9 Nonprofit Board Governance Mistakes (And How to Avoid Them!): Part 1

Is your nonprofit board experiencing governance issues? If it is, it’s not alone!
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In the first installment of our two-part series our own Ed Rogan lends his more than 25 years of experience to explain what the most common board governance mistakes are as well as how to prevent them or deal with them once they occur. Find out what he has to share from his expansive career leading, serving on, and consulting with nonprofit boards:

Wooden block with “Governance: Part 1” on it surrounded by other organization-related icons.

1. Lack of Strategic Direction

The Problem:
Without a clear and well-defined strategic plan, an organization will struggle to achieve its mission effectively. This can lead to inefficiencies, confusion among staff and volunteers, and difficulty in attracting and retaining donors and supporters.

The Fix:
Nonprofit boards should prioritize the development of a comprehensive strategic plan. This plan should outline the organization's long-term goals, define its strategies for achieving those goals, and provide a roadmap for decision-making and resource allocation. Communication and engagement with stakeholders are crucial for ensuring alignment and adapting to changing circumstances throughout the implementation of the strategic plan. By proactively addressing the lack of strategic direction, nonprofit boards can provide clear guidance to their organizations and set them up for long-term success in fulfilling their mission. To create an effective strategic plan an organization should:

• Conduct a thorough assessment (SWOT analysis).
• Engage key stakeholders.
• Set clear goals and objectives (SMART goals).
• Develop actionable strategies that consider available resources and potential risks.
• Establish metrics for monitoring progress.
• Regularly review and analyze metrics to track performance.
  
  

 2. Inadequate Financial Oversight and Controls

The Problem:
When boards fail to establish robust financial management systems and controls, it can result in financial mismanagement, fraud, and potential harm to the organization's reputation and sustainability. Insufficient financial oversight can also hinder the board's ability to make informed decisions and allocate resources effectively.

The Fix:
By implementing strong financial oversight and controls, nonprofit boards can ensure the responsible management of resources, mitigate financial risks, and maintain the trust and confidence of donors, funders, and stakeholders. To ensure adequate financial oversight and controls within nonprofit boards organizations should:

• Establish clear financial policies and procedures.
• Appoint a finance committee.
• Regularly review financial statements.
• Engage an independent auditor.
• Develop and monitor the budget.
• Provide financial literacy training to board members.
• Foster transparency and accountability.
• Continuously assess and improve financial practices.
  
  

 3. Not Considering Fiduciary Responsibilities

The Problem:
Fiduciary duties refer to the legal and ethical obligations that board members have to act in the best interests of the organization, putting its mission and financial health above personal interests. Not considering fiduciary duties can pose significant risks to a nonprofit organization.
When board members are not fully aware of their fiduciary duties or fail to prioritize them in their decision-making it can lead to mismanagement of funds, conflicts of interest, and decisions that do not align with the organization's mission and long-term sustainability. Neglecting fiduciary duties can erode trust with stakeholders, jeopardize funding opportunities, and even result in legal consequences for the organization and its board members.

The Fix:
Board members must have a clear understanding of their fiduciary duties and be committed to upholding them. By prioritizing fiduciary duties, nonprofit boards can demonstrate their commitment to responsible stewardship of resources, strengthen trust with stakeholders, and ensure the long-term sustainability and impact of the organization. To achieve fiduciary adherence organizations must:

• Develop a comprehensive orientation and ongoing training that covers the legal and ethical responsibilities of board members.
• Educate board members about financial management, conflicts of interest, and the importance of transparency and accountability.
• Implement robust financial oversight mechanisms (regular financial reporting, independent audits, and internal controls).
• Establish a culture of ethical conduct where decisions are made with the organization's best interests in mind.
• Properly manage and transparently disclose conflicts of interest.
  
  

 4. Noncompliance with Applicable Laws and Statutes

The Problem:
Nonprofit organizations operate within a legal framework that includes various laws and regulations specific to their sector, such as tax laws, employment laws, fundraising regulations, and reporting requirements. Failing to comply with these laws can lead to financial penalties, reputational damage, loss of funding, and even legal consequences for both the organization and its board members.

The problem arises when boards are not sufficiently informed about the laws and regulations that apply to their organization or when they do not prioritize compliance. This can result from a lack of awareness, inadequate policies and procedures, or a failure to allocate resources for compliance-related activities. Noncompliance can occur in areas such as financial reporting, tax filings, employee rights, data protection, and fundraising practices.

The Fix:
Board members should educate themselves about the legal requirements and obligations that apply to their organization. To achieve compliance with applicable laws and statutes organizations must:

• Stay updated on changes in laws and regulations through ongoing education and training sessions.
• Establish clear policies and procedures that outline compliance requirements and ensure that they are communicated to staff and volunteers.
• Regularly review and update policies to keep them aligned with evolving legal standards.
• Assign responsibility for compliance oversight, such as designating a compliance officer or forming a committee to monitor compliance-related matters.
• Maintain open lines of communication with legal counsel or seek advice from experts in nonprofit law to provide valuable guidance on complex legal issues.
• Conduct regular internal audits or engage external auditors to review compliance practices to identify areas of noncompliance and guide corrective actions.

Looking for mistakes #5-9? Stay tuned for the second part of this installment on board governance mistakes that is coming soon! It will focus on mistakes related to people and processes and provide ways to avoid common pitfalls in those areas. 

In the meantime, when you need nonprofit board advisory help, please contact us! Whether you are dealing with governance mistakes, board turnover, or leadership conflicts, we can come alongside your organization to help it resolve its internal issues without taking anything away from doing the work your community depends on. Find out more today!

About the Author
Ed Rogan - Partner & Search Practice Leader, Valtas Group

Ed Rogan is a human resources professional who has been connecting people and mission for over 20 years. Equally equipped with analytical and communication skills, he has a knack for quickly grasping a situation, connecting with varied personalities, and understanding business issues.
 
Ed’s search philosophy takes a highly collaborative approach in partnering to recruit and develop leaders for mission-centered organizations. His work over more than 25 years has involved a range of diverse projects that provide him with opportunities to continuously learn and develop as a professional. Over the years, Ed has helped a wide range of organizations recruit and select CEOs, Executive Directors and other Director level professionals, many replacing long-term, highly respected leaders.

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