It is essential for all nonprofits to have a strong organizational infrastructure, including an effective Board of Directors. In fact, the Board of Directors is a key component of any nonprofit’s success.
But what exactly does a Board of Directors do? And what are nonprofit board responsibilities? Read below to find out more.
What Are Nonprofit Board Members?
A Board of Directors is the governing body of a nonprofit organization. Nonprofit board responsibilities include providing oversight and governance to the organization. Board members typically serve for a specific length of time, called a term, which is outlined in the nonprofit’s bylaws.
A Board of Directors has several different positions, including a Board President/Chair, a Vice-Chair, a Treasurer, and, often, a Secretary.
While board members are typically volunteers, their responsibilities are significant. What does this mean? Read below to learn more.
11 Nonprofit Board Member Responsibilities
It’s impossible to do a job well if you don’t know what the job is. A Board of Directors is no different! All board members must take the time to understand their roles and responsibilities, starting with these fundamental legal obligations:
- Duty of Care: Each board member is responsible for making decisions on behalf of the organization they are serving and exercising their best judgment in doing so.
- Duty of Loyalty: Each board member must put the organization's interests before their own personal and/or professional interests.
- Duty of Obedience: Board members are legally responsible for ensuring the organization complies with all applicable federal, state, and local laws and adheres to its mission.
But this is just the beginning! In addition to the three core legal responsibilities, nonprofit board members have a number of other responsibilities as well.
It may seem like a lot to ask of a volunteer, but don’t fret! We’ve listed the top 11 nonprofit board responsibilities below.
1. Determine the Organization’s Mission and Purpose
It is the board’s responsibility to create and uphold the nonprofit’s mission statement and purpose, which should articulate the goals and desired impact of the nonprofit and the constituents served. This should take the form of a written mission statement that is widely distributed to staff, board members, community members, and other key stakeholders.
The mission statement should explain what makes the nonprofit unique, clearly express the organization’s goals, and make a compelling case for why individuals, corporations, and foundations should financially support the nonprofit.
In addition to ensuring the mission statement exists, the board should periodically review the statement’s adequacy and accuracy.
2. Select the Chief Executive
Hiring and overseeing the work of the nonprofit’s CEO/Executive Director is one of the most important responsibilities of a board member as it significantly impacts the organization’s performance, growth, and sustainability. The executive director or CEO also serves as the liaison between the Board of Directors and the organization’s staff.
The responsibility of hiring and selecting the chief executive may fall to a select few board members or a designated hiring committee, depending on the organization's size.
Sometimes, when a nonprofit’s chief executive departs the organization, the board will engage with an organizational consulting firm to conduct an organizational assessment. This assessment analyzes the organization’s strengths and weaknesses and provides information to the Board of Directors to inform the selection and hiring process.
The board also plays a key role in determining appropriate compensation for the organization’s chief executive. We will discuss this more below, but it is important for nonprofit organizations to ensure that their salaries, even those of the highest-ranking officials in the organization, are on par with other nonprofits of their size and scope to comply with IRS regulations for tax-exempt organizations.
3. Set Compensation Levels
An organization’s Board of Directors is also responsible for establishing compensation policies and guidelines. This is important for nonprofits because the IRS limits nonprofit salaries to “reasonable compensation," meaning nonprofits can face penalties, such as fines, for overpaying their staff and/or executives.
Board members must ensure that consistent guidelines are documented to determine salaries for the organization. This doesn’t mean that the Board of Directors needs to agree on the salary for every individual employee; rather, boards should agree on salary ranges for each position that their organization has and allow the appropriate staff (executive, HR director, etc.) to determine the salary for all staff members.
4. Maintain Financial Integrity
One of the foremost nonprofit board responsibilities is to preserve the organization’s financial standing. Board members serve as trustees of the organization’s assets, meaning they are responsible for ensuring that the nonprofit’s financial status is healthy. Some of the primary financial responsibilities of board members are:
Budgeting: Board members, in collaboration with the CEO/Executive Director, set the organization’s budget each year. A specific committee, such as a Finance Committee, may be charged with compiling the budget in larger nonprofits.
In smaller nonprofits, the Board’s Treasurer may work one-on-one with the executive to set the budget. Regardless of who compiles the annual budget, it should be formally approved and adopted by the full Board of Directors each year.
Accounting/Reporting: The board is responsible for ensuring proper accounting and financial reporting is happening at all times. Nonprofit organizations must legally account for all income and expenditures with appropriate bookkeeping practices and report on their financials via Form 990 each year.
