Board members play a critical role in the governance of a not-for-profit organization. Their role in supervising the decision making process in the organization – including the decisions reserved for the Board itself – are critical in keeping the interests of the organization and its mission top priority. One of the key legal obligations of board members is their loyalty. This means maintaining objectivity in making decisions; assuring an unbiased approach to issues; being free of any conflicts of interest when choosing between options and being free from external control or ulterior motives.

The IRS Form 990 specifically asks questions relative to board member independence; however, these questions stem from a strict definition of independence which is related to financial reward. For example, the IRS questions whether board members receive compensation either as a board member or as an employee. They also question compensation that may be received as an external contractor and other financial transactions with either a board member or family member.

States Taking Action

In addition to the IRS, various state laws address the independence of not-for-profit board members. On July 1, 2014 a revised New York nonprofit law goes into effect. This law addresses board independence as one of the key aspects of an accountable board. Among other things the law indicates that a board member may not be or have been an employee or have a relative who is a key employee of the organization for the past 3 years. The board member may also not have received direct compensation from the organization or an affiliate of more than $10,000 in the past 3 years.

The goal of every organization is a board comprised of individual board members, each possessing genuine independence. This leads to decision making that derives simply from the obligation and need to help the organization. This independent-mindedness results in candor and a thorough reflection of the issues as evidenced by a willingness to ask questions until an issue has been thoroughly examined and discussed. Everyone on the board should feel free to question current practices and traditions without being influenced by the seniority, position, or reputation of fellow board members, staff members or donors.

Defining Genuine Independence

Organizations can create a structure that will lead to genuine independence. For example, the CEO shouldn’t have double duties by also serving as the chair of the organization. To the same respect, no paid staff member should also be a voting board member. This also applies to spouses and close relatives. The organization should have a solid conflict-of-interest policy with unequivocal enforcement. Full disclosure of potential conflicts should be the norm with recusal from both discussion and voting when a conflict is present. This fact should also be noted in the meeting minutes.

The role of the board should be periodically reinforced so that members understand their individual and shared responsibilities. This understanding is aimed at linking board decisions to the future success of the organization and reinforcing the concept that the board and the organization are a team. The board should hold regular executive sessions without the staff and develop a culture where the skills of the individual board members are brought to the organization as assets.

A highly effective board leads to a highly effective organization. We urge everyone who serves on a board to commit the time and energy needed to run an effective, independent board. Learn more about board development by reading our 10 Basic Responsibilities of Not-for-Profit Boards blog series.