Founding Board Members with Obvious Conflicts of Interest

QUESTION:
Hi – Can you help me? I am the founder of a nonprofit organization that is recruiting initial board members for this new organization. We don’t have employees and it will probably be quite a while before we do. I will serve as the organization’s Executive Director – and I will be on the board with no voting power.

One of the women interested in joining our board is a perfect candidate because she has so much experience in our industry. However, she is also in the process of opening up a “for profit” business that could become a supplier to our organization once we are up and running. Her business could volunteer a service to us, she could be a regular donor to our organization, but she would ultimately also profit from the referrals we send her. We’d really like her as a founding member on our board participating in all of our board meetings.

What do you think about this idea? Can we legally have her on our board and does this make a conflict of interest in any way? She would gladly take one of the board positions.

ALYSON’S ANSWER:

Thanks for this question. You have a complex situation here. My short answer is that you can have this woman on your board, but I wouldn’t.

As you know, a potential conflict of interest arises when a board member stands to gain (financially) from the decisions that are being made by the nonprofit. Your situation is exactly this. If this board (with this perfect candidate )is making decisions that could increase her profits, her decision-making as a board member could be compromised because she stands to gain from voting a certain way. She might not be making decisions in the nonprofit’s best interests – but instead she might be voting in a way that is in her own best interests.

Having said that, in most states, conflict of interest is not a problem as long as it’s foreclosed to other board members. If they are AWARE that she stands to gain by her decisions as your board member, AND she excuses herself from voting in instance where she stands to gain, then it is not a problem.

In your case, as your org is still new and young, I would worry not only about the actual legal issues here – but the APPEARANCE of what you are thinking about doing. How will the other board members be influenced by her presence – knowing that she stands to gain by certain decisions? How will other donors that you might want to attract feel if they know that she’s on your board and she’s starting her own business that will be working hand-in-hand with yours?

I hope this helps.

Also, at my web site at the page below, you can download a free copy of a conflict of interest statement and policy that might help you.

http://boardsthatexcel.com/7-steps/step-1-foundations/

Sincerely, Alyson

Nonprofit Board Recruitment – A Job for Board Members, Not the CEO

New board member recruitment is probably the most important responsibility of your board. Your new board members are the future of the organization – and will lead the organization when current members have cycled off the board.
Recently, when talking to a Board Vice Chair who was about to become the Board Chairman, she told me that she’d asked the CEO to recruit a new board member from a local accounting firm. The board was losing their Treasurer (because he had completed his two three-year terms) and the board lacked sufficient accounting and budgeting skill sets for a new Treasurer. So I was glad that they’d decided to approach one of the premiere accounting firms in town to inquire about potential board members.
What I wasn’t so happy about was the fact that this board member had turned to the CEO to ask him to make the connection with the accounting firm to solicit one or more new board members. By delegating the recruitment of new board members to the CEO, I don’t think this organization will be able to recruit the best candidates possible – and I think their board’s leadership and ability to govern will suffer.
Let’s turn for a moment and take a quick look at best practices for donor solicitation – which has some parallels with board recruitment. Exceptional development managers know that when you are soliciting donations from major donors, you have more success when you match the potential donor with an existing donor or board member. For example, if you are soliciting money from a bank president, then having a bank president ask for money increases your probability of success. When you are soliciting money from a college professor, send another college professor in to do the job. These “like-minded connections” will improve the success of your fundraising campaign.
Now imagine yourself as the potential, new board member. Would you rather that the CEO or a soon-to-be-fellow board member recruit you? Which option would make you feel more valuable, wanted, and welcome? Would you rather join a board of an organization that send the CEO or another board members to recruit you?
So when you are in the process of seeking new board members for your board – you need to have current board members do the soliciting and asking.
Here are a few more best practices for nonprofit board recruitment:
1. Establish a Board Development Committee that will spearhead your board’s recruitment efforts.
2. Your board VP (who will become the President at the beginning of next year) would be a good person to be the Chairperson of the Board Development Committee.
3. At the beginning of the year, ask the committee to develop a list of “skill gaps” – skills you need but don’t have and skills you will be losing as board members cycle off the board at the end of the year.
4. Have the Board Development Committee present a list of “skill gaps” and “recruitment priorities” at the very first board meeting of the year. This will focus the year’s annual recruitment efforts so that everyone can look for people with the passion for the organization and the skills you need.
5. Ask the Board Development Committee to present the potential new board member candidates and their qualifications at the beginning of the 4th quarter – and, per your by-laws, vote in new board members prior to the end of the year.
Because you are selecting future leaders of your organization, new member recruitment is one of the most important tasks of any board. It is essential that this function be handled by the board and not the CEO. Be sure that your board starts early and spends plenty of time recruiting exceptional board members.

These booklets can help you recruit exceptional board members: “Purposeful Board Recruitment” and “Board Development Committees.” To read more about these booklets, go to www.BoardsThatExcel.com/the-market/

8 Best Practices about Your Mission Statement

1. The Mission Statement should be short and sweet – a compelling and inspiring statement about what is being delivered by the organization.
2. The board, staff and volunteers should revisit the mission annually.
3. Discussion of the mission statement should be a prominent part of all orientations.
4. The mission statement should be on all literature, on the web site, and posted in the workplace.
5. Start every meeting with a “Mission Minute” – someone telling a story about a client or the organization’s contribution.
6. The mission statement should be written on all board and staff agendas.
7. The mission statement should be on all board minutes.
8. All staff, board and volunteers should KNOW the mission (by heart).

