Field Guide to Developing, Operating and Restoring Your Nonprofit Board Third Edition By Carter McNamara, MBA, PhD Authenticity Consulting, LLC Minneapolis, MN USA
Copyright 2008 Authenticity Consulting, LLC, Minneapolis, Minnesota. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means now known or to be invented, electronic or mechanical, including photocopying, recording, or by an information storage or retrieval system without written permission from the author or publisher, except for brief inclusion or quotations for review. For reprint permission, more information on Authenticity Consulting, LLC, or to order additional copies of this or any of our other publications, please contact: Authenticity Consulting, LLC 4008 Lake Drive Avenue North Minneapolis, MN 55422-1508 USA 800.971.2250 toll-free 763.971.8890 direct http://www.authenticityconsulting.com Trademarks Authenticity Circles, Free Management Library, Free Nonprofit Micro-eMBA and Free Micro-eMBA are service marks of Authenticity Consulting, LLC, Minneapolis, Minnesota. Leveraging the Power of Peers is a registered mark of Authenticity Consulting, LLC, Minneapolis, Minnesota. Policy Governance is a registered trademark of Carver Governance Design, Inc. Credits Cover design and illustrations by Erin Scott/Wylde Hare Creative, Woodbury, Minnesota. Photographs 2005 JupiterImages Corporation/Photos.com, primary cover photo; Teri McNamara/Impressions & Expressions and Erin Scott/Wylde Hare Creative, secondary cover photos. Clip art by Nova Development Corporation Art Explosion 750,000 Images. Printed by Graphic & Printing Services, Big Lake, Minnesota. Manufactured in the United States of America First Edition April 2002 Second Edition June 2003 Third Edition July 2008 Waivers of Responsibility 1. Various Web addresses are referenced in this book. The author and publisher have no legal responsibility or liability for the currency or accuracy of these Web addresses or their content. 2. Information in this book is not to be considered as legal, tax and/or financial advice as if from an expert specifically in those areas. In-depth and technical advice needed in those areas should be obtained from professionals in those areas. Publisher s Cataloging in Publication Data McNamara, Carter, 1953 - Field Guide to Developing, Operating and Restoring Your Nonprofit Board / by Carter McNamara Includes bibliographical references and index. ISBN 10 1-933719-06-1 (paperback) ISBN 13 978-1-933719-06-0 (paperback) 1. Board of Directors. 2. Nonprofits. 3. Governance. 4. Leadership I. Author II. Title
Table of Contents Table of Contents...i Table of Tables...vi Introduction...vii Audiences New, Established and Struggling Nonprofits...vii Guide Recognizes Diversity of Board Models...vii Step-by-Step, Easy-to-Reference Content...viii How to Use This Guide...xi Frequently Used Terms in Guidebook...xiii Frequent References to Free, Useful Resources...xiv Sample Board Policies for Use by Owner of This Book...xiv About the Author...xv About Authenticity Consulting, LLC...xv PART I: STARTING A NONPROFIT AND BOARD...1 To Govern Nonprofits, First Understand Them...3 How Nonprofits Differ From For-Profits and How They Are the Same...3 Different Types of Public Needs Met by Nonprofits...4 There Is More Than One Type of Nonprofit Organization...4 Three Most Important Levels Within Nonprofits...6 Most Important Roles People Play in Nonprofits...7 Nonprofit Programs What They Are, What They Are Not...8 Different Designs of Nonprofits...9 What A Small Nonprofit Typically Feels Like...13 How to Start a Nonprofit...16 What is the Purpose, or Mission, of the Nonprofit?...16 Consider Fiscal Sponsorship to Jump Start Nonprofit?...17 What Help Might You Need?...18 What Should You Name the Nonprofit?...19 Recruit Your Initial Board Members ( First Board )...19 Hire Chief Executive Officer (Executive Director) Yet?...20 Draft Your Articles of Incorporation and Initial By Laws...20 Conduct Basic Strategic Planning for Now...21 Conduct Your Initial Board Meeting to Do Approvals...22 Do All Necessary Filings...22 PART II: BOARD ROLES AND RESPONSIBILITIES...25 Variety of Board Models for You...27 What is a Board of Directors?...27 How Much Should Your Board Be Involved in Management?...28 i
