corporate governance

A more effective Volunteer Board in Non-Profits – recommendations with illustrations from the Scouting Ireland Report June 2018

This month’s report reviewing the governance of Scouting Ireland  (Turnhout, 2018)  highlights several issues that non-profits and their volunteer boards frequently encounter.  The following sections will highlight some of common challenges faced by non-profit boards which were also encountered by Scouting Ireland.  This article is not a comprehensive review of Scouring Ireland or its governance, and interested readers are encouraged to read the Report of Scouting Ireland in full. The article concludes with some recommendations to improve governance for the volunteer boards of non-profits.

Volunteer directors are a common feature of non-profits and directors fees are strictly prohibited in certain sectors and jurisdictions[1]. Even where directors’ fees are permitted research indicates that it is rare.  One large US survey found only 2% of the non-profit boards were compensated (Herman 2007;Ostrower 2007). In the UK, only 14% of the top 100 charities paid their non-executive board members for their time, with 80% paying for their expenses (Grant Thornton 2013).

Volunteering is admirable, as highlighted in the Scouting Ireland Report (Turnhout, 2018, p.13). However, little is actually know about volunteer directors motivations, with altruism appearing to be a key motivation in empirical studies (Inglis & Cleave, 2006; Ward & McKillop, 2011). A volunteer director who volunteers out of a commitment to the organisation, its mission, or its beneficiaries can find themselves frustrated when “in practice they are required to devote significant time to administrative responsibilities”, (Turnhout, 2018, p.24).

Non-profit boards also tend to focus on more day-to-day and operational matters, perhaps as these are of more interest to the directors, but also due to a lack of staff,  staff expertise and ambiguity on the roles of the board and staff  (Collier, 2005; C. Cornforth & Edwards, 1999; Holland, 2002; Parker, 2008).   Uncertainty on the requirements and expectation of directors is a feature of non-profit boards (Andersson, 2013; Doherty & Hoye, 2011; Harris, 1989; Wright & Millesen, 2008)   and can result in a reduced focus on oversight and strategic issues. It is not then not surprising that staff and boards do not always agree about what are their respective roles (Doherty & Hoye, 2011; Renz & Andersson, 2013).   A board focus on operational issues was a feature of Scouting Ireland (Turnhout, 2018, p.13) and role ambiguity may have contributed to the reported staff-board tensions (Turnhout, 2018, p.15)

In addition, being a volunteer does not diminish your fiduciary duties as a director and the legal consequences of failures at board level.  The Companies Act 2014 holds all directors equally to account for the performance of the board and the company, regardless of pay.  Consider the situation in another context where roles have differential pay, for example, nurses or teachers. Here, the law and the public expect that their fiduciary duties to patients and students are not varied by differential pay scales, an approach essential to protect those expecting the highest duty of care.  This is essentially the task of a board of directors, that is, to act in the best interests of the company, as summarised  in  Percivil  v  Wright [1902]  2  Ch  421, directors have but one master, the company.  For Scouting Ireland the scouts’ duty of loyalty was perceived “to be a blind loyalty to individuals to the detriment of acting in the best interests of fulfilling the mission of the organisation”, (Turnhout, 2018, p.14).

Non-profit boards ideally are a mix of the relevant professionals, such as accountants, lawyers, fund-raisers, and members that represent the organisations community   (C. J. Cornforth & Edwards, 1998).    However a balance between this two groups is not always achieved (Rehli & Jäger, 2011). It is difficult to research a link between non-board organisation effectiveness and board skills due to the poor disclosure directors’ biographies, only 6% of the top 100 UK charities provided biographies of the directors in their annual reports (Grant Thornton 2013). This makes it difficult for stakeholders to understand the skills required and the skills gaps on the board (Grant Thornton 2013).   Scouting Ireland’s selection process was centred on nomination and election by members resulting in a “popularity contest” and a lack of essential board skills (Turnhout, 2018, p.19). Focussing on the required skills and resources, and professionalising the recruitment processes does result in more competent board members  (Brown, 2007; Francie Ostrower, 2014).

A lack of board experience can be addressed through appropriate board induction and training processes. However, board training and evaluation is associated with higher administrative costs, and may not result in improved organisation performance  (Andersson, 2013) Thus non-profit boards may face trade-offs as improving governance and business efficiency may improve perceptions of effectiveness earning some stakeholders approval, but the increased administrative costs may earn the dissatisfaction of others. Training is also another level of commitment for the volunteer, more administrative work, and it also involves a judgment on their volunteer contributions(Grant Thornton, 2013).    These factors may explain the low level of training and evaluation in non-profits in general   (Charity Commission, 2002; F. Ostrower & Stone, 2006; Francie Ostrower, 2014)   and the less than 1-hour of induction training for the directors of Scouting Ireland  (Turnhout, 2018, p.13).

Recommendations to improve Volunteer Boards

Improve clarity on the roles of the board and the roles of staff.  Written and agreed role descriptions for all staff, for the board, Chairperson, and board sub-committees to improve clarity on roles and responsibilities.  Role and responsibility ambiguity is a strong predictor of perceived board member performance (Doherty & Hoye, 2011).

