BOARDSOURCE NONPROFIT GOVERNANCE INDEX – 2007 · 2017. 9. 7. · ©2007 BoardSource® Nonprofit Governance Index 2007 3 The results of the Nonprofit Governance Index 2007survey,

When I became the acting president of Hamilton College in 1999, I already knew a lot about the college. I am a 1996 Hamilton graduate, the parent of a former student, and I have served for 12 years on the college’s governing board. Still, when Hamilton President Eugene Tobin took a much-deserved sabbatical, I learned more about Hamilton during my six months in the presidency than in all my previous time associated with the college. Much of what I learned will make me — and, I expect, my fellow board members — better in the future.

An unusual level of alumni involvement distinguishes Hamilton. Typically, more than 55 percent of alumni contribute every year to the annual fund, and more than a third volunteer to recruit students, raise funds, counsel undergraduates about careers, provide internships, conduct alumni events, and participate in other activities. As is the case at other colleges, Hamilton’s board sets the tone for financial and volunteer support.

Yet despite this high level of alumni involvement and my own active participation with my alma mater, I had a superficial understanding about many important facets of the college and wondered whether my fellow board members did as well. Naturally, I recognize it is unrealistic to expect that board members who typically visit the campus just three or four times a year will ever have the same breadth and depth of knowledge as the president and senior administrators who are charged with the daily operations of the institution.

A New Understanding of the CollegeSoon after I became president, the impact of policy decisions became clear to me — much more so than when I was a board member. For example, deciding to admit an additional 20 to 30 students from the waiting list or planning for a larger class, though attractive from a financial point of view, had significant ramifications in the day-to-day life of the campus. Admitting more students means hiring more staff members. Where would we find additional housing? And if the new hires were adjuncts, how could we be certain they would be as qualified and as committed to the institution as full-time faculty members? This level of detail rarely makes it to the boardroom, but as president, I could see how a tempting financial solution might create an irritant in campus life.

My experience as a college president has made me much more aware of the nuances of board decision making. Many issues that boards are asked to consider require much broader scrutiny. Switching roles for six months taught me five fundamental lessons that may help boards and board members become more effective.

1. Balance the membership of board member committees.Hamilton’s board of directors, like many governing boards, consists disproportionately of business executives, investors, and successful entrepreneurs. Their acumen is in finance and in running a business, so they tend to be most interested in the issues — fund-raising, endowment performance, and investments — with which they are most familiar and where results are tangible. They tend not to be so comfortable with the other components that make a college successful such as its staff, programs, and facilities.

The tendency among board members to gravitate toward finance is understandable. After all, board members have a fiduciary responsibility to the college, and given today’s fiscal pressures, no board can be blamed for being preoccupied with an organization’s assets. But a balanced budget and a growing endowment are only two measures of an organization’s health.

It is equally important that all board committees have the appropriate firepower if the mission of the institution is to be fulfilled. The committee on board members should look carefully at the distribution of talent and influence among the various standing committees to ensure that every function has an important voice at the boardroom table.

2. Seek, within limits, close encounters with leaders of the organization. In my six months as president, I met and spent time with most of the faculty, the swimming coach, the chair of the chemistry department, the director of the career center - people board members typically would not encounter. Yet the insights and opinions of such individuals can give board members a much broader understanding of an institution.

Recognizing this untapped resource, we restructured board weekends at Hamilton to facilitate even greater informal interaction between the board and various college

1A Board Member’s Stint in the Chief Executive’s Chair

BOARDSOURCE NONPROFIT GOVERNANCE INDEX – 2007

Provided with generous support from:

© 2007 BoardSource® Nonprofit Governance Index 2007 2

INTRODUCTIONA Call to Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Interpreting the Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

BOARD PERFORMANCEBoard Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Organizational Strategy and Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6Fundraising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7

BOARD COMPOSITIONBoard Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9Board Size and Board Member Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Board Recruitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Board Member Motivation and Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Board Education and Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

BOARD STRUCTURESMeetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

OVERSIGHT POLICIES AND PRACTICEAccountability Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Financial Oversight and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Chief Executive Evaluation and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

APPENDIXMethodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Participating Organization Profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Chief Executive Respondent Profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Board Member Respondent Profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

For additional copies of the Nonprofit Governance Index 2007 visit www.boardsource.org/governance


The results of the Nonprofit Governance Index 2007 survey, which BoardSource conducted in June 2007,show that while many nonprofits have put the critical components of good governance in place, muchroom for improvement remains. Nonprofit leaders who want to make sure their board is an asset, ratherthan a liability, should pay attention to structures, strategies, and policies other boards have found usefulin strengthening governance.

