So you have a pet cause and are thinking of forming a nonprofit, or have recently done so. Whom do you invite to join your board? New public charities are often founded by a group of individuals united in the same mission. Environmentalists connect with green boards, teachers identify with educational charities, creative types gravitate toward the arts, and sympathetic souls align with humanitarian causes. Such camaraderie is commendable but in their passion to make an impact, young boards often lack the depth and breadth of skills needed to grow the charity beyond a neighborhood periphery.
There were 845,233 public charities registered with the IRS in 2004, up an astonishing 64.7 percent from just ten years earlier. Add private foundations and that number topped 1.4 million registered charities in 2004.
If you got this far, you are familiar with Form 1023 and EIN, but what happens when your charity starts to grow? All of a sudden you are hit with a barrage of mysterious lingo — NTEE Codes, D&O, 990, SOX, pro formas, by-laws, quorums — and you find this new vocabulary a little different than what you and your friends discussed sitting around a kitchen table when deciding to help victims of the latest catastrophe.
Nonprofit boards need members who have a whole lot more than just enthusiasm for their cause. They need board members who have skill sets in accounting, taxes, auditing, law, marketing, fundraising, event management, grant writing, and more. Eventually you will retain professionals in each of these fields, but you first have to reach a level where you can afford these services. Most do not come cheap, and while you can negotiate pro bono work, that sometimes only lasts for so long before the provider expects remuneration for her/his services.
But even when you can afford the services of paid professionals, boards need basic expertise in each of these areas. Contracting professional services does not absolve the board of its fiduciary responsibilities. For example, two-thirds of all charities have their 990 prepared by an outside tax professional, so obviously the other third must be savvy enough to do their own taxes, but perhaps not as obvious is that 100% of all boards must know enough about accounting and taxes to scrutinize their returns before mailing them to Uncle Sam, regardless of who prepared them. Just how each of us is individually responsible for the accuracy and timeliness of our own personal tax returns, the board is ultimately responsible for the returns of its charitable organization.
Young charities do not necessarily need board members versed in all these skills from day one; they can add them as and when needed, but the key for young boards to heed is that they should identify their needs upfront in order to prepare a board recruitment strategy appropriate for their organization. This will enable them to know their requirements and timing for expert skills, and allow them to recruit the correct talent when necessary, thereby avoiding a board comprised of all “champions of the cause” but lacking in these other vital competencies.