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A Guide to Standing Committees for Nonprofits — Other Committees

Over the last several installments in this series, we’ve examined the typical array of standing committees of a nonprofit board. Standing committees are generally those that align with a director’s specific fiduciary duties relating to governance, conflicts of interest, high level strategy determinations, and various aspects of fiscal management. But boards, through a well organized committee structure, can be very helpful in other areas as well.

A well written code of regulations will give your board the authority to create other committees to support the work of your organization. I generally recommend these other committees not be designated as standing committees, but that should not create a perception of decreased importance for their work. Program, policy, external relations, and other committees that give more direct support to the work of your organization’s staff can increase your organization’s effectiveness by helping staff prioritize activity and by using loyal board members in a more hands on role. More than other committees, the focus and roles of these types of committee will change, sometimes frequently, based on the needs of the organization, hence my reluctance to designate them as standing committees.

Some basic tips to ensure other committees operate effectively include:

  • Review their charters annually to ensure their tasks align with the current work plan or strategic plan
  • Ensure open lines of communication with board leadership
  • Recruit experts to serve on subject matter committees (which can be a great tool for cultivating new board members)
  • Allow staff members in various levels of leadership to interact with the committee

In addition to standing and regular committees, subcommittees with a very particular focus on an issue or program element can also be an effective way to utilize talent and expertise on your board, recruit non-board volunteers to assist, or to create advisory groups to help your staff resolve sticky issues. Often work groups or task forces, established on a temporary basis, can provide excellent support for time limited projects, like crises, events or advocacy issues.

Don’t forget, your committee structure should be determined after a thorough examination of your staff structure and needs for board support. Don’t create committees just to give your board something to do. Create committees to help your staff get their work done effectively.

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A Guide to Standing Committees for Nonprofits — The Development Committee

I may be biased, since I’ve been both a professional and volunteer fundraiser at various points in my career, but I think the Development or Fundraising Committee is, next to the Governance Committee, the most important standing committee of a nonprofit board. After all, if nobody is raising money, none of the other committees have anything to do! But while this committee is vitally important to the financial sustainability of your organization, it can also be the most challenging committee to manage and implement.

In developing a strategy to mobilize an effective Development Committee, I suggest we start with two premises or principals. The first premise is that fundraising is the responsibility of the whole board; every member, without exception, should play some role in raising funds for your organization. The second premise is that the primary responsibility of the Development Committee is to create and foster a culture within your organization that allows your full board to feel empowered, confident, and (dare I say) comfortable with their role in the fundraising process.

To me, this means the Development Committee is not created to be the small group of board members who do all of the asking during your various campaigns and initiatives. At the end of the day, they may be those people, but that shouldn’t be the primary reason people are asked to sit on the Development Committee. A structure like this will likely give the impression that the rest of the board isn’t needed in the fundraising process. Rather, consider these primary areas for your Development Committee to assist staff:

  • Create a development plan that is reflective of the goals and needs of your the organization
  • Communicate and cultivate buy in for the organization’s case for support among the full board
  • Create tools and resources for the board to use in their own individual fundraising efforts
  • Allow each board member to identify the specific tasks and roles they will play in the fundraising process
  • Create a sense of accountability for achieving those tasks and roles

Consider this sample description of the Development Committee:

Development Committee

The Development Committee shall: (a) review, approve, and support goals and strategies for, and oversee the progress of, the Corporation’s fundraising initiatives, including the Annual Fund, major and planned gifts, capital, endowment, and comprehensive campaigns, and events, in consultation with the Finance Committee; (b) support and assist the Development Office in its efforts to engage members, donors and supporters in the activities of the Corporation, and to cultivate, solicit, and steward donors; and (c) work with the Governance Committee to ensure that new Directors understand and accept their responsibilities in fundraising and development.