The Nonprofit Governance Index 2007 updates baseline data about board practices in the United States.While BoardSource began collecting this information in 1994, the last few years have seen an increasedamount of attention paid to nonprofit governance. Since the last report in 2004, the sector has witnesseda series of high-profile scandals, the Senate Finance Committee hearings, and proposed revisions to theIRS Form 990. Reactions to these events and growing demands for more and better nonprofit servicesare reflected in this year’s results, especially in response to questions about fiduciary responsibilities,board oversight, and organizational challenges.

The Nonprofit Governance Index 2007 is a rare opportunity to hear candid opinions and a variety of voicesfrom 2,152 nonprofit leaders on board composition, structures, oversight, and performance. The volumeof their responses reflects the passion they have for their boards and organizations.

INTERPRETING THE RESULTSSince it was founded in 1988, BoardSource has received thousands of inquiries from nonprofit leadersinterested in comparing their boards to the “norm.” Few answers apply universally. The results of theNonprofit Governance Index 2007, the fifth such study by BoardSource, reveal patterns and tendencies innonprofit governance. Common practices, however, are not necessarily best practices, nor should they be interpreted as ideal examples to be adopted by every board.

This snapshot of board practices is based on responses from 1,126 chief executives and 1,026 boardmembers who completed two different surveys (see the Appendix for information about survey methodology). Participants were selected from the BoardSource membership, and they serve a broadspectrum of organizations that are well distributed geographically and across IRS classifications, budgetsize, and mission areas. They are not, however, a statistically weighted, representative sample of the nonprofit sector.

Throughout this report, references to percentages of chief executives, boards, and organizations referonly to survey respondents, not to all nonprofits. Furthermore, the results of the survey do not show causation; rather they indicate an association between practices (for example, chief executives who haveregular performance reviews are more satisfied with their jobs).

Throughout this report, we refer to organizations as small, medium, and large based on their annualbudget size. Unless specified otherwise, small refers to organizations with budgets less than $1 million,medium to organizations with budgets from $1 million to $10 million, and large to organizations withbudgets greater than $10 million. Likewise, we refer to boards as small, medium, and large based on thenumber of voting members on the board. Based on the data, we define small boards as those with 14 orfewer members, medium boards as those with 15 to 22 members, and large boards as those with 23 or more members.

INTRODUCTION

A CALL TO ACTION

4 Nonprofit Governance Index 2007 © 2007 BoardSource®

BOARD PERFORMANCE

BOARD RESPONSIBILITIES

• 87% of chief executives rate their boards as effective• 99% of chief executives rate their organizations as effective• 91% of chief executives believe the board has a positive impact on organizational performance

According to chief executives and board members themselves, nonprofit board performance is mediocreat best. Boards brought home report cards with lots of Bs and Cs. When asked to grade their boards,board members — not surprisingly — rate their performance higher than do chief executives.

Everyone agrees, however, that boards are relatively strong at understanding their mission and ensuringfinancial and legal oversight. Areas of lowest board performance are fundraising, community relations,and board recruitment.

Who has the highest performing boards? Organizations with budgets greater than $5 million, boardswith 15 to 22 members, boards that do self-assessments, and chief executives with longer tenure.

Board Performance Report Card

CEO BOARD

Understanding organization’s mission B+ B+Financial oversight B B+Legal and ethical oversight B BKnowledge of organization’s programs B BProviding guidance and support to CEO B BLevel of commitment and involvement B BEvaluating the CEO B BStrategic planning C+ BMonitoring organizational performance C+ BUnderstanding board’s roles and responsibilities C+ BRecruiting and orienting new board members C+ BCommunity relations and outreach C+ BFundraising C C+


Nonprofit leaders also agree on the top five areas the board should address to improve performance —fundraising, board composition and diversity, strategic planning, focus (more strategic and less operational), and board member commitment and engagement — though chief executives and boardmembers prioritize them differently. In particular, chief executives identify board composition as the sec-ond most important board issue to address, while board members rank it fifth.

“One of the most difficult parts of my job is nudging the board along, not bytelling board members what to do, but by helping them find their way andmaking the board experience meaningful.”

