What Issues Should a Nonprofit Board Consider Annually?

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As the end of a year approaches, a nonprofit’s board of directors should begin to reflect on a number of issues involving governance and management of the organization to encourage its growth and success. Among the areas that boards will want to review include corporate formalities, financial oversight, programs and planning, and legal compliance.

Typically, a board of directors holds an annual meeting to elect directors for the coming year. However, there are several other matters for a board to review and act upon annually. These reviews and actions should not all be performed at the annual meeting (that would be overwhelming!), and they also need not be timed with the end of the calendar or fiscal year. Regardless, they should be scheduled every year.

Below is a list of areas that the board of directors should consider examining as the year comes to an end. Boards should look to each of these areas by first reflecting on the past, and then anticipating or looking forward to potential issues for the future.

  • Elections. Are there any officer or director positions which must be elected? The board should review the organization’s bylaws to ensure that elections (including re-elections) are being held consistent with the requirements stated in their bylaws.
  • Budget. Before a new fiscal year, the board should review and approve a budget for the upcoming year. A budget is an important planning tool that encompasses an organization’s programs, mission, and strategic plan. The organization’s staff will likely be charged with preparing the budget, but the board should review and approve the budget with care.
  • Executive’s Performance. The board is charged with reviewing the executive’s performance and generally should provide the executive with some form of annual performance review. An executive’s job description may occasionally change as the organization grows and evolves, and thus, it is also important to review and revise the executive’s job description, duties, and compensation, as necessary. Keep in mind that rewarding an executive with a bonus for past activities may be problematic under charitable trust law principles, particularly if there is no provision for such added compensation in the employment documentation or policies. Such matters should be discussed with a knowledgeable attorney.
  • Mission. The board should review the organization’s purpose statement and mission against the activities it conducted over the year. Has the mission strayed from the purpose statement in the articles of incorporation or bylaws? Are activities being conducted outside of the organization’s exempt purposes? Generally, the board must approve any changes to an organization’s mission. The board should also consider the Charitable Trust Doctrine and any need to amend the organization’s articles and bylaws when a mission changes or shifts.
  • Programs. It is also a good idea for the board to review the organization’s strategic plan and receive a program update from the organization’s staff regarding the past year. From time to time, the board should monitor the organization’s progress on its strategic plan, or at a minimum, set a date to engage the plan. The board will want to make sure that programs and plans are on target, and make modifications as necessary.
  • Form 990. Most tax-exempt organizations other than churches must file either the Form 990, 990-EZ, 990-N (e-postcard) or the 990-PF. The filing must take place by the 15th day of the 5th month after the fiscal year is over. The board, or at least an authorized committee of the board, should review this form before submission to the IRS. We recommend that most organizations adopt and observe a Form 990 Review Policy.
  • Board. The board should review its own composition and performance and determine, based in part on such review, its recruitment, training/development, meeting, oversight, policy-development, and planning strategies.
  • Committees. The board should examine its committee structures and performance of each committee. The board should distinguish between board committees and other committees, selectively appoint committee members, ensure proper delegation to and oversight of the committees, and shed unused or ineffective committees.
  • Legal Compliance. With staff input, and the assistance of legal counsel, as appropriate, the board should review the organization’s past legal issues and identify and assess its current and future issues. The board should ensure compliance is a priority and set the proper tone at the top. Charities should consider applicable laws regarding qualifications to conduct activities, required licenses and permits, nonprofit and 501(c)(3) compliance (e.g., operational test, private inurement, private benefit, excess benefit transactions, self-dealing, lobbying, electioneering, annual reports, public disclosures), facilities and real property, intellectual property, employment practices, and internal policy compliance.
  • Risk Management. With staff input, the board should identify and assess the organization’s risk areas, ensure the development and implementation of appropriate risk management policies (including proper training of staff and volunteers), and review the adequacy of the organization’s insurance coverage.

In addition to the reviews and actions described above, the board may want to schedule time at each meeting to consider one or more generative questions about how to make the organization more successful in the future. These questions may encourage board members to close out the year with a critical and nurturing eye to the larger picture and organizational climate. Such questions include:

  • What is happening in the environment that will affect our mission or organization? In this context, directors should think not only about assets and programs, but also about how to directly respond to the organization’s mission and objectives. For example, if an organization’s goal is to eradicate homelessness in a city, and programmatic activities include running various soup kitchens, the organization may want to consider other ideas that could address homelessness. Should the organization get involved with advocacy? Are there other possible actions that may directly speak to the organization’s intended outcome?
  • How do we continue to recruit board members? How do we advance the desired composition of our board? Do we have diversity goals? Are we meeting them?
  • Are there questions we should be asking ourselves that are reflective of our specific circumstances?

Meeting a board member’s legal or fiduciary duties is a much greater task than simply staying out of trouble. It’s about protecting, overseeing, and directing the organization with reasonable care to toward its mission. Preserving the status quo is often not the most valuable strategy for doing so. In our minds, reserving time to discuss various possibilities, including those not easily accessible, is an essential part of fulfilling the board members’ legal duties.

Additional Resources:

Nonprofit Board Meetings – Calendar of Agenda Items

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