Despite several scholarly articles and tomes written by very erudite people on the why, what and how of nonprofit boards, one thing is quite clear: the Indian social sector hasn’t fully cracked the governance question.
The unique challenges that nonprofits in India face—among them, regulations and the scarcity of talent—make it difficult for a committed organisation to set up a strong board.
The problem with regulations: Ironically, regulations often come in the way of sincere efforts to improve governance at nonprofits. For instance, until not very long ago, a nonprofit that rotated more than a third of its board members who were in place at the time it secured its first FCRA registration (an indicator of good governance) ran the risk of having its FCRA cancelled. While this policy has since been modified, a nonprofit is still required to inform the ministry in case more than half its members are changed.
A move by the government under the Lok Pal in 2016 to classify nonprofits that meet certain thresholds as public institutions resulted in many good board members stepping down. The reason: board members were required to declare their assets as well as those of their close relatives in the public domain (an illogical, retrograde move, which has fortunately been put in abeyance but not yet buried).
The people issue: Many nonprofits work in very remote areas where getting quality human resources is a challenge. Finding seven to 10 experienced, independent and thoughtful board members is hard, let alone getting them to attend board meetings regularly.
Nonprofits where the founder remains active on the board presents yet another set of governance challenges. Typically, the founder is both a board member and the CEO, which can make the board less than independent. In the startup phase, the only board members the founder can attract are family and friends, and this relationship makes it hard for the board to ask the management too many hard questions.
These and other challenges notwithstanding, it is imperative that nonprofits take governance seriously. This piece offers a set of good practices and rules-of-thumb on nonprofit governance that I have picked up during my 23 years in the social sector across various roles—from employee to grant maker, advisor and board member. Remember, good governance is a journey, not a destination!
1. Define the board’s responsibilities
There is a degree of confusion about the exact role of the board. Part of the reason for the confusion is usage of words like oversight, supervision, etc., which are understood differently by different people. So, instead of elaborating on the role, it is more useful to specify the tasks of the board.
It must also be remembered that the board defines the organisation: as a collective, it ensures continuity of the purpose and vision of the organisation, while CEOs, staff, founders and even board members move on.
Some of the tasks of a board may be specific to a sector or the nature of activity. Based on my experience, here is my list:
- Discuss, approve and periodically review the long-term vision, mission, values and strategy of the organisation.
- Discuss and approve annual plans and budgets.
- Discuss and approve any significant non-plan activities by the management that significantly commits the organisation programmatically or financially.
- Approve annual accounts.
- Select and appoint the statutory auditor.
- Ensure all legal compliances are completed in a timely manner.
- Assess performance and determine compensation of the CEO.
Doing justice to these complex and diverse tasks requires time and commitment from board members. One practical way of dealing with this, I have found, is the creation of sub-committees to address specific specialised tasks. Thus, a finance committee looks at accounts and decides where to invest surplus funds. Chaired by the treasurer, this committee should involve at least two board members, the head of finance/accounts and, if required, external experts. Another useful committee, although less common, is a strategic review committee for strategic planning and, subsequently, progress monitoring. Fundraising and HR committees are increasingly becoming common in large nonprofits.
Ad hoc committees may be convened on specific occasions. A search committee, for example, can be set up when there’s a need to find a successor to the current CEO.
2. Pay attention to the composition of the board
Once the tasks of the board are clear, its composition becomes easier to configure. Here are some useful characteristics in a board, listed in no particular order.
Independence: The board must be independent of the management of the organisation. While this is self-evident, it is harder to make happen in practice. Since family and friends find it difficult to be objective and independent, there must be very strong reasons to include them in the board. While the CEO may be an invitee to board meetings and may be consulted on various board decisions, s/he should not be a formal member of the board: separation of governance and management is critical to ensure independence.
Diversity of skills and knowledge: Board members must bring diverse skills and knowledge. Some skills I have found useful across the board are knowledge of the domains that the nonprofit works in, marketing/fundraising, strategy, research, and finance and accounts.
Empathy: Given the work nonprofits do, often in very difficult circumstances and with limited financial and human resources, board members must be willing to calibrate their expectations to resonate with ground realities. Board members should be willing to invest in understanding the nonprofit’s work by visiting the field, interacting with staff members, and so on.
Time: Board members’ ability to add value is directly proportional to the time they spend on the job. This includes going to board meetings fully prepared, field visits, regular interactions with staff, attending events that the nonprofit organises, contributing to its publications, etc. Of course, all board members cannot be expected to do all of this.
Getting well-known persons to sit on the board does provide credibility and stature; however, such persons must also bring the above characteristics. A board consisting largely of people of ‘ornamental’ value does not make it effective.
3. Manage conflict of interest
The concept of conflict of interest—alien to most Indians—is a very critical aspect of good governance. This is particularly so in the case of nonprofit boards, where members are expected to volunteer their services. Some instances of conflict of interest that I have experienced are where the board member is:
- Providing paid consultancy services to the nonprofit.
- On the staff of a potential founder (company or grantmaking foundation).
- Deciding upon a grant to a nonprofit where a close relative is a senior staff member.
- On a recruitment panel where a candidate is a close relative.
The most important step in dealing with a conflict of interest situation is to recognise it and make it known to fellow board members. The individual board member may feel that s/he is capable of objectivity and never report the situation. However, this is a personalised response, not an institutional one, and is therefore poor governance. If the matter becomes public, stakeholders could be unhappy and the nonprofit’s reputation could be at stake. So, recognising and reporting a potential conflict of interest is critical.
The board must collectively decide what is the best way to resolve such conflicts and, importantly, create a process to consistently deal with similar conflicts that may arise in the future. Some nonprofits get all board members to declare their other institutional affiliations on an annual basis so that potential conflicts can be made transparent and avoided. This is a good practice.
In conclusion, at a time when the spaces for nonprofits are diminishing, not just in India but globally, it is more important than ever before for nonprofits to be responsible and exemplary in the way they conduct themselves. A robust governance system is one such way. It also provides them the moral right to question how other public institutions conduct themselves.