Boards are vital to the success of any organisation. Typically, they provide oversight on strategic direction, risk management and other governance, as well as offer support and advice to management. They are accountable to various stakeholders, as well as the communities they serve, and they must adhere to their organisation’s stated mission.
In the case of nonprofit boards, this role can be more hands-on than is typical in a for-profit entity. This means it’s vital that board members have the appropriate skills to help steer the organisation in the right direction.
In this article, we’ll provide an overview of the complexity of nonprofit boards, before taking a look at nonprofit board structure from a historical perspective, and providing insights on the best practices for balancing board structure today.
Recognising the complexity of nonprofit boards
It’s important to recognise that the NFP sector is broad. Organisations can range from charities to community service bodies or cultural societies, through to medical and financial institutions (e.g. healthcare of insurance companies that reinvest profits back into the business for members).
This makes for a broad and complex sector, compounded by the fact that many (if not most) NFP boards across the world are unpaid.
Further to this, the role of the board often blurs with that of management in the NFP space. In most for-profit entities, the board’s primary function is oversight. In a not-for-profit setting it’s common to see boards taking a more active role in strategy. This can prove challenging to get the dividing line with management consistently right, and also highlights a need for ensuring members have the right skills to effectively steer the organisation.
A historical view of nonprofit board structure
Historically, there have been two models that many nonprofit boards have fallen into. The first model emphasises access to donors and philanthropy. Often board appointments are wealthy individuals who may want their name connected to a certain cause. This isn’t necessarily a bad thing in every case, but it can lead to a board that has little experience in core risks and opportunities, such as technology or regulatory areas.
The second model many boards have used is appointment of service providers, such as accountants and/or lawyers. Again, this is not necessarily negative, but it can lead to a board stacked with limited skills that are not always connected deeply to the purpose of the organisation.
New considerations for nonprofit board structure
Recently, many NFPs have moved away from these two board composition models. Instead, nonprofits are placing a greater emphasis on lived experience and diversified skills to better support the requirements of the organisation.
The importance of lived experience
When appointing directors to a nonprofit board, it’s becoming increasingly important to consider whether or not the individual has connections to the people the NFP is serving. As an example, a breast cancer foundation usually has board members who have been affected by breast cancer, either being diagnosed directly or having a family member or close friend diagnosed.
This is invaluable as it helps the board to better empathise and understand the people that they’re serving. It’s also not exclusive to charities. Another example is a not-for-profit health insurance company that only serves families of veterans, or a nonprofit superannuation company that only has members from a specific industry or group.
A focus on more diversified skills
In for-profit entities, it’s critical that the board has the appropriate skills to provide oversight and meet governance requirements. Many NFPs are now recognising this is vital to their organisations as well, and when succession planning, they are taking a broader lens on the skills, attributes and experiences required to support the organisation. This is commonly achieved through a board skills matrix, an essential tool that provides a snapshot of the board’s composition, allowing the Nominations Committee to identify any gaps that need to be filled.
The option of a secondary (“foundation”) board focused on philanthropy
Some organisations have moved to employing a primary board that focuses on oversight and statutory requirements, and a secondary board that is responsible for foundation management and/or philanthropy. This better enables the main board to focus on governance and oversight of the broader organisation, whilst also inviting the involvement of those best placed to help with philanthropic goals. In this scenario, the responsibilities are separated, which offers even greater flexibility around philanthropy focused appointments without compromising the core skills mix of the board.
This is important as when asking a not-for-profit management team to identify the key skills for a board, the answer will typically be related to philanthropy. However this may not be reflective of the true challenges and complexity an organisation is facing.
That’s why it’s important for nonprofit boards to not only analyse director capability, but also identify what skills and attributes are most critical to support the organisation. For example, the BoardOutlook skills matrix employs a framework that allows an organisation to rank how critical different skills are, which provides additional context to the final skills matrix.
Finding the right balance between expertise and experience
A nonprofit organisation has a number of considerations that for-profit organisations usually don’t encounter. Not only do they have to find value-aligned directions with the appropriate skills, they also typically have to navigate a pool of talent that is comfortable with unpaid work.
By moving to a skills-based nonprofit structure, the organisation can find the right balance between lived experience that aligns with the values of the organisation, expertise in advising and supporting an organisation to move forward, and philanthropy that can meet the organisation’s donor needs.
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