What Does a Healthy Board Look Like?... 29 Variety of Board Models to Consider for Your Board... 30 Some New Board Models to Also Think About... 34 Typical Phases of Developing Your Board... 36 Other Types of Boards for You to Be Aware Of... 37 Your Board s Most Important Documents... 38 Board Roles and Responsibilities... 41 Fiduciary Duties (Legal Responsibilities) of Your Board... 41 How to Minimize Liabilities of Your Board Members... 43 How to Ensure Ethical Behavior of Your Board Members... 44 What Board Committees Typically Do (If You Use Them)... 45 Roles of Your Board Members and Officers... 48 Leadership Role of Your Board Chair... 48 Leadership Role of Your Executive Committee... 50 Board and Staff How Do Their Roles Compare?... 50 Organization Chart of Board/Staff Relationships... 52 PART III: HOW BOARDS DO THEIR WORK... 53 Your Board Calendar (Your Board s Annual Important Tasks)... 55 Strategic Planning: Direction for Nonprofit and Your Board... 56 All Else Flows From Your Strategic Planning... 56 Strategic Planning What, Who and When... 57 Sample Planning Process for Short-Term Strategic Plan... 58 Developing Your Initial Strategic Plan for Now... 60 How to Staff and Fully Equip Your Board... 65 Different Approaches You Can Use to Staff Your Board... 65 Adopt Comprehensive, Yet Practical, Board Staffing Policy... 66 How to Identify the Best Potential Board Members... 66 How Potential Members Apply to Your Board... 70 How to Orient New Members About the Nonprofit... 72 How to Train Board Members About Their Roles... 73 How to Keep Your Board Members Fully Informed... 75 How to Thank and Reward Your Board Members... 76 How to Retire Board Members... 77 How to Remove a Board Member... 78 Some Frequently Asked Questions About Board Staffing... 79 How to Organize Committees (If You Use Them)... 82 Advantages and Potential Disadvantages of Committees... 82 How to Organize Your Committees (or Your Task Forces)... 84 What Each Committee Typically Does... 85 How to Successfully Start Each Committee (or Task Force)... 88 Work Plan Each Committee s To do List... 89 Board Decision Making... 91 Typical Types of Decisions Your Board Should Make... 91 How to Ensure Your Board Makes Useful Decisions... 91 ii
How Your Board Members Can Come to Consensus...93 How to Be Sure Board Members Participate in Decisions...94 How to Govern the Nonprofit...97 How to Make Sure Stakeholders Are Always Heard...98 How to Ensure Relevant and Realistic Strategic Planning...99 How to Make Sure Board Operations Are High-Quality...100 How to Verify Programs Meet Needs of the Community...101 How to Ensure Fair Management and Productive People...102 How to Take the Lead in Fundraising All Kinds...104 How to Effectively Get the Word Out About the Nonprofit...106 How to Ensure Sound Management of Finances and Taxes...108 How to Advocate for Public Needs and Lobby Legally...110 How to Track Performance of Nonprofit, Board and People...112 How to Identify and Avoid Risks to the Nonprofit...113 How to Ensure Sustainability of Nonprofit, Programs, People and Money...116 How to Regularly Measure Overall Health of the Nonprofit...118 How to Ensure Transparency and Accountability...119 How to Have Productive Board Meetings...122 How to Design Successful Board Meetings...122 Questions Your Board Members Should Always Ask...124 Avoid Sidebar Meetings...124 Roberts Rules of Order The 20% Used 80% of the Time...124 What to Document In Your Board Meeting Minutes...126 When to Have an Executive Session (in camera)...128 When to Have Open Board Meetings...128 How to Measure the Quality of Each Board Meeting...129 How to Ensure a High-Quality Board...130 One Set of Best Practices for Your Board...130 How to Conduct Board Retreats For Planning and Renewal...132 How to Help Board Members Diagnose Nonprofit s Problems Rather than Focus on Symptoms...134 How to Match Board s Priorities to Life Cycle of Nonprofit...140 How Board Members Can Evaluate Their Board...142 How to Ensure Full Participation of Board Members...142 PART IV: BOARD AND CHIEF EXECUTIVE...145 How to Hire Your Chief Executive Officer...147 Role of Typical Nonprofit Chief Executive Officer...147 Wrong Reasons to Hire Chief Executive...149 Right Reasons to Hire Chief Executive...150 How to Determine Compensation for Your Chief Executive...150 Use an Employment Contract With Your Chief Executive?...154 How to Recruit and Select Your Chief Executive...155 How to Orient Your New Chief Executive...158 iii
