The nonprofit Board/CEO relationship can make or break the success of a non-profit organization. The Board of Directors is the collective boss of the CEO/Executive Director of a non-profit corporation. However, to build a strong, successful, and sustainable non-profit, a much more nuanced understanding is necessary.
Table of contents
The Board is responsible for the governance of the non-profit, which implies final meta-level and long-term oversight and responsibility for finance, programs, and legal compliance.
The CEO/Executive Director is responsible for the management of the non-profit, which implies day-to-day oversight of employees, programming, operations, and finance. However, the CEO also typically co-creates the long-term vision with the Board and helps to organize and manage the Board.
Striking a Balance Between Rubberstamping and Micromanagement
Non-profits usually err by going too far in one direction beyond this difficult balance. Either the Board trusts the CEO too much (often a temptation with a founding CEO, or very successful non-profit with a charismatic CEO), and thus underplays its role in oversight and vision making or the Board meddles too much in employee and operational matters. The strongest non-profits include a strong partnership between the Board and CEO, in which a balance between the extremes is maintained.
A good way to conceptualize the maintenance of this balance is to outline the responsibilities of the Board, responsibilities of the CEO/Executive Director, and shared responsibilities.
Responsibilities of a Nonprofit Board
- Hiring the CEO and holding him/her/they accountable;
- Ensuring legal compliance;
- Ensuring proper financial safeguards and legal/ethical use of corporate funds;
- Ensuring that programs are effective and in alignment with the non-profit’s mission.
Responsibilities of the CEO in a Non Profit
- Hiring, firing, and supervising all other staff;
- Daily oversight of operations, finance, and programming;
- Serving as a liaison between the staff and the Board.
Shared responsibilities of the Board and CEO
- External communications (although the Board should appoint one lead spokesperson, typically either the Board Chair or the CEO);
- Strategic planning;
- Board development.
However, just because a responsibility primarily belongs to one entity, doesn’t mean the other entity will not be involved in the matter. For example, the Board may hire a law firm for representation in compliance or litigation (or an accountant for an audit), but the CEO and the staff will most likely be involved in providing the hired firm with necessary details.
A useful distinction may be to conceptualize who provides final approval versus who provides input and/or implementation (this link provides a helpful chart to tease out this distinction). The Board/CEO should have final approval authority over their respective responsibilities.
For example, although the Board approves the budget, including personnel expenditures, the CEO should have final authority, without interference from the Board, on who to hire or fire. Even if the Board is very fond of a Program Director, for instance, the CEO should have the autonomy to fire such person if they deem fit.
Of course, the Board will hold the CEO accountable for results and can reward the performance of the CEO or terminate his/her employment. However, the CEO should be given freedom for all tactical, as opposed to strategic, decisions.
In order to avoid dysfunction or potential liability issues, Board members and CEOs should remember their roles. Consider, for example, a case in which a board member has special expertise in a certain area that he/she volunteers to use to help the nonprofit’s programming or operations.
Consider a Board member that is a retired accountant that volunteers to help staff updated their book-keeping systems. The Board member should remember that he/she/they is acting as a volunteer employee subject to the ultimate managerial supervision of the CEO.
When working on book-keeping systems, the CEO is the boss, not the Board member, and the CEO must approve of the Board member’s involvement. Of course, maintaining such self-awareness and proper roles may be a lot to ask of human nature, but the more such roles are maintained, the stronger the non-profit.
A final example of the budgeting process may also aid in the understanding of the delicate Board/CEO balance. The CEO/Executive Director develops, recommends, and implements the annual budget, but the Board approves the budget and provides accountability through report review of budget implementation.
In this a strong relationship between Board and CEO is important. The CEO, with the aid of staff, develops a line item budget to present to the Board for its approval. Once the budget is approved, the CEO has tactical discretion for spending as long as spending does not overrun in any line item.
For example, the Board may approve a line item expenditure of $10,000 for computers, but the CEO (with staff) decides what computers to buy, where to buy them, etc. (Note, however, the non-profits that are charter schools are subject to more complex regulations than non-school non-profits, especially regarding purchasing, and thus schools should consult their state’s charter school regulations).
A healthy conversation and partnership between Board and CEO remain very important as there is nuance, even in the budgeting process. In approving line item and overall budget amounts, the Board sets the parameters for internal operations and thus has a great influence upon them.
For example, in setting personnel expenditure limits, the Board is influencing who the CEO can hire, and what tools he/she/they have to retain them. Thus, the Board, while maintaining the ultimate authority of budgetary approval, should give credence and weight to the budgetary recommendations of the CEO.
A strong and healthy relationship between the Board and the CEO, with a clear understanding of roles, is the most important element in building and maintaining an impactful and sustainable non-profit organization.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.