Episode 70: Nonprofit Governance - The Role of the Nonprofit Board of Directors
Are you running your board meetings (IF you can even get them to make the meeting!)? Are you the one reporting out and updating the board? Are you the one driving the fundraising strategy and recruitment? If so, you have to watch this episode to learn what the role of the nonprofit board of directors is so that you can shift the culture and get your board engaged and living up to their fiduciary duties.
LINKS:
Donor Box
NONPROFIT SPOTLIGHT: Jewish Big Brothers Big Sisters of Los Angeles
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Podcast Transcript
Speaker 1 (00:02):
Welcome to On Air with Amber Wynn, where nonprofit leaders learned to fuse passion and commitment with proven business strategies to create long-term funding impact and sustainability. And now here's your host and resident, Philanthrepreneur, Amber Wynn.
Speaker 2 (00:24):
Good morning, Fam. It's your girl in the house. I'm so excited to be here. In particular, I'm excited about this next series that we are about to jump into and it's nonprofit governance. Y'all, this is a really important topic. Here's what usually happens. There's a need in your community and you decide to start a nonprofit to address it. The person who prepares your paperwork says you need three people to sit on your board. And you said, who? And they say, it doesn't matter. Just three people. Let me tell you, that's the first error. It does matter. It matters so much because the IRS has created the structure and the structure for the nonprofit is that there is a governing entity. It is called the board of directors and it means something. So for the next couple of weeks, I'm going to dive in deeply about what nonprofit governance is.
(01:19):
Today's episode, we're going to just start off with what is the role of the board of directors because there are specific reasons why the board exists, and if you're functioning as a single proprietor, meaning you're the founder, the executive director, and you're doing everything, it could be just that you don't understand what the role of the board is, so you know how we do it. We're going to start off with a word from one of our sponsors, and then when we come back, we're going to dive into the topic, see you on the other side.
Speaker 3 (01:53):
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Speaker 2 (02:27):
Welcome back your on air with Amber Wynn resident, Phil entrepreneur, your cheerleader, and all of that good stuff. Today we are talking about nonprofit governance. We're starting the series. A lot of times my amazing nonprofit leaders start their nonprofits not really understanding how the IRS has structured the nonprofit. And so you kind of do this stuff where you make it up. Well, in this series, we are going to talk about the role of the nonprofit board directors. And I am specific when I say the role of the nonprofit board of directors, because in the corporate world there is a board of directors, and what typically happens is that people conflate the two, right? But the role of the corporate board of directors is completely different than the role of the nonprofit board of directors. And so today we're going to talk about what the role is.
(03:22):
There are two primary functions, three primary functions of the nonprofit board. The first one is governance. That means that they are responsible for the ethical running of the organization. When it comes down to it, if you see a nonprofit in the news, it's not the executive director that's speaking. It's typically the president of the board because the board of directors is responsible for running the organization. Now, the reality is typically a founder is going to be the executive director because they're getting paid. And so typically, realistically, it is the executive director that is running the organization. But here's what I need you to understand, even though that is your truth, and those are the facts. When a funder, when the IRS, when any of the authorizing agencies look at your organization, they're looking at it from the perspective of how the IRS has structured the nonprofit.
(04:25):
So you may be running the organization, but the IRS and these authorizing agencies are going to speak to the board because the board is responsible for running the nonprofit. Second thing, the board is also responsible for partnering with the executive director. So the board of directors is responsible for the vision and the growth of the organization. The executive director is responsible for bringing that vision into life. So for operationalizing that vision and making sure that the day-to-day things are happening, the executive director reports to the board. So the board wants to make sure that the executive director is operationalizing what's going on in the nonprofit. The way that they have determined, are you listening to me? So executive directors, founders, if you are running your organization, that is not the way that the IRS designed it. People say to me all the time, there's so much training out there for the board and not the executive director because the way the IRS has designed the nonprofit is that the board is supposed to be driving it.