How to Work With Your Chief Executive... 160 Your Board and CEO Are Really In Strategic Partnership... 160 How to Ensure Effective Board and CEO Relations... 161 How to Ensure Strong Relationship Between Board Chair and Chief Executive... 163 How to Evaluate Your Chief Executive Officer... 165 How to Quickly Replace Your CEO (CEO Succession Management)... 166 PART V: RESTORING STRUGGLING BOARDS... 173 Context for Successfully Restoring Your Board... 175 Issues to Always Watch For On Your Board... 175 Common Types of Broken Boards... 176 General Principles for Restoring Your Board... 178 Why Board Training or Team Building Alone Seldom Restores Boards... 180 Specific Principles for Restoring Your Board... 181 Procedures to Restore Your Board... 183 One Set of Proven Steps to Restore Your Board... 183 How to Manage Interpersonal Conflicts... 188 How to Manage Board Conflict and Come to Decisions... 189 How to Get Your Board Members Unstuck... 190 Recovering From Founder s Syndrome... 192 What is Founder s Syndrome?... 192 Leadership and Founder s Syndrome the Good and Bad... 193 Actions Your Board Members Must Take... 195 Actions Your Founder Must Take... 197 Actions Your Staff Members Might Take... 198 APPENDICES:... 201 Appendix A: Glossary... 203 Appendix B: Resources for Nonprofits... 211 Free Management Library SM... 211 Free Nonprofit Micro-eMBA SM Organization Development Program... 212 Organizations Assisting Nonprofits... 213 Free, On-Line Newsletters and Forums... 214 Board-Specific Resources... 215 Some Mega-Websites About Boards... 216 Appendix C: Guidelines to Form Your Advisory Board... 217 Overall Benefit of an Advisory Board... 217 What is an Advisory Board?... 217 How to Organize Your Advisory Board... 217 iv
Appendix D: Guidelines to Working With Consultants...219 Reasons You Might Need Consultants...219 Major Types of Consultants to Nonprofits...220 Where to Get Consultants...221 How You Can Make Consultancies Productive as Possible...222 Be Sure You Have "Independent Contractor Relationship...224 Appendix E: Tools to Measure Health of Nonprofits...227 How to Select the Best Assessment Tool...227 One Example of a Very Good Assessment Tool...230 Appendix F: Goals and Objectives for Board Development Committee...243 Appendix G: Typical Contents of Board Manual...245 Appendix H: Sample Board Policies...249 Sample Board Job Descriptions...250 Sample Executive Director Job Description...256 Sample Annual Calendar of Board Activities...257 Sample Comparison of Board and Staff Roles...258 Sample Board Committee Charter...259 Sample Board Staffing Checklist (Board Renewal Cycle)...260 Sample Board Member Recruitment Grid...261 Sample Board Member Application Form...262 Sample Board Conflict-of-Interest Policy...264 Sample Board Member Contract...266 Sample Board Ethics Policy...267 Sample Board Decision-Making Policy...268 Sample Executive Director Evaluation Form...269 Sample Board Member Self-Evaluation Form...272 Sample Board Self-Evaluation Form...273 Sample Board Attendance Policy...275 Sample Board Media Relations Policy...276 Sample Whistleblower Policy...277 Sample Document Retention/Destruction Policy...278 Bibliography...281 Index...289 v
Table of Tables Table I:1 Comparison between For-profit and Nonprofit Corporations... 3 Table I:2 Organization Chart of Typical Start-Up Nonprofit... 10 Table I:3 Organization Chart of Typical Small Nonprofit... 11 Table I:4 Organization Chart for a Typical Medium-Sized Nonprofit... 12 Table I:5 Checklist for Starting a New Nonprofit... 23 Table II:1 Comparison of Common Board Models (Based on Structure)... 33 Table II:2 Typical Contents for By Laws... 40 Table II:3 Potential Standing Committees... 47 Table II:4 Potential Ad Hoc Committees... 48 Table II:5 Board / Staff Relationships... 52 Table III:1 Sample Agenda for Board Orientation Session... 74 Table III:2 Staffing of Board Committees... 85 Table III:3 Sample Board Meeting Agenda... 123 Table III:4 Strategic Questions for Board Meetings... 125 Table III:5 Cycle of Important Functions in Nonprofits... 135 Table III:6 One Perspective On Nonprofit Organizational Life Cycles... 141 vi