From arts and culture to social justice, nonprofit organizations are diverse in their mission. However, one commonality unites nonprofits and even their commercial counterparts: Each is governed by a board of nonexecutive directors. These boards differ, though, as a function of the sector and of the type of organization within. Moreover, nonprofit boards pose different mandates than their commercial counterparts, with nonprofit board members providing governance oversight as well as facilitating financial and technical support for their organizations.
Our analysis of the board structure and composition of leading U.S.-based nonprofit organizations revealed the following key findings:
How do nonprofit boards operate?
Nonprofit boards average 30 members and skew larger than their Fortune 500 peers, which have an average board size of 11 members. Only one-third of nonprofit boards include the organization’s CEO, who seldom has voting rights.
Re-examine board size (ranging from 12 to 68 members) considering the tradeoff between effectiveness/agility and diversity of skill set and funding sources; reassess policies regarding CEO participation as a way to inform decision making while ensuring board independence. Also review how well-structured board committees can focus directors’ interests and contributions and make full board meetings more effective and efficient.
Who's at the boardroom table?
A third of nonprofit board members are female, which is significantly more than for Fortune 500 companies, where only a fifth of board members are female. However, racial diversity of nonprofit boards is comparatively low vs. that of commercial boards, with an average of 13% of board seats taken by nonwhite members as compared with 14% on Fortune 500 boards.
Ensure diversity across all parameters, contextualize diversity efforts and pursue an approach to succession planning for directors that recognizes organizational needs, represents the community the organization serves and holds the organization accountable to getting there.
What experience do board members bring?
The overwhelming majority of nonprofit board members are professionally employed, mostly within the private sector (65% of board members). However, previous nonprofit experience is key: Eighty-four percent of board members have spent at least some of their career in the nonprofit sector. Financial services and academia account for the majority of employment in the private and nonprofit sectors, respectively. A third of board members have CEO experience, but few have CFO experience.
Balance individual skill set needs with the pursuit of a well-rounded board in terms of both industry and functional diversity.
How engaged are board members?
Members’ motivations for joining a nonprofit board are predominantly altruistic—i.e., to serve the organization and contribute to its success—but half of committee chairs are unsatisfied with member engagement. Nearly three-fourths of nonprofit board members sit on at least one additional board, with an average of four other board seats.
When recruiting new board members, consider that—even if altruistic—board members’ motivations to participate and availability to do so don’t always pass the test of time. Re-examine mandates for and assessments of active participation. Be vigilant to be sure that the board and board meetings are structured to produce efficient discussions and tangible, useful outcomes.
Nonprofits play an essential role in the world’s social, political and financial landscape: They control more than $1.5 trillion in assets1 and are increasingly called upon to prompt social change. With their growing importance for society and the “spillover” of the governance debate from the private sector, nonprofit governance has become a topic of significant interest. However, not much data exists showing how board structure and composition vary among different types of nonprofit organizations.
We at Russell Reynolds Associates often receive requests from nonprofit organizations to help them better understand the range of approaches others take and to advise them on best practices. Our goal for this study is to provide data about current practices—broken down by type of nonprofit organization—rather than examine which practices are more or less effective. However, to provide some general guidance for nonprofits that are currently in a state of change, we have included recommendations based on our extensive experience and the governance practices of public boards. While nonprofits and for-profit entities have very different missions and objectives, director obligations share some overlaps; understanding where and when these occur (but also don’t occur) is important to take advantage of opportunities to share best practices.
We hope this report provides transparency, raises questions and informs a discussion about the range of choices nonprofit boards can make. Understanding the choices of others can offer a window into the range of possibilities.
The findings presented in this publication are based on an analysis of the board of 84 leading2 U.S.-based nonprofit organizations, covering 2,302 board members in total (refer to Appendix 1 for additional information on our sample). To develop a comprehensive picture of the current status of nonprofit board governance, the assessment covered various types of U.S. nonprofit organizations, including private foundations, community foundations, domestic non-governmental organizations (dNGOs), international NGOs (iNGOs), museums and performing arts institutions. The mapping results are based on publicly available data.
Nonprofit boards vary significantly in size and structure. While the board size of organizations with stronger ties to the for-profit sector, such as private foundations, is similar to that of public companies (around 12 members), the board of institutions with a strong focus on fundraising tends to be large and complex, which could compromise efficiency. Most nonprofit boards also function without the organization’s executive director and the accompanying on-the-ground perspective.
Nonprofit boards skew larger than their for-profit peers
On average (and with significant variance), nonprofit boards consist of 30 members, which is significantly larger than the 11-member average of Fortune 500 boards (Exhibit 1). While private foundations have the smallest boards (12 members on average), performing arts institutions have the largest (68 members on average). The larger board size for performing arts institutions can be explained, at least partially, by fundraising requirements and a legacy of including experts from the art field (such as artists or performers). Functionally, larger boards can mean more committees beyond the most common executive, finance/audit3, governance and development committees.