Some things to note:

  • I encourage you to state specifically the relationship between the Development Committee and the Governance Committee, to ensure fundraising is part of the recruitment, training, and board evaluation process.
  • I also encourage you to state specifically the relationship between the Development Committee and the Finance Committee, so that the contributed revenue goals in your budget are well thought out, well supported numbers informed by the needs of the organization and the donor resources available.
  • Remember that solicitation is only one relatively small part of the donor cycle. Encouraging and empowering board members to cultivate and steward donors can increase board involvement in fundraising and open the door to more good opportunities for staff to solicit.

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A Guide to Standing Committees for Nonprofits — The Investment Committee

Last week we discussed the role of the Finance Committee for nonprofit organizations. Now we’d like to take a quick look at the Investment Committee, which generally has responsibility for overseeing the invested assets of an organization.

An Investment Committee can provide a good check and balance to ensure that restricted or reserved assets are properly stewarded for their intended purpose. The most common type of assets in this category would be your endowment, whether it’s a true endowment or a board restricted fund. An endowment is meant to have some degree of permanence, so it’s important to make sure the assets aren’t depleted just to balance the budget or cover routine expenses. In addition to an endowment, organizations sometimes have an investment account with less formal restrictions, but that operates more like a savings account may to an individual.

The Investment Committee:

  • Creates an investment policy to reflect the risk tolerance of the organization and provide guidance on the general portfolio makeup of the account
  • Creates a spending policy to clarify how much of the account can be drawn each year and how that amount is determined
  • Monitors the performance of the organization’s investments
  • Helps moderate the conflicting desires to create a large reserve fund that can provide consistent support to the operating budget through the yearly draws, and the desire to spend the money to balance budgets and expand programming

The following is a sample description of the Investment Committee:

The Investment Committee shall: (a) recommend policies to the Board concerning the management and use of the Corporation’s assets, including its endowment funds; (b) review and assure compliance with such policies that are adopted by the Board; (c) select a professional investment advisor to assist the Committee with periodic evaluations of the investment performance of assets, asset allocation, selection and monitoring of investment managers, and the execution of its responsibilities; (d) select and monitor the performance of investment managers and custodians; (e) for planning and budgeting purposes, recommend a policy for determining the annual transfer of funds from the any endowment funds to the operating or program budget; (f) report to the Board at least annually on the management and performance of endowment assets versus relevant benchmarks; and (g) if authorized by the Board, develop policies and guidelines for, and monitor the performance of, investments in any retirement or pension plan for the benefit of the Corporation’s employees.

The Investment Committee can be a good place for non-board volunteers to serve in an advisory capacity, even as voting members. As part of your board’s overall duty to manage the organization’s finances, though, it is important that any policies created by the Investment Committee be recommended to and approved by the full board.

The Investment Committee can be chaired by a vice chair of the board, or the assistant treasurer, or another officer or board member. However, if your treasurer chairs your Finance Committee, make sure he/she does not also chair the Investment Committee, in order to preserve the value of the checks and balances this committee is meant to create.

If you’re managing a smaller organization and have been reading this blog series, you may have begun to feel that I have suggested more standing committees than you have members of your board. Certainly there is room for overlap in the committee membership, and as I mentioned above, the Investment Committee is a place where non-board member volunteers can be effective. If you do have invested assets, though, I strongly recommend against operating with a combined Finance and Investment Committee. It may be possible to combine the duties of the Investment Committee with the Executive Committee. You may also want to make the Investment Committee a “committee of the whole”, which means your full board would take on these responsibilities.

Creating your investment and spending policies is very important work, and in a future post, we’ll take a look at some of the big questions to be considered when establishing these guidelines for your organization.

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A Guide to Standing Committees for Nonprofits — The Finance Committee

The next three standing committees we’ll examine are very closely related. These are the Finance Committee, the Audit Committee, and the Investment Committee. Sometimes the names of these committees are interchanged or combined, so as we move forward, make sure to focus on the function of the committees, not the names, to sort out the structure that will be best for your organization.

