A Review of US Not-For-Profit Governance Practices
The BoardSource ‘Nonprofit Governance Index 2010’ is a rare opportunity to benefit from the experience and perspectives of a variety of US board members and senior executives on organizational challenges, governance practices, and board performance.
BoardSource is the peak body in the US dedicated to “advancing the public good by building exceptional nonprofit boards and inspiring board service.” It has been collecting data on governance in 1994 and its most recent Index came out in 2007.
This 2010 report based on a survey of over 1700 of its members covers a wide range of topics. Some of the conclusions of the review are described below here to give readers a taste of the full report and to stimulate your own thinking about these topics.
- Board members rate their boards higher than do their chief executives.
- Little more than half of the respondents (both board members and chief executives alike) think that their boards are well-informed about their responsibilities. Boards that are well-informed are more engaged, more effective and have a more positive impact on their organisation.
- 60% of boards have conducted a formal, written board evaluation.
- Board members typically come to the table with a passion for the organisational mission but don't necessarily know how to govern. The biggest obstacle to board education is time (followed by lack of money and lack of board interest).
- 60% of chief executive respondents described funding/financial sustainability as their organisation's biggest challenge.
- Strategic thinking and planning, difficult under the best of circumstances, were highlighted as especially daunting during the tough times that have prevailed in recent years.
- Boards that are more engaged spend more time on strategic thinking and discussion. However, the need for a more strategic, less operational focus on the board room was high on the list of improvement opportunities.
- A tougher US accountability regime for not-for-profits has stimulated organisations to put in place more accountability policies and practices, including conflict of interest, whistleblower and document retention and destruction policies.
- Financial oversight and legal and ethical oversight were highly rated. There is a relatively high level of confidence about boards’ financial expertise to monitor organisational fiscal health.
- Charities, compared to other types of not-for-profit organisations, are more dutiful about approving executive compensation (74% of charities get full board approval).
Board size and terms
- The average board size is 16. (Note that this is a distinct point of difference between US not-for-profit boards and Australasian boards. Fundraising is embedded in expectations for most US boards. It is generally expected that board members will not only make significant personal financial contributions but that they will procure funding from outside sources. Consequently, board size is greatly increased in the US context in an effort to increase the funding base. There is a separate section on fundraising in this report but due to its lack of relevance to most Board Works subscribers it has not been reviewed further here).
- 70% of boards have term limits for board members.
- The average maximum tenure of a board member is 7.2 years.
- As board size goes up, attendance and quality of preparation goes down. There is less time for individual board members to participate in board meetings (e.g. by asking questions).
Board-chief executive relations
- 65% of chief executives are very satisfied with their jobs. Chief executives who had a formal performance evaluation were more satisfied with their jobs.
- Chief executives were less positive than board members in assessing the degree of support for the chief executive.
- Board chairs were generally positively assessed by their chief executives (81% considered to have cultivated a product of, constructive partnership with the chief executive).
- Limiting the tenure of board chairs means that on average chief executives experience three board chair transitions during their time in the job.
- Boards are meeting more often now than they did in 2007 (on average 7.4 times per year).
- An average board meeting lasts 3.4 hours.
- The length of a typical board meeting is related to the frequency of meetings (for example, boards that meet 10 times or more per year are more likely to have meetings that are two hours or shorter).
- Only 39% of boards were assessed as being fully prepared for meetings.
- The use of a 'consent agenda' (combining routine matters into a single resolution) and 'dashboard' reporting (graphically displaying organisational performance against targets) were a considerable aid in boards operating at a more strategic level.
- Boards have an average of 5.6 committees. The most common committees focus on core governance functions.
- 78% of boards have an ‘executive committee’ empowered to act on behalf of the board between meetings (note: the development of ‘a board with a board’ is an inevitable consequence of the large size of US boards.)
- An increasing number of boards separate the finance and audit oversight functions.
Diversity and inclusivity
- US boards remain predominantly Caucasian with a small increase in the proportion of people of colour.
- Boards are getting slightly younger. The proportion of 50-64 year olds has declined by 5%, while 30-49 year olds have increased by 6%.
- 48% of board members are female (up by 5% since 2007)
- Racial/ethnic diversity is seen as more important than age or gender to the organisation's ability to advance its mission.
- A common refrain among US not-for-profit leaders is the need to reel in new board members with the time, talent, and ‘treasure’ to contribute to their organisations.
- Organisations seem to be better at articulating expectations of board members upfront and board members seem to be taking new board commitments more seriously. However, boards are using the same old recruitment processes and expecting different results.
- 54% of organisations find it difficult to recruit board members. The report concluded the warm re is a need for a renewed commitment to expanding board searches and engaging in the hard work of finding, recruiting, and bringing new voices to the boardroom table.
- Only 3% of US not-for-profits pay board members an honorarium for their service.
- Chief executives’priority for board recruitment is professional skills, while board members’ highest priority is ability to represent constituents.
A note for New Zealand readers. Accountancy firm Grant Thornton is currently undertaking a similar survey of not-for-profit governance as part of an-ongoing series (the last was 2007/8). You may participate on-line.