Few nonprofit CEOs actively participate on their boards
While it is common practice among U.S. public companies that the CEO holds the chair position (more than 50% of S&P 500 CEOs hold the chair role), nonprofit executive directors normally do not hold the chair position,4 let alone sit on the board of their organization. Indeed, only 30% of boards surveyed include the organization’s executive director/CEO as an ex officio board member. It also is common practice among nonprofits not to grant the CEO voting rights: Approximately 60% of executive directors sitting on boards cannot vote.5
Nonprofit board members face term rather than age limits
While there is a variety of term length arrangements among nonprofit boards, the most common term limit range from two to three consecutive three-year terms. In comparison, public boards tend to favor age retirement policies (on average around 72 to 75 years of age) instead of term limits. Such age limits do not exist on nonprofit boards.
BOARD STRUCTURE CONSIDERATIONS
Lean and agile operations. While larger boards don’t necessarily slow down decision making processes, review your board structure and ensure that it enables the board to fulfill its responsibilities efficiently. For organizations with a larger board, consider implementing a ‘board within a board’ governance model: delegate key tasks to the executive committees and carefully allocate various fiduciary and governance functions to specific board committees chaired by members of the executive committee. Another approach is to transition some supporters from board seats to membership on leadership councils, campaign committees, and advisory councils to handle other responsibilities.
Active CEO involvement. To ensure informed decision making, include the executive director as an ex officio member on the board. Some organizations grant their executive director voting rights, while others do not, but the emerging best practice is to establish the chief executive as a non-voting member and, thereby, avoid potential conflicts of interest.
Member rotation and succession planning. Make sure term limits, which ensure board member rotation, actually help (not exacerbate) challenges relating to skill composition. Develop a long-list of potential board members with the characteristics required to ensure a well-balanced board and which will meet the current and future strategic priorities of the organization. If a particular board member is hard to replace, make allowances in the bylaws for a board member to renew a term of service after rotating off for one year.
One element of talking about “who’s at the table” is looking at how key demographics are represented on boards. While nonprofit boards are more diverse in terms of gender than Fortune 500 boards, racial diversity remains a challenge.
One out of three non-profit board members is female
Nonprofit boards have an average of 36% women members, as compared with 20% for Fortune 500 boards (Exhibit 2). While nonprofit boards surpass their commercial peers across the spectrum, differences exist among types of nonprofits, with community foundations showcasing the highest gender diversity (42% average) and museums the lowest (30% average). See Appendix 2 for a detailed gender breakdown.
The race disparity on nonprofit boards persists
Racial diversity constitutes a significant challenge for nonprofit boards: Non-white members make up an average of 13% of nonprofit boards, which is a percentage point lower than their representation on Fortune 500 boards (Exhibit 3). As with gender diversity, though, differences abound among types of organizations: Private foundations have the largest representation of non- white board members (23%), and museums have the smallest (3%). See Appendix 3 for a detailed breakdown.
GENDER PARITY AND RACIAL DIVERSITY CONSIDERATIONS
Contextual and nuanced efforts. Instead of simply ensuring a certain gender or race ratio of members, consider the composition of the beneficiaries/communities the organization is serving and aim to reflect the same type of diversity on the board. Make sure board selection criteria and processes are designed to facilitate and encourage diverse board talent beyond traditional diversity candidate pools. For instance, include community representatives on board committees in a non-voting capacity.
Manifold and future-oriented selection criteria. Proactively develop a potential pipeline of diverse board members by mapping and identifying people who could develop into attractive board members in the next 5 to 10 years.
Public accountability. In order to hold the organization more accountable and improve diversity efforts, consider publishing data on board composition publicly; e.g., on the organization’s website.
Board member professional profile
Most members currently work at for-profit companies, but this concentration varies depending on the type of organization
Nonprofit board members bring a variety of professional experiences to the organization they serve. The vast majority are professionally active (i.e., 94% employed vs. 6% retired; see Appendix 4) and employed across a range of private and nonprofit industries.
Sixty-five percent of professionally active board members currently are employed in the for-profit sector (Exhibit 4). Organizations with a high fundraising imperative for the board, such as community foundations, museums and performing arts institutions, tend to have a higher share of for-profit employed board members (76%, 63% and 73%, respectively). On the other side, private foundations—which are not dependent on fundraising—have the highest share of board members currently employed in the nonprofit sector (53%).
Financial services is the most represented for-profit industry, technology is the least
Among board members employed in the for-profit sector, the financial services industry is the most represented at 32% (Exhibit 5). This is especially true for organizations highly dependent on fundraising, such as museums, wherein 41% of for-profit employed board members are employed by financial services institutions. At the other extreme, technology industry experience is generally low. Interestingly, museums, which face, in particular, the pressure of digital innovation, have the lowest share of board members employed in the technology sector (2% of for-profit employed board members). Beyond financial services and technology, boards showcase a range of industry expertise among their members. The consumer, professional services, healthcare, and industrial sectors are each represented to a certain degree within boards, thereby suggesting an eclectic and complementary array of perspectives.
