For many nonprofits, the annual "approval of the budget" is the cornerstone of board financial oversight. However, this annual approval is frequently an empty ritual: one where board members peruse a budget that they are unsure is realistic or appropriate to the planned activities.
Consider the following scene:
The budget discussion is at the end of the agenda, and things are running late. Given a complex budget that "needs to be approved," board members react first by looking for things that they can understand . . . usually a relatively small expense item: "Why is this travel budget so high?" "Can this phone budget be reduced?"
As each question or suggestion is raised, staff respond by explaining why each suggestion for a change is unrealistic. "The travel budget has been funded for Program X so we have to do it." "Actually the phone budget is not that big." After a few instances of staff "explaining" line items, board members realize that asking such questions isn't really going anywhere.
In the backs of their minds is the thought, "It's probably okay. It was okay last year and I didn't understand it then either." So they vote to approve the budget.
Micromanagement: whatever the board is doing that the executive director doesn't like. :)
From an executive director: "The board is micromanaging! They're driving me crazy!"
And from a board member of the same organization: "Every time we make even a suggestion the executive director flies off the handle and accuses us of micromanaging! Aren't we supposed to be guiding and leading?"
Wryly, we might say that "micromanagement" is whatever the board does that the executive director doesn't like. For example, let's imagine a board reviewing a budget that has $10,000 included for lighting fixtures. Some board members don't see the point of . . .
Having been both an executive director and a board president, I'm on both sides of the board packet question. I know the staff's temptation to send a ton of stuff, the better to inform and impress the board. I also know the board member's tendency to run out of time to read the material, but still to be annoyed if the materials are either late or questionably useful.
More than 50 Blue Avocado readers sent in their comments about what they like -- and can't stand! -- in board meeting packets. Two striking takeaways: board members feel disrespected when board packets are late or sloppy, and feel railroaded when background information isn't included for an upcoming decision.
The angry comments from board members over irrelevant or unexplained materials reflect anger over the message they are getting from staff about how the staff values and respects the board's ability, authority, and responsibility to make decisions. A thoughtful packet not only provides the board with the information it needs for the meeting, but increases board confidence in the staff and in the board-staff relationship.
1. Why is this in the packet?
Board members want information that will be needed for the next board meeting. If approval of a new program or a new budget is on the agenda, a clear statement of the proposal must be in the packet, along with identifying . . .
Not all board members need to be familiar with financial terms and concepts, but each organization needs to develop a clear and explicit agreement for how financial accountability will be ensured. The following is a starting point for an agreement that the board and staff can make to ensure a partnership for accountability.
Starting with this template, a discussion on the finance committee with the executive director and the finance staff will go a long way towards clarifying roles.
Sample Board-Staff Agreement for Financial Accountability
Read more for sections on accounting, budget, personnel, more . . .
Most nonprofit boards use email, and most board members get driven crazy at some point by it. One such person -- Mary Broach, co-president of Impact100 in Philadelphia -- was getting 30 - 40 emails from other board members every day [yikes!], and she decided to draw up some guidelines:
Four ways to immediately reduce the number of emails:
1. For many items, pick up the phone first. If a topic is complex or nebulous, start by talking it over with another board member. That way a clear proposal (perhaps with alternatives) can be sent to everyone on the board. Or consider a conference call among a few people rather than an email to everyone on the board.
2. If you're mad or upset, wait 24 hours before replying, and think about using the phone to resolve the situation instead of sending an email.
3. If you get an email from someone who's mad or upset, don't "reply to all."
Bad: [reply to all] Your tone really bothers me and you don't understand the situation.
Better: [reply to one person] I'm not sure how to interpret . . .
Recently several Blue Avocado readers have written to say their organizations are considering creating advisory boards or advisory committees of one kind or another. At the same time, others write to ask how to disband troublesome or obsolete advisory committees. Here are some guidelines for advisory committees, as well as a sample letter inviting an individual to join such a group:
The board of directors of a nonprofit organization is its legal, governing body. In contrast, an advisory board does not have any formal legal responsibilities. Rather, an advisory board is convened by the organization to give advice and support.
