Good Governance for Nonprofits

Developing Principles and Policies for an Effective Board

 Good Governance for Nonprofits

Authors: Frederic L. Laughlin, Robert C. Andringa
Pub Date: August 2007
Print Edition: $32.95
Print ISBN: 9780814434512
Page Count: 192
Format: Hardback
e-Book ISBN: 9780814400746

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✧ C H A P T E R 1

Got Good Governance?

All nonprofit boards have one thing in common. They do not work.

—Peter Drucker

Since you are looking at a book entitled Good Governance for

Nonprofits, chances are that you are a board member, a CEO, or

a staff member of a nonprofit organization. If so, you are in good

company. There are almost two million nonprofit organizations in

the United States, all of which have boards and most of which

have someone functioning as the CEO. Tens of thousands of these

nonprofits have sizable staffs.

While you may not agree totally with Peter Drucker’s rather

stark assessment of nonprofit boards, we suspect that you can

think of areas where your board could be more efficient and effective.

Here again, you would not be alone. There is no perfect

board. Members and officers of nonprofit boards, assisted by authors

and consultants, are training critical eyes on the structures

and processes of their boards and coming away with lists of areas

for improvement—in some cases rather long lists. The problem,

therefore, given the usually limited human and financial resources

of nonprofits, has become less a matter of what needs to be done

and more a question of how one attacks this to-do list in a systematic


Four Organizations That Have Done It

Here are four nonprofit organizations whose boards were confronted

with a list of improvements in their governance model. In

Chapter 12, we have documented the course of action that each of

them took to address its list. For now, we will simply introduce

the four organizations and their situations.

Miriam’s Kitchen has served homeless men and women in

Washington, DC, for almost 25 years. Over the years, it has

survived on an ounce of cash and a ton of heart. After the turn

of the century, however, it stabilized its management and its

operations and found itself moving from a somewhat unsettled

adolescent organization to a more secure adult. Its board was

still populated by highly committed and dedicated directors,

but it needed a governance structure that would better serve

this now mature organization.

The Translational Genomics Research Institute (TGen) was a

high-risk gamble by an unusual blend of public and private

entities in Arizona, which together put down $120 million to

bring the biotech industry to the state. TGen was the ‘‘anchor

store’’ in what was expected to be one of the top biotech malls

in the world. The board that was formed to govern TGen included

some of the most powerful people in the state, starting

with the governor. From the beginning of this impressive organization,

its board needed a structure and a set of related processes

that would accommodate the diversity of its members

and the gravitas of so many heavy hitters.

The Association of Graduates (AOG) serves the United States

Military Academy at West Point and its unique column of

graduates known as the Long Gray Line. Although West Point

was established by President Jefferson in 1802, the AOG was

not formed until 1869. Its original purpose was to help bring

together graduates who had fought on opposing sides in the

Civil War. As the academy approached its bicentennial in

2002, therefore, the AOG was an old association—and its governance

structure showed it. In 2004, the chair of the AOG

board assembled a task force to identify ways for it to bring

its governance into the twenty-first century.

World Vision International is one of the largest and bestknown

charitable organizations in the world. For over 50

years,World Vision has faithfully served poor and hungry people

around the globe with an efficiency and effectiveness that

few organizations can match. In 1998, World Vision, Inc., the

U.S. partner of World Vision International, hired a CEO who

had little experience with nonprofits, but who knew the value

of good governance; with the support of his board chairman,

he sought help in upgrading the board’s structure and processes.

These organizations have very different missions that affect

the lives of very different constituencies. They are unlike in size,

age, complexity, and geographical reach. The profile of their

boards is also different, as are their bylaws. Yet for all of their

dissimilarities, these organizations share the common experience

of following a course of action that has led to marked improvement

in the way their boards govern their organizations. We call

that course of action a roadmap, and in this book we describe

what it is, why it so effective, and how any nonprofit board can

take advantage of it.

Who Needs a Roadmap to Good Governance?

Your organization may not match any of these nonprofits well.