– Chief Executive

ORGANIZATIONAL STRATEGY AND CHALLENGES

• 99% of nonprofits have a written mission statement

• 78% of nonprofits have a written vision statement

• 79% of organizations have a written strategic plan

• Strategic planning ranks #3 among areas of board performance needing improvement

FinancialSustainability

Fundraising

Strategy

Staffing

BoardDevelopment

Marketing

Facilities andReal Estate

35%

27%30%

32%27%

24%17%

8%11%

9%

7%8%

11%14%

C E OB O A R D

C E OB O A R D

C E OB O A R D

C E OB O A R D

C E OB O A R D

C E OB O A R D

C E OB O A R D

Most Pressing Organizational Challenges


FUNDRAISING*

• 46% of charities have 100% participation in board giving

• Boards average 74% participation in giving

• 68% of charities require board members to make a personal financial contribution

• Fundraising ranks #1 among areas of board performance needing improvement

Make a personal contribution 68Identify donors 61Attend fundraising events 60Solicit funds 51

%%%%

Board Fundraising Requirements

Given the work nonprofits set out to accomplish and the current operating environment, nonprofit leadership has never been easy. More than 75% of chief executives report that the prerequisites — mission, vision, and a strategic plan — are in place.

Strategic planning is perennially high on the to-do list for many nonprofit leaders. According to chiefexecutives, 45% of their organizations have completed a new strategic plan within the last two years.When asked where their board most needs to improve, they cite strategic planning (30%) and a morestrategic and less operational focus (27%).

At the macro level, chief executives and board members report that the two biggest challenges facingnonprofit organizations are money and strategy. Pervasive financial concerns range from funding cuts andbudget constraints to the need for new, more reliable funding sources. Fundraising challenges includeexpanding development efforts, starting capital campaigns, building endowments, and overcomingfundraising inertia.

Strategy concerns take on a variety of familiar forms. At the core, chief executives and board membersarticulate a need to clarify the mission and vision, respond to changing community needs, and developand implement strategic plans. They also identify more complicated challenges, such as managinggrowth, enhancing the brand, and restructuring operations.

“We have an extremely successful nonprofit youth organization that serves asa national leader in the field. Obviously, the board is not hindering that, andall the board members are committed to what they see as our mission andresponsibility. Programmatically, financially, and strategically, we are strong.But with increased board participation, I believe we could be stronger.”

– Chief Executive

* Data in this section are based only on survey responses from chief executives and board members of public charities; they are the only categoryof tax-exempt organizations eligible to receive charitable contributions.


40% 27% 22% 11%

7%

4%

4%

2%

43% 28% 21%

54% 27% 15%

63% 23% 10%

73% 19%6%

Ask for money directly

Make phone calls to potential donors

Meet face-to-face with potential donors

Provide names/addresses for solicitations

Write/sign personal solicitation letters

COMFORTABLE SOMEWHATCOMFORTABLE

SOMEWHATUNCOMFORTABLE

VERYUNCOMFORTABLE

Board Comfort with Fundraising

For public charities, fundraising is almost always an assumed board responsibility. The challenge is making this assumption explicit. A majority of public charities have taken an important first step byarticulating fundraising expectations for board members. In 2007, 68% of public charities require boardmembers to make a personal contribution, more than double the percentage in 1994. Still, only 46% ofchief executives report 100% board giving.

Board members seem more comfortable with giving than getting or asking. While most are comfortablesending letters (92%) and providing donor leads (86%), fewer are comfortable meeting face-to-face(81%), calling prospects (71%), and asking for money directly (67%). Board chairs express greater comfort than other board members in carrying out nearly all of these fundraising activities.

Chief executives of charities that require board members to identify donors, solicit funds, attend events,and make contributions give higher grades — Bs vs. Cs — to their board’s fundraising performance, compared to organizations without such requirements.

“I would say that most, if not all, board members are inspired to work for the organization by the clients it serves. This inspiration is a strong motivator to participate at all levels: meetings, fundraising, and community outreach events.”

– Board Member


BOARD COMPOSITION

BOARD DEMOGRAPHICS

• Board composition ranks #2, for CEOs, among areas of board performance needing improvement

86%White

7%Black/African

American 3%Hispanic/

Latino2%Asian

2% Other1% 2+ Races1% American Indian/ Native Alaskan.3% Native Hawaiian/ Other Pacific Islander

Female 43Male 57

%%

Board Diversity by GenderBoard Diversityby Race and Ethnicity

< 30 years 230 – 49 years 3650 – 64 years 4965+ years 13

%%%%

Board Diversity by Age

For-profit, self-employed 54Nonprofit 20Retired 13Government 8Not employed 4

%%%%%

Board Diversity by Employment

Ethnic, gender, and age diversity on nonprofit boards have remained fairly constant — and nothing tobrag about — for more than a decade. Many organizations struggle to diversify board composition to better reflect the constituency they serve. Board size and budget size tend to influence the demographicsof boards, but they do not always move in the same direction.

