Non-Profit Governance: The Independence of the Board of Directors

Posted by Matthew Thomas

Recently, I read an article on entitled Above the law: America's worst charities.

There were several charities described in the article that were out-and-out frauds. For the rest, they all seemed to be missing one vital piece of good corporate governance: independent directors.

Independent directors, in a nutshell, are not part of the management side of the organization: the executive team, managers and staff. These directors have both the will and the capacity to say "no" to the CEO and define and determine what reports they will receive, and from whom, about the activities and life of the organization.

This does not mean that "independence" equals a permission-denying board, a micromanagerial board, or a board that bullies the CEO and staff. Those things aren't healthy either. Independence merely means that there is enough distance between the directors and the management (and managers) of the organization that the board can take a more objective view of the goings-on in the organization.

Many boards who have clear legal independence from management often still do not have the emotional or leadership capacity to maintain good governance because it creates dissonance in the personal relationships between board members and staff. This is especially true in strong founder-driven organizations, particularly where the founder is the CEO/Executive Director, or an E.F. Hutton type on the board. ("When E.F. Hutton speaks, people listen.")

Lesley Rosenthal, a contributor to the Harvard Law School Forum on Corporate Governance and Financial Regulation, puts it this way:

Board independence and board attention are of paramount importance in good nonprofit governance.  The independence of the board is key because of the non-distribution constraint – nonprofits exist to serve the public interest, not to benefit owners or other private parties.  Business or family relationships between the organization or its executives and a board member or her firm are frowned upon and should be strictly scrutinized under a conflict of interest policy administered by independent directors.  Even absent outright business or family relationships, a common shortcoming of nonprofit boards is that they are too small, too insular, or too deferential to the founder or chief executive.

(Full Article Here)

In short, non-profits (and churches fall into this category) must be careful to work toward a greater good than merely promoting a sectarian or special interest agenda, and a greater good than merely fulfilling their own vision for what they want. Churches and non-profits are always in the public eye - and often for the wrong reasons. Solid governance will help non-profits and churches become more known for the good they do than for the money, power, relationships and vision they waste. Steward leaders have hearts for doing that kind of good to move their organizations forward.

[See Also: Independent Voting Members of the Board | Corporate Governance and the Nonprofit Board of Directors]

At Design Group International, we are committed to helping organizations and their leaders transform for a vibrant future. Good governance is an essential piece of that transformation for many organizations. Click the link below to continue the conversation with us about how we might work together to help establish healthy, solid, independent governance in your organization.

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Topics: Matthew Thomas, Design Group International, Non-Profit Governance, independent board, steward leadership