Three governance best practices for nonprofits

HI, I’m MJ Bobyock. My role at SEI is to work with our nonprofit clients on issues like investment policy, asset allocation, spending, and governance.

I am here to talk to you about the important subject of governance and best practices for high performing boards and investment committees. As a fiduciary, your main duties include loyalty, care, and obedience towards the goals and objectives of your organization. These duties, along with UPMIFA, (Uniform Prudent Investment Management Act) are the primary legal guidelines for nonprofits. In this video, we are focusing more on three best practices that help build a strong basis for good governance.

The first, while seemingly obvious, is worth emphasizing, and that is all about effective and supportive communication. This allows for more open, trusting and engaging relationships that carry over into developing strategy and decision making. It’s important that we allow for behavioral differences and varying opinions. If, for example, you are discussing adding alternative asset classes to your portfolio, like private equity, do you first solicit opinions on a one-on-one basis, or start with a group discussion? Either is fine; it depends on the behavioral biases and levels of expertise of the committee or board. Perhaps one or two people have a deep understanding of the subject and are more vocal, but others need more education. You might not uncover that without a one-one-one conversation. This also builds trust and support, which improves communication going forward on whatever topics might be on the agenda— be it risk preference, tactical strategies, environmental, social, and governance investing or DEI considerations. By developing a better understanding of your peers preferences and expertise, you can more effectively build consensus and unity when making important decisions. 

A second best practice is as simple as being prepared. Part of our duty of care is being informed, so we have to do our homework. Then we can hit the ground running in meetings and take action quickly and efficiently. Be sure to share meeting materials in advance in order to give members time to review and form opinions. Follow up with them, to see if they have any questions or concerns prior to the meeting, so that the discussion at the meeting can be engaging and decisive. Many committees I work with find having a dashboard with key facts readily available helps them get grounded with the macro scenario before diving into more tactical decisions. 

A third best practice is ongoing education. Whether it be around topics like the quickly changing financial markets, a deep dive into alternatives, communication, or governance training, having everyone on the same page in a forum where there is not decision making helps build mutual understanding as a basis for future discussions. Tap into the individual strengths of members to share their experience and expertise with the collective group. Encourage members to attend industry conferences to learn the latest trends, strategies, and have conversations with peer organizations to broaden their expertise. Offer opportunities for committee and board members to interact outside of a meeting schedule, like a board retreat or occasional social gathering. Also having regular policy reviews on your agenda, as part of an ongoing education training or a separate session, is a good idea to re-familiarize members with these important documents and allows for an opportunity to update them as the environment changes. It is important to documents these reviews in your files.

Through incorporating these best practices, you are well on your way to establishing characteristics of a high performing board and committee. The benefits of applying these practices are:

• Greater trust, respect, stronger relationships and committee engagement as a result of effective communication
• Constructive dialogue and cohesive decision making thanks to being prepared and providing detailed and transparent information 
• Mutual understanding of topics from on-going education which builds confidence and conviction among members 

While these best practices may seem intuitive to some, they are relevant and effective ways to manage behavioral differences and worth refreshing among committee members. Taking inventory and re-evaluating your committee’s structure may allow you to make subtle changes that generates a stronger outcome.