Governance in nonprofit organizations - The Orange Room

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The nonprofit and voluntary sector has become a quite large sector in many developed countries. Many of us are part of social or business nonprofit associations. Governance in such organizations has its own characteristics and does not necessarily follow the governance in other organizations such as business companies.

Use this thread to provide information on governance in nonprofits. Your contribution can be in terms of governance documents or simply hands-on experience.

Information in this thread can help us in this project, if we succeed in getting it to go.

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The article below is taken from a College's (Nicola Valley Institute of Technology) governance perspective. However, it obviously applies to other type of organizations.

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Board Governance Policies

Approved/revised: October 10, 1995

A.2.1 Policy Governance Model ~ Summary and Definitions

A.2.1.1 Summary

Board leadership requires, above all, that the Board provide vision for the College. To do so, the Board must first have an adequate vision of its own job. The Policy Governance approach provides a powerful framework for structuring this task. Following this approach, the Board can free itself from unnecessary, time-consuming involvements and focus on the real business of governance: creating, sustaining, and fulfilling a vision.
The Policy Governance model is explained fully in "Boards That Make a Difference" (Jossey-Bass, 1990). In brief, it reduces or eliminates meaningless Board and committee work, trivia, Board interference in administration, staff manipulation of the Board, unclear evaluation criteria and role confusion.
Policy Governance emphasizes vision and values, the empowerment of both Board and staff, and the strategic ability to lead leaders. Because policies permeate and dominate all organizational life, they present the most powerful lever for exercising Board direction. Board policies can be designed as a total system to encompass all expressions of Board wisdom. There are only 4 categories of Board Policy: Ends, Executive Limitations, Board-President Relationship, and Governance Process.

DEFINITIONS

A.2.1.2 Ends
The Board's most important job is to devise a mission and mission-related statements which clearly set out what the desired results -- the Ends -- of the organization's actions are to be. What human needs are to be met, for whom, and at what cost? How will the world be different as a result of the organization's actions? Including, but not limited in the mission statement, Board-generated ends are further defined at all levels of the organization. They compose the organizational vision. The Board leaves it up to the staff to decide on the means by which to achieve these ends, and evaluates staff performance based on how well the results of the organization's actions match the desired ends.

A.2.1.3 Executive Limitations
While the Board prescribes what ends (what results, for whom, at what cost) it wants to achieve, it only sets limits on the means with which the staff operates. These limits are principles of prudence and ethics that form a boundary on staff practices, activities, circumstances and methods. In Executive Limitations policies, the Board states clearly what the Board will not allow, but it is otherwise silent regarding staff actions. This empowers the staff to use their full creative powers while at the same time safeguarding against potential abuses, enabling the Board to concentrate its energies on ends issues.

A.2.1.4 Board-President Relationship
In addition to providing the organization with a vision and defining what constitutes inappropriate staff practices, the Board must set policies about how it relates to staff -- for example, the Board's approach to delegation, its views of the President's role and how it will assess staff performance. The Policy Governance model envisions the President as the link between the Board and the staff. In essence, the President is the Board's sole employee. The only specified duty of the President is to be accountable to the entire Board for the performance of the organization -- on how well the Board's ends are being met and on ensuring that the limitations are not violated. This maintains accountability while allowing the President a great deal of latitude to act and to empower others to act.

A.2.1.5 Governance Process
The Board must also set policies for its own internal workings -- how meetings will be conducted, what topics will be addressed, the role of officers and committees, how the Board will discipline itself. An effective design of Board process ensures that the Board fulfils its three primary responsibilities:
1. maintaining links to the community (NVIT's "ownership");
2. establishing the four categories of written policies;
3. assuring executive performance.
These are areas in which the Board, and only the Board, must assume full responsibility. By setting clear Board process policies, the Board develops a consistent plan for how it will operate--compelling it to remain focused on the critical challenges of providing vision and leadership.
Except for what belongs in Bylaws or enabling statutes, these categories of Board policy are exhaustive, that is, they contain everything the Board has to say about values and perspectives that underlie NVIT's organizational decisions, activities, practices, budgets and goals. These policies are succinct and few.

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For a complete description of the Policy Governance Model, please follow this link: http://www.carvergovernance.com/pg-np.htm

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Ten Principles of Policy Governance

Policy Governance is a fundamental redesign of the board' role. It emphasizes values, vision and the empowerment of both board and staff. It is built on ten principles.

1. The Trust in Trusteeship

All boards act as a trustee on behalf of a larger group (which is called the "moral ownership"). Because the board is a subset of that group, the board must:
A. Clearly identify who that larger group is, and
B. Make certain that the organization achieves what that group wants it to achieve.
The primary relationship the board must establish, maintain, clarify and protect is its relationship with its owners, keeping in contact with them and hearing their voices. This link must be two-way in order to fulfill the servant leadership of the board.

2. The Board Speaks with One Voice or Not at All

A board is a corporate entity entrusted by its owners with the authority to govern and lead the organization. If the board is to lead, then on each given issue it must speak with a single voice. Although unanimity is not required, the board's group decision must be unambiguous, recorded in policy, and upheld by all members of the board. No member has the authority to speak for the board unless specifically authorized to do so by the whole board. The board's policies are the board's voice.
Individual board members who, thinking that they are being helpful, go directly to staff with instruction or guidance can break the principle of one voice. It can also be broken when board officers or committees act as though they have a mandate to help the staff. In Policy Governance the board is not there to help the staff but to represent the ownership.