The Finance Committee is the group that has principal responsibility for your organization’s budget and financial performance. It is generally chaired by the organization’s Treasurer. The budget process will be the focus of the committee toward the end of the fiscal year. In close consultation with staff, the organization’s Treasurer and the committee will look at last year’s performance and determine new targets for income and expenses. The process isn’t really any different for a nonprofit organization than it is for any for profit business, and should produce a well reasoned, well supported projection of the next fiscal year’s full financial picture based on past financial and performance history.

I always recommend that the whole organization have a deep involvement in the budgeting process. Staff in your program areas will have the best information on the need for your organization’s services, be they social services, education, performing arts events, or anything else. The budget process is time for them to examine what resources they need to to their jobs, what the need is in your community for those services, and what the community can and will pay for them. Understanding this information will help them engage in meaningful discussions of what expenses will be needed, and what earned or contributed income is likely for the next year. Your organization’s development staff will also have an important role in the discussion, as they will be able to assess the extent to which the philanthropic community will support the services your program staff suggests.

In large organizations, this staff budgeting process will likely be coordinated by the executive director. However, when staff has made their initial budget recommendations, a robust discussion with senior staff and the Finance Committee should follow to balance not only the organization’s priorities but also the budget.

Once the Finance Committee is satisfied with the budget, a recommendation is made to the full Board for approval, since establishing and monitoring the budget is one of the primary duties of a board of directors. If possible, keep the Board updated on challenges during the budgeting process. When you present the final recommended budget to the board, I strongly recommend you include a narrative description with your spreadsheets, describing why each line item, or at least each group of line items, is increasing, decreasing, or staying the same compared to prior years. I find most boards want to see at least 3 years of past performance, meaning budgets and actual performance for each year, in order to understand the trajectory of the organization.

I understand this all sounds very formal and cumbersome, and if you’re leading a smaller nonprofit, you may not think it’s really necessary. However, I’d like to suggest that the process of establishing a budget really is the same, no matter the size or type of organization. For smaller budgets or organizations focused on a single line of business, the process may not take as long, but staff involvement is very important, and having a board committee dig into budget and performance is crucial for sustainability and success.

Remember, a budget is only an aspirational expression of your organization’s financial situation at the beginning of a fiscal year. Equally important is regular monitoring of actual performance compared to budget. This monitoring, along with regular reporting to the full board, is the second primary responsibility of the Finance Committee. In my experience, board members like to see regular, monthly updates, along with same time last year benchmarking to judge progress. To the extent possible, regular monthly or quarterly projections of where you’ll be at fiscal year end relative to budget are also extremely important, and allow you to communicate both good news (perhaps a new, large gift or grant or contract for services), and bad news (a loss of regular or anticipated funding) to the full board in a timely and meaningful way.

A caution for staff: Board and committee members who are unfamiliar or uncomfortable with formal financial reporting often request staff to prepare budgets and updates in many different formats, I believe in an effort to help them understand the reports they’re reviewing. Some want more information, some less. Some what spreadsheets, some want graphs. Some want dashboard style reporting, others just want the P&L. Listen to their concerns, adopt a standard form of reporting, and try to stick to it. Spend some time, or have your committee chair spend the time, teaching board members how to read the reports you are generating, to avoid spending time reformatting your reporting every month. (Yes, I have seen that happen.)

I’m often asked what kind of volunteers will make good Finance Committee members. Accounting expertise is helpful, but often your business office or outsourced CPA can advise on these technical issues. I like to see savvy business people who are used to the budgeting and financial monitoring process in their own business as members of this committee. I also strongly recommend a member of the development committee sit on the Finance Committee. Without that voice, it’s just too tempting for the contributed income line item to be whatever number is needed to balance the budget.

Another frequent question is whether non-board members can serve on the Finance Committee. In general, I recommend against this. I feel it is very important that the individuals setting and monitoring the organization’s finances be members of the board with the fiduciary duties of care and loyalty. That said, it is quite appropriate to use non-board volunteers for advice and counsel if your board does not have sufficient expertise in financial matters. These volunteers should not, however, be voting members of the Finance Committee.

