Nonprofit Governance – The Basics

Occasionally, it’s helpful to pause and revisit the fundamental principles of nonprofit governance. In this blog, we’ll walk through some of the most frequently asked questions about how nonprofit organizations are governed—starting with the basics.

What Is Governance?

Governance, at its core, is how an organization:

• Makes decisions
• Communicates those decisions
• Ensures those decisions are implemented and maintained

What Is the Board’s Role in Governance?

The board serves as the final authority on all governance decisions. It either:

• Creates policy directly, or
• Directs management to create policy

The board is also responsible for oversight, ensuring that policies are properly implemented.

What Is Management?

Management includes the individuals responsible for executing policy decisions and overseeing daily operations.

Management is led by a chief executive (e.g., President, CEO, or Administrator), whose responsibilities are defined by:

• The organization’s bylaws
• A board-approved job description
• Other governing documents

Is the Chief Executive a Member of the Board?

Not necessarily. This depends on the organization’s bylaws.

• Historically, executives were not board members
• Today, many organizations include the executive as a voting board member
• Some organizations still keep these roles separate due to unique circumstances

What Are the Board’s Most Important Responsibilities?

The board is responsible for everything the organization does—the “buck” stops there.

Board members are fiduciaries, meaning they must make thoughtful, unbiased decisions in the best interest of the organization.

Core responsibilities include:

• Hiring and overseeing the chief executive
• Approving budgets and operating plans
• Strategic planning
• Managing and mitigating major risks

How Is a Nonprofit Board Different from a For-Profit Board?

While both boards perform similar functions, their goals differ:

• For-profit boards focus on maximizing shareholder value
• Nonprofit boards focus on mission impact—not profit generation

Can Nonprofits Generate a Profit?

Yes. When revenues exceed expenses, nonprofits generate a surplus.

This surplus:

• Remains within the organization
• Supports future programs and operations

Where Should a Board Start to Improve Governance?

Start by creating a Governance Committee.

Improving governance requires:

• Consistent effort
• Honest self-assessment
• Board-wide engagement

The committee should:

• Review the current governance structure
• Identify what’s not working
• Gather input from the full board (e.g., confidential surveys)
• Seek external feedback from advisors (auditors, attorneys, etc.)

Are Nonprofit Directors Compensated?

While it is legally allowed, most nonprofit directors are not compensated.

For more details, visit:
https://nagovernance.com/nonprofit-director-compensation/

What Qualifies Someone to Serve on a Nonprofit Board?

There are few formal requirements—often just a minimum age.

Most boards:

• Manage their own recruitment process
• Look for candidates who strengthen board effectiveness

Even qualified candidates should expect a thorough onboarding process.

Do Nonprofit Directors Have Personal Liability?

While anyone can be sued, nonprofit directors are generally protected through:

• State laws limiting liability
• Indemnification provisions in bylaws
• Director & Officer (D&O) insurance

The greatest risks arise from:

• Self-dealing
• Ignoring conflicts of interest

What Do Governance Advisors Do?

Governance advisors help boards and executives improve effectiveness by:

• Evaluating board performance
• Comparing practices to industry standards
• Strengthening governance structures and leadership skills

For a deeper dive into these topics, browse our other blog posts.