Weigh risks, rewards when serving on boards

There are many things I wish had paid me a nickel at each occurrence. Nigerians informing me they want to send millions, winning the Canadian Lottery, and someone in Spain telling me they represent a long-lost relative whose passing leaves me wealthy. Just these three events and that nickel a time would send me into a whole new tax bracket.

But another one is counseling and presenting to a board of directors which has no idea what kind of responsibility serving on a nonprofit board brings to them as individuals. Usually these encounters are after something has gone very wrong. Sadly, many well-meaning business people head off to board service without knowing what they are getting into. When asked to serve, many of us are so flattered that we forget to ask these questions:

•Is “directors and officers insurance” in place and what are the limits of that coverage?

•Does the nonprofit engage in any activities that require special protections?

•Are there any open or pending lawsuits against the organization?

•May I have a copy of the bylaws and any planned revisions?

•May I have a copy of the latest audited financials and the most recent monthly financial statements?

•Please provide an outline of what is expected from board members, including any financial commitments.

Two other items of importance: If asked to serve by the executive director, arrange to talk directly with the board chair, too. And when you meet with the chair, ask about the status of the executive director, because a change at that level can put a real burden on the board.

Organizations in trouble usually have financial challenges. I understand that hindsight is 20-20, but there are several examples I can reference that the board should have seen coming, had they been paying attention. So what are the red flags of an organization on the edge of trouble?

•Financial reports that defy logic.

•Way too much staff involvement in preparation of the financial reports without any systematic and timely outside audit or review.

•Lack of transparency between the board and the staff.

•An executive director who drowns the board in meaningless tasks and discussions while the big issues are avoided.

•A board that, over time, has evolved into a group of people who contribute little but are friends or blind supporters of the executive director.

•Lack of internal controls that result in repeated theft and staff issues.

One revelation that always brings the deer-in-the- headlights look to boards in trouble is the news that in some cases they are individually financially responsible for debts and actions of the nonprofit.

I recall one case where the nonprofit was about $100,000 in debt, including a chunk due to the IRS. The entire executive committee were signers on the checking accounts, which is not unusual, but they had no idea what a boogeyman was under the bed. Because they had financial control (as all boards do) over the organization and did not satisfy the IRS payroll taxes, they could be held responsible for the money owed.

The evening I delivered that news was the last time I saw half those board members. Resignation letters were sent and they disappeared into the night. But because they were on the board when the debt was incurred, they were still responsible.

When a nonprofit gets sued, the board is often listed in the suit, as they ultimately control the organization. The BBB, with its vocal stand against bad actors, gets sued on a regular basis, and we carry special “media perils” insurance to protect us and the board from such legal action.

I am not trying to scare people away from board positions – far from it. Serving on the board of a well-run organization can be one of the most fulfilling things you can do professionally. And as business people, serving a mission for a change can really recharge those batteries. Just be sure you know what you are getting into and that safeguards are in place to protect the board as well as the staff.