(05:37):
An executive director is a hired staff member, the highest paid staff member, but they are hired by the board to operationalize their vision. So if you understand that, you understand why there's so much energy put into board development board training because it is the board's responsibility to ensure the sustainability of the organization. It brings me to the third role of the board. It is their responsibility, their fiduciary, which means legal responsibility to fundraise for the organization. If you are the leader of the organization, which is a business, you guys have heard me say this countless times. A nonprofit is a business. It's just a business with a philanthropic purpose. If your responsibility is to govern the organization, you need to make sure it's sustainable. So the IRS has said that one of the main responsibilities of the board is to fundraise. I have people say to me all the time, oh, my board is not a fundraising board.
(06:37):
Then guess what? It's not a board. Now, it is very common. It is very, very common for nonprofits to start off with friends and family and people that you trust because you didn't realize that the board has a function. You just wanted to get those articles of incorporation. You just wanted to get that 5 0 1 C3. And so you picked three people who know you, love you and trust you and is going to support you. That's okay. It's okay because typically the board goes through three phases, right? There's the founding board, and that's the board. That's typically your friends, your family, your cousin, your roommate. Those are the people who support you and love you. That's fine. That's how you got started. The second phase is typically your next iteration of people who understand what it means to be on the board. And so the second phase, these people come in and they help to bring in structure and they start to separate because in that first phase, the board members are typically doing programs.
(07:46):
They love you so much that they're out there doing the work. Now they've created a budget and program descriptions and there's infrastructure. And so the board is starting to separate. You've got the governing board, and then you've got the paid staff. That's your second phase. The third phase, which is your institutional phase, is now you've got high powered people who are just fundraising, being ambassadors, getting you visibility, bringing in resources, and then you have the executive director who's reporting back to the board saying, yes, we're doing everything that we're supposed to bring that vision into life. So if you are at a phase where it's still your friends and family and roommates and cousins, that's fine. What you need to know is it's time to start rotating those people off the board because they are not operating in the way that they're supposed to. They are supposed to be supporting you as the executive director and helping you to fundraise, right?
(08:49):
If you're tired, if you're stressed out, if you're worn out because you're doing everything, it could be that you don't realize the role of the board. That's quite possible. So there should be a process by which you bring in qualified board members, and we're going to dive into that when we start talking about how to recruit board members. But for this session, I just wanted to share with you, if you are struggling as a founder and executive director, I want you to stop and look and see is my board active and engaged? And if the answer is no, it could be that they are not operating in their role the way the IRS has stated that they should. And in this series, I'm going to walk you through how to get your board to a place where they are fulfilling their role and fulfilling it in the way that the IRS and funders expect them to do.
(09:48):
Alright? So for you though, I want you to know I'm not just talking to you. I've got some resources for you. Also, I have what's called the board recruitment package. And in that package, it explains to you what the role of the board is and what you can do to recruit seasoned board members. So in the bio, I'm going to place the link. I'm also going to place the link for a free eBook, how to Recruit High Powered Board members. And in that eBook, it really just breaks down what the role of the board is supposed to be and what the things they're supposed to be doing. So we're going to pause, but when we come back, guess what time it is. It's time for you to ask your questions of Amber. It's Ask Amber time. So when we get back, ask Amber,
Speaker 4 (10:38):
This is you and this is your business from invoicing your first client to your 10th club, to your hundredth client, you'll need to get paid quickly. Pretty soon you'll be ready to hire some help and you'll need to pay them. As your business grows, wave is there to grow with you.
Speaker 2 (11:09):
Welcome back. You're on air with Amber Wynn, your resident, Phil entrepreneur, and this is the time of the episode where you get to ask your pressing questions. Y'all know I can talk. I've got 30 years of experience. I've done it all from emptying the trash to giving out money. But this is your time to specifically say, Hey Amber, I have a question. You can hit me up on all my social media, Instagram, Facebook, Twitter, my website. You can even email me at amber@amberwynn.net to ask your questions. This question is from the Inland Empire.