Larger organizations have a greater percentage of Black/African American board members. As budget sizeincreases, the percentage of Blacks/African Americans increases from 5% to 10%. Alas, this is not true forother races and ethnicities.


89%85%

76%69%

67%64%

55%53%

48%41%

30%

Business Management

Finance

Organization’s Field

Legal

Entrepreneurship

Investments

Marketing

Fundraising

Human Resources

Government Relations

Technology

Professional Expertise Represented on Boards

As budgets get larger, the percentage of female board members declines from a high of 51% for nonprof-its with budgets of less than $500,000 to a low of 33% for those with budgets greater than $25 million.Still, the largest nonprofits have more female board members than Fortune 500 companies, which haveonly 15% women (Source: Catalyst).

The smallest organizations, with budgets less than $500,000, have the highest percentage (4%) of youngboard members (under 30 years old). Large organizations have the highest percentage (19%) of boardmembers 65 years and older. This makes sense given that with age often come community stature andgreater personal wealth, two criteria prized by nonprofit boards.

The percentages of nonprofit employees, government employees, self-employed individuals, those notemployed, and students stay relatively even across all budget sizes. But, the percentage of retired individuals increases, rising from 12% in small organizations to 16% in large organizations.

When asked about satisfaction with board diversity, chief executives acknowledge that their boards stillhave a way to go. Although 51% is satisfied with their board diversity, 13% is very dissatisfied, andanother 36% is somewhat dissatisfied. Chief executives who are more satisfied with the diversity of theirboards do, indeed, have greater racial diversity.

“This is simply the most functional board I have ever participated in. Wehave enormous respect for each other. Board members include bankers,lawyers, advocates, retirees, human service workers, with 50% of the boardbeing low-income consumers. Meetings are rewarding, thoughtful, and oftenfull of laughter, always focused on the mission. I wish I could bottle it.”

– Board Member


BOARD SIZE AND BOARD MEMBER TERMS

• Board size averages 16 voting members

• 47% of boards have fewer than 15 members

• The average length of a board term is 3.1 years

• Board members can serve an average of 2.3 consecutive terms

• 14% of chief executives are voting members of their boards

• 4% of chief executives are also board chair

8%

70%

23%< 3 Years

3 Years

4+ Years

Length of BoardMember Terms

1 Term

2 Terms

3 Terms

4 Terms

No Limit

3%

3%

43%

19%

32%

Number of ConsecutiveBoard Terms

Over the last decade, average board size has stayed relatively constant at 16 members. There’s no one right size, however, so each board must determine how many members it needs to work efficiently andeffectively. This year’s Governance Index surfaces a sweet spot. Boards with 15 to 22 members are rated asmore effective by their chief executives and repeatedly report better governance practices.

Nonprofit chief executives experience a Goldilocks phenomenon. Those with large boards wish for smallerboard, those with small boards wish for larger boards, and those with boards of 15 to 22 members feel theirboard size is “just right.”

A board member can serve, on average, seven years through a combination of term length and limits. Themost popular pattern, which has held steady over the years, is two consecutive three-year terms. Smallboards and small organizations have a higher percentage of no term limits than their large counterparts.Setting the length of terms and limits requires balancing the learning curve of new members with the needfor fresh perspectives in the boardroom. This is confirmed by the finding that chief executives whose boardmembers have longer but still limited tenure (7.1 vs. 6.2 years) rate their boards more effectively.

Board officer positions have shorter terms and more limits than those of board members, taking intoaccount the time commitment and value of continuity. The average number of years for board chair terms is1.8 years, and chairs can serve an average of 1.9 consecutive terms. Other board officers serve an averageterm of 1.7 years, with an average of 2.1 terms.

Board chairs make a serious commitment to the organizations they lead, especially in terms of time andfundraising. They report spending twice as much time on board work as other board members (20 vs. 10hours per month) and are more prepared to make fundraising connections (82% vs. 70%) and significantfinancial contributions (93% vs. 87%).


BOARD RECRUITMENT

A considerable majority of nonprofit boards (72%) are self-perpetuating, meaning new board membersare elected by the current board. Another 26% has an election process that involves members or chapters, 6% has board members appointed by another body or government agency, and 5% uses some other process. (The percentages do not add up to 100% because some boards use more than one method.)

Recruitment and orientation is rated the third lowest area of board performance. It is an activity drivenby a team comprised of a designated committee, the chief executive, and the board chair. Boards rated as effective by their chief executives have greater involvement by this team and individual boardmembers than do boards rated as ineffective.

As the saying goes, “It’s not what you know, it’s who you know.” Most board members report beingrecruited by another board member (54%), the chief executive (37%), and members of the organization(15%). Few (9%) sought out a board seat on their own, and fewer still came to a board through a corporate board placement program (1%) or board matching program (1%).

