Board of Directors Leadership: 

Corporate governance requires that a nonprofit board of directors leads by example. Creating an ethical culture in a nonprofit is an essential pillar of its mission. Thus, board members must work in a manner that is serious, ethical, and in accordance with the law. 

Nonprofit Board of Directors Ethical Practices

Nonprofit Boards of Directors that engage in the following practices are more likely to operate ethical organizations:

* Adhering to the standards, procedures, and processes of the organization;

* Meeting their fiduciary responsibilities; 

* Defining the strategic vision of the organization and engaging in supervision;

* Using authority properly and maintaining a separation of duties; 

* Maintaining clear communications and work with transparency;

* Maintaining a culture of accountability, and 

* Creating a culture of transparency and ethical practices. 

Fiduciary Responsibility: 

Working responsibly requires that the members of a nonprofit board of directors always meet their fiduciary responsibilities. This means that everyone on the board should understand the financials of the organization. Although this seems like a commonsense step, it is frequently challenging for people in the business field to get a handle on the finances of nonprofits. This is attributable to the fact that nonprofit financials look different than those in the for-profit sector.

Nonprofit financials include the statement of financial position, statement of activities, statement of cash flow, and presenting net assets retroactively for a three-to-five-year period. The following are two critical components of nonprofit financials: 

* Statement of financial position: Just like in a balance sheet, this document includes an asset and liability section, but does not include a section for owner’s equity. It is also different than a balance sheet in that it should list assets that are unrestricted, temporarily restricted, and permanently restricted. 

* A Statement of Activities is similar to a Profit/ Loss Statement. Similar expenses are documented here pertaining to the administration and operation of the organization and its programs, but the sources of funds and expenses are listed as either a surplus or a deficit, instead of a profit or a loss.

Strategic Vision and Supervision

The Nonprofit Board of Directors must also define the strategic vision of the organization. It does this by guiding the strategic planning process, ensuring the strategic plan is being implemented, making adjustments to the plan when needed, and regularly holding itself accountable for its work.

The board also supervises the executive director by monitoring the progression of the goals that are set for the ED on an annual basis. 

Separation of Duties and Appropriate Use of Authority:

The board must maintain an appropriate separation of duties and members must use their authority appropriately. This means that the board focuses on governance, but it does not become involved in the day-to-day operations of the organization. Communications are directed to the executive director for any requests or questions. Maintaining this separation helps to prevent chaos in an organization by preventing: 1) power-plays that are intended to undermine the executive director, 2) throwing the work balance for employees off-kilter, 3) compromising the ability of the organization to meet deadlines, and 4) eliminating confusion about decision-making and the chain of command in the organization.

Clear Communications and Transparency: 

There is also a clear communication process where all of the board members understand their roles, what is happening in the organization, and how decisions are made. This is supplemented with an updated registry of all of the board transactions related to the nonprofit board of directors, including board policies, votes, resolutions, decisions, authorized expenditures, etc. 

Culture of Accountability: 

The board also fosters a culture of responsibility by holding itself accountable for its actions. This includes, but is not limited to: 

* Constantly reviewing their actions to ensure that they are consistent with the best practices of the field; 

* There are people on the board whose responsibility is to ensure that they are complying with their bylaws, policies, and procedures; 

* There is a clear description of what to do when there is a problem with compliance or a violation of the established policies; and 

* When organizational corrections need to be made, changes are initiated through the proper channels in a timely fashion, instead of making informal decisions.

Culture of Transparency and Ethical Practices: 

Members of a Nonprofit Board of Directors must demonstrate decorum and serve as cheerleaders for the organization. This includes avoiding conflicts of interest, nepotism, and cronyism. When they do come up, they must be disclosed immediately, and proper measures must be taken to address the conflict at hand. 

Preventative and corrective measures then include, but are not limited to: 

* Regularly assessing any potential for nepotism or cronyism;

* Establishing a clear process for reporting irregularities; 

* Implementing strong procurement guidelines; 

* Faithfully adhering to accurate fiscal reporting; and 

* Regularly checking-in on the grey zones of decision-making that require individuals to tap into their moral compass. 

Conclusion: 

The concept of governance has shifted significantly and the responsibilities that members of a nonprofit board of directors have to assume are significant. This is why it is essential for all members of the board to go through an extensive orientation that covers: financials and how they work, board responsibilities, calendar of activities, how the organization works, their board member job description, the process of decision making depicted in the bylaws, and the organizational chart.

The board should also conduct regular self-audits. This will help the board to hold itself accountable by assessing on a regular basis whether they are: 1) adhering to all of the requirements and procedures set forth by the organizations, 2) meeting their fiduciary responsibilities, 3) behaving ethically, and 4) achieving the objectives they set forth.

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