Stanford Research Offers 9 Tips to Improve Nonprofit Governance

(Press release, April 22, 2015) — A new survey supports a long-held hypothesis that many nonprofit boards are ineffective, say Stanford Graduate School of Business (GSB) researchers.

The survey of 924 nonprofit directors revealed a significant minority are unsure of their organization’s mission and strategy, dissatisfied with their ability to evaluate their organization’s performance, and uncertain whether their fellow board members have the experience to do their jobs well.

“Our research finds that too often board members lack the skill set, depth of knowledge, and engagement required to help their organizations succeed,” says accounting professor David F. Larcker, the lead researcher.

Larcker, with Lafayette Partners in Management lecturer William F. Meehan III, corporate governance lecturer Nicholas Donatiello, and researcher Brian Tayan, asked board members about their board’s composition, structure, and governance practices, from financial reporting to succession planning and executive evaluations. Nonprofit information sites BoardSource and GuideStar collaborated on the survey. The survey will be introduced at the Stanford GSB Nonprofit Board Governance Institute, which convenes today and where Larcker is due to deliver the keynote.

The survey found:

• 27% of board members don’t think their colleagues have a strong understanding of the mission and strategy.
• 65% don’t think their board is very experienced, and about half don’t think their colleagues are very engaged in their work.
• 46% have little or no confidence that the performance data they review accurately measures the success of their organizations.
• 32% don’t think their board can evaluate their organization’s performance.
• 42% don’t have an audit committee, and many rely on monthly bank statements to monitor financial performance.
• 57% don’t benchmark their performance against peer groups.
• 39% don’t establish performance targets for their executive directors.

Succession planning is particularly problematic, according to the survey. Two-thirds don’t have a succession plan in place, and 78% couldn’t immediately name a successor if the current executive were to leave suddenly.