November 28, 2018
The board of a charity is responsible for directing the affairs of the organization in accordance with its mission. In practice, the board delegates responsibility for managing the day-to-day activities of the organization to managers; however, fiduciary duties cannot be delegated and, therefore, the board retains oversight responsibility for matters that have been delegated. Board service can no longer be viewed as just an honor – the oversight responsibilities of directors are real.
The primary functions of the board typically include the following:
- Selecting, monitoring, evaluating, compensating and – if necessary – replacing the CEO;
- Defining and reevaluating from time-to-time the long-term strategy by which the organization fulfills its mission, and monitoring the performance of the organization in implementing the strategy;
- Approving budgets and financial plans; reviewing and approving material capital allocations and expenditures; monitoring and ensuring the integrity of the organization’s financial reporting processes, internal control systems and audit; hiring the independent auditor (if any) and assuring itself of the auditor’s lack of significant relationships that might impair objectivity;
- Balancing constituency interests in a manner that is consistent with the mission;
- Ensuring compliance with all applicable laws, regulations, policies and ethical standards of the organization (including laws and regulations enforced by the Internal Revenue Service, as well as the organization’s conflict of interest policy, code of conduct and ethics, whistleblower policy and document retention policy); and
- Assisting in obtaining resources through making personally meaningful financial contributions, fundraising and/or grant-writing.
The demands of board service are heavy – board responsibilities are wide-ranging and board service is part-time (and usually voluntary). The board should consider implementing board processes and structures that can assist directors to more efficiently and effectively fulfill these responsibilities; however, in doing so, the board should bear in mind that board practices should address the unique needs and circumstances of the particular organization – one size does not fit all.
The board should look for governance “best practices” that embody pragmatic solutions that will work given the particular needs and circumstances of the organization, including organizational structure, size, activities, life-cycle stage and funding mechanisms.
The goal of “best practice” is to promote active oversight and objective and informed judgment by the board. The critical issue of board governance, applicable to both for-profit and taxexempt organizations, is ensuring that the board serves as an active and independent mechanism of oversight as to the activities of the managers to whom the board has delegated authority. This is necessary to promote the accountable functioning of the organization, including the use of assets that have been entrusted to the organization by others. Board effectiveness can be enhanced by considering the following guiding principles that are common to each board.