Non-profits, like profit-based organizations, need help managing resources and operations. In most cases, the differences between success and failure in such management are the framework they employ and their understanding of corporate governance for non-profits.
In non-profit governance, a proper governance structure, spearheaded by the board of directors, defines the rules and guidelines that run the organization. As the supreme authority at the pinnacle of the governance structure, the board of directors successfully carries out its oversight role.
Overall, the board doesn’t work alone in driving the non-profit governance drive. It also relies on the executive leadership (often the CEO), where applicable, and the committees, which are key members of the governance structure. It’s consequently important for all these key players to master their roles and act accordingly.
Through this guide, you’ll understand why corporate governance is essential for non-profits, the challenges of non-profit governance, and the best practices. Let’s dive in!
Key Takeaway:
- Non-profit governance is the framework by which non-profit organizations manage their resources and operations and comply with existing regulations.
- A typical non-profit governance structure involves the board (as the governing authority and oversight body), the executive leadership (which includes the CEO), and the board committees.
- The board of directors’ role in non-profit governance includes meeting attendance, strategic planning, financial oversight, regulatory compliance, resource stewardship, executive committee management, community outreach, and recruitment and evaluation.
- Corporate governance benefits non-profits in different ways, which include strategic oversight, transparency, accountability, resource management, legal compliance, effective recruitment, financial management, and succession planning.
- Non-profit governance can be fraught with challenges, such as conflict of interest, lack of diversity, limited resources, post-project review lapses, task delegation difficulties, board burnout, confidentiality breaches, and risk management failures.
- Effective non-profit governance relies on several best practices, such as transparent policies, correct governance models, a defined governance structure, strategy alignment, minute maintenance, self-assessment, annual reviews, financial leanness, inclusion and diversity, and board training and development.
What’s Non-Profit Governance?
Like other organizations, non-profit organizations are run by rules and practices that dictate their operations and resource management and hold them accountable for their decision-making and compliance. We call the whole setup non-profit governance, and it’s integral to building an effective non-profit-making organization.
Non-Profit Governance Structure
Non-profits follow a particular structure that defines how they are run. Here’s how a typical non-profit organization should shape out:
1. The Board
The board of directors is the governing authority and oversight body at the apex of the governance structure. It comprises visionary and strategic leadership that makes high-level decisions.
The Role of the Board in Non-Profit Governance
Here are the key board roles in non-profits:
- Meeting attendance: The board directors must attend meetings and make meaningful contributions.
- Strategic planning: The board develops the organization’s strategic goals and oversees their execution.
- Financial oversight: Directors oversee the constitution of the audit committee and review the budgets and financial statements.
- Regulatory compliance: The board oversees the non-profit’s compliance and risk management programs and the audit system to ensure compliance.
- Resource stewardship: The board carefully reviews the allocation of available resources and oversees their management.
- Executive committee management: The executive committee reviews policies and ensures adherence, quality management, and regulatory compliance. The board, in turn, offers strategic direction to the committee to ensure it does its job.
- Community outreach: The board engages the community in making decisions through forums, surveys, and other networks. Its directors serve as ambassadors for the non-profit, promoting its agendas to the community.
- Recruitment and evaluation: The board of directors oversees recruiting new board members and top executives, such as the CEO.
2. Executive Leadership
The CEO often occupies the executive leadership position, the second-ranking position behind the board. Ideally, this is a board member trusted to execute the board’s direction and with the experience to do so.
Some of the key duties of a non-profit CEO include:
- Oversee the day-to-day operations of the non-profit
- Work with the directors to set policies
- Update the board on various operation and departmental issues
- Provide strategic direction to the managers
- Source funding (fundraising drive)
- Represent the organization on public forums and before the media
- Develop and manage the staff
3. Board Committees
The board of directors institutes board committees to carry out specific tasks. Their job is to support the non-profit’s board. Unlike profit-based organizations, committees are pretty rare in non-profit organizations. Most of these organizations consider them when they become overwhelmed, and notable committees include:
- Executive Committee (which makes key decisions on behalf of the directors)
- Marketing Committee (which develops and executes the non-profit’s marketing strategy)
- Fundraising Committee (which is responsible for raising funds for the non-profit)
- Public Relations Committee (which builds awareness and manages the organization’s image)
- Membership Committee (which manages existing and new members of the board)
Importance of Corporate Governance for Non-Profits
Non-profits could benefit a whole lot from corporate governance, and below is a breakdown of the key importance of marrying the two worlds:
1. Strategic Oversight
Corporate governance offers non-profits a proper framework for reviewing policies, programs, and strategic goals and aligning them with their operations. It makes it easy for non-profits to set up top-performing boards, make quick, reliable decisions, and address obstacles. With governance, a non-profit can pay more attention to the big picture—its long-term goals.