Introduce a board skills gap analysis and additional members to be identified based on their ability to fill a board skills gap. Skills gaps can be identified from board evaluations, which are ideally conducted annually. In addition, a board sub-committee, for example the Nomination Committee, a feature of for-profit listed firms, can be established to regularly review and identify board skills gaps, for example,   following strategic changes, changes in key stakeholders or in response to other environmental changes.

Publish biographies of board members, highlighting their relevant board, industry and organisation skills.  This acts as a signalling message to stakeholders reassuring them of the effectiveness of the board’s selection procedures improving organisation and board legitimacy.

Create a formal structured and transparent board selection processes, following the identification of board skills gaps.  For example, Scouting Ireland is to move from a nomination/election process to a process of nomination/assessment/election (Turnhout, 2018, p.20), thus retaining the engagement of the membership through elections, while introducing measures to improve board skills. However, as Scouting Ireland has over 50,000 members (Turnhout, 2018, p.8), filling skills gaps from within the membership may be more feasible than for smaller or non-membership based non-profits.

Improve inductions for new board members and provide on-going training for all board members. This to be done while accepting and addressing the impact that training will have on administrative costs, and volunteer directors’ time requirements, and also communicating internally and to funders the benefits of improved governance in reassuring funders, other stakeholders and increasing organisation legitimacy.

Andersson, F. O. (2013, January 4). The governance-performance relationship: examining the impact of non-profit governance on financial performance in medium-sized non-profit organizations. University of Missouri Kansas City.

Brown, W. A. (2007). Board development practices and competent board members: Implications for performance. Nonprofit Management and Leadership, 17(3), 301–317.

Charity Commission. (2002). Trustee Recruitment, Selection and Induction. UK: Charity Commission.

Collier, P. M. (2005). Governance and the quasi-public organization: a case study of social housing. Critical Perspectives on Accounting, 16(7), 929–949.

Cornforth, C., & Edwards, C. (1999). Board Roles in the Strategic Management of Non-profit Organisations : theory and practice. Corporate Governance: An International Review, 7(4), 346–362.

Cornforth, C. J., & Edwards, C. (1998, May 7). Good Governance: developing effective board-management relations in public and voluntary organizations. CIMA Publishing.

de Andres-Alonso, P., Cruz, N. M., & Romero-Merino, M. E. (2006). The Governance of Nonprofit Organizations: Empirical Evidence From Nongovernmental Development Organizations in Spain. Nonprofit and Voluntary Sector Quarterly, 35(4), 588–604.

Doherty, A., & Hoye, R. (2011). Role ambiguity and volunteer board member performance in nonprofit sport organizations. Nonprofit Management and Leadership, 22(1), 107–128.

Grant Thornton. (2013). Charity Governance Review 2013. London, UK.

Harris, M. (1989). The Governing Body Role: Problems and Perceptions in Implementation. Nonprofit and Voluntary Sector Quarterly, 18(4), 317–333.

Holland, T. P. (2002). Board Accountability Lessons from the Field. Non-Profit Managmenet and Leadership, 12(4), 409–428.

Inglis, S., & Cleave, S. (2006). A Scale to Assess Board Member Motivations in Nonprofit Organizations. Nonprofit Management and Leadership, 17(1), 83–101.

Ostrower, F. (2014). Boards as an Accountability Mechanism. University of Texas at Austin, (May), 1–26.

Ostrower, F., & Stone, M. M. (2006). Governance: Research Trends, Gaps, and Future Prospects. In W. Powell & R. Steinberg (Eds.), The nonprofit sector: A research handbook (2nd ed.). New Haven, Conn.: Yale University Press, Parsons.

Parker, L. D. (2008). Boardroom Operational and Financial Control: an Insider View. British Journal of Management, 19(1), 65–88.

Rehli, F., & Jäger, U. P. (2011). The Governance of International Nongovernmental Organizations: How Funding and Volunteer Involvement Affect Board Nomination Modes and Stakeholder Representation in International Nongovernmental Organizations. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 22(4), 587–612.

Renz, D. O., & Andersson, F. O. (2013). Non-profit governance, a review of the field. In C. Cornforth & W. A. Brown (Eds.), Nonprofit Governance: Innovative Perspectives and Approaches (p. 312). Routledge.

Turnhout, J. Van. (2018). Review of Scouting Ireland. Dublin, Ireland.

Ward, A. M., & McKillop, D. G. (2011). An Examination Of Volunteer Motivation In Credit Unions: Informing Volunteer Resource Management. Annals of Public and Cooperative Economics, 82(3), 253–275.

Wright, B. E., & Millesen, J. L. (2008). Nonprofit Board Role Ambiguity: Investigating Its Prevalence, Antecedents, and Consequences. The American Review of Public Administration, 38(3), 322–338.

Turnhout, J. Van. (2018). Review of Scouting Ireland. Commissioned by the Minister for Children and Youth Affairs.  Dublin, Ireland.

[1] In Ireland, credit unions are prohibited from paying directors under law, but there are no regulations for other non-profits (Credit Union Act 1997, sec.68). Spain forbids remuneration for nongovernmental development organisations  (de Andres-Alonso, Cruz, & Romero-Merino, 2006, p. 593).

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