While chief executives are divided on whether board recruitment is easy, they generally agree on the issuesthat pose the greatest problems for recruitment — finding individuals with time to serve (28%), matchingindividual skills with board needs (17%), and competing for overcommitted candidates (16%).

“A smaller board in number is better than a larger board with those less

committed.” – Chief Executive

Involvement in Board Recruitment

2%73% 19%6%

2

Write/sign personal solicitation letters

GovernanceCommittee

NOINVOLVEMENT

LOWINVOLVEMENT

MODERATEINVOLVEMENT

HIGHINVOLVEMENT

62%9% 9% 20%

CEO 59%3%

3%

9% 29%

BoardChair 41%14% 42%

48%BoardMembers 14%4

% 35%


BOARD MEMBER MOTIVATION AND CRITERIA

• 80% of board members say mission fit is their top motivation for joining

• 61% of chief executives say commitment to mission is the top criteria for board recruiting

• 3% of organizations pay board members a fee or honorarium

• 29% of organizations reimburse board members for travel and other meeting expenses

Fit of the mission with personal interests 80Personal connection to the organization 38Invitation from a friend or colleague 36Need for your professional skills 36Personal/professional development 28Reputation/prestige of the organization 24Expertise in the organization’s field 18

%%%%%%%

Board Members’ Top ConsiderationsWhen Joining

Commitment to the mission 61Community stature and connections 40Professional skills 37Willingness to serve 32Connection to the organization 27Recommended by a board member 25Demographics 22

%%%%%%%

CEOs’ Top Criteria for RecruitingBoard Members

“It is easy enough to find people willing to serve, but harder to find peoplewho fit our criteria and are willing to commit the necessary time.”

– Chief Executive

While chief executives and board members look at board recruitment from different perspectives, theyagree that mission matters most. 80% of board members seek a fit between mission and personal interestand beliefs, and 61% of chief executives look for a commitment to mission.

They also agree that professional skills are important (chief executives rank this third, and board mem-bers fourth). The areas of expertise most widely represented on boards are business management (89%),accounting and financial (85%), and the nonprofit’s industry or field (76%).

Board service remains firmly rooted in volunteerism. By and large, nonprofit board members are notcompensated. However, 11% of organizations with budgets of more than $25 million pay their boardmembers a fee or honorarium for their board service (compared to 3% of all nonprofits).


BOARD EDUCATION AND EVALUATION

• 74% of boards have a structured, in-person orientation for new members

• 52% of boards have conducted a formal, written evaluation of their own performance

• 93% of board members are interested in additional governance training and information

• 94% of board members, knowing what they know now, would still agree to serve

Competent board members are made, not born. Finding the right people may not be easy, but oncethey’re on board, they need to be oriented, engaged, and evaluated. Boards do not understand their rolesvery well — chief executives give them a C+ and board members give themselves a B. But there’s hope:93% of board members are interested in board training.

Board education starts during the recruitment process. When they first join the board, most membershave a good understanding of the time commitment (79%) and personal contributions (71%) expectedof them, but fewer understand the organization’s financial stability (66%) and most pressing issues(63%). Orientation presents an opportunity to ground new board members in the nonprofit’s history andcurrent operating environment.

Chief executives and board members see a lopsided distribution of labor among the board. Only 55% ofboard members report that work is distributed evenly all or most of the time. Well over one-third ofchief executives (44%) and board members (38%) report that their boards work best as individuals.

Board assessments are catching on as a strategy for educating board members and strengthening governance. 52% of boards have done an assessment, double the percentage from 1994. Of those that have done a self-assessment, 84% has done so within the last three years. Boards that have done a self-assessment were rated more effective by chief executives than those who have not (55% vs. 38%). Thosethat have not done a self-assessment tend to be organizations with newer chief executives (less than threeyears) and small organizations.

“The results of these [board self-assessment] surveys have provided the‘marching orders’ for the board committees and have really forced them tofocus on the governance issues and not the day-to-day operational issues.”

– Board Member


MEETINGS

• Boards meet an average of 6.9 times per year

• An average board meeting lasts 3.3 hours

• Boards meet an average of 16.5 hours per year

• 79% of boards average 75% to 100% attendance at board meetings

• 48% of boards have an annual retreat

Each board needs to determine how much time to spend in meetings to fulfill its fiduciary duties. Theless frequently a board meets, the longer the individual meetings tend to be.

