Purpose of a Board of Directors for Nonprofit Organizations
All nonprofit organizations are required to have a board consisting of at least three directors. During registration at the state level, nonprofits must supply the names and home addresses of each founding director. Directors may not serve if they are currently in bankruptcy proceedings. The members of the board of directors have an overarching purpose to guide the organization’s strategic plan and activities for fulfillment of its mission. These activities typically encompass a range of functions, including meeting the requirements of the state in which the organization is located.
The primary purpose of a board of directors for a nonprofit is to guide the direction of the organization. This includes planning the strategy and deciding on the direction of the organization and its work. The board of directors is responsible for assessing the needs of the organization’s target market, envisioning the role of the organization in the community it serves, and planning the route to achieving this role. The board identifies the mission and vision, and sets goals and objectives for the management team. Once the strategic plan is fully developed, it is passed down to the operational staff or volunteers to implement.
Policies and procedures are important in every type of business. In the nonprofit world, however, they take on greater importance in ensuring the organization is well-governed, because often the funding comes from government, philanthropic organizations, or private donors. The board of directors is responsible for ensuring adequate policies for staff recruitment, compensation and evaluation, allocating decision-making authority and avoiding conflicts of interest or potentially damaging publicity. The board of directors must also ensure the organization’s compliance with regulations, such as those of the Internal Revenue Service.
Financial management in a nonprofit organization is typically the responsibility of either the executive director or a finance manager, but is overseen by the treasurer and the board of directors. The board is responsible for managing financial opportunities and risks, ensuring adequate funding availability, careful management and trusteeship of the funds and adherence to the operational budget. The directors are also required to make financial provision for lean times by securing appropriate investments for the organization and deciding how best to manage surplus funds, as well as finding new ways to raise funds.
Successful operation of a nonprofit organization depends on effective use of all resources. One main purpose of the board of directors is to ensure the ongoing development of resources such as fundraising, building strategic partnerships and supporting the organization’s use of technological and human resources. Resource development could include strategies such as the introduction of a major gifts program for private donors, creation of a product line for revenue generation, or reciprocal use of resources with for-profit companies. The directors are also responsible for building and maintaining relationships with external stakeholders such as members of government and corporate sponsors.