The Importance of Board of Directors
What is the Importance of the Board of Directors?
The board of directors serves as the governing body responsible for overseeing nonprofit organizations and has the highest decision-making authority for their respective organizations.
Nonprofit organizations are incorporated at the state level and that state assigns responsibility for the organization’s affairs to a governing board. This means the state grants the board the legal authority to establish policies to shape the organization’s work, and that board is ultimately accountable to the state for the discharge of its legal responsibilities. Nonprofit governing boards are expected to uphold the public trust by ensuring the organization carries out the purpose for which it was established and that it does so in a responsible and accountable manner. (Board Fundamentals)
As explained in Putting Purpose First, board service is more than simply fiduciary oversight. Establishing an organization’s purpose and setting its strategic direction is the most essential of the board’s three leadership roles and the backbone for all that the organization is and does. The board works in partnership with the chief executive and staff (if the organization has them) to articulate the organization’s purpose and guiding values and agree on a shared vision for the future as well as strategies and goals to achieve that vision.
No organization can do its important work without resources to support its work. Three interconnected types of resources are necessary:
- the people to do the work
- the money to support people, systems, and programs
- the connection with individuals and other organizations to earn the trust and respect of those the organization seeks to support or serve
While the board of directors itself does not cultivate and secure these resources on its own, it does so in partnership with the chief executive and staff. The board has the ultimate responsibility to ensure these resources are in place.
The board is responsible for ensuring that the organization is accountable to its purpose and operating ethically and responsibly. It provides an essential safeguard for addressing impropriety or lack of performance that would threaten the organization and its work. The oversight role is critical even when things are going well because neglecting it can put the organization at risk of failure. A board therefore must take its oversight role seriously, and its constituents must be made aware that the board is doing so. Key components of this role include evaluating and supporting the chief executive, ensuring legal and ethical integrity, providing financial oversight and strategic deployment of resources, managing risk, and monitoring progress toward implementing organizational strategy.
State laws explicitly highlight the importance of board of directors and require that nonprofit governing boards assume the fiduciary role for the organization’s well-being. These laws designate overall responsibility and liability to that board. In addition to the board’s collective responsibilities as a governing body, individual board members are bound by their legal obligations: the duties of care, loyalty, and obedience. These duties serve in the courts as the test for compliance if a board member’s performance or decisions become legal issues.
BoardSource recommends that boards fulfill their role comprehensively when they focus on their fiduciary role, as well as their roles in strategic and generative governance. With all the roles together, this can expand and enhance the board’s experience, engagement, and reach.
As evidenced in Purpose-Driven Board Leadership, boards represent and govern our organizations on behalf of communities and are responsible to those communities. Who is on the board can drastically change how the board operates and what role it plays.
While board composition may vary, a board that is homogeneous in any way risks negatively impacting its ability to make the best decisions and plans for the organization. Boards that lack racial and ethnic diversity are particularly concerning, as they may select strategies and plans that ineffectively address societal challenges and inequities or even reinforce them.
The board acts on behalf of the stakeholders of the organization. A board familiar with its constituency and their needs is better able to steer the organization in a direction that is responsive to and authorized by those it serves.
101 Resource | Last updated: October 23, 2023
Resource: Board Fundamentals