Small boards seem to function as a “committee of the whole.” Compared to large boards, small boardsgenerally have longer board meetings, meet more frequently (7.2. vs. 6.1 times per year), and have fewercommittees (4.0 vs. 8.0). The boards of small organizations also meet more frequently than medium andlarge organizations (7.5 vs. 6.3 and 6.6 times per year).

“It’s difficult to get current board members to think outside the box in terms ofstructuring meetings differently, e.g., using teleconferencing, having longermeetings but meeting less often, using advisory committees. The agony isgrowing, but the board structure is stuck in its old way of operating.”

– Chief Executive

BOARD STRUCTURES

Board Members’ Meeting Report Card

Was there a clear meeting agenda? A

Did all board members have a chance toexpress their ideas? B+

Was there a positive atmosphere during boardmeetings? B+

Were materials distributed sufficiently inadvance of board meetings? B

Did meetings start and end on time? B

Were discussions kept on track? B

Meetingsper Year

Hoursper Meeting

1 1% 5.5

2 5% 8.6

3 – 4 26% 5.3

5 – 6 24% 2.6

7 – 10 25% 2.0

11 – 12 17% 1.8

13+ 2% 2.3

Frequency and Length ofBoard Meetings


“The board is in the midst of restructuring itself to a strong board/committeestructure. The path is bumpy, but the direction is right.”

– Board Member

COMMITTEES

• Boards have an average of 5.4 committees

• 78% of boards have written committee charters

• 27% of organizations have an advisory council

Committees and task forces are an effective way to carry out work between meetings and to allow theboard to focus on the big picture. Committee structures are shaped by priorities and needs, as well asorganization and board size. Form should follow function when determining which committees areneeded and who can serve on them.

Only 4% of boards have no committees, and 9% has one to two committees. The majority (69%) hasthree to seven committees, and 18% has eight or more committees. Large boards have more committeesthan small boards, and small boards report the greatest occurrence of “no committees.”

The smallest nonprofits (with budgets less than $500,000) have fewer strategic and oversight committees(finance, governance/nominating, strategic planning, human resources, and investment) and more opera-tional committees (fundraising/development, marketing/public relations, membership, and advocacycommittees) than larger organizations.

Large boards are more likely to have an executive committee than small boards (90% vs. 64%). Whileexecutive committees are quite common and useful, they also can be problematic if they operate as a“board within a board.” The data show that boards with executive committees are less likely to have100% attendance at board meetings (5% vs. 16%).

A greater percentage of large boards (35%) — compared to small (24%) and medium (28%) boards —have advisory councils, which come in all shapes and sizes. Among survey respondents, nearly half (46%)describes them as sources of additional advice, expertise, and knowledge for the board on strategic issues.Roughly one-fifth (21%) uses them to support fundraising activities and raise the organization’s visibility.One-sixth (16%) sees them as a link to constituents and a mechanism for program oversight.

Executive

Finance

Governance

Fundraising

Audit*

Program

Marketing

79%77%

68%57%

54%32%

29%*Audit may be combined with Finance

BoardMembers

CEOs

NonboardMembers

OrganizationalMembers

FormerBoard Members

Others

98%

54%41%

33%

23%11%

Most Common Committees Who Serves on Committees?


ACCOUNTABILITY POLICIES

• 93% of organizations carry directors’ and officers’ liability insurance

• 88% of organizations have a conflict-of-interest policy

• 69% of organizations have a written statement of ethics

• 64% of organizations have a document retention and destruction policy

• 60% of organizations have a whistleblower policy

Effective boards use policies and statements to guide themselves and protect the organization. Moreboards rated as effective by their chief executives have such policies and statements in place than thoserated as ineffective.

Small organizations consistently have fewer policies in place, reminding us that limited resources are afactor. Small boards also have fewer policies, reflecting that a certain degree of formality can help coordinate a larger number of people.

Most nonprofits (88%) have a conflict-of-interest policy, up from 61% in 1994. Most nonprofits (87%)require board members with a conflict of interest to recuse themselves from discussion prior to decisionmaking. Two-thirds (67%) requires board members to sign an annual disclosure statement, which is oneway to ensure that nonprofit leaders pay attention to conflicts of interest on a regular basis.

Many board members (75%) feel that their boards are well informed of regulatory developments, including the Sarbanes-Oxley Act (SOX). Nearly two-thirds of nonprofits have established documentretention and destruction and whistleblower policies, the two aspects of SOX that are applicable to nonprofit and for-profit entities alike. While such policies are not required by law, SOX makes it a federal crime to retaliate against whistleblowers and to destroy documents during investigations.

