Optimizing Your Nonprofit’s Leadership: Legal Requirements and Best Practices for Board Composition Or How Many to Use and When

Board room with basic chairs around it

For any nonprofit organization, the board of directors plays a pivotal role in strategic oversight and governance. Establishing an effective board is not just about meeting legal requirements; it’s about embracing best practices that underpin the nonprofit’s success. I often used to get questions about what is the best size for my board of directors. My answer is…well it depends…let’s examine why.

Legal Requirements: The Starting Point

Depends Where You Are and How Your Organization Was Formed

The size and composition of your board are initially dictated by legal statutes. Depending where you are incorporated, federal, provincial and state requirements can vary. It also varies if you are a registered charity. For the standard nonprofit in Canada, it is usually 3. In the United States it can vary, from 1-3.

Residency and Membership

Certain jurisdictions stipulate residency requirements. For example, under the CNCA, at least 25% of directors must be Canadian residents. Provincial, state and federal rules can differ country to country, so it’s crucial to refer to the specific legislation in your jurisdiction.

Board room with basic chairs around it

Best Practices: Crafting a Powerful Board

Determining Size for Efficacy

While the law outlines minimums, the optimal size for your board can be subjective. A common range for effective nonprofit boards is 7 to 15 members. This allows for diverse perspectives without hindering decision-making processes.

However depending upon what you wish to accomplish you may want to have different numbers. Let’s look at the following situations:

How Strategy Can Determine Board Size and Composition

One of the less talked about items when forming or appointing a board, is the strategy of the organization. I know there are a lot of great boards out there. I also know that there are a lot of great organizations that have puppet or shadow boards that are essentially the Executive Director stringing together a board . I know this is against the idea of a board of directors, but I can tell you it happens more often than not. Depending upon your strategy at different times, you may be looking at different types and sizes of boards.

Starting Out, or When in Hyper Growth Mode

In the initial stages of a nonprofit, when the focus needs to be razor-sharp and the tasks at hand are many, a smaller board is often more effective. A lean team allows for quick decision-making and less formal procedures, which can be beneficial when agility is necessary. During these times, board members are typically more hands-on and may take on multiple roles. They are deeply involved in both governance and operational support, bringing a diverse skill set to address the myriad challenges of a startup phase.

The Mature Organization

As the organization matures and enters an expansion phase, the board might need to grow moderately in size. This growth allows for a wider array of skills and experiences, which can help in tackling complex issues that arise from scaling operations. It’s essential to have a mix of visionary thinkers who can provide direction for growth and seasoned professionals who can lend their expertise in specific areas such as marketing, finance, or human resources. This is also the time when the board should start to delegate operational tasks to staff members, allowing directors to focus on strategy and oversight.

Risk Tolerant Board of Directors

A risk-tolerant board may be particularly beneficial for a nonprofit organization when it is seeking to address complex, evolving social issues that require innovative solutions. In times when traditional funding sources are dwindling or when there is a need to significantly increase the impact of the organization, a board willing to consider novel fundraising strategies or untested programs could be advantageous. This approach allows the nonprofit to potentially break new ground and create impactful change. Furthermore, a risk-tolerant board might be crucial when the nonprofit is attempting to scale its operations quickly in response to urgent needs, such as in disaster relief or during a sudden healthcare crisis, where the cost of inaction is high and the need for swift, decisive action is paramount.

Risk Adverse Board

When a nonprofit engages in particularly risky growth strategies or finds itself needing to consolidate, a more risk-averse board may be necessary. This type of board will likely include individuals with backgrounds in risk management, finance, and legal matters – those who can foresee potential pitfalls and help navigate around them. They are tasked with ensuring the nonprofit doesn’t overextend itself and remains compliant with relevant laws and regulations.

Diverse and Representative Board

For nonprofits that represent large constituencies or diverse groups, having a larger and more representative board becomes crucial. A variety of perspectives need to be considered when making decisions that affect a broad audience. A larger board can offer a rich tapestry of insights and experiences, ensuring that decisions are well-rounded and consider the needs and expectations of all stakeholders.

Specific Skills

Regardless of the stage or strategy, it is important for nonprofit boards to have a balanced composition of skills and backgrounds. Ensuring you have specific roles that reflect the needs of your organization are important. If you are an organization that does advocacy, perhaps you need an advocacy specialist. If you are in an environmental nonprofit, perhaps you want environmental consultants or specialists. This is to say that everyone wants legal, insurance, finance and business specialists. However, your board, depending upon the mission and vision of your organization, may need something beyond the typical. Do not fall victim to the “we need a…lawyer, accountant, banker, insurance person” rhetoric that I’ve heard on so many boards. A board composition should be built to reflect the needs of the organization at that specific time to accomplish its mission and vision.

There is No One Right Answer

There is no one-size-fits-all approach when it comes to the size of a nonprofit’s board of directors. The key is to align the board’s makeup with the strategic needs of the organization at any given time. As those needs shift, so too might the composition of the board. This requires ongoing assessment and a willingness to adapt to ensure that the leadership remains effective, responsive, and true to the nonprofit’s mission.

If you found value in this blog, we would love to hear from you. Please feel free to contact hello@pharononprofit.com to give us feedback, ask questions or leave your comments.
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