Depending upon your source of artificial intelligence, you may have heard that all nonprofit boards are split into two great divides – working boards and governing boards. According to internet lore, Working Boards are composed of industrious community leaders willing to roll up their sleeves and actively participate in their nonprofit’s operations. On the other hand, Governing Boards are passive, attending to the routine responsibilities of governing but offering far less support to the organization than their “working” counterparts. These same sources tell us that Governing Boards are part of a stable of non-working and barely working boards, including Advisory Boards, Corporate Boards, Fundraising Boards, Policymaking Boards, Cooperative Boards, and Management Team Boards.

To sort out what type of board you are currently serving on, answer this one simple question – are you serving as a director of a corporation?  Most “nonprofits” are corporations created under the law of a specific state. For example, in New York, your entity is probably a corporation organized under the New York Not-for-Profit Corporation Law.  If this is your situation, congratulations, you serve on a Corporate Board, and under that state statute, you have some very serious obligations relating to Governing.  Most states’ laws will assign directors the task of managing the corporation.  In New York, that is found in Section 701 of the Not-for-Profit Corporation Law; “… a corporation shall be managed by its board of directors.” 

In this context, “managing” means the same thing as “governing”.  Or, in words attributed to President Harry Truman, “The buck stops here.”  This information can come as a shock to directors who think their role is to be a booster, a volunteer advisor or a funding source.  Note this solemn obligation falls not on individual directors but on a board of directors that carries out its job by taking formal actions, usually based on majority rule. So, all boards of directors of nonprofit corporations are Governing Boards and Corporate Boards. Since their formal actions will include adopting policies for their agency, they are also Policymaking Boards.

Regardless of their other roles, directors of nonprofit corporations are, first and foremost, fiduciaries who owe their undivided loyalty to the corporation.

Although all boards are Governing Boards, some directors provide additional support beyond their board service on a volunteer basis.  The term “Working Board” is often used to refer to the thousands of small nonprofit boards with little or no budget and little or no staff that must rely on their key supporters to advance their agency’s goals as both board members and essential volunteers.  Many nonprofits start this way – with a compelling mission, a dream, and few resources.  For years, they work out of people’s garages and basements, running their agency on a shoestring budget, and sometimes they succeed beyond their wildest hopes.

Four rules governing board members who, in addition to their board service, volunteer their time to the charity.

1. Nothing about their volunteer work should compromise their service as a director, which comes with fundamental legal obligations.  Directors are, first and foremost, fiduciaries with a well-defined role.

2. A director’s volunteer service should not create confusion about how decisions get made in the agency.  The “chief executive officer” or “executive director” runs the show.  Board members who volunteer serve at the CEO’s pleasure and direction.

3. Compensating directors for their non-board service will create issues that are best avoided.  That payment will turn the volunteer from an “outside director” to an “inside director” (like other employees) and diminish their role in governance.  It may also cause them to lose certain liability protections afforded by state law to only uncompensated directors.

4. Overlapping roles can result in loss of financial controls.  Some working boards will divvy up responsibilities by assigning directors operational duties closely associated with their board role. Thus, the Treasurer is also the Chair of the Finance Committee, the bookkeeper, the designated check signer, and the de facto Chief Financial Officer.  “Segregation of duties” is an important auditing principle requiring that no one person handle multiple steps in a financial process.  This will ensure that accidental or intentional errors are caught and systems are improved.  To the extent possible, a director’s volunteer role should not have a connection to their board responsibilities.

Working Boards and Governing Boards – Key Takeaways:

Directors should never forget that their primary role is as a member of the governing board of a legally constituted nonprofit organization.  This job has some well-defined legal obligations the director must follow.

Directors should work to clarify roles and responsibilities with tables of organizations and job descriptions so there is no confusion about their overlapping roles.

From the start, boards should begin building a governance structure with a segregation of duties to protect the agency and provide a structure that defines an effective oversight process.

Newly formed boards of organizations created by the visionary drive of a founder should work hard to lift operational and leadership responsibilities from the founder in a progressive process that honors the formative work of the founder and utilizes their best skills while lifting much of the governing burden off the founder. (a topic for another blog)

Bonus: Other Boards and Non-Boards

Another term that can confuse is Advisory Board. Advisory boards have no governing responsibilities and are there to informally support the organization as boosters, advisors, and fundraisers. They won’t be approving budgets, developing strategic plans, or conducting reviews of key staff members.  They have no formal role in the corporation, they are not fiduciaries, and they have no liability for the corporation’s or its employees’ actions.

 Likewise, the term Fundraising Board can be confusing. Some organizations, such as hospital systems, often have an independent corporation called something like “The XYZ Hospital Foundation” that actively seeks out donations for the benefit of the hospital. In that situation, board members of the foundation have a primary mission of raising funds, and they have all the regular duties of the director of a nonprofit corporation and are legal fiduciaries. Regular governing boards may also be asked to support the organization by fundraising, both by donating and soliciting contributions, but this is not a fundamental legal obligation of those directors.  (Look for more on director philanthropy in a future blog.)

Serving on a nonprofit board can be personally rewarding while bringing needed expertise to an agency providing vital services to its community.  However, this service comes with specific governing responsibilities that the new director must understand and fulfill.