Speaker 5 (11:54):
Hey, this is Q from the IE. My question is about grants. Well, it's more about the audit financial statements they asked for. We haven't been able to really submit for a lot of these grants because we don't have an audit. Financial statements. I looked into it, they're expensive. An accountant quoted 5,000 to do it, and we haven't really raised a lot of money. We got about 15,000 to 20,000 last year. My question is, are there any resources out there for nonprofits to cover the cost of an audit financial report? Thanks.
Speaker 2 (12:28):
Hey, Q from the IE. Great question. First of all, we're going to have to back up a couple of steps. You said that your organization only raised between 15 to 20,000 nonprofits. That's considered a small nonprofit. Nonprofits are not required to submit audited financial statements. If your revenue is under 50,000, so one of two things, either you don't qualify for that grant because your budget is too small or you need to wait until you generate more revenue. If they're asking for audited statements, then that means that they expect that you're generating more than $50,000. That's the first thing. The second thing is no, there are not resources out there to help nonprofits cover the cost of an audited financial statement. Why? Because a nonprofit is a business and audited financial statements is a business expense. It's like if as a consultant I would say, well, are there resources out there to help me hire an accountant to do my accounting?
(13:47):
No. That's the responsibility of the owner. So if you go to someone, a funder and say, Hey, I need you to give me a check to do the audited financial statements. They're going to look at you like you're crazy because that is your responsibility. I back that up. That is your board's responsibility to ensure that the business of the organization is being handled and an audited financial statement. The purpose of the audited financial statement is to show a funder that your organization is operating in a legal and ethical manner. So you have a certified public accountant who is independent. They're going to go through all of your financials, so your transactions, your bank accounts, your bank statements, all of that. And they are going to confirm, validate, verify, and say, this organization is operating according to the IRS, according to the general accepted accounting practices, and I verify it.
(14:50):
I'm putting my credibility on the line. I've gone through all of their documents and I can state that. It's called them making a statement affirming that you are doing what you're supposed to do ethically. So that's like when a person goes and get their taxes done, right? There's nobody that's going to give you money for that. That's a business expense. So two things under $50,000, you're not required to have audited financial statements. You can ask for something that's called a review. And a review is going to give you the state of your finances, but it does not come with an opinion of a CPA. So it's going to tell you what you need to get fixed. It's going to cost you half the amount of an audited financial statement, but you don't get the opinion, and that's what a funder wants. The other thing besides the review is a compilation.
(15:42):
And the compilation pretty much does the same thing, but it's like one third of the cost. But a funder is going to want the CPA to audit your financial statements. The other two things will just show you what you're missing and what you need. Alright, Q, thank you so much for your question and family. If you guys have questions, that was a good question, feel free to hit me up on my social media and let me know what your questions are because I'm here to support you and I can talk all day long. But if I'm not helping you, if I'm not addressing the questions that you have, then why am I here? All right, so now we're going to move on to, as you know, my favorite time of the episode. Y'all be working hard, I mean grinding, doing the thing, and sometimes you need to pause and toot your horn. I'm going to toot your horn and this part of the episode, it's called the Nonprofit Spotlight. I share with my listeners amazing work being done by amazing people. Today I'm focusing the light on Jewish big Brothers big sisters of Los Angeles. The mission of Jewish Big Brothers big sisters of Los Angeles is to assist youth in achieving their full potential. Through innovative, impactful program, they assist youth in achieving their full potential through mentoring Camp Bob Waldorf College Access and Teen Talk app. Let's take a look.
Speaker 6 (17:15):
My name is Jeremy and I have been matched for three years.
Speaker 7 (17:20):
My name is Kani, and being in a match has changed my life and the way I think in a lot of ways, one of which is how I think of opinions. I used to discriminate on opinions, but now I'm open-minded on
Speaker 6 (17:37):
Opinions. One thing that has changed me in my match is looking at things in a new perspective, seeing people in a new way and being more open.
Speaker 8 (17:50):
My name's Helen. I've been matched for five months now.