3. Board Decisions Should Be Policy Decisions

Policy is defined as the value or perspective that underlies action. Board policies express the board's soul, embody the board's beliefs, commitments, values, and express its wisdom. Except for the bylaws, the four categories of board policy contain everything the board has to say and underlies all organizational decisions, activities, practices, budgets and goals.
Because the board's voice is expressed in its policies, board decision making is always an amendment of, or an addition to, existing policy.

4. Boards Formulate Policy by Determining the Broadest Values Before Progressing to More Narrow Ones

Values come in sizes. A board begins to establish control over large issues with broad policies. The board may continue to develop policy to whatever level of detail it wishes, so long as it does so step by step to more narrow policies and does not skip levels in theprocess.
The board stops developing policies when they believe that any reasonable interpretation of those policies offers sufficient direction to the CEO, in the case of their Ends and Executive Limitations policies, and the chief governing officer, in the case of Board Process and Board/CEO Linkage policies.

5. A Board Should Define and Delegate Rather Than React and Ratify

Boards are accustomed to approving plans brought to them by staff. Predictable problems arise. Boards tend to become entangled in trivia or rubber stamp proposals. Approving staff plans freezes into place details that cannot then be changed without board approval. This obstructs staff creativity and agility and weighs the board down with detail.
Having board policies in place ahead of time allows board and staff alike to know what results are expected within which boundaries. Approval is rarely needed.

6. Ends Determination Is the Pivotal Duty of Governance

A nonprofit organization exists so that the world can be a better place. The board's focus should be on defining the distinctive difference they intend the organization to make in the world. The board will become more of a think tank for vision than a reviewer of staff decisions and activities.
That distinctive difference has a specific definition: what results are intended, for whom and at what cost or priority. Ends policies will never be about what the organization is doing; it is always about what will be different for those it serves. Distinguishing Ends from means enables the board to free itself from trivia, to delegate clearly and powerfully and to turn its attention to large issues. There is no greater governance job than this, and it cannot be delegated.

7. The Board Can Best Control Staff Means by Limiting, Not Prescribing

Although boards often try to develop complete "to do" lists for CEOs, for other staff members, and for committees, boards cannot oversee all the detail involved. It is easier, and in fact more complete, for a board to tell the CEO what should be achieved on behalf of the moral ownership (Ends policies) and then to allow the CEO to use her or his expertise and experience to determine how best to get there within the limits of law, prudence, and ethics (Executive Limitations policies).

8. A Board Must Explicitly Design Its Own Products and Processes

The board states what it expects of itself, its code of conduct, the way it will plan and control its agenda, and the nature of its linkage with the ownership. The board treats its own governance policies as ironclad commitments. The board may create committees to help get its own job done, but not to help the staff with theirs.

9. A Board Forms an Empowering and Safe Linkage with Management

Board and management constitute a leadership team. Clear differentiation in their roles and responsibilities enable them to fulfill and excel in them, mutually support each other, and influence each other toward ever greater integrity and capability for leadership
In turn, staff rightfully expect the board to be clear about the rules and then play by them, to fulfill its own job and to speak with one voice. Board members essentially tell staff members: "We will not interfere if you achieve the Ends without violating the Executive Limitations."

10. Performance Is Monitored Rigorously but Only Against Policy Criteria

In a fair contest, contestants are judged by the rules. Similarly, in Policy Governance the board judges the staff only according to the board's own rules, and the staff will know those rules because they have been stated in policies. The board requires information that directly addresses existing criteria, and receive relevant monitoring data without having to digest enormous amounts of unnecessary information.

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Bylaws and Policies

Bylaws

Many aspects of governance are documented in the bylaws of the organization. Bylaws are hardly a fascinating subject for many board members. Some don't even bother to read them.
Moreover, many organizations have no real idea where their bylaws 'came from'. Who formulated them? Based on what ideas or assumptions about governance? A critical examination of bylaws may reveal they are not based on any coherent concept of governance. They may have been simply drafted by the organization's legal advisor using a standard template found in the archives of the law office. They may also have been drafted ten or twenty years ago, in very different times.
Bylaws sometimes contain strange provisions. One common feature is limiting the chair to a one-year term of office. Anyone who has served as a board chair knows it usually takes at least one year to become comfortable in the role. Anyone who has worked in the field of organizational change knows that significant change usually takes a number of years to implement.
A bylaw that provides for an annual shift in organizational leadership makes it difficult to embark on any sustained program of reform. The board will be at a perpetual disadvantage in relation to staff who have more continuity and experience.
The organization that wishes to improve its governance is likely to find that a review of its bylaws will be required. Here is a list of the major items that typically appear in by-laws.

Name of corporation; head office and seal
Who members are, how you become a member, what conditions are associated with membership, termination
Meetings of the membership and voting
Number of directors of the board; eligibility and terms
Nominations and elections
Meetings of the board (how many per year; quorum; notice of meetings)
Duties and powers of directors
Remuneration of directors
Officers of the board (election, term, duties, resignation and removal)
Standing committees of the board
How minutes are kept; books and records generally
Fiscal year of the organization
Amendment of by-laws
Audit

For more information on these items, view the sample by-laws provided below. We link you to this example not to suggest it is right for your organization, but rather to indicate the kinds of subjects that may need to be covered in your bylaws, and to provide insights into the kind of language that may be suitable. Not all bylaws will need to be as comprehensive as this example.

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