Topic 03
Board governance for working nonprofits. What the board owns, the three documents that keep it useful, composition, fundraising expectations, and where to start.
Your board reads the packet in the parking lot and spends the meeting on the office lease. The chair has not made an ask in two years. One member emails your program director with ideas every week. Board governance is the set of documents, habits, and expectations that stops this from being normal. This page will help you decide three things: what your board should own and what it should leave to staff, which document to fix first, and whether a governance overhaul is even the right move this year.
The board holds the organization in trust. Directors owe three duties, and the New York Attorney General’s guide for directors describes them plainly: care (know the finances, read the materials, show up), loyalty (act for the organization and disclose every conflict), and obedience (keep the organization inside its mission, its bylaws, and the law). The California Attorney General’s guide for charities sets the standard of care as what an ordinarily prudent person in a like position would use, and notes that a director who breaches it can be held personally liable.
In practice the job is short. Hire, evaluate, and if necessary replace the executive director. Approve the budget and accept the audit. Set direction and check that the money follows it. Keep the organization legal. Give and get money. The IRS says it wants a board “composed of persons who are informed and active in overseeing a charity’s operations and finances.” The job does not include managing staff, choosing software, or approving every expense over $5,000. A board that does those things is doing the executive director’s job badly and its own job not at all.
| Decision | Board | Executive director |
|---|---|---|
| Hire, evaluate, replace the executive director | Owns | |
| Annual budget | Approves | Builds and manages |
| Strategy | Sets direction, tests progress | Proposes, executes |
| Program design | Asks whether it works | Owns |
| Staff hiring below the executive director | Owns | |
| Audit and Form 990 | Reviews and accepts | Prepares with the auditor |
| Vendors, software, office lease | Owns | |
| Executive compensation | Sets, with comparables |
Bylaws set the rules. A board agreement sets the expectations. Committee charters set the boundaries.
Bylaws are governed by state law, and states differ on the basics. New York requires at least three directors. California allows one. Your bylaws should fix the size range, terms, term limits, quorum, officer roles, and removal. In BoardSource’s 2021 survey of 689 chief executives and 131 board chairs, 73 percent of boards use three-year terms and 24 percent set no limit on how many a member can serve. Keep operational detail out of the bylaws.
The board agreement is one page, signed at election and again every year. Attendance, a personal gift, committee service, conflict disclosure, confidentiality. The New York guide recommends an annual signed statement listing every entity a director serves that deals with the corporation. Form 990, line 12b asks whether directors disclose interests annually, so one signature does double duty.
Committee charters matter because the average board in the BoardSource survey runs 4.1 committees, and 61 percent have an executive committee. The usual four are executive, finance or audit, governance, and development. Each charter states the purpose, the decisions the committee can make alone, what it must bring to the full board, and when it reports. Write the executive committee charter first, and make its most important sentence the list of what the committee cannot do.
Alongside these sit the policies Form 990 asks about. The IRS says the Internal Revenue Code does not require them, then reviews your return to see whether you have them.
| Policy | Where Form 990 asks | Legal status |
|---|---|---|
| Conflict of interest | Part VI, line 12a | Required by New York law, not by the Internal Revenue Code |
| Whistleblower | Part VI, line 13 | New York requires it above 20 employees and $1M revenue |
| Document retention and destruction | Part VI, line 14 | Not required, though you must keep records relevant to exemption |
| Compensation process for the top official | Part VI, line 15a | Protects you under the section 4958 rebuttable presumption only if followed |
| Board review of Form 990 before filing | Part VI, line 11a | Not required; 85 percent of boards do it |
Recruiting is where most boards feel the pain first. In the BoardSource survey, 81 percent of chairs said finding people with the right skill set was hard, and 49 percent of chief executives said they did not have the right members to establish trust with the communities they serve.
Independence is the other constraint. Form 990, line 1b asks how many voting members are independent, and the IRS says a board “should not be dominated by employees or others who are not, by their very nature, independent individuals because of family or business relationships.” California requires that at least 51 percent of directors be unpaid for anything other than board service.
The tool for both problems is a board matrix. Rows are current members and open seats, which on a board of a dozen or more is a page, not a note. Columns are the skills, networks, lived experience, giving capacity, and term end dates you need over three years. The gaps become the recruitment list. Board composition matrix walks through building one and ships with the spreadsheet.
Fundraising has been one of the lowest-rated board functions in every BoardSource study for more than 20 years, and in 2021 it was the lowest. In that report, 48 percent of chief executives graded their board’s fundraising below average or failing, and 76 percent said the board spends not enough time on it. The same report found that boards placing the highest importance on fundraising scored lower on setting strategic direction, monitoring impact, and guiding the chief executive. The fix is a specific expectation, not a louder one.
Among organizations that fundraise, 68 percent of chief executives said the board requires a personal gift without naming an amount, and 19 percent name a minimum, with a mean of $2,803. An expectation holds when it is written into the board agreement, names both a gift and a role (thank-you calls, introductions, hosting), is tracked by the development committee, and is read before anyone is renominated.
