Thanks to NPQ’s Nonprofit Newswire, published daily by the folks at the Nonprofit Quarterly, I’ve just read an interesting but disturbing article. The key statement is that the authors (university researchers) found that consumers perceive nonprofits to be “less competent than for-profits.” This belief makes people “more likely to buy products from for-profits than non-profits.” [Click here for the full article.]

So why am I writing about this in an article about governance?

Because changing this perception is ultimately up to you as board members!

And you do want to change these perceptions because, in our world, “buying products” is equivalent to making donations. True, donations are grounded in shared passions. But, more and more, that is not enough. I attended a fundraiser for a small nonprofit recently, and, because I believe in the value of what these people do, I was prepared to make a donation of $50. Not a lot of money, but a decent-sized gift for me.

I didn’t make that donation. During the course of the event, I realized that the people involved in this organization, while deeply committed to their work, were not knowledgeable about financial matters. It came down to the fact that I felt no assurance that my credit card information would be treated with confidentiality.  The gift envelope is still in my purse.

So what’s a board to do?

At the very least, recognize that your organization will be much more effective if it has a good level of management competence. The more you have built the capacity of your staff to manage finances, human resources, operations and evaluation well, the better use you can make of the contributed resources given to you.

You need to build your capacity too. All board members need to beef up their financial knowledge, for example. I cannot count the number of board members who have said to me, “I can’t understand financial reports, but I don’t have to. Our Treasurer takes care of that.” If you say this, you are violating your legal Duty of Care as a board member.  All board members must understand the financial reports and their implications for the future of the organization.

But it doesn’t end there. Once you have built your agency’s capacity to operate effectively, and once your board is skilled at its responsibilities of planning, budgeting, financial oversight and policy setting,  you need to let people know. Start with your donors. Tell them how you are investing in improvements so their gifts are better used. Tell the whole community as well. The more you tell the story of your commitment to competence, the stronger will be the community’s support of your work.

You can change consumers’ (donors’) perceptions. It’s not easy, but it is essential.

So, if the passion is there, what’s the problem? I chalk it up to human nature. Many board members are unwilling to admit that they do not know what their role is. So they create it based on their life experience. Here are some examples.

Human Resources

One board member is an HR professional working in a governmental organization. So he insists that it is the board’s job to do all the HR work for the nonprofit. Not so. The only HR responsibility held by the board is that of selecting, supporting, supervising and, if necessary, terminating the Executive Director. Just that one person. All other staff of the organization are the responsibility of the ED and other managers.

The Board Treasurer

The most challenging example is that found in the definition of the role of Board Treasurer. A literal interpretation of standard bylaws would lead one to believe that the Treasurer must have complete control over all financial matters. The great need for nonprofit accountability, however, argues otherwise. In practice, the Treasurer must provide the fiscal oversight that assures that the nonprofit is managing and using its funds appropriately and effectively. He or she must also should help the rest of the board understand the financial reports and practices. Treasurers should not be check signers. They should not be bookkeepers for their nonprofits. They should not manage their nonprofit’s investments. They are the guardian of the financial credibility of the nonprofit.

Passion is essential. But so is knowledge of governance. With these two things, boards can be highly effective leaders for their nonprofits.

Several people have asked me lately if nonprofit board meetings are subject to the requirements of the open meetings laws. While I’m not an attorney, I believe the answer is no. Our boards are not required by law to make sure our meetings are announced to the general public or to welcome anyone who wishes to attend (unless specific funding sources require adherence to the Open Meetings Law). That’s the legal side of the issue.

The disturbing side of the issue is that there are those who believe it is fine for nonprofit board meetings to be closed to all but board members. Don’t let clients attend. No donors. No organizational members. Keep the doors closed and don’t share information is their apparent philosophy.

Wrong!

While the law doesn’t tell us we must open our meetings, our sense of who we are and the foundations on which we are built should make it clear. All nonprofits exist because of the generosity of the community, and we owe our communities the highest degree of accountability and transparency possible. We must not hide.

Here’s the fundamental fact. We, as nonprofits, agree to provide a community service – our charitable purpose. In exchange, the community, through the IRS, tells us we do not have to pay federal income tax on our revenue and allows people who contribute to us to take a tax deduction. That’s the deal on which all 501(c)(3) nonprofits are founded. It is what I call a Charitable Compact.

Implicit in that Compact is that we honor the relationship with our community by being honest and open in all our dealings. The community has a right to know what we do and how we do it. There are, of course, situations when meetings need to be closed (discussion of personnel issues and major capital purchase plans, for example). But that’s it.

Because too many nonprofit leaders have been unwilling to be open and accountable, federal and state government officials are pushing for new nonprofit regulatory legislation. Because of actions of some “bad apples,” donor distrust is growing at alarming rates. We must change that environment. We must be open and accountable – there is no other way for a nonprofit to behave.