Governance - The NPO Board’s Key Priority Part 2
In an earlier blog I suggested that governance is the NPO Board’s key priority and I focused on the strategic planning process as the foundational element of governance. Whatever else occupies the board’s time, energy and focus, it must flow out of a clearly articulated strategic plan that is monitored AND measured. But governance goes beyond just the strategic planning process. Board governance also involves the important responsibility for developing and monitoring documents that outline due diligence processes related to managing liability and risk.
Constitution or by-law documentation outline the organization’s legal structure such as membership, board composition, meeting frequency, structure for both the board and the membership, and borrowing limitations. These documents are the bedrock foundation for the entire organization. The Board’s responsibility is to ensure that these documents are regularly reviewed, updated as needed, and that the organization complies with the terms and conditions outlined in the Constitution or By-laws.
Board Governance Manual
Another critical document is a Board Governance Manual. Where the Constitution/By-laws outline the broad legal framework and structure of the organization, the Board Governance Manual focuses on the parameters within which the Board and the various committees must operate. Typically a Board Governance Manual outlines the roles on the Board with clear position descriptions. In addition it addresses the scope of authority, limitations of authority, responsibilities, expectations and accountabilities for the Board as a whole, each member of the board, as well as any committees of the Board. The Board Governance Manual usually outlines the same parameters for the Executive Director since the Executive Director is the sole employee reporting directly to the Board.
The advantage of having a Board Governance Manual is that it brings clarity. It also serves as a great orientation tool for new or potential board members. The initial development of the document is a laborious process but the net result for the board is increased efficiency and structure in the execution of its duties.
Policies and Procedures Manual
If the Constitution/By-laws address the 30,000 foot level then the Board Governance Manual addresses the 10,000 foot level of the organization’s governance structure. But where the rubber really hits the road, at the 1000 foot level is in the Policies and Procedures Manual.
The board has a legal and ethical responsibility to manage the NPO’s liability and risk. In order to do that the board must first of all understand where liability and risk are present within the operations and programs of the NPO. Once the critical liability and risk factors have been identified, the Board has the duty to ensure that comprehensive and appropriate policies and procedures are written which mitigate and manage the organization’s exposure to liability and risk. Typical areas addressed in a Policies and Procedures Manual address issues related to Human Resources, Financial Management, Accounting and Accountability, Program Specific Policies, and if minors are involved, policies related to the treatment of minors, conduct of adults working with minors, and reporting process should an adult take advantage of a minor in the context of the activities of the organization. In addition, policies related to Human Rights Issues are usually included to ensure that the organization treats employees, volunteers and beneficiaries in an equitable, respectable, and fair manner.
As important as this aspect of the governance process is, many NPO’s have not done the hard work of ensuring a sound governance structure and process is in place within their organization. Perhaps your eyes glaze over as you read this blog. You’re not alone. Governance matters are not “sexy” and most board members don’t get involved with an NPO because they are uncontrollably passionate about governance. What they’re uncontrollably passionate about is the NPO’s mission and vision!
In addition, few board members have the expertise and skill set to develop the governance structures. But lack of passion, expertise or skill is no excuse for avoiding and ignoring this legal and ethical duty! In most jurisdictions, directors of an NPO bear legal liability for the organization. All it takes is one poorly managed liability or risk incident and the entire board is exposed to personal liability if they have failed to exercise governance due diligence. That reality alone ought to give cause for sober second thought and reflection for every board member!
What I find as I work with NPO’s is that even when a board has a strong business executive presence on the board, those who are familiar with and implement good governance in their business life, surprisingly ignore governance in the NPO.
Equally disturbing is when boards have done the work of developing good governance structures but then fail to implement, monitor and measure them. It’s better to have no governance processes and documentation than to have them, but do nothing to ensure implementation, monitoring, and compliance. Neither is good, but the former is the lesser of two evils! No matter how much Director’s and Officer’s Liability Insurance the organizations has, no amount of insurance covers the board’s negligence in fulfilling it’s legal and ethical duty and responsibility related to governance.
If you’re a board member of an NPO, and your organization doesn’t have good governance structures in place, you are personally liable. Is that a risk you’re willing to live with and accept? Ignorance is no excuse and you’re no longer uninformed. For the sake of your staff, volunteers, beneficiaries, and donors, do the right thing! Even if it’s hard and challenging!