Board Composition – Nonprofit Law Blog

A nonprofit corporation’s board composition is a critical part of its governance. And many nonprofits devote substantial resources (including time) to development of a skills and background matrix, recruitment, and orientation. But a great many nonprofits do not. Too often, board members are simply asked to think of good people to invite or the executive is expected to provide all of the suggested candidates, and little resources are invested in cultivating future board members.

For a nonprofit whose leaders, employees, volunteers, and beneficiaries value equity, or for a nonprofit whose mission demands equity, sufficient resources must be allocated to the corporation’s board composition; understanding why diversity and inclusion on the board are important to equitable planning, practices, and activities; and taking proactive steps to continually develop and support a diverse and inclusive board culture.

Diversity in nonprofit board composition most commonly refers to racial diversity. Of course, this is an area of high priority for many organizations. But there are also other areas of board diversity demanding of attention and resources including with respect to disabilities, gender, age, wealth, and sexual orientation. How to prioritize representation from different communities on a board, which sometimes includes a relatively small number of directors, is complex and highly specific to an organization’s position and circumstances. This should be an area of recurring discussion by the board and the organization’s other leaders.

The Law

The law will require a nonprofit board to ensure that its board composition is constructed consistent with state law and the corporation’s internal governing documents. State law may provide for a minimum number of directors. A corporation’s bylaws may be more specific about the precise number or a permissible range for the number of board members. Bylaws may also provide additional requirements, including regarding representation from various segments of the community served by the corporation, but such provisions should be drafted very carefully to avoid potential legal and reputational risks.

Most charitable nonprofit corporations have self-perpetuating boards in which the board of directors is the body that elects directors. We’ll focus on these corporations for the purpose of this post.

Legal Duties

Board members have fiduciary duties of care and loyalty. Some people add a fiduciary duty of obedience while others say that is encompassed in the two principal duties.

Generally, these fiduciary duties require board members to act with reasonable care and in the best interests of the nonprofit corporation and its purposes. And as board members, their collective role is to be ultimately responsible for the management of the affairs and activities of the corporation.

One of the most important duties of the board is the election of board members. Because the board has ultimate power over the corporation, who is on the board makes a difference.

Boards hire the chief executive. They approve the budgets. They can modify the mission. Strong boards work with and support the executive and leadership team and help set the culture and values of the nonprofit corporation. They provide diligent oversight to help keep the corporation compliant, viable, and effective. They help plan for the corporation’s future. They bring in different perspectives to make sure the leadership is informed and connected to the corporation’s external environment. They include board members who can support the corporation with particular expertise, networks, and ambassadorship. And they realize they govern in service to the broader community as well as the organization’s inner community of beneficiaries, employees, and volunteers.

A board that does not value diversity and inclusion will be lacking in its ability to govern, lead, learn, and serve. Metaphorically, such a board is like a basketball team exclusively composed of centers, a debate team exclusively composed of scientists, or a cast exclusively composed of men. It will lack perspective and understanding of all of the communities the organization serves and the persons who run the organization. It will lack knowledge of potential funders and supporters from diverse communities. It will lack recognition of applicable cultural cues and contexts and growth opportunities. It will lack ability to effectively adapt to changing demographics and its ecosystem. It will fail to maximize loyalty from critical current and potential supporters and allies.

Taking these factors into account, a nonprofit’s board members should understand why meeting their fiduciary duty to act in the best interests of the corporation includes how they determine who will serve on the board, how the board should be composed, and what organizational resources should be invested in supporting such desired composition. Failing to invest time and resources on these issue may be considered a failure to exercise reasonable care, though admittedly, this is not the type of failure that would in and of itself create legal liability risks. Nevertheless, boards, particularly those that publicly state they value diversity, equity, and inclusion (“DEI”), must meet their fiduciary duties, including with respect to board composition.

The value of a diverse and inclusive board as it relates to DEI is also supported by studies and experts in the for-profit context:

Substantial evidence exists that companies with good DEI practices will not only be less likely to face adverse legal, regulatory, worker, community, and consumer backlash from their conduct, but that their boards and workforces will be more effective and their reputation with an increasingly diverse customer base and public will grow, as will trust from institutional investors increasingly focused on sustainable profitability and the avoidance of harmful externalities costly to their clients ….

Professor Chris Bruner and former Chief Justice and Chancellor of the State of Delaware Leo E. Strine, Jr.

Ten Tips

If the board’s composition and the manner in which its composition is determined are critical to the organization’s effectiveness and viability, board members must take steps to help ensure that the recruiting, vetting, nominating, electing, orienting, educating, supporting, and retaining of board members (collectively, “Board Development Activities”) are all done in the best interests of the organization in light of its charitable purpose, values, and ecosystem. This means that board members should help to ensure that adequate resources are allocated for Board Development Activities.

Here are ten tips for furthering that goal:

1. Identify what gaps the organization has with respect to its board composition
2. Determine resource needs to better identify, understand, and address such gaps
3. Acquire, as possible, such resources consistent with priorities
4. Determine the desired impact of the diversified board that is the goal
5. Build strategies and structures to ensure inclusion and appropriate power-sharing with new board members who may add to the board’s diversity
6. Identify barriers to such strategies and structures and how they may be overcome or otherwise worked with or around
7. Develop plans for creating and maintaining strong relationships with communities served by the organization and those that support the organization – these may be pipelines for future board members
8. Ensure the plans and activities related to Board Development Activities do not tokenize any board members or minority groups of board members and do not create greater expectations or responsibilities for such board members relative to other board members
9. Keep the board and other organizational leaders (at every level) educated about the organization’s values, goals, and priorities related to board composition; its plans for advancing such values, goals, and priorities; how each individual can contribute to such effort; historical and systemic barriers that apply; and the organization’s plans for continually addressing those barriers
10. Incorporating the organization’s values, goals, and priorities, including those related to its board composition, into the organization’s governing documents (e.g., articles and bylaws) and other board- and staff-approved policy documents

Additional Resources

Setting Up an Effective Nonprofit Board

Beyond Political Correctness: Building a Diverse Board (BoardSource, Bridgespan Group)

Developing a Strong and Diverse Nonprofit Board (Micayla Richardson, Marlen Barajas Espinosa, Jennifer A. Jones, and Kimberly Wiley)

Nonprofit Board Composition (Atinuke Adediran)

A Critical Problem Needing a Bolder Solution?: A Response to Atinuke 0. Adediran’s Nonprofit Board Composition (Lloyd Hitoshi Mayer)

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