All well-structured companies and organizations have a system of checks and balances in place. The managing director oversees the day-to-day operations and reports to the board of directors. They, in turn, provide supervision and guidance to the managing director. Nonprofit organizations are no different and almost always have a committee of board members who oversee operations and the direction of the organization.
Earlier this year, I went to a city in Western China to perform due diligence surveys for potential grant recipients. When reviewing one organization’s documentation, I found they recently registered as a non-profit organization prior to becoming registered as a company. This is not common practice. When asked why their board members thought this was preferable, I discovered they did not have a governing body. I informed them that if an overseeing committee was not present, I would need to perform additional financial audits on top of the standard protocols to ensure they qualified for the grants during the subsequent years. The following day, I was performing a site visit at a different organization and the director of the organization was asked to be a board member for the previous organization. Having worked closely with this organization over the years, the director felt it was his duty to use his experience to help oversee the organization. With just a few calls, the board of directors was set up in one day.
I was impressed by the speed and ease in which the organization took action and began reflecting on the different types of board committees I have encountered while working in the social sector. I have grouped them into five general groups:
- The Bare Minimum - Most of the board members are the friends of the executive director or of the founder of the organization. They review the financial records and annual report but rarely ask questions or challenge the director’s decisions. This is common for organizations that are just starting and still fairly inexperienced.
- Limited Power - The board supervises the organization’s operations, provides input regarding strategy and annual planning and some even implement an internal auditing. In these organizations, the executive director or founder retains most of the power and thus the board has little power in the case that the director is not performing his/her duties. This is common for organizations that are still in their developing stage. They understand the importance of having a governing body in place but have not reached a point of achieving a balanced system of accountability.
- Extreme Power – This is rare but some organizations have a board of directors with too much influence. This is sometimes seen in larger more established organizations. A few years back, it was well known in the industry that the General Secretary of one of the largest foundations in China had one of the most difficult positions in the sector. The board of directors was comprised of a group of successful entrepreneurs who were using their seats on the board to influence the actions of the General Secretary. The General Secretary was then unable to focus on the foundation and its mission. This is also not a desired system.
- The Ideal – When it comes to the perfect board of directors, there is no gold standard since every organization is different. From my observations over the years, it all comes down to the right balance. The director needs a certain level of autonomy in regards to overseeing the day-to-day operations but needs the guidance and support of the board to make sure the organization is on track for its long-term vision. The board should be comprised with individuals who are experienced in the organization’s scope of work and ideally are established stakeholders in the field. No individual in the organization should have too much power and there should be a level of trust between all parties. As China’s social sector is still developing, I have only seen a few organizations that have been able to achieve the right balance. The Shaanxi Gender Development Solution has grown to the point where the founder is no longer serving as the executive director and now sits on the board. His experience and dedication are great assets to the organization but his passion for the cause does not blind the organization’s long-term mission.
Who should sit on the board? In my opinion, the ideal board should be comprised of the following individuals:
- The organization’s founder – His/her passion and vision helps to drive and shape the organization
- Donors who understand how to best use the funds
- Representatives who can speak on behalf of the benefactors
- Experts in the subsector who can use their experience and provide insight
- Financial and legal stakeholders who can identify potential risks
It is crucial for organizations to have a committee that oversees the work of its leaders and staff. This protects the organization from unethical behavior or a common situation where one influential person retains all the power without any checks or balances. Increased accountability can directly increase the organization’s credibility in the eyes of perspective donors.
Contributed by Sherry Chen