2. Transparency and Accountability
Transparency is an essential pillar of a non-profit’s governance structure. It ensures the board doesn’t conceal anything from its stakeholders other than what is supposed to be private. Stakeholders see how the board and organization are run and how the resources are managed, and that inspires confidence.
There’s also the aspect of accountability when employing good governance in non-profits. In this case, the leadership gets to own up for their actions. Together with transparency, accountability helps to build trust with stakeholders, especially the funders, donors, and the wider community.
3. Resource Management
Corporate governance leads to better management of the non-profit’s human, financial, and material resources. It ensures accountability and transparency not only in management but also in reporting. Good governance allows the board to determine the priority areas when allocating resources to avoid waste or abuse.
4. Legal Compliance
Good governance enables non-profits to institute tenacious compliance systems that effectively analyze legislation and define their legal duties. Such non-profits are less likely to encounter legal roadblocks and suffer costly liabilities.
5. Effective Recruitment
With good governance, non-profits can recruit effective board members. They consider aspects like inclusion and diversity when deciding who can sit in the boardroom. Recruitment is based on merit, not close relationships with the directors. This ensures that only the most qualified candidates attend board meetings.
6. Financial Management
Corporate governance ensures there’s transparency in financial reporting and budgeting. It also ensures that the available financial resources are well utilized and is accountable for its decision-making on financial matters on behalf of the non-profit.
7. Succession Planning
A proper corporate governance structure ensures no leadership gaps, at least not for long. If a position suddenly becomes available, it’s always clear who takes it. Governance ensures no disruptions in the non-profit’s operations and reduces the transition financial burden.
Challenges of Corporate Governance for Non-Profits
Challenges will always crop up when a non-profit tries to streamline its governance structure. The challenges, nevertheless, are solvable, and they are as follows:
1. Conflict of Interest
A non-profit will likely fail due to a conflict of interest among stakeholders, especially its funders or volunteers. One classic example of conflict of interest is nepotism, where the leadership pays special attention to friends and family when recruiting board members and other key positions.
Another example is when executives or workers exploit the organization’s influence in the community for individual gain.
Solution
The solution to conquering conflict of interest is to institute strict policies against any conduct that could amount to a conflict of interest. Everyone should be wary of these policies.
2. Lack of Diversity
Given issues like conflict of interest, where the board prioritizes its ‘inner circle,’ it’s challenging to observe diversity when recruiting directors. Diversity means considering a matrix of experiences, backgrounds, and skill sets. It also implies gender parity—something that most boards have difficulty demonstrating.
Solution
It’s essential to have recruitment policies that are based on merit and that consider individuals of diverse perspectives.
3. Limited Resources
Most non-profits have access to limited funding and find it difficult to attract more funders. That makes it hard for these organizations to run, and it’s even worse when there’s no clear structure for allocating available resources based on priority.
Solution
Non-profits should prioritize key areas when seeking to distribute their limited resources. However, they should also try attracting more donors, voluntary funders, or partners with similar interests.
4. Post-Project Review Lapses
It’s often not easy to follow up on past projects. Most non-profits become too focused on executing new projects and raising funds and neglect to review previous projects’ performances and reports.
Solution
Non-profits should have proper post-project evaluation schemes to ensure they make the necessary follow-ups.
5. Task Delegation Difficulties
Ordinarily, the non-profit board delegates tasks to committees and staff and then leaves everything as it is. Effective delegation, however, requires active monitoring and supervision, which most non-profit boards don’t have time for.
Solution
The board should demand frequent updates from the committees and staff on any tasks they delegate and closely monitor their performance.
6. Board Burnout
With too many responsibilities, the board may burn out. Besides an unmanageable workload, the board may also burn out from donor frustration, limited resources, and a lack of professional development.
Solution
The board can reduce its workload by delegating some of it to committees. As for donor frustration, the board should find ways to entice funders with better strategic plans and accountability. Furthermore, the board should invest in training and development to drive motivation for its members.
7. Confidentiality Breaches
Board discussions should remain private unless they are intended to be public knowledge. However, confidential information may sometimes leak out and stir arguments, mistrust, and dissent among board members.
Solution
Non-profits should institute strict policies on privacy and confidentiality and take stern actions for those who disregard them.
8. Risk Management Failures
Risk management is a key pillar of good governance; the board of directors oversees it. However, risk management can sometimes be challenging, especially for non-profits with limited resources and lacking trust among volunteers and employees.
Limited resources mean the board is often forced to prioritize key operations and overlook risk management. Meanwhile, the lack of trust among volunteers and employees leads to weaker teams, a lack of cooperation, and poor judgment, which affect risk management.