The chair who will not fundraise is a governance problem, not a development problem. The chair does not have to make asks. The chair does have to give and to hold every other member to the agreement. A chair who will do neither should not be renominated. Board member fundraising expectations that hold sets out the agreement language and the conversation. The board’s share of revenue belongs in the fundraising plan, with a number next to it.
The BoardSource survey puts the average board at 7.5 meetings and 19.5 hours of meeting time a year. Spending any of those hours on reports read aloud is a choice.
Put reports on a consent agenda. Name one or two decisions on every agenda, with the question written out. Send the packet seven days ahead with a one-page dashboard on top. Members who do not read it usually start when it is 12 pages instead of 60. The chair, not the executive director, calls the ones who still do not. Minutes record what was decided and who dissented. The IRS asks on Part VI, line 8 whether board actions were contemporaneously documented.
Hold an executive session without the executive director at every meeting. The New York guide tells directors to allow time to meet without senior management, and only 26 percent of boards do it every meeting. When the session is routine, it stops being a signal that something is wrong.
A retreat is one day, one question, and decisions written down before anyone leaves. Board retreat agenda that produces decisions gives the agenda and the rules that keep it from becoming a team-building day.
This relationship carries everything else, and the numbers say it is under-managed. Only 53 percent of chief executives had a formal written evaluation in the past year, 21 percent have never had one, and 73 percent work without a written contract.
Four habits fix most of it. A standing call between chair and executive director every two weeks, with a no-surprises rule in both directions and the leadership team’s issues surfaced in it. An annual evaluation against written goals, in executive session first and then with the executive director, as the New York guide describes. Compensation set by people with no conflict, using comparability data, documented at the time, which is the IRS rebuttable presumption under section 4958. And a chair successor named a year ahead.
Do not rewrite the bylaws. Do three things. Get a one-page board agreement signed by every member within 60 days, with the personal gift and the annual conflict disclosure on it. Run one pass of the board matrix and hand the governance committee three names to approach. Move reports to a consent agenda and put one named decision on the next agenda. That changes how the board behaves before anyone has argued about a bylaw.
A governance overhaul is the wrong move this year if an executive transition is coming. The new leader should shape the board they inherit, and a board that rewrites itself before a search tends to lock in the old executive’s preferences. It is also the wrong move if a merger, an affiliation, or a wind-down is on the table, because the bylaws will change anyway.
If the real problem is one person, use the removal clause you already have rather than redesigning the structure around them. If the founder still chairs the board and recruited every member personally, sign the agreement and stop there. And if you are under an attorney general inquiry or carrying an audit finding, fix that first, with counsel.
The board hires and evaluates the executive director, approves the budget, accepts the audit, sets direction, keeps the organization inside the law and its mission, and gives and raises money. The IRS describes the job as overseeing operations and finances, not running them.
It depends on the state of incorporation. New York requires at least three. California permits one or more. The IRS sets no number but warns that very small boards may lack independence and very large ones struggle to decide.
Care, loyalty, and obedience, as described by the New York Attorney General. Care means being informed and participating, loyalty means acting for the organization and disclosing conflicts, and obedience means staying within the mission, the bylaws, and the law. California states that directors who breach care or loyalty can be personally liable.
Federal law allows a charity to pay no more than reasonable compensation for services, and Form 990, Part VII reports whatever directors are paid. California requires that at least 51 percent of a public benefit corporation’s directors be unpaid for anything other than serving as a director.
No federal rule requires it. Line 11a asks whether a complete copy went to every voting member before filing, and the answer is public. In the BoardSource survey, 85 percent of boards receive it. Give the board two weeks with the return.
Federal law sets no frequency. Your state statute and your bylaws do, so check both. The BoardSource average is 7.5 meetings and 19.5 hours a year.
A board matrix template with the columns worth scoring, a 0 to 2 scoring rule, a worked gap analysis, and the script for telling current members what it says.
A board matrix template with the columns worth scoring, a 0 to 2 scoring rule, a worked gap analysis, and the script for telling current members what it says.
A twelve page board packet with a page budget per section, a cover sheet that leads with decisions, the consent agenda test, and a seven day send-out rule.
A nonprofit board calendar template with the five decisions placed on named months, the filing deadlines that set those months, and the seven day rule.
A three-tab board matrix spreadsheet with one row per member, 0 to 2 scoring, a gaps tab that does the sums, and a recruitment brief tab. Sheets and Excel.
A board packet outline with a page budget per section, a cover sheet that leads with decisions, the five part consent agenda test, and a seven day send-out checklist.
A one page executive director report with the decisions requested first, a five row status header for cash, revenue, programs, people, and compliance, then the dashboard.
A three-tab board calendar spreadsheet with twelve months driven by one fiscal year cell, the standing items by meeting, and committee cadence. Sheets and Excel.
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