Nonprofit Board Member Due Diligence

Entrepreneurs are typically very engaged in their communities and we often volunteer with local nonprofits.

I’ve served on numerous nonprofit and municipal boards and have always found the work to be rewarding. It’s a wonderful way to be involved with helping out a good cause and giving back to one’s community, so I always recommend that small business owners do so.

Board Membership vs. Volunteering

Agreeing to be a Board Member brings with it more responsibility than being a regular volunteer, however.

When volunteering to work on a specific project or event, you are only responsible for showing up and doing what you have agreed to do. But Board service brings with it added oversight, legal and fiduciary responsibilities.

For that reason it’s important to perform some basic due diligence on the organization before agreeing to serve.

Doing so will:

  • reduce the chance that you’ll unknowingly walk into a bad situation
  • make it much more likely that it’ll be a good fit between you and the organization
  • protect you from unanticipated risks

After many years of both serving on Boards and working with Boards on financial and governance best practices, I’ve put together a few recommendations.

Before Agreeing to be a Board Member

  • Review the organization’s mission and vision statement to be sure you are comfortable being identified with it in your community.
  • Accept the fact that you will be expected to fund-raise and also to donate to the organization.
  • Find out what the annual Board member fundraising goal is.  (Nonprofits often play this down when recruiting Board members, but it’s a key Board member role.)
  • Meet with both the Board Chair & the Executive Director/CEO to discuss the organization’s current operations and challenges.
  • Review the biographies of current Board members.
  • Read the Nonprofit’s By-Laws (boring, I know, but you’ll be legally bound to follow them.)
  • Find out what the annual fundraising plan and goals are – and what is expected of you.
  • Discuss how many hours you will need to commit – both in terms of meetings and other duties
  • Review the audits and the IRS Form 990s for the nonprofit’s last 3 Fiscal Years.

Ask Questions First

Here are some basic questions to ask before going too far down the Board Member volunteer road:

  • Are there currently any cash flow difficulties?
  • If so, what is the cause and what is being done to address it?
  • Is there any litigation pending?
  • What is the Board term of service?
  • Is committee service required as well?
  • How long is a Board term?
  • Are there term limits on Board service?
  • Is there an active Finance Committee?
  • Is there an Executive Committee and what role does it play?
  • What is the mix of Revenue and Funding sources (e.g., operations, grants, donations, endowment)?
  • Are all payroll and benefits payments for staff members current and up to date?
  • How much are Board members expected to give or fundraise annually?
  • How often you will get financial statements and what are they providing?
  • Is there an annual audit done by an outside CPA firm? If not, why not?
  • Do they have Directors and Officers insurance?
  • Does the organization indemnify Board members against liability claims?
  • What is the history of Board member turnover?
  • Is there a Board conflict of Interest Policy?

Protect the Nonprofit and Yourself

Many entrepreneurs volunteer for Board service without a clear understanding of requirements and expectations. We get excited by an organization’s mission and then find out later it needs way more time than we can give or the fit is uncomfortable in some other way.

Doing some basic due diligence will help protect you and also the organization – the nonprofit needs to be able to depend on you as a Board member, so it doesn’t help to serve if you can’t fully step up to what it needs. That can result in bad feelings on both sides.

And one last piece of advice – think seriously before saying “yes” to Board service if your only reason for doing so is because a friend is “twisting your arm” to do it. To be a truly effective Board member, you will have to commit your time, ask your colleagues and friends for donations and be an advocate for the organization. All of that is much easier if you are actually attached to and believe in the organization’s mission.

 

© AskConny.com

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