Governance: The Work of the Board, part 2 Acting as the Fiduciary Responsible Agent

Welcome to part two of our five part series on Governance.  The first post reviewed the Board’s role in Hiring, Supporting and Evaluating the Executive.   Today, let’s discuss the Board’s role as the fiduciary responsible agent, which is quite different than the fiduciary mode outlined in my favorite Board book Governance as Leadership  and summarized in The Role of the Board. Fiduciary responsibility is one of the 5 pieces of the fiduciary mode, which is where governance begins for all boards and ends for too many.

As previously mentioned, Boards are made up of appointed community leaders who are collectively responsible for governing an organization.  That includes:

• Setting the Mission, Vision and Strategic Plan
• Hiring, Supporting and Evaluating the Executive Director
• Acting as the Fiduciary Responsible Agent
• Setting Policy and
• Raising Money

One of my goals for this blog is to rectify the common practice in the field of people telling nonprofit executives and boards how things should be done without any instruction as to what that actually means or how to accomplish it.

What it means to meet your fiduciary responsibility is:

It is the Board’s role to:

• — Read, understand and approve the financials
• — Review, understand and approve the audit, as appropriate
• — Review and sign the 990
• — Understand how the programs tie to the mission and the number of people served in those programs as well as the program’s impact

Financial statements should be prepared by the assigned staff or volunteer and reviewed by Finance Committee, often Chaired by the Treasurer, and then presented, by that Treasurer, to the full Board every time the full Board meets. Members of the Board should receive and review the information in advance and come to meetings prepared to ask questions and continue to ask questions until they understand and are willing to have their name listed as having approved the financials.  Once questions have been answered and all members are satisfied, the financial statements should be voted upon and either approved or sent back to committee with instructions to be addressed.

Please do not vote for something you do not understand.  When I do this training with Boards, I often say, the Exec will just get fired; Board members will go to jail.  I’m only mostly kidding. The Exec will likely go to jail too.  Either way, the community and the law will hold you as a Board member responsible.

The audit is prepared by an independent accounting firm in an effort to assess if the organization is operating in accordance with Generally Accepted Accounting Principles (GAAP) and also within their commitments.  Different audits are required based on the amount of government funding that is received. The costs of such audits vary depending on the budget size, revenue streams, and also the quality of the financial systems and the need to for the auditor to clean up those systems. Audits should be bid out, in conjunction with organizational policy, every few years.  The auditor that is selected should conduct the audit and also come to the Board meeting to present their findings and answers any questions that Board members may have.  Auditors also prepare and should explain a management letter which includes suggestions on improvements that could be made.  Such letters didn’t used to be but are now regularly requested by funders so it is imperative the Board is aware of what’s included within and have discussed the ramifications of accepting, and also not accepting the recommendations.

Most agencies pay for an audit to be done every year; some less often but still on a specific schedule driven by policy. The audit is submitted with most grant requests, to the national office of most affiliated organizations, as applicable and is given out frequently to anyone who requests a copy. Some organizations post a copy on their website.

The firm that prepares the audit is usually also the firm that prepares the 990, which is the tax return that non profits file each year. The 990 should be reviewed by the Board, prior to being submitted, and should be signed by the Treasurer.  It is often signed by the CEO, but it should be signed by the Treasurer or another member of the Executive Committee.

Finally, as part of meeting their fiduciary responsibility, the Board should understand how the programs tie to the mission, the number of people served in those programs as well as the  impact of that program.  That does not mean the Board needs to be – or even should be- in the weeds of programming.  It is the CEO’s responsibility to ensure the program’s creation, implementation, management and evaluation.  It is the Board’s responsibility to understand how such programs are aligned with the mission and the vision of the organization, the impact of that program on the clients your serve as well as the number of people served by those programs.

Fiduciary responsibility means that the Board – and not just the Treasurer but the whole Board- is responsible for safeguarding the community’s resources and ensuring accountability and transparency.

What’s been your experience?  As always, I welcome your insight and experience.

Governance: The Work of the Board, part 1 Hiring, Supporting and Evaluating the Executive

As mentioned in Board Basics and reposted in Erik Anderson’s Donor Dreams blog “Boards are made up of appointed community leaders who are collectively responsible for governing an organization. That includes:

• Setting the Mission, Vision and Strategic Plan
• Hiring, Supporting and Evaluating the Executive Director
• Acting as the Fiduciary Responsible Agent
• Setting Policy and
• Raising Money

As you know, one of my goals for this blog is to rectify the common practice in the field of people telling nonprofit executives and boards how things should be done without any instruction as to what that actually means or how to accomplish it.

Since I wrote a recent post on Strategic Planning, I’m going to circle back to that one and start with Hiring, Supporting and Evaluating the Executive Director.

What that means is:

It is the Board’s role to hire the Executive Director, also called CEO. Prior to hiring, interviewing or even posting the job, it is imperative the Board discus what they want and need in an Executive Director. This conversation cannot be farmed out to a committee primarily consisting of non board members, or to a consultant or hiring firm. That will only get you what they want and think you need – not what you want and actually need.

What skill sets and experience do you need in a leader?

Growing, turning around or maintaining an organization require very different skill sets. Which trait do you want your new leader to have? Does your leader need to be a subject matter expert? Does she need to be local? Does he need to be a fund raiser, an operations person or both? I recommend a search, regardless of if there is a good internal person, if someone on the board wants the job or if there is an obvious heir apparent. Do a search, let everyone apply and see who best matches your needs. For more information on conducting a search, please click here.

Once your hire an Executive Director, he needs to be supported. Supporting an Executive Director is where the rubber meets the road. I once had a colleague tell her board to “Support her or fire her, but to choose.” and while I was shocked, I was also in agreement. The job of the Executive Director is very difficult and energy spent on worrying is not spent on moving the organization forward. (To the Executive Director’s out there: Worrying about keeping your job precludes you from doing your job. You have to do what you believe is best, based on your experience, information and training, within the boundaries of your role and the law. We all know that any day could be the day you quit or get fired. That can’t stop you from leading.) Communication is key: the Board needs to know (and approve of) what the Executive Director is doing and the Executive Director needs to know (and be willing to do) what the Board wants.

It is the Board Chair’s job to be the direct supervisor of the Executive Director and the entire Board’s job to support her, set goals and hold her accountable to those goals. That means the Board has to let the Executive Director fulfill the bounds of her role. There should also be a strategic plan that is being implemented, board approved policies that are being followed and an annual evaluation process for the Executive Director (and the rest of the staff).

The vast majority of Executive Directors rarely get evaluated, and when they do it’s often because they asked for an evaluation. (To the Board Presidents out there: Executive Directors, just like Board members and most other people, when left to their own devices will do what they think is right. What they think is right will not necessarily be aligned with what the Board wants, especially if what the Board wants has not been discussed or communicated. It also may not be aligned with anything anyone else is doing. See the Strategic Plan link above to create alignment.) Executive Directors should be given expectations and goals (just like all other staff) and should be evaluated against those expectations and goals every year. There should be a staff (including executive) compensation plan that has a range for salaries for each position and reflect comparable positions in your community; raises should be given within the confines of that plan, or the plan should be revised. (More on that in the Setting Policies blog to come.)

Hiring, Supporting and Evaluating the Executive Director has to happen – in full- for your executive to be an effective leader, for your board to fulfill its responsibilities and for your organization to fulfill its mission. When an Executive Director is hired right, supported appropriately and evaluated effectively there’s no end to the impact it can make on an organization and a community.

What’s been your experience? As always, I welcome your insight and experience.