Probably the most common experience nonprofits have with advisory boards is that they invite people successfully onto such a board, and then fail to have that board accomplish much of anything. So it's worth a few minutes to consider the options for doing it right, and even whether to do it at all.
There are four common types of nonprofit advisory boards, illustrated in the following examples:
Fundraising: Organization W wants to invite prospective donors onto some kind of official body, but it doesn't think these individuals would be good board members. In some cases the individuals probably don't have the time or interest, and others are not seen as being appropriate (for a variety of reasons) for the board. By creating an advisory board, W hopes to . . .
Nonprofit board members are often puzzled when it comes to setting the salary of the executive director. On one hand, we want to keep our talented staff; on the other hand, we know the budget is tight. Some legal and practical guidelines:
It's maddening and ironic that the press focuses on the extremely rare cases of high salaries for nonprofit executives, when salaries in nonprofits are typically 20% - 40% less than their counterparts in foundations, local government, and the business sector. Mistaken public perception that nonprofit salaries are high has even led to New Jersey now limiting the amount of state funds that can be spent on nonprofit executive salaries.
But despite the press, community nonprofit boards are more frequently worried that they are paying their executives too little, a feeling shared by many executive directors themselves.
Unfortunately, survey data is often of little use, because of small sample sizes, samples weighted towards universities, and the reality that all surveys show enormous variation in salaries for nonprofits of the same fields and sizes. An example of the inconsistency of data: one recent national survey showed average executive director salary to be $60,000 while another reported $158,000.
"Under $50,000, people aren't going to move," says...
Proof of life: In a few months, this term could have important implications for small organizations (less than $25,000 in expenses) and their nonprofit status; so read on and prepare. It used to be that a nonprofit could lie dormant (or forget to file its 990) for years -- decades even -- without being de-registered by the IRS. But now small groups must file their Form 990N before October 15, 2010 in order to show they are still alive; otherwise they will automatically lose their tax exempt status.
Click here for the IRS web page where you can get the information and complete the form. Note that the October 15 deadline is an extension from the date stated on the site.
The good news about this new regulation requiring nonprofits to file once a year is that it will help correct the falsely inflated number of nonprofits on the books. The bad news is that some great organizations with less than $25,000 in expenses likely won't realize they need to file. If you're on the board of a small nonprofit: make sure you check this out. Better to complete the eight questions now (even if you aren't completely sure of the answers) than to have to re-apply for nonprofit status.
Sometimes you need to raise funds in a hurry. It's easy to think, "We should have established a fundraising plan earlier!" That may be true, but it doesn't help now. Here are some ways to raise modest funds in a pinch. Because institutions like foundations, government, and service clubs typically take more than a month to make funding decisions, your best bet to raise money in 30 days usually involves asking individuals for donations.
Each of these techniques can raise a lot or a little depending on who is doing the organizing. For example, a house party in one organization can raise $500 in one evening, while in another it can raise $100,000. In either case, the amount raised is . . .
Most nonprofit discussions about conflicts of interest are similar to those in the for-profit sector: they focus on financial benefit to board members or staff to the detriment of the nonprofit organization. The classic examples: the nonprofit buys something unnecessary or overpriced from a board member's business, or the nonprofit hires an unqualified, overpaid family member of the executive director.
But nonprofit conflicts of interest are often more subtle, more multi-dimensional, and more unexpected than these classic examples. For instance, what about the board member who also sits on the board of a competitor? Is this a good idea that facilitates collaboration or does it pull that person in two different directions? What about relatives of the executive director who hold important staff positions . . . but as volunteers? And perhaps least talked about: what about the potential benefit/conflict for a board member who is also a parent/client/beneficiary?