06/07/2010 12:05 pm ET Updated May 25, 2011

Responding to the Challenge of Strengthening Nonprofit Boards

A nonprofit board of directors can make or break an organization, particularly in times of economic stress or at organizational transition points. Even during "normal" periods, the board is ultimately responsible for an organization's financial stewardship, level of transparency, accountability and risk management, overall mission, strategic direction, and performance.

The nation's more than 75,000 grantmaking foundations distributed nearly $43 billion in grants last year, according to data reported by the Foundation Center. In 2007, foundations in the New York metro area alone distributed nearly $8.4 billion in grants worldwide. Government, too, is a large source of funds for many nonprofits. The City of New York, according to The New York Times, awards nonprofits $4 billion in competitive contracts each year.

Given the magnitude of these investments it's fair to say that funders, whether they're foundations, government agencies, corporations, or individual donors, have a vested interest in the governance of the nonprofits they support.

Despite the billions of dollars distributed to nonprofits each year, and the tremendous influence that a board can exert over an organization, many funders are not certain about how to address the topic of governance with their grantees. Many grantmakers decide not to devote much attention to how the board is actually functioning. Such grantmakers may see themselves as outside investors in the nonprofit's mission, electing instead to defer to the board regarding internal governance matters.

Other funders take a more active role, offering, for example, technical assistance designed to evaluate and improve board performance. A smaller number of grantmakers may take an even more hands on approach, working directly with the grantee on developing its board, or even recommending specific individuals as possible members.

Each of these approaches is understandable, and there is no "right" way for a grantmaker to deal with the governance of its grantees. The grantor-grantee relationship, and the power dynamic it implies, can be a delicate one, and most grantmakers make efforts not to be perceived as heavy-handed, especially when it comes to control issues such as governance.

As a result, most nonprofit boards are left to their own devices. Generally, this is how it should be, and how the legal framework envisions nonprofit governance: the board of directors is provided broad parameters and granted much discretion. This degree of latitude, this ability to make independent decisions that will contribute to an enterprise's success or failure, closely resembles the authority given to directors of private sector corporations.

Decisions made by the directors of public corporations, in contrast, are largely issued within a system of checks and balances: shareholders and their advocates, the financial press, rating agencies, and the private sector equivalent of the grantmaker, the institutional investor. Admittedly, portions of this system failed to provide adequate protection, as evidenced by the current economic crisis - the worst recession since the Great Depression. But the fact remains that the system of checks and balances generally succeeds in informing and sharpening corporate decision-making in the private sector.

No comparable system of checks and balances exists for exempt organizations. It should come as no surprise, therefore, that certain venture philanthropists go so far as to place foundation representatives on grantee boards in an attempt to impose checks on nonprofit decision-making. This tactic, however, is neither sustainable nor acceptable to the vast majority of grantmakers.

In an attempt to provide grantmakers and grantees with a solution to improving nonprofit governance in a manner that respects both the nonprofit's autonomy and the grantmaker's legitimate interest in good governance, United Way of New York City developed BoardServeNYC.

Launched last October after extensive consultation with grantmakers, nonprofits and governance experts from the public and private sectors, this initiative provides an intermediary service, to which a grantmaker can refer its grantees without directly inserting itself into the grantee's governance issues.

Any nonprofit located in New York City can visit and apply. If accepted, the nonprofit is invited to an intensive training session that addresses board development and provides performance improvement tools. Once the nonprofit completes the training, it becomes eligible to recruit new board members from the BoardServeNYC pool. These candidates, numbering over 300 (and growing), are a diverse group of professionals who wish to join and help strengthen local nonprofit boards. Each candidate must apply to BoardServeNYC, undergo a screening process, and if admitted, participate in a comprehensive training in preparation for effective governance.

Once the nonprofits and board candidates have finished their respective trainings, they are only then eligible to interact with one another. To facilitate this, BoardServeNYC organizes large-scale in-person board recruitment events every other month, and provides a password-protected online registry, where both nonprofits and candidates can quickly and conveniently search for suitable matches and initiate contact.

Closing the gap between what grantmakers would like their grantees' governance to be, and what that governance actually is, is not an easy task, but we believe that BoardServeNYC is a big step in the right direction.

This blog is adapted from a column originally written for Philanthropy New York.