OVERSIGHT POLICIESAND PRACTICES

99%

88%

87%

90%

66%

68%

87%

48%

56%

75%

33%

41%

84%

72%

62%

58%

EthicsStatement

< $500K

Conflict ofInterest

Whistleblower Document RetentionDestruction

$500K – 999K $1M – 9.9M $10M+

Board Policies by Budget Size


FINANCIAL OVERSIGHT AND DISCLOSURE

• 92% of organizations have an external financial audit

• 85% of organizations have board members with financial expertise

• 54% of organizations have an audit committee

• 28% of of organizations separate the audit committee from the finance committee

• 18% of organizations post their IRS Form 990 on their own Web site

Financial oversight is rated as the second strongest area of board performance, behind understanding themission. At the same time, financial issues weigh heavily on the minds of nonprofit leaders, who mustgrapple with complicated accounting practices, significant oversight duties, and serious issues of fiscalsustainability.

Board composition reflects this attention to financial oversight. Of the chief executives surveyed, 89%has board members with business management skills, 85% has board members with accounting andfinance skills, and 64% has board members with investment skills.

For their part, board members are confident in the way they carry out these duties. 94% agrees that the board actively monitors the organization’s financial performance, and 92% agrees that the financialreports are understandable, accurate, and timely. Yet, only 55% of board members give their boards agrade A for financial oversight, suggesting that they are anxious about this responsibility.

Roughly half of the nonprofit boards surveyed take steps to ensure that the audit is truly an act of independent oversight. Only half (49%) meets as a full board with the auditors, and only a third (37%)meets with the auditors without staff present.

The Sarbanes-Oxley Act (SOX), while not applicable to nonprofits (except for whistleblower protectionand document retention and destruction), raised the bar on audit committees. Compared to their smallcounterparts, more large organizations and large boards have adopted the SOX practice of having separate audit and finance committees to ensure greater oversight and independence. Of the large nonprofits, 66% separates these committees, compared to 40% of small organizations. Likewise, 63% of large boards have separate audit and finance committees, compared to 44% of small boards.

Transparency serves as a complement to these oversight issues, and a simple way to demonstrate a proactive commitment to accountability is to post information on the Internet. The IRS Form 990, anonprofit’s annual information return, must be made publicly available. At best, only half of all nonprofits make their Form 990 available on a Web site — 18% on their own Web site and 48% on some other Web site.

“There is a great difference between sitting on a board and serving on

a board.” – Chief Executive


CHIEF EXECUTIVE EVALUATION AND COMPENSATION

• 74% of chief executives have a formal, written evaluation by the board

• 67% of full boards approve the chief executive’s total compensation package

• 65% of boards consider salary at comparable organizations

• 94% of chief executives are satisfied with their jobs

A nonprofit board has a collective responsibility for evaluating the chief executive and determining his or her compensation. While 74% of boards conduct a formal, written performance evaluation of thechief executive, only 74% of those boards share the results with the full board. Less encouraging, especially given media attention and IRS scrutiny, only 67% of full boards approve the chief executive’scompensation.

Boards should not underestimate their role in chief executive job satisfaction. Many chief executives findboards personally helpful (77%) and a resource rather than an obstacle for getting things done (78%).Chief executives who have a written evaluation are more satisfied with their jobs (88% vs. 78%).Furthermore, chief executives who give their boards an effective rating have greater job satisfaction(97%) than those who give their boards an ineffective rating (73%).

More than 90% of board members believe the board has a constructive partnership with the chief executive. They believe there is effective collaboration on major decisions (93%) and open and honest communication (91%). They also believe that the chief executive actively involves the board in leading the organization (91%).

Chief executives have a slightly less positive perspective on their relationship with the board. While 84%of board members give their boards an A or B for providing guidance and support to the chief executive,only 68% of chief executives give their boards such high marks. Likewise, 87% of board members seethe board as a resource for getting things done, compared to 78% of chief executives.

Not surprisingly, chief executives and board members do not share quite the same understanding ofexecutive turnover. While 49% of chief executives anticipate a change in their position within the nextfive years, only 30% of board members see this change coming.

Full Board

Executive Committee

Board Chair

Staff Members

Other Committee

Other

60%

50%

47%

12%

12%

22%

Participants in CEO Evaluation

“This is the most frustrating, interesting, stressful, intrinsically rewarding job

I’ve ever had.” – Chief Executive


The Nonprofit Governance Index 2007 included two surveys — one for chief executives and one for boardmembers. The chief executive survey had 55 questions and the board member survey 34 questions.Participants were entitled to receive one of four BoardSource publications as a complimentary gift forcompleting the survey.

