Nonprofit Board Governance Falls Short, Study Finds

The skills, resources, and experience of many nonprofit board members are insufficient to meet their organizations' needs, a study by the Stanford Graduate School of Business, in collaboration with BoardSource and GuideStar, finds.

Based on a survey of nearly a thousand directors of nonprofit organizations, the 2015 Survey on Board of Directors of Nonprofit Organizations (30 pages, PDF) found that 27 percent of respondents don't think their boards have a strong understanding of the organization's mission and strategy; 65 percent don't think their fellow board members are very experienced; and about half don't think their colleagues are very engaged in their work (48 percent) or fully understand their obligations as directors (47 percent). In addition, 32 percent of respondents said they are dissatisfied with the ability of the board to evaluate the performance of the organization, while 46 percent said they have little or no confidence that the performance data they are given accurately measures the success of the nonprofit. On a more positive note, 87 percent of survey respondents said they are satisfied with the executive director's performance, while 85 percent said they are satisfied with the organization's overall performance.

"Our research finds that, unfortunately, too often board members lack the skill set, the depth of knowledge, and the engagement required to help their organizations succeed," said David F. Larcker, the James Irvin Miller Professor of Accounting at Stanford GSB and co-author of the study. "Nonprofit boards would greatly benefit from a more rigorous process for setting goals and measuring performance."

To improve nonprofit governance, the report's authors recommend that nonprofits focus more on recruiting committed, experienced, and talented board members; establish explicit goals and strategies to achieve their mission based on a sound theory of change and specific logic/business models; develop rigorous, pragmatic, and meaningful performance metrics; and establish well-defined board, committee, and ad hoc processes to ensure optimal handling of key decisions.

"Individuals join nonprofit boards because they want to make a difference and contribute to the mission of the organization," said Nick Donatiello, lecturer in corporate governance at Stanford GSB. "Holding personal financial contributions aside, the biggest contribution they can make is to help their board implement sound governance practices: reliable financial reporting, concrete organizational performance targets, CEO performance evaluation, board development and succession plans, and fulfilling other basic and fundamental obligations that come with directorship."

"David Larcker: Nonprofit Boards Fall Short." Stanford University Press Release 04/22/2015.