You may be on the board of a large hospital, a small museum, or

a medium-sized boys and girls club. Your organization may have

a staff comprising several hundred paid professionals or a handful

of unpaid volunteers. You may be governing a mature organization

or one that is just starting up. Your reach may be the world or

simply your neighborhood. Your organization may be dedicated to

growth or content to serve at its existing level. Whatever the profile

of your organization, it deserves good governance—and the

roadmap can get you there.

‘‘What about ‘working boards’?’’ we are often asked. ‘‘Our

organization is a decent size, but we don’t have staff, and we rely

on the board members to conduct the programs, do the fundraising,

even keep the books. We aren’t a ‘governing board’ that

needs to worry about the role of the board, the role of the CEO

(which we don’t have), or policies for this and that. Our board

governs by doing.’’

Our response is that all boards are ‘‘governing boards’’ in that

they share the same fiduciary responsibility for their organization.

A working board is a governing board whose members also carry

out some or all of its activities. Perhaps we can illustrate this more

clearly by demonstrating the different roles that board members

can play by using a simple analogy.

The Three Hats of Nonprofit Board Members

Figure 1-1 describes three ‘‘hats’’ that may be worn by nonprofit

board members, a hat being a symbol of the role that the board

member is playing at the time. The first of these is the governance

hat, which is worn only when the board member is attending a

board meeting or committee meeting. All board decisions are

made while wearing this hat. This is the hat that you are wearing

when you are looked at by the IRS and the state in which your

organization is registered. These and any other regulatory agencies

hold you accountable for how well you serve in your governance


Imagine that there’s a hook on the door of your boardroom

that holds another hat. When you as a board member walk out

of a board meeting, you exchange your governance hat for your

volunteer hat, which is essentially what you wear whenever you

are outside board or committee meetings. In addition to your

FIGURE 1.1. The Three Hats Board Members Wear.

1. Governance Hat

(only hat that carries

legal authority

to govern)

2. Volunteer Hat

(this hat carries no

legal authority)

3. Implementer Hat

(carries limited authority,

but is seldom worn in

most boards)

 Worn only when in a

properly called board or

committee meeting with

a quorum

 Decisions made only when

part of the group wearing

this hat

 CEO is accountable only

to governing policies set

by the board

 Goes on when leaving

a board or committee


 Worn when advising

the CEO

 Worn when fundraising

 Worn when helping staff

(alone or in a group) and

often under the supervision

of the staff

 Seldom worn because staff

usually implement board


 But worn when a board

resolution or the CEO gives

a board member authority

to implement some board


 Hat is removed when task

is done

board duties, you may very well be a resource for the CEO and

the staff, possibly providing personal counsel, offering a particular

expertise, or just generally helping out. If you are a board member

for an organization that has few staff members, you may find

yourself volunteering often. Regardless, if you are not in a board

meeting or a committee meeting, you are wearing your volunteer

hat. And rather than the CEO working for you, as a volunteer,

you are working for the CEO or her staff.

How about the third hat—the implementer hat? This is a variation

on the volunteer hat in that the board member is serving in

a direct staff role, not a governing role. The distinction here is that

a board member wears an implementer hat when he is carrying

out a specific task that the board has authorized him to do. For

example, a board member wears the volunteer hat when he is helping

the CEO in fund-raising, but let’s say that the board appoints

her, by board resolution, to actually be in charge of fund-raising

because there is no one else to do it. For that specific task, the

board member would be wearing an implementer hat.

For board members who essentially serve as the staff for their

organization, it is important that they know what role they are

playing at any given time. They work together as a governing

board, then function more independently to implement the board’s


In summary, all nonprofit boards have the responsibility to

govern. Some boards may require more of their board members,

but none should require less. And it’s that governance function

that is the focus of the roadmap. Because all boards have a duty

to govern, and because our roadmap serves the governance function,

we believe that the roadmap applies to all nonprofits, regardless

of their budget, size of staff, or complexity of operations. In

other words, whether a nonprofit has many staff or no staff, at

least the board members need to learn how to govern.

The next question is, how does one measure the quality of

governance in a nonprofit organization? Further, is there a continuum

along which a board can move its governance from good to

great? There are several definitions of ‘‘good governance,’’ which

it may be helpful to explore before getting directly into the


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