Speaker 9 (17:53):
My name is Danny, and my favorite part of having a big is to share that special and awesome connection with them. It's honestly amazing that I got to be in a match with Helen because she is really cool. Her being in my life makes my life 10 times better.
Speaker 8 (18:10):
I kind of don't remember what it was like not to be matched with her because now everything I plan and think about, it's what activities can we do together.
Speaker 7 (18:22):
The reason I like spending time with my big is because sometimes I can do stuff that I've never done or I can just get away from what I'm used to.
Speaker 9 (18:32):
I like spending time with my big Helen because she is really awesome and I love getting to know her a lot. And her personality is just really, really cool.
Speaker 6 (18:43):
Having the match and having a little, it allows you to make a connection with someone that teaches you as much as you try to teach them
Speaker 8 (18:51):
The time together. It's made me realize that I can make a difference.
Speaker 2 (19:06):
So if you guys are interested in supporting the Jewish Big Brothers Big Sisters of Los Angeles, if you're interested in a match being a mentor, or if you have a child that needs a mentor, check them out at www.jbbsla.org. Yay. All right, let's keep it pushing you guys. Next up is
(19:35):
The mindset minute, and it's me having just a few minutes, a minute to talk to you about what's on my mind. Today. I want to talk to you a little bit more about the board, and here's my topic for this minute. You can't have it both ways. So I have a lot of the time, my executive directors, especially those who are founders, complain that they're doing everything and that their board is not engaged. They're not doing what they're supposed to. And I asked them, well, who's on your board? It's Mookie, Pookie, and Sheik and them. And I said, well, Mo, Pookie and Sheik and them don't really understand what it is to be a board member if you're not doing professional development, if they don't have the skillset, if they don't have the resources, they're doing the very best that they can. Now, here's the second part.
(20:36):
Some of my founders understand that the board has the authority to hire and fire. And so what they choose to do is to keep their board safe, their board stacked with people who are never going to fire them. And it's because half of them, meaning the founder, executive director, realizes that either they're not qualified. Because if you're qualified in doing your job, there should be no fear of you being fired, or they realize that, or they think that this is their business and they're going to make sure that no one takes their business. The reality is, if you are a 501(c)(3) tax exempt organization, you can never own it ever. Now, you can do that. You can stack your board and make it so where you can never get fired, but you can't have it both ways. If you have a board that's never going to fire you, it's likely going to be a board who's not going to fundraise.
(21:35):
It's likely going to be a board who doesn't have resources, because if you have a seasoned board, they're going to be out there in the community talking about you raising funds for you, but they're also going to have ideas. They're also going to realize that their job is to make sure that the organization is ran effectively. That may not be what you're doing. They're going to say to you, we are the board and we tell you what to do. So you're either going to get one or the other. You're going to have a board that's not going to fire you, or you're going to have a board that's about it and is going to bring in the resources, but they're going to do their job, which is to tell you if you are not doing your job. So for this mindset minute, I want you to sit and think you have the ability to increase your knowledge, to increase your skills, and to be an executive director that any board would be proud to support.
(22:26):
If you don't have the skillset, don't let that stop you. This is what you say to your board, I started this organization because I'm committed to my community. I have some shortcomings, and so I need to grow. And you tell them you're going to grow. You're going to participate in trainings, you're going to do workshops. You're going to do what you need to do to grow. And if you are open and your board understands that, they're going to support that growth. But don't get stuck in your fear. Don't get stuck in wondering if your board is going to fire you. Step up to the plate, increase your skillset, increase your knowledge, and be in partnership with your board and grow your board because you don't want to be overwhelmed doing everything. That's my mindset minute, and that's it for this episode of the series, nonprofit Governance. I will see you next week where we continue this conversation, but until then, be sure to take care of yourself like you take care of your community. We'll see you next time.
Speaker 1 (23:25):
Thanks for listening. If you enjoyed this episode, subscribe and leave a review on iTunes. Head over to www.amberwynn.net/podcast for the links and resources mentioned in today's podcast. See you next time.
