Whether a charity has paid staff or runs off a team of dedicated volunteers, the board of directors plays a pivotal role in providing guidance and oversight. While having talented CEOs, VPs, and experienced leaders on a board may look impressive, the measure of an effective board lies in how well they are engaged, informed, and active in the organization’s operations. BBB Wise Giving Alliance’s Standards for Charity Accountability are designed to identify whether the proper frameworks are in place for a board to provide the adequate oversight and governance that donors expect (and deserve).
First, let’s drill down into the first few of these governance standards:
Standard 01 – Board Oversight: Organizations shall have a board of directors that provides critical oversight of the charity's operations and its staff. Responsibilities include but are not limited to:
(a) formally reviews the performance of the CEO/executive director at least once every two years,
(b) formally approves the budget,
(c) ensures that arrangements with outside fund raising firms are made in writing,
(d) receives information about the financial arrangements with such firms and, if applicable, the anticipated portion of the gross proceeds that goes to the charity,
(e) has formally approved a conflict of interest policy and regularly monitors it to ensure adherence,
(f) appoints a voting member of the board to oversee the charity's finances and report to the board (this may not be a paid staff member),
(g) ensures that no person holds the offices of both chair and treasurer at the same time,
(h) annually receives the following applicable items: IRS Form 990, audited financial statement, auditor's management letter, and if there is no audited statement, then the charity's unaudited financial statement,
(i) ensures that the charity complies with applicable government charity regulation.
Standard 02 – Board Size: A board of directors shall have a minimum of five voting members.
Standard 03 – Board Meetings: An organization shall have a minimum of three evenly spaced meetings per year of the full governing body with a majority in attendance, with face-to-face participation. Alternative modes of participation are acceptable for those with physical disabilities.
It shouldn’t come as a surprise that the very first standard is the most comprehensive, as the board has a fiduciary responsibility. Simply put, the board has a legal and ethical duty that obliges them to act in the best interest of the charity, in respect to both the charity’s finances and its overall operations. A fiduciary’s primary legal responsibilities are:
- Duty of Care – to take care of the nonprofit by ensuring prudent use of its assets;
- Duty of Loyalty – to ensure that the charity’s activities and transactions advance its mission and that decisions benefit the organization over individual interests of board members;
- Duty of Obedience – to make certain that the charity obeys applicable laws or regulations, follows its own bylaws, and adheres to its stated mission.
Detailed as it may be, standard 01 represents the practices that should be in place for a board to be informed enough to adequately lead. When any of these oversight practices are missing, not only is our standard not met but the risk of poor governance arises and may leave room for other problems to creep in unnoticed. Of course, these duties aren’t the only responsibilities of the board, just a baseline to ensure appropriate governance. Boards should also be involved in guiding the organization’s culture, strategic direction, and fundraising efforts; serving also as public ambassadors for the organizations they serve.
Now, if all the practices are in place for standard 01 to be met, an organization should be headed in the right direction. However, the board needs a minimum of five members to diversify expertise and avoid concentration of power. While a board of five isn’t the most ideal, the adage “the more the merrier” doesn’t necessarily apply, either. Large boards filled with busy executives often find issues with board meeting attendance, as finding meeting dates without scheduling conflicts is a tall order.
Though BBB recommends a minimum of three meetings evenly spaced throughout the year, many charities meet more frequently. Attendance at these meetings should exceed a minimum of 50% for the board to be active and engaged enough to be able to carry out the responsibilities outlined in standard 01. Face-to-face meetings are encouraged, though video conferencing offers an alternative when scheduling conflicts and geographical barriers threaten attendance.
Ultimately, even the most impressive roster of board members will fall short as leaders if they aren’t attending meetings or are not supplied with sufficient data to be able to hold itself (or the charity) accountable.
While these standards seem straightforward, not all charities meet these standards. Of the charities currently evaluated by Better Business Bureau Northwest + Pacific, 9.7% of charities did not meet or did not provide enough information to confirm that standard 01 is met. As for standards 02 and 03, our findings are 2.3% and 15.9%, respectively.
In an upcoming post, we’ll dive into the remaining governance and oversight standards on board compensation and conflicts of interest. Until then, note that this information isn’t intended to deter your interest in serving on a board of directors. It is, however, our goal that board members understand the responsibility they have signed up for and to educate donors on the real role that a board of directors plays.
For more information on our standards or to find a charity that meets these standards, visit give.org.