Chapter 4: A Firm Foundation: the Non-profit Board of Directors
An effective board of directors is the foundation upon which the non-profit organization is successfully operated. The organization's board members should be given adequate information, and agree to adhere to the responsibilities of serving on a non-profit board.
Basic role and responsibilities of a non-profit board of directors
Support the Organization's Mission
Board members must be dedicated to the organization's mission and goals and should avoid campaigning to change the mission and goals of the organization. Organizational goals and strategic plans are revised only when necessary with careful deliberation and full board participation.
Ensure Financial Stability
The board is responsible for the fiscal well-being of the organization. The board ensures the organization is using its resources efficiently by setting financial policy and priorities, developing and approving the annual budget, and guarantees proper financial controls are in place. It is a common expectation that all board members commit to an annual cash contribution in addition to conducting the organization's on-going fundraising efforts. If the organization has an executive director and staff, then budget management and record keeping is administered by staff with board oversight. The organization's staff is responsible for development of grant proposals and the finance committee works with the executive director and/or development director to develop their fundraising strategy. Having an executive director and/or development director does not release the board of directors from their annual contributions and fundraising duties.
The organization should develop the capacity for earning income in addition to receiving donations and conducting fundraising endeavors. It stands to reason that a non-profit tax-exempt organization is healthy if it operates in the black. The non-profit status does not mean the organization cannot raise funds through earned income. Earned income is tax exempt as long as it is dedicated to the organization's on-going and future programming and paying staff and other expenses related to its mission.
Board and staff are obligated to honor the organization's policies, goals, budget and programming commitments. Since the 501 (c) (3) non-profit corporation is allowed to collect tax-exempt contributions, accountability to donors: corporate, state, federal and individuals is a priority. The board also maintains a positive relationship with their donors and ensures that the organization fulfills the reporting requirements of grants. Relationships with funding entities are cultivated by board members and staff and should be treated with diplomacy, care and respect.
Ensure Efficiency and Effective Organization Operation
The board reviews and oversees the organization's overall operation. If the organization has paid staff, then many administrative and programming operations are conducted by staff with board oversight. The board evaluates effectiveness of the executive director. The executive director evaluates staff, and the board develops a process to evaluate its own effectiveness.
Uphold Ethical Standards of Conduct and Operation
The board guarantees ethical and legal business practice of the organization. Creating clear and effective bylaws and operational policies help ensure compliance to ethical standards. Board members should be well informed and accept with full knowledge their legal responsibility upon committing their organization to contractual agreements. Individuals should not serve on a non-profit board if they expect direct or indirect financial benefit. They are volunteers and cannot be paid for their service as a board member. If ethical standards are compromised, public confidence in the organization erodes. If the image of the non-profit organization is diminished, public and private funding is at risk of being withdrawn. The IRS can revoke a non-profit's tax-exempt status if there are violations of ethical standards or conflict of interest.
Open Meetings and Open Records Acts
The Oklahoma Open Meeting and Open Records Acts ensure public access to a non-profit organization's meetings and records. The board of directors should be aware that the non-profit organization must comply with the Open Meetings and Open Records Acts.
Maintain a Positive Image of the Organization to the Public. The board of directors serves as the public face of the organization by promoting a positive image of the organization to constituents, the media, general public and donors. Ddisagreement and debate may occasionally occur at times during board meetings. If board dissention is taken outside the meeting room and aired in public, the organization risks losing public confidence and contributions from donors. It is helpful to identify one or more board members that can facilitate the resolution of conflict. Protect the integrity of the organization and its mission by including a section in the by-laws that outlines grounds and procedure for rotating members off the board who do not support the organization's mission or who compromises its good standing in the community.
Develop and Implement a Strategic Plan for the Organization
The Board is also responsible for working with staff to create a strategic plan for the long term stability and growth of the organization; including fundraising, volunteer recruitment, staffing, programming, and other aspects of organizational development. Once a strategic plan is adopted, the board and staff commits to implementing it.
The board is responsible for its own growth and development, for recruiting committed individuals to serve on the board, and for ensuring the board composition is balanced, diverse and appropriate to the organization's mission. Experienced board members should orient and train new members.
Develop a policy manual outlining a basic job description for board members and/or committees. Include in the manual, the organization's mission, bylaws, current list of board members, the strategic plan, donors list, programming policies, annual budget, staff list, hiring and contractual policies, committees and other pertinent information. Update policy manual annually.
The board of directors ensures the programming undertaken by the organization is consistent with its mission. If the organization operates as all volunteer, the board assumes a hands-on approach to programming. If the organization employs staff, programming is administered by the staff.
The board develops a job description with clear expectations for executive director and hires the most qualified person for the position. The board is responsible for developing a policy and procedure for terminating a director's employment when his/her performance is unsatisfactory. A productive and respectful relationship between the board president and executive director is necessary to maintain a healthy administrative foundation. The executive director is responsible for hiring and supervising support staff, carrying out board policies, and communicating with the board through the president. Individual board members do not participate in the daily programming and administrative duties of paid staff.
Compliance with IRS regulations
It is good practice to keep a copy of IRS regulations on hand for quick reference. 501(c) (3) tax-exempt organizations and their boards exist for religious, educational, charitable, or scientific purposes, and are by IRS restriction, non-partisan and apolitical. This IRS restriction means a tax-exempt organization cannot endorse candidates for public office or endorse one political party over another.
Maintain accurate records of cash and in-kind donations. The IRS requires dated acknowledgement in writing on organization letterhead for contributions to 501(c) (3) organizations. The organization must file an annual IRS form 990 and schedule A.
The IRS prohibits 501(c) (3) organizations from transferring assets to individuals or non-exempt entities. The organization may not lend money to its directors or staff. Employers are responsible for obtaining a signed federal W-4 form for tax withholding for employees.
Arts organization's board and staff should keep a basic library of resource materials. There is a wealth of resources available: in print, on-line and opportunities for professional development workshops and arts conferences. See Resources document in this series.