A key ingredient for nonprofit success is solid board governance. This means balancing intellect, reputation, resource and access — and it also means exercising fiduciary duties. Board directors have three primary fiduciary responsibilities: duty of care, duty of loyalty and duty of impartiality. It’s critical for board directors to fully understand the complexities of all aspects of governance, particularly their fiduciary duties, for the nonprofit to operate successfully.

When individuals take on a board position, they may do it out of passion for the organization or cause, so they may not understand the liability or responsibility of oversight that comes with the role. Some of the key responsibilities and best practices for the organization in building out its board include:

• Creating and maintaining a diversified board. Cultivating a culture of inquiry is important in building a successful board. A group that includes different perspectives allows for exploration of different approaches and fosters diverse thoughts and opinions.

• Planning for sustainability. Beyond fundraising and accounting for dollars, putting a succession plan in place helps ensure the future success of the organization and its leadership. Creating term limits for board membership may be important, and the timely and planned exit and entrance of board members can help prevent complacency and spark fresh ideas.

• A balancing act. Every nonprofit hopes for a strong partnership between staff and the board. This means creating a balance between the executive director and the board — power cannot rest with one more than the other. The executive director must be in regular communication with the board, but not impart meaningless information that creates noise and distracts from the mission at hand. At the same time, the board must not be intrusive or attempt to micromanage staff and management.

• Attracting and retaining talent. The board is responsible for creating accurate job descriptions and ensuring competitive compensation and benefit structures are in place for the organization’s executive director and staff.

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• Being open to feedback. Regularly soliciting feedback from clients and/or the mission base can help guide the direction of the organization and ensure it continues to be focused. Feedback can also provide insights the organization may use during strategic planning.

• Focusing on transparency. Make sure donors, stakeholders and members of the public have insight into what the organization is doing. This requires regular and planned communication.

• Training the board. Provide an orientation for new board members that includes setting clear expectations, educating on roles and relevant bylaws, and sharing the organization’s guiding principles, values and mission.

FIDUCIARY RELATIONSHIP

A fiduciary has a duty imposed by law to act solely for the benefit of another as to matters within the scope of the relationship. The fiduciary standard focuses on undivided loyalty, prudence and good faith and requires that the fiduciary act in the best interests of those with whom it has that connection, such as the nonprofit’s board to its organization. While board members serve as fiduciaries for their organization, when the board does not possess the skills and experience to carry out all of its fiduciary duties, such as management of the organization’s investments, it has a fiduciary duty to seek partners with that specialized expertise, such as a professional investment manager, who serves as a fiduciary to the organization and its board. From the perspective of the board’s investment partner, being held to the fiduciary standard means it must provide to the board thoroughly researched and accurate information and recommendations. And, most importantly, investment advisors must prioritize their clients’ best interests above incentives, commissions, or even their firm’s success.

Investment advisors can serve as a strategic partner or consultant to help the board carry out its fiduciary responsibility related to investment oversight. As a strategic partner, advisors can evaluate the sustainability of the organization by helping the board craft a suitable investment policy statement, taking appropriate risks in the investment portfolio and continuously monitoring performance. Investment advisors can also partner with auditors on financial reporting.

Investment advisors can also serve as a resource for industry best practices, often going above and beyond their primary responsibilities. For example, hosting an orientation session for new board members allows them to come into their first board meeting with an understanding of how the financial portfolio works and prepared with information needed to make educated decisions.

Susan Teson is executive vice president and chief fiduciary officer of UMB Bank.