Solution
Non-profits should institute risk management policies that the board and executive leadership should observe.
Best Practices for Governance in Charitable Organizations
The success of non-profit governance essentially depends on what the organization, through its board, does and doesn’t. Here are some best practices that will promote good governance among charity organizations:
1. Transparent Policies
Charity organizations need to have clear policies to govern their operations. These policies define what’s acceptable and what’s not, and they are shared in the table below:
| Policy | Description |
| Conflict Of Interest Policy | Prohibits interested members from engaging in anything where they might have an individual interest and outlines what to do if such an incident occurs |
| Whistleblower Policy | Assures all stakeholders of the organization’s commitment to protecting whistleblowers from possible retaliation |
| Gift Acceptance Policy | Governs the acceptance of non-cash gifts like artwork, cars, and land – outlining what gifts are acceptable and what is not |
| Expense Reimbursement Policy | Governs expenses that volunteers or staff members incur for non-profit-related expenditure |
| Document Retention/Destruction Policy | Defines how documents should be retained for evidence protection and what should be deleted |
| Joint Venture Policy | Governs participation in joint ventures to protect the interests of the organization and prevent incidents of private gain |
2. Correct Governance Models
Non-profits need to realize their mission, goals, and strategic objectives. That’s attainable with a good governance framework or model, which could include any of the ones shared in the table below:
| Governance Model | Description |
| Advisory Governance | The executive director or CEO consults an advisory board on pointers for running the non-profit. |
| Cooperative Governance | This applies to non-profits without a CEO. Since there’s no hierarchy, power is shared among all board members. |
| Policy Board Model | This is the commonest governance model, in which the CEO makes key decisions on behalf of the non-profit. However, the board regulates the CEO’s activities to ensure no abuse of power or violation. |
| Community Engagement Model | Engages the members of the community and takes their views into account in the decision-making process |
| Patron Governance Model | This applies to non-profits that frequently run fundraising campaigns. Board members usually come from affluent and highly respected families and use their influence to raise funds. |
| Management Governance | This governance model distributes board responsibilities to individual committees and the HR. |
| Hybrid Governance Model | The hybrid model combines two or more governance models to create a better framework for running the organization. |
3. Defined Governance Structure
We’ve discussed the non-profit governance structure, encompassing the board, executive leadership (or CEO), and committees. So, we wouldn’t want to dwell on that. What’s worth clarifying, however, is that the governance structure should be well-defined. Everything has to be clear regarding the duties and responsibilities of all three parties.
4. Strategy Alignment
The non-profit should properly align its operations with its strategic goals. Every decision it makes should support its mission. Its objectives should be clear, and the board needs to review them frequently. Furthermore, non-profits should proactively address their risks and foster a culture of adaptability and resilience.
5. Minute Maintenance
The board secretary should take the minutes during board meetings and carefully edit them. The minutes should be easy to understand and shared with the board chair for approval before safekeeping for future review or reference.
6. Self-Assessment
The board should compare its operations and practices to existing benchmarks and focus more on development. Regular self-assessment helps identify new challenges, set new priorities, and adjust strategic goals. It allows the organization to assess its overall performance and strategic direction.
7. Annual Reviews
Non-profits should review their written policies annually to check for compliance and address non-compliance anomalies. They should also annually review their tax filing, compliance, and the executive’s compensation and privileges. This puts them in a better position to make more strategic decisions.
8. Financial Leanness
No matter the financial allure of running a non-profit or the associated budgeting challenges, the organization shouldn’t lose sight of its mission or vision. It should focus more on what drives it and why it was founded and worry less about its financial insufficiency. The board should quickly dismiss financially unobtainable ideas.
9. Inclusion and Diversity
The organization should focus on including board members and staff with different cultural upbringings, industry experiences, and skillsets. It should consider diverse ideologies and perspectives and not forget gender parity, which is key to building a solid governance structure and effective board.
10. Board Training and Development
Board training and development lead to a more informed board of directors. They equip the board members with the right skills to drive the non-profit toward its strategic goals and enable it to improve its governance structure. Training and development are achievable through detailed onboarding, continual education, feedback, and board evaluations.
Embrace Non-Profit Governance Today!
There’s no denying the importance of corporate governance for non-profits. It makes things tick and promotes operation efficiency and purpose realization in the organization. But with the governance landscape quickly changing, non-profits must embrace the needed changes and trends to adapt, and that’s where we come in.
As the Center for Corporate Governance, we set the bar by offering timely and reliable corporate governance training, and we invite non-profit leaders to be part of it. Sign up for our tailor-made program to receive expert-led insights and discover future-ready concepts in the world of corporate governance that’ll differentiate you from other non-profits.