The following is a sample job description for the functions of a typical Finance Committee:

Finance Committee

The Finance Committee shall: (a) review and make recommendations to the Board concerning the Corporation’s annual operating budget; (b) review and make recommendations to the Board concerning the Corporation’s annual capital budget; (c) monitor compliance with and variances from the budgets during the course of each year; (d) ensure that the Corporation’s financial reports provide accurate and timely information to the Board; (e) review proposed financings and borrowings, and make recommendations to the Board with respect thereto; (f) review the Corporation’s risk management and  insurance needs and policies, and make recommendations with respect thereto; (g) assist the Corporation’s Chief Financial Officer with long-term financial planning; and (h) review and approve fiscal policies, including those relating to check signing authority, accounts receivable collection, and management of accounts payable.

You’ll see this job description includes risk management, which we have not discussed in this blog. Some organizations make risk management a staff responsibility, which is quite appropriate. Including this activity in the responsibilities of your Finance Committee may depend on the expertise you have on your board.

You’ll also see that this job description does not include investment management, which I recommend, for organizations with investable funds, be housed in an Investment Committee, the subject of our next blog installment.

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Client Testimonial

“I’ve been working with lawyers and governance issues for more than 20 years.  Working with Nancy brings all the bests together – she has a great mastery of non-profit law and governance issues; she is brutally efficient – resulting in great value for the investment in her work; and, she has a way of breaking down complicated issues to promote understanding and good decision making.  I’d highly recommend Nancy for your non-profit legal needs.”  Steve Millard, President and Executive Director, COSE | Council of Smaller Enterprises

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The Nonprofit Board/Staff Relationship

I do a lot of speaking and coaching on the topic of board governance and board responsibilities.  I also do a lot of ballroom dancing, and lately it occurred to me that the relationship of ballroom partners is a great example of how the relationship between a nonprofit’s board and staff should work.

In ballroom dance, the gentleman determines the step and the general direction in which it will go.  This is not accomplished by using an iron grip to force the partner to do a certain step or go a certain way.  It is accomplished by keeping a good connection with the partner, staying aligned with your center, and giving the partner room and permission to do her part of the job.

The woman, in turn, is responsible for executing the step, filling up the space offered by her partner, and giving the step shape and style.  This is not accomplished by making independent decisions about what step should be done or what direction should be taken.  It is accomplished by keeping a good connection, responding to the movements of the partner, and maximizing the opportunities your partner gives you.

When each partner does his or her job, it supports the other partner and the partnership.  The dancing flows, creativity grows, steps are more powerful and shapes are stronger.  Yes, sometimes one partner or the other might go further than expected and the couple may get off balance, but they regroup and use the opportunity to find the right balance for them as a team.  Mutual trust and individual confidence are the keys to success.  Along with hours and hours and hours of practice, but that’s another topic!

dancersTake a look at this picture and try to imagine how either of these dancers could achieve this line without the other.

Think about this dynamic in terms of the nonprofit board and staff.  The board determines the mission and vision of the nonprofit.  They are responsible for good communication with the CEO and staff (the connection), to ensure programs and services are aligned with the mission (staying aligned with center), and for giving the staff the room and opportunity to do their work by effectively delegating the running of the business (giving room and permission).

The staff is responsible for keeping the board informed of successes and challenges (the connection), responding to the strategic direction set by the board (the partner’s movements), and maximizing the opportunities presented to the organization for its programs and services.

When the board and staff each do their jobs, and each allow the other to do their jobs, the organization is strong and dynamic, powerful, and successful.  Yes, sometimes the relationship may get off balance, but with a good connection, staff and board can regroup and regain focus.  Mutual trust and individual confidence are the keys to success.

Remember your role, have confidence in your partner, and maximize your opportunities, for the good of the whole.