13.6 How Nonprofits Are Governed

Nonprofits are responsible for using their resources wisely to make a positive impact, and their governance structures guide them in doing so effectively and ethically. However, without proper oversight, there is always a risk of mismanagement or even misuse of resources, which can undermine public trust. Whether you’re considering a career in the nonprofit sector, volunteering, or donating, understanding how these organizations are managed not only helps you make informed decisions but also highlights the importance of strong governance in preventing corruption and ensuring mission-driven operations.  

Boards of Directors

A nonprofit’s board of directors is a group of individuals who volunteer to govern the organization and ensure it fulfills its mission. The board is responsible for setting the organization’s mission, vision, and overall direction. Board members oversee the nonprofit’s finances, ensuring that funds are used appropriately and that the organization remains financially stable. They have legal and fiduciary duties, meaning they must act in the best interests of the nonprofit, avoid conflicts of interest, and make decisions with care and loyalty. Additionally, the board is tasked with ensuring the nonprofit operates ethically, complies with laws, and maintains its tax-exempt status. Boards often assist with fundraising efforts and provide valuable connections and resources to support the nonprofit’s mission.  

Executive Leadership

The daily operations of a nonprofit are led by its executive leadership, typically the CEO or executive director. These leaders are responsible for implementing the strategic plans developed by the board and managing the organization’s staff, volunteers, and programs. Nonprofit executives ensure that the organization runs smoothly and that it effectively delivers on its mission. They oversee everything from program development to budget management. In many cases, they also act as the public face of the organization, building relationships with donors, funders, and community partners.

The Relationship Between the Board of Directors and the Executive Director

The relationship between the board of directors and the executive director is a partnership that drives the success of a nonprofit. The board is responsible for governance and oversight, setting the overall direction and ensuring the organization’s accountability. Meanwhile, the executive director manages the day-to-day operations, implementing the board’s strategic plans and running programs effectively. While the board provides guidance and oversight, the executive director brings expertise in management and execution. Communication and collaboration between the two are essential for the organization to thrive, as they work together to align goals, maintain transparency, and ensure that the nonprofit’s mission is fulfilled. The board supports the executive director by offering resources, fundraising assistance, and strategic input, while the executive director keeps the board informed on the organization’s progress and needs.  

Accountability and Transparency

Accountability and transparency are essential for maintaining public trust in nonprofits. Nonprofits are required by law to be transparent about their financial operations, particularly when it comes to how they use donated funds. This is why most nonprofits must file an IRS Form 990, a public document that provides a detailed report of the organization’s finances and activities. In recent years, there has been a growing focus on not just tracking finances but also measuring the impact of a nonprofit’s work. Donors and funders increasingly expect nonprofits to demonstrate that their programs are making a real difference. As a result, many nonprofits have adopted outcomes-based management, tracking their progress toward specific goals and reporting their results to stakeholders.  

Volunteer Governance

In many nonprofits, volunteers play a key role in governance, particularly in smaller organizations that may not have extensive professional staff. Volunteers often serve on boards, contribute to decision-making, and assist in carrying out the nonprofit’s programs. Balancing volunteer governance with professional leadership is important for meeting organizational needs. While volunteers bring passion and commitment, the nonprofit also relies on professional staff to ensure that operations are consistent and sustainable. This collaboration between volunteers and staff helps nonprofits achieve their missions while maintaining strong governance structures.