Respondents were selected from BoardSource members who had the title of chief executive or somethingcomparable. These individuals were invited, via e-mail, to complete the chief executive survey and toforward an e-mail inviting their board chair and an additional board member to complete the boardmember survey. Chief executives who did not complete the survey after receiving the initial e-mailreceived reminders via e-mail and regular mail.

Participants were given the option of completing the survey online or downloading a paper copy andfaxing or mailing their completed surveys directly to BoardSource. Less than 3% of the participants completed a paper survey. All surveys were completed between May 8 and June 11, 2007, and measured current board practices.

The results in this report represent 1,126 chief executives (a response rate of 26%) and 1,026 boardmembers. The board member responses are split between board chairs (49%), other board members(41%), and others (10%). Board members were asked to represent themselves, not their fellow boardmembers, in their responses. The data for individual questions are based on the number of individualswho answered that question.

This is the fifth edition of the BoardSource Nonprofit Governance Index, with surveys previously conducted in 1994, 1996, 1999, and 2004. We completed a generalized trend analysis, rather than a statistical comparison, of approximately 18 questions on the chief executive survey and 11 questions onthe board member survey. When looking at trends, we caution readers to keep in mind that the surveyshad different sample sizes over the years.

This research is not based on a weighted national sample. Participants were selected from theBoardSource membership database as of April 2007, which contributed to a threefold increase in thenumber of respondents compared to the 2004 survey. Given the volume of responses, the research doesreflect a broad spectrum of nonprofit organizations from across the country, IRS classifications, budgetsize, and mission areas.

The survey was jointly administered by BoardSource and Sturiale & Company using secure survey software developed by enetrixTM. Data analysis was completed by JoAnne Sturiale, president/CEO ofSturiale & Company, with assistance from Lonnie DeRosa.

APPENDIX

METHODOLOGY


< $5OO,OOO 20$5OO,OOO – 999,OOO 17$1 – 4.9 million 37$5 – 9.9 million 10$10 – 24.9 million 9$25+ million 7

Human/Social Service 21Education 14Health Care 10Housing/Community/Economic Development 6Philanthropy/Grantmaking 6Professional/Trade Association 5Arts and Culture 5Advocacy 5Other 30

5O1(c)(3) – Public Charity 805O1(c)(3) – Private Foundation 95O1(c)(6) 65O1(c)(4) 1Other/Don’t Know 6

%

%

%%%

IRS Classifications ofParticipating Organizations

Budget Size of ParticipatingOrganizations

Mission Areas ofParticipating Organizations

CHIEF EXECUTIVE RESPONDENT PROFILES

The respondent pool is predominantly 501(c)(3) organizations serving a wide range of mission areas inall 50 states, the District of Columbia, Puerto Rico, and Virgin Islands. Nonprofits of all budget sizes arerepresented: Roughly one-third of participating organizations have annual budgets less than $1 million,one-half have budgets between $1 million and $10 million, and the remaining one-sixth have budgetsgreater than $10 million.

PARTICIPATING ORGANIZATION PROFILES

%

%%%

%%

%

%%%

%%

%

%%

Executive Director

President & CEO

President

CEO

Other

Titles Used by Chief Executives

Those who responded to the chief executive survey (1,126 individuals) had an average tenure of 7.7years as chief executive. They spoke passionately and articulately about the work their organizations do,their role and relationship with their boards, and challenges looming on the horizon. As chief executives,they have a unique vantage point. In addition to managing the organization on a daily basis, they alsooften serve as an ex officio (“by virtue of their position”) member of the board, usually without a vote.


High School Diploma/GED 4Associate’s Degree 5Bachelor’s Degree 33Graduate+ Degree 56

BOARD MEMBER RESPONDENT PROFILES

Board Chair 49Board Member 41Other 10

1 – 2 Years 163 – 4 Years 285 – 6 Years 247+ Years 33

Roles of Board MemberRespondents

Tenure of Board MemberRespondents

Education of Board MemberRespondents

Those who responded to the board survey (1,026 individuals) are the most active and engaged boardmembers. The average tenure of board member respondents is 6.3 years. Nearly half (49%) are boardchairs and the rest are a mix of board members, other board officers, committee chairs, and former boardmembers. As such, they represent a higher performing subset of board members. Board members serveon an average of 2.1 boards. Board members were asked to base their responses on the board they haveserved on the longest and to represent themselves, not their fellow board members.

%

%%%

%

%%%

%

%%

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Documents

BOARDSOURCE NONPROFIT GOVERNANCE INDEX – 2007 · 2017. 9. 7. · ©2007 BoardSource® Nonprofit Governance Index 2007 3 The results of the Nonprofit Governance Index 2007survey,