While the responsibilities of nonprofit board members do not change when the economy tanks, trying times do bring those duties into sharper focus, experts say.
The fiduciary responsibility for volunteer board members, on good days and bad, is to guide, support and direct the mission of the organization, oversee internal operations and steward the group’s assets, says King McGlaughon, senior vice president and managing executive of Wachovia’s nonprofit and philanthropic services division.
“Their fiduciary responsibility doesn’t change depending on the economy or the market situation,” he says of board members. “It’s exactly the same today as it was a year ago or five years ago.”
But when increasing demands, driven by foreclosures and job loss, eclipse available resources, it’s time for board members to stay calm, roll up their sleeves and get their hands dirty.
Dust off the investment policy
Hopefully, most nonprofit boards have done the hard work of establishing solid policies and procedures before a crisis.
And as the stock market continues its slide, nonprofit with endowments should be taking a close look at their investment policies, says McGlaughon.
Those policies are designed to create a discipline, in good times and bad, that balances tolerance for risk, investment goals and asset allocation.
“What makes it different in this environment is the tendency to try to react to the market or the economy,” says McGlaughon. “The evidence is that reacting to the day-to-day changes in the market is not an effective way to steward the assets of an organization.”
That kind of long-term discipline is helping Ronald McDonald House Charities, says Linda Dunham, the organization’s board chair.
The charity, which provides housing, meals and other services to the families of hospitalized children, heads a network of 282 Ronald McDonald Houses, 114 “family rooms” in hospitals, and 32 “care mobiles,” all spanning 52 countries and regions.
As families are squeezed by rising prices and job and home losses, Dunham expects demand for the charity’s services to rise.
“Illness has no respect for economic times,” she says. “But as more and more people lose their jobs, they’ll lose insurance benefits.”
But Dunham is confident the organization is on strong footing, thanks in part to an investment policy put in place 20 years ago and reviewed three times a year by the board’s audit committee.
The organization has a diversified portfolio that allows the board to take action when it needs to, and Dunham is confident Ronald McDonald House will be able to get through this year and next without substantively changing its investment policy.
“We’ve always been financially prudent,” she says. “For now we’re staying the course. We know what our mission is. We’re staying focused, staying calm and continuing to provide leadership to get us through.”
Update the budget
A critical part of a board’s fiduciary responsibility is budget oversight, says Jeanne Bell, CEO of CompassPoint Nonprofit Services, a training and consulting group based in San Francisco.
Right now, many nonprofits are in the process of developing their budgets for next year. For others, the budgeting process occurred before the economy began its steep slide.
“Many people are realizing they are currently functioning with a budget that’s unrealistic,” says Bell. “Their estimates about giving are probably wrong.”
That means now is the time for board members to get involved in the process, and not be afraid to challenge staff on their assumptions, she says, especially about fundraising.
While expenses in most established organizations are fairly predictable, items on the income side can be much more variable.
“It borders on irresponsible not to have a conservative and an optimistic view in the budgeting process,” Bell says. “If I’m a treasurer, I’m looking for a two-column budget that identifies those philanthropic resources that are likely vulnerable, totally and percentage-wise.”
And if there’s anything scary hiding in the budget, board members need to know, says Michael Guillot, vice president for patron services and chief advancement officer for the North Carolina Symphony in Raleigh.
“It’s incumbent on boards to dig deep into the numbers to make sure they really get it,” he says. “There’s probably some good, bad and ugly in there, but you’ve got to know it.”
While these are tough times, they present both opportunities and challenges, says Guillot. The only way to uncover both is for the board to have a full understanding of the situation.
In times of uncertainty, communication takes on heightened importance, experts say. That means staying in close contact with fellow board members, with the executive staff and with donors.
At Ronald McDonald House, Dunham has geared up her organization’s “communications apparatus” to tell the story to donors.
“There’s more of a need now than ever before to communicate,” she says. “We’re calling our donors to make sure people understand what we’re doing.”
The message she’s conveying is that the organization is “staying focused, staying calm and continuing to provide the leadership to get us through these times.”
And hard work on the budget and investment side of the house can have positive side-effects. With the economic environment in turmoil, donors will look to nonprofits that are well-run and that will steward a donor’s contribution carefully.
“You’ve got to have your financial house in order,” says McGlaughon of Wachovia. “Donors are doing that and they need to know you’ve done that too.”
Dunham hopes fiscal discipline will work to Ronald McDonald House’s advantage.
“People will look to those well-run charities when they decide to give,” she says. “Hopefully, we’ll be a recipient of those funds.”
Dunham also is staying in close contact with her board, sharing the organization’s successes as well as obstacles. And she encourages fellow board members to speak up, sharing any concerns they have about the direction the organization is taking.
“So we’re not changing course,” she says. “We are a well-run charity. That’s helped us in good times and we know it will help us in bad.”
Build the right board
Strong board leadership is critical during a crisis, and that means finding people who have both a passion for the organization’s mission and needed expertise, experts say.
Nonprofit boards historically have been made up of major donors or potential major donors, along with and cultural and social leaders, says McGlaughon.
“In today’s world, boards need to be made up of experts,” he says. “While there’s room for all of these, it’s important to have people with legal and technical expertise.”
That could include finance, accounting, entrepreneurial or marketing expertise. And depending on the nonprofit, it may require someone with a regulatory background or other particular set of skills.
Today in particular, financial literacy is vital, says Bell of CompassPoint, as is a willingness to engage in the business model of an organization.
In finding that expertise, she warns against be seduced by the biggest job title.
“Nonprofits go by title instead of competence,” she says. “A lot of times, the Wells Fargo banker isn’t that person. A CFO of a larger nonprofit would really get a nonprofit’s perspective.”
The goal is to recruit people who want to engage in the “mission and the money” of a nonprofit.
Specifically, Bell suggests recruiting from a nonprofit that is three times as big as yours and that you admire.
“A lot of board members are governing an organization they don’t understand the business model of,” she says. “We need to quickly change that. I see a lot of groups that have sophisticated people, but no sophisticated dialogue going on.”
In recruiting for her board, Linda Dunham looks for people who understand the mission of Ronald McDonald House and who bring business acumen to the table. But she looks for softer skills as well.
“You look for someone who has time to share in fulfilling their duties,” she says. “And I look for people who have a passion for the program.”
But in order to get the most out of a board member, a nonprofit’s work is just beginning when the recruiting is done, because guiding an organization through a serious crisis takes more than interest and skill, says Guillot of the North Carolina Symphony.
“Most probably don’t do a good job at all training trustees in how to do their jobs and then supporting them,” he says of nonprofits. “It’s about honoring the role trustees can play and giving them the support they need. We need that at all times.”
One lesson from the current financial crisis is that the nonprofit sector as a whole needs to do better with that training and support, not just in a crisis, but long before.
“This is foundational work, it’s slow and steady,” Guillot says. “When you’re in the middle of it, it’s too late.”