Awareness of responsibilities and expectations
Individual directors are more likely to be effective in their roles when they are clear on their responsibilities and what is expected of them as a member of the NFP’s board, including the nature of directors’ duties and the operations and finances of the NFP at a level that permits them to govern effectively.
It is inappropriate and unwise to simply have individuals join boards and expect that they should know, “innately” or through “osmosis”, what is expected of them and how the board operates. This is particularly the case where an individual is appointed to a board and they have no, or relatively little, board experience, but are drawn to the underlying purpose of the NFP concerned and prepared to serve on a pro-bono basis.
It should be recognised that directors’ duties at law may vary from organisation to organisation depending, for example, on the NFP’s legal form. There is also sometimes a misconception that serving as a director on a pro-bono basis means that the applicable duties at law are lower than they might otherwise be – this is not usually the case.
Directors serve in a part-time capacity and are not expected to have the same detailed knowledge as management of the operations and finances of an organisation. However, an expectation would usually be that they know enough about the organisation to enable them to govern effectively. Depending on the size of the organisation, director “induction” may range from a detailed introductory conversation with the chair (followed up by a formal letter of appointment) and a meeting with the CEO, through to a documented, detailed, director induction program.
There may well also be an expectation that directors become more heavily involved in fundraising, or matters that are typically the province of management or operational in nature – especially where an NFP is relatively small, or does not have professional management and staff. If there is such an expectation, this should be made clear to a director prior to his or her appointment. A sensible approach to help set clear expectations is for all new directors to receive a ‘Letter of Appointment’ or engagement (consistent with the organisation’s constitution) that sets out details such as:
- How they were nominated/appointed and from what date.
- Their role, responsibilities and duties.
- The term (length) of their appointment and any conditions or limits (e.g. tenure under the constitution).
- Expectations in relation to their governance role, potential advocacy, fundraising and
any operational or public profile activities.
- Any induction process (if the NFP is large enough to have one).
Questions for consideration
- Are the roles and responsibilities of individual directors, the board, chair and management of the organisation clearly set out in the organisation’s constitution and/or its governance charter?
- Are board members aware of their duties and what is expected of them?
- Do new board members receive a letter of engagement that sets out their role and responsibilities?
- Do new board members receive an orientation or induction regarding the organisation, their role and responsibilities and conflict of interest parameters?
Clarity concerning the role of the board
For a board to function effectively there needs to be clarity regarding its role. While part of a board's role is to oversee the operations and finances of the organisation, it is usually also externally focused and concerned with the larger context and "settings" of the organisation. Management, on the other hand, tends to focus more on operational detail.
The role of the board usually involves certain core elements, such as:
- Determining, reviewing and maintaining the vision, purpose and values of the organisation.
- Approval of short and long-term strategies.
- Approval of annual budgets.
- Approval of expenditure over pre-specified limits.
- Appointment, performance evaluation and (if the circumstances necessitate) termination of the employment contract of the CEO.
- Risk oversight.
- Providing a check on the integrity of external financial and non-financial reports.
- Any additional monitoring of the activities of the organisation in order to satisfy itself that the NFP is being properly managed.
- Supporting effective engagement with key stakeholders.
The role of management is often described as being responsible for implementing the strategy approved by the board, to get the right results and deliver the right outcomes (depending on the organisation's performance), without too much direct board involvement.
It may be the case that involvement of the board in organisational activities expands and contracts over time, as the needs of the organisation change. For instance, boards may become more involved in the operations of an NFP in the organisation's early years or where there is a period of significant change (e.g. due to an amalgamation of two organisations).
One problem that can arise in some NFPs is the blurring of role boundaries. This can arise, for example, where directors serve in a volunteer capacity and view "stepping in to fill operational gaps" as merely an extension of their volunteering activities. This can create problems from a governance perspective, including the blurring of accountabilities. Directors might be "wearing two hats": as a key operational contributor (like a senior executive), and as a board member. To meet what can be a common challenge of "role confusion", it is vital to remember no matter what else they do, directors still have the same legal duties and responsibilities, and need to govern in the best interests of the whole organisation.
Questions for consideration
- Does the board have a charter and protocols which help define its role and set out particular types of decisions that are reserved for the board (e.g. by reference to expenditure limit)?
- Do the charter and protocols cover how the chair and the board are expected to interface with the CEO and management?
- Are the chair and CEO roles clearly defined?
- Are there clear documented delegations of authority from the board to the CEO and the management team?
Boards should not function like parliaments
Some organisations seek to have various stakeholder groups (e.g. members nominated by a state) “represented” on the board. This can help to promote an appropriate diversity of views and add to a sense of involvement by those groups “represented”. Boards can experience difficulties, however, if individual directors regard themselves only as representatives of a particular group. This can give rise to factions and boardroom infighting, reducing the ability of boards to operate effectively.
It is important to remember that even though a director’s appointment may be because he or she is associated with a particular group or might look like they represent certain “constituents”, directors must in practice act in the interests of the whole organisation and apply an independent mind to the board’s work and decision-making.
 Directors of companies have a legal duty to act in the best interests of the company.
Download the full Good Governance Principals and Guidelines for Not-for-Profit Organisations as a PDF.