Board Governance – 6 Parts of Successful Oversight

There are many definitions of Board Governance – most of which are broad and theoretical. But when I consult with boards who are interested in improving their ability to govern, I like to use a more practical definition that includes 6 key areas of focus. Additionally, I provide a few examples of actions or evidence that supports each of the six focus areas. This list, with its qualifiers, helps board members see how to work more effectively with their CEO and staff, and implement good board governance.
Below are the 6 focus areas of good board governance – and some examples of actions or evidence against which you can measure your ability to govern and lead.
1. Ensure that the organization is adhering to its mission.
a. There’s a crisp, clear one-sentence mission statement for the organization.
b. All projects that are not within the scope of this mission statement are eliminated.
c. If any potential funding or programs fall outside of the mission, they are discussed thoroughly and need to be approved by the board.
2. Approve and follow a strategy for the organization.
a. Be sure the organization has a strategy (a minimum of 3 years out).
b. Know how the organization is evolving and why.
c. Agree on the key milestones that are expected to be achieved and their due dates.
d. Debate thoroughly all funding, programs, or projects that fall outside of this strategy.
e. Any changes to the strategy require board approval.
3. Maintain a financially sound organization.
a. Establish an annual expense budget and an annual fundraising budget.
b. Ask the CEO to present the actual vs. budget (both expenses and fundraising) at every meeting – at last quarterly. Make sure the entire board understands these reports.
c. Create financial policies for the organization (cash handling, rainy-day funds, and investments) and be sure they are followed.
d. Hire an outside auditor annually.
4. Approve all policies and be sure they are being followed.
a. These minimum policies are in place: conflict of interest, ethics policy, values statements.
b. These organizational policies need to be approved by the entire board: Financial Policies, Human Resource Policies, Donor Policies, Operations Policies.
5. Inspire and manage the CEO.
a. Set up annual objectives (of accomplishments) for the CEO.
b. Make sure the Chair of the Board reviews the CEO annually. (written and verbal)
c. Insist on training and development for the CEO (and all staff members) each year.
d. Talk about the career path of the CEO each year – make sure you’re on track.
6. Create board sustainability.
a. Create meaningful committees that works closely with the staff and provides both oversight (governance) and organizational support.
b. For each board committee, create a brief, annual action plan for the work that will be achieved by that committee.
c. Know what skills are required on your board.
d. Create an annual system of recruitment and orientation that replenishes the skills of the board members whose terms are expiring at the end of each year.
e. Conduct a board self-evaluation annually.
f. Create a strong, supportive team that enjoys working together.

If your board meetings are not focused on the decisions required to govern properly, you should encourage your board to make some changes now. Not only is the board legally responsible to address these key areas of an organization, but it makes sense that the leaders of the organization focus their time and attention on these 6 key issues.

Send this article to your Board Chair today. Sit down and discuss how you can work together to create a board that governs wisely and thoroughly.

4 Nonprofit Board Committees that all Well-Run Organizations Have

Regardless of the sector, maturity, or staff sophistication of the nonprofit organization, these four board committees are essential to the health of the organization and well-being of the board itself. Share this article with your board today and discuss how these four nonprofit board committees can help you do a better job providing oversight and support for your nonprofit. If your board lacks the expertise to support the activities outlined below, decide which board skills are needed, and start recruiting board members with these skills now.
Board Development Committee – This committee preserves the quality of your board’s future because it is responsible for determining what skills are required on the board, and for recruiting and orienting all new board members. While many boards have one-time orientation sessions, better boards continuously exposure their members to the work of the organization and the quality board governance they are trying to achieve. Along with the Board President, members of this committee communicate with your board members to ensure that they are making a productive contribution and they are satisfied with their board experience. The design, administration, and interpretation of your annual board self-evaluations is done by the Board Development Committee.

Finance Committee – The finance committee is often the most highly-functioning of all board committees. This committee supports the development of the annual expense budget, tracks the actual spending vs. budget, watches monthly cash flow, and interprets the overall financial health of the organization on behalf of the board. This committee supports the development of the longer-term strategic plan as well as next year’s annual plan. All of the financial policies of your organization should be reviewed by the finance committee prior to board approval. The Audit and Investment Subcommittees help round out the board’s involvement in the financial affairs of the organization.

Fundraising Committee – While the Executive Director is responsible for the organization’s fundraising, well-run organizations engage the support of the board in various part of their fundraising plan. This committee oversees the development of the Annual Fundraising Plan – and tracks the planned vs. actual results during the year. They encourage, train, and thank other board members for their involvement in the fundraising activities. They explore potential , new fundraising activities as part of the strategic planning process. Special Events Subcommittees can be established as part of this committee when appropriate.

Personnel Committee – Contrary to popular thinking, even small, young nonprofit organization need personnel (or human resource) expertise on their boards. Even if there is only one part-time employee working for your nonprofit, this committee helps make sure that all state and federal laws and regulations that affect employment are followed. This committee ensures that the wages you are paying are comparable to wages in other, similar organizations – and that each employee has a current job description, documented annual objectives, and yearly follow-up reviews that include training and career path planning. Employee Handbooks, Human Resource Policies, Staff Planning, Benefits Selection, Pension Considerations, and Vacation/Holiday Schedules for full-time and part-time employees are all within the responsibility of this committee.

Get the ball rolling by sharing this article with your fellow board members and your Executive Director.
If your board does not have a well-developed committee structure, start by assigning some board members to these committees now. If your board has committees but they’re not particularly effective, re-invigorate these four committees first. They are by far the most important to the effectiveness of your board and the success of your nonprofit.

Check out the booklets for each of these four committees at www.boardsthatexcel.com/the-market/

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