Nonprofit boards are legally and financially responsible for the operation of the organization for which they serve.  One way in which boards carry out their responsibilities is through the creation of board committees.

Number of Committees

There is no specific kind or number of board committees required for an organization.  Ultimately, the organization should determine the committees needed based on its mission.  The purposes, powers, and limitations of these committees should be stated in the bylaws.

Committee Members

In order to be considered a committee and have the authority of the board on any matter, North Carolina law requires at least two members.  To be effective, it is recommended that committees should be small with no more than three to seven members.  Committees may include non-board members, but in such case the committee’s powers should only be advisory.  To have power to make decisions that bind the nonprofit, the committee should be composed only of board members. Committee members, particularly if the board has delegated power to the committee, generally have the same rights as board members and the same standards of conduct.

Standards of Conduct

Legally, each board committee member must meet certain standards of conduct. These standards are typically described as duty of care, duty of loyalty and duty of obedience.

• Duty of Care – A board committee member must exercise “reasonable care” when he or she makes a decision for the organization. In this case, “reasonable” is what a prudent person in a similar situation might do.

• Duty of Loyalty – A board committee member must never use information gained through his or her position for personal gain. This means each member must always act in the best interests of the organization.

• Duty of Obedience – A board committee member must be faithful to the organization’s mission. This means he or she cannot act in a way that is inconsistent with the organization’s goals.

Kinds of Board Committees

• Special committees. These can be advisory or created with limited powers for a specific purpose.

• A special committee with a specific purpose may be charged with recommending whether to rent new office space, planning a special year-end gala, or representing the nonprofit before the state housing authority.

• Advisory committees may be charged to provide the board with input from the communities they represent. Advisory committees may make recommendations that will be attributed to the nonprofit.

• Standing committees. These are committees that the board uses to allocate and discharge its functions.  Permanent standing committees (such as Executive, Finance, Human Resources, Investment, Membership, Nomination, Planning, and Audit) should be authorized in the bylaws.

• The Nomination (or Board Development) Committee may be charged with recommending new or continuing board members, recommending the midterm removal of board members in unusual circumstances, suggesting expansion and contraction of the board, and recommending committee composition.

• The Finance Committee is often responsible for monitoring the cash flow and overall financial health of the nonprofit, including working with staff to prepare an annual budget for board approval and developing financial plans for the future.

• The Audit Committee oversees the accounting and auditing practices of the nonprofit. It is responsible for retaining and consulting with outside auditors, reviewing the audit report and other financial statements, and approving internal procedures and controls.

• The Investment Committee is often charged with overseeing the nonprofit’s funds and ensuring that the organization is in compliance with applicable legal standards governing the management of the corporation’s funds.

• The Executive Committee often includes all officers and sometimes the chairs of standing Nonprofit Board committees, as well as the CEO/ED. The Executive Committee generally has the most powers of the board to act between board meetings.

The use of committees can be an effective and efficient way for a nonprofit board to perform its work and help an organization be the best it can be.  However, it is important for the functions and powers of these committees to be clearly stated in the bylaws and followed by members to avoid any personal liability for improper conduct.

Source:

• Guidebook for Boards of Directors of North Carolina Nonprofit Corporations

https://www.ncnonprofits.org/sites/default/files/resource_attachments/BoardGuidebook_2ed.pdf

Please contact the professionals at Gilliam Bell Moser if you have any questions.

Joy Klenke, CPA