Some states may require state-level reporting as well. It is the board's responsibility to ensure that these functions are occurring and that they are being done properly.
Investment Oversight: Not all nonprofits have investments; however, many do. These investments could be things like property, stocks, or an endowment. For those that do have investments, the board plays a critical role. A documented, board-approved investment policy should outline how the organization will invest funds in a responsible, ethical manner.
This is especially important because the IRS requires nonprofits to satisfy the “Prudent Investor Rule” in relation to any investments, which requires a fiduciary to invest the organization’s assets as if they were their own, and prohibits overly risky investments.
5. Support Fundraising Efforts & Protect Resources
Similar to the financial and fiduciary responsibilities, board members must also ensure that a nonprofit organization has all the resources it needs to succeed and be sustainable. What does this look like?
Board members should be involved in fundraising efforts in some capacity each year. Many organizations write this responsibility in their bylaws or board member job descriptions to ensure that the expectations are clearly documented.
Achieving 100% board giving is important for all nonprofit organizations as it shows potential funders that the entire board is engaged with and supportive of the organization. Check out our post on how board engagement can make a difference in reaching fundraising goals.
6. Adhere to Legal Responsibilities
Every Board of Directors must understand the organization’s internal policies and procedures and the legal implications of the organization’s operations. Board members must understand relevant federal, state, and local laws that apply to the nonprofit and ensure that the organization adheres to those regulations.
For example, all tax-related filings must be done correctly and on time, including state and federal tax returns. Nonprofits registered as 501(c )(3) organizations are exempt from income tax but must still pay payroll and property taxes. Failure to file the 990 form with the IRS can result in the loss of tax-exempt status.
There are other offenses that could result in penalties that board members should be aware of, such as overpaying staff or contractors and engaging in excessive lobbying or political activities.
7. Ensure Effective Organizational Planning
The Board is responsible for short- and long-term strategic planning. These efforts should be made in collaboration with the organization’s executive team, the full staff, and other important stakeholders.
The board should work collaboratively to make realistic plans that honor the organization’s mission and vision and consider the needs of the constituency the organization serves.
The most common type of organizational planning a nonprofit undergoes is the strategic planning process, a long-term planning document that outlines strategies that will enable the nonprofit to meet its goals.
8. Recruit New Board Members & Assess Board Performance
The board is also responsible for recruiting new board members in partnership with the nonprofit's chief executive. Once new members are identified and recruited, board members are responsible for orienting the new members.
Periodically, the board should conduct a self-assessment to evaluate their performance and identify areas in which the board may be able to be more effective.
9. Advance the Nonprofit's Mission
A nonprofit’s board members are its most important advocates, serving as the ‘face’ of the organization and vocal supporters of its cause. Board members should leverage their skill sets and personal and professional networks to promote the organization's mission, programs, and services to the public.
Because a nonprofit’s board of directors will likely have diverse and varying skills, this may look different for each member. Some board members will have connections to potential big donors or some might have connections to the media to generate free PR content.
The important thing is that each board member identifies ways they can support the nonprofit by tapping into the people they know and the skills they have.
10 Monitor the Organization’s Programs, Services, and Performance
The board sets the mission and vision of the nonprofit, and as such, they play a role in ensuring that the organization’s programs and services stay true to that mission.
Board members should have detailed knowledge of the programs and services offered by the organization, who participates in those programs, and the outcomes and impact of them.
This ongoing monitoring helps the board accomplish other key responsibilities, such as short and long-term planning and financial oversight. If the board is not aware of the organization’s programming and impact, they will not be able to execute these key tasks.
11. Support & Evaluate the Chief Executive
In addition to hiring the chief executive and determining fair compensation, the board is also responsible for providing an annual performance evaluation to the Executive Director/CEO.
The board should create a clear, documented process for the executive’s evaluation and identify specific board members to carry out this task on behalf of the entire board.
Wrapping Up: Nonprofit Board Member Responsibilities
To summarize, nonprofit board responsibilities include providing financial and legal oversight to the organization they serve, supporting its mission, setting compensation guidelines, and hiring and evaluating the chief executive.
Failure of the board to understand the full scope of their roles and responsibilities can lead to serious penalties—including fines and legal action.
So what does this mean for you? Nonprofit board members have a lot of responsibilities, all of which should be documented and spelled out in your nonprofit’s bylaws. But don’t stress—board members can also be your biggest advocates, strongest fundraisers, and most vocal supporters!