • determines the direction for the organization
  • guards its mission
  • sets the standards and ethical guidelines
  • monitors its performance
  • ensures the organization is managed in a responsible manner

As nonprofits do not have owners per se, the board as a collective body acts as the moral owner and ensures the organization meets the expectations of its constituencies. Ultimately, the board is legally liable for the actions of the organization.

The first board of the organization has a big job to accomplish. It functions as the governing body while carrying on the management and administrative chores. Very often there is no staff yet, so board members wear numerous hats. Even before the nonprofit is ready to function as an organization with programs, products, and services, the first board is responsible for:

  • building the organization’s infrastructure
  • securing funds are
  • completing all the necessary IRS and state filings

All of this must be accomplished by the founding board to turn the organization into a functioning entity.

The IRS and the state laws address some aspects of your board, but rarely set rules for internal structures and procedures. However, to know what is covered by legal authorities, study the IRS definitions for various tax-exempt statuses www.irs.gov and learn the details of your state laws www.law.cornell.edu/states/listing.html.

Forming the first board

A nonprofit organization may have a founder who acts as the creator of the organization and forms the first board, or it may have a group of founders who together act as the initial board and determine collectively how to proceed. In the end, it does not matter which approach shapes the beginning phase in the board’s life cycle. What matters is an understanding of the role of the board and the responsibilities of individual board members. The clearer these concepts are from the beginning, the easier it is to build a board that will continuously fulfill its role as the responsible body for the organization.

Composition of the first board

Very often, the first board is made of friends of the founder or is a group of similarly-thinking individuals who are interested in and committed to the mission of the organization. As long as the group understands what is expected and is able to spend the time needed to get the organization on its feet, the first board is on the right track. Helpful skills, expertise, and characteristics might include:

  • familiarity with the constituents and their needs
  • fundraising capacity
  • understanding of the field or mission of the organization
  • business savvy
  • knowledge of financial management
  • technology know-how
  • ability to work in a team
  • innovativeness and flexibility
  • willingness to ask questions
  • time

Finding board members

Every board should have a governance committee that takes on the task of identifying, recruiting, orienting, and training board members. A good practice suggests the initial board form a governance committee to initiate a timely and proactive recruitment process. The following sources can be useful for board recruitment. To incorporate the necessary diversity on your board, rely on numerous sources.

  • Circle of friends and neighbors
  • Professional and business contacts
  • Ethnic professional associations
  • Other organizations and their annual reports
  • Professional associations
  • Major corporations and their community outreach programs
  • Local business people
  • Local United Way chapters or community foundations
  • Online board-matching programs
  • Community colleges, universities, adult education centers
  • People who are featured in the news or printed media
  • Board lists of other organizations

Size of the board

State laws determine the minimum size for nonprofit boards. In most states it is three. However, the number varies so you should be familiar with your state statutes. It is important to realize that the legal limit is not the same as an ideal solution. The law defines the lowest acceptable standards. Actual need — what must be accomplished — determines the optimal size for any specific organization. Three board members rarely possess sufficient outlook and capacity to govern an organization that must meet internal and external challenges.

You should define the guidelines for your board size in your bylaws, but do not state a specific number — that only invites trouble and may unpredictably force you to operate against your legal document. Set an acceptable range that allows you to keep functioning if a board member leaves unexpectedly or if you want to add a new member with desired skills.

First boards often are smaller than the more established boards. The founding board serves a very specific function but, at the same time, it must realize its limits and constantly assess the needs during the various phases of the organization’s life cycle.

Benefits of term limits

The purpose of term limits is to provide rejuvenation to the board, eliminate stagnation, and allow the board to evolve as organizational needs evolve. Term limits enable tired board members to leave with dignity. Term limits force the board to plan for the future and seize opportunities when they present themselves. Constant — but well-timed and structured — turnover ensures the board remains vibrant while respecting organizational memory.

Term limits may seem threatening to founders. A founder often has limitless devotion and attachment to the organization and easily becomes fearful of losing control. Unfortunately, in a nonprofit organization there is no such position as “founder.” This person must either be part of the board — and rely on group decision-making and natural turnover — or perhaps act as the first chief staff person — and accept supervision by the board.

According to BoardSource’s survey, the most common board member term is three years renewable once or twice. A staggered system allows for necessary continuity.

The role of the board and the responsibilities of individual board members

Even if you have an all-volunteer organization (AVO), one that has not hired staff to run the operations, the governing role of the board does not change. As mentioned above, your board is the responsible and liable body. It is a collective entity. It makes decisions in a board meeting by voting and records these decisions in the minutes. Your board speaks with one voice: group decisions set the tone and each board member — no matter how he or she voted during the meeting — must abide by and advocate this opinion. If that is not possible, it may be time to resign from the board. The board focuses on strategic organizational issues and how to manage its own affairs.

If the organization has hired staff, it is relatively easy to draw the line between governance and management. If there is no staff to implement the board’s decisions, the board forms committees and task forces or assigns tasks to individual board members to carry out the directives. If a board member has an assignment, it is important to remember that he or she must follow the group’s guidelines — not act without overall group consensus. Individual board members must recognize when they are contributing to group decisions and when they are implementing them. Individualism matters in decision making; it is restricted in implementation.

Legal obligations of the board

If ever your board (or a member of the board) must defend itself in court, all judgments are based on three specific legal obligations that define the standards of conduct. We call them the Three D’s - duty of care, duty of loyalty, and duty of obedience. It is important that each board member understands these expectations from the first day as they serve as the base for fiduciary duty and protection against personal liability.

Duty of Care: A board member must make careful, informed, independent, and prudent decisions. This is possible by attending meetings regularly, asking pertinent questions, and voting according to one’s personal conviction.

Duty of Loyalty: A board member must make decisions that are based on the good of and benefit the organization. You must remain loyal to the organization on whose board you sit. When a conflict of interest arises, a board member removes him or herself from discussion and voting.

Duty of Obedience: A board member must remain faithful to the organization’s mission, follow its bylaws, and respect all the federal and state laws that govern his or her nonprofit.

Starting well

The founding board’s initial role is to get the organization started. However, if it does not institute good practices from the beginning, it will create a structure that turns unwieldy and difficult to control. Building a strong base for effective governance and ethical behavior is the responsibility of the first board. Some of these practices and structural elements include:

  • orientation of new board members on their roles and responsibilities
  • job descriptions for the board and individual board members
  • conflict-of-interest policy to guide independent decision-making
  • process for monitoring the organization’s financial management (budget, financial statements, audit)
  • performance indicators to evaluate the effectiveness of the organization
  • self-assessment process for the board