The right board for your nonprofit

Is your nonprofit new and building its governance infrastructure from scratch? Or is it established but looking for ways to improve the effectiveness of its board? Depending on an organization’s life stage, size and needs, one board structure may make more sense than another. Let’s look at some common models.

Policy model

Policy boards are dedicated to high-level oversight and governance. They’re appropriate for more-established nonprofits where employees and volunteers handle day-to-day duties, staff programs and work with clients. The board provides a system of checks and balances that keeps the organization on track.

A policy board also generally makes strategic decisions and sets long-term goals. Board members are fiduciaries who approve budgets, monitor financial statements, oversee audits and possibly manage investments or an endowment. In addition, they help ensure the organization follows all applicable laws and regulations. This type of board usually benefits from having members with accounting and legal expertise. Board members may also be expected to cultivate donors and make personal financial contributions.

Working structure

Working boards are often found in early-stage organizations or in small nonprofits where there’s plenty to do but not enough hands to do it. Members of working boards could be tasked with everything from defining a long-term funding strategy to stuffing goodie bags for a fundraiser. They must be willing to do grunt work but be ready to switch to a more strategic mindset when necessary.

Because this type of structure is common in nonprofit startups, a working board may be responsible for defining the organization’s mission and values. Although early-stage nonprofits usually don’t have complicated financial situations, the board should, among other things:

• Establish a long-term revenue model,
• Keep a close eye on budgets, and
• Ensure compliance with the IRS’s tax-exempt requirements.

Tax compliance includes understanding when activities might result in unrelated business income tax liability.

Hybrid approach

It’s not unusual for nonprofits to start out with a working board and then transition to a policy-style board as they gain employees and volunteers. In some cases, certain hands-on tasks, such as sourcing and hiring executive staff, remain the purview of an otherwise strictly policy board.

Hybrid boards generally are known for their flexibility. There may be times when your policy board needs to take a more hands-on role. For example, if you don’t have enough accounting staffers to segregate accounting duties, board members may need to step in to review bank statements or approve disbursements. Or they may need to assume some executive functions during a leadership transition period.

Formal definition

If your organization is attempting to switch from a working board to a policy or hybrid model, it helps to formally define that shift. Putting it in writing could also make it easier to recruit new board members, such as community leaders, who wouldn’t necessarily be interested in a more active board role. Contact us if you have governance questions.

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