There is a strong focus on academia among board members currently employed by nonprofits
Most board members currently employed in the nonprofit sector work for a higher education institution (29%, Exhibit 6). Beyond this concentration in academia, there is a focus on thematic relevance: Across all organizations—except dNGOs—approximately 20% of board members currently employed in the nonprofit sector are engaged in the same subsector as the organization on whose board they sit. This suggests that nonprofits prefer having a certain share of board members with relevant focus area expertise.
Nonprofit experience is key—84% of board members have spent at least some of their career in the nonprofit sector
Board composition is quite balanced in terms of board members’ experience profile: While 61% of board members have a hybrid profile, with experience across the private and nonprofit sectors, 39% have spent their whole career in only one sector—23% having worked only for nonprofits and 16% with a purely commercial background (Exhibit 7). iNGOs have the highest share of purely commercial board members (on average 40% of a given board). Community foundations deviate the most from the average, with the highest share of hybrid board members (83%) and the lowest share of purely nonprofit board members (10%).
Professional experience is varied, but one-third of board members have CEO experience
On average, 42% of board members per board have C-suite experience (Exhibit 8). This share is highest in private foundations (48% of board members per board), which often have strong ties to the commercial world, and the lowest in performing arts institutions (35%), which often include artists and other nonprofit representatives on their board. Interestingly, if board members have C-suite experience, they tend to have held very senior positions: Of board members with C-suite experience, 79% have CEO experience.
On the other hand, the share of board members with CFO or CIO experience is quite low—on average 3% and 1%, respectively, of board members per board. While this could suggest a low level of sophistication with regard to financial expertise, it is higher than it may seem: Sixty-one percent of nonprofit boards have at least one member with CFO experience. Nonprofit boards may not face regulations like public boards do—which mandate there be at least one “qualified financial expert” on the board—but they do independently, and increasingly, strive to have financial expertise represented amongst their board members.
PROFESSIONAL EXPERIENCE CONSIDERATIONS
Skillset-vision alignment. Ensure that the experience and skill set profile of board members is aligned with the organization’s vision and strategic goals. Conduct regular audits of skills, experience and background required in board members in advance of any recruitment/appointment, in particular when thinking about membership in the finance and audit committees. Define specific candidate selection criteria, which should not be linked only to fundraising potential.
Well-rounded board. Recruit individuals from a range of industries—especially those that may currently be underrepresented, such as technology—and with a variety of experience. Consider both industry and functional experience when reviewing the board skill set profile and composition.
Temporary committees. To ensure an organization benefits from its board members’ expertise while maintaining operational independence, establish non-voting committees with special mandates, for instance the use of digital and new technologies.
Board motivation and participation
Serving the organization is members’ primary motivation for joining, but active participation is an issue
A desire to serve the organization is described as a motivation for joining a board by the vast majority of nonprofit board members (Exhibit 9).9 Still, board member attendance is waning: Ninety percent to 100% attendance declined from 41% of boards in 2012 to 37% in 2014.10 Moreover, even when board members are present, 50% of chairs believe that board members are not very engaged in their work based on the time they dedicate and their reliability in fulfilling obligations.11 This suggests that recruitment priorities and practices need to be realigned to properly identify successful and committed board members. Indeed, despite a preponderance of altruistic motivations for board membership, 25% of board members report joining a nonprofit board to advance their personal or professional interests.12
Nearly three-fourths of nonprofit board members serve on an average of four other boards
The lack of active participation and the apparent disconnect between boards and executive teams might be explained, at least partially, by the high share of board members with additional board seats. Indeed, nonprofit board members are quite active with regard to their general board engagement: Seventy-two percent of board members occupy at least one additional board seat.
As board membership is seldom exclusive (Exhibit 10), board members sitting on more than one board occupy, on average, four additional board seats. This varies considerably according to the type of organization: iNGO board members sit on an average of three additional boards, while museum board members occupy double that amount of board seats. This range is not surprising considering differences in board size, board member contributions and required time commitments among different nonprofits.
In contrast to public companies, which tend to limit the number of additional public board seats13 to ensure sufficient focus and engagement, nonprofit organizations do not limit additional board memberships so that an average of 10% of board members sit on more than 10 other boards.
Interestingly, there is a preponderance of nonprofit sector activity among board members: More than half of board members with additional board memberships (52%) sit on nonprofit boards only, 32% sit on both nonprofit and for-profit boards—thereby gaining comprehensive board expertise across sectors—and only 16% sit on for-profit boards only.
While additional board seats have yet to be limited for nonprofit boards, there is a growing trend to make giving a prerequisite and, thereby, ensure adequate participation from board members while screening out those who might be less committed. In 2014, 80% of boards required board members to contribute to their organization, as compared with 70% in 2010.14
ACTIVE PARTICIPATION CONSIDERATIONS
While it is important and necessary that directors be aligned with the mission and strategy of the organization, this is not a sufficient criteria to ensure board members’ active engagement with the governance, strategy and leadership talent of the organization. In order to achieve both alignment and engagement, several issues should be considered and addressed:
Clear resource obligations. Be clear and candid about time and resource commitments that board membership requires despite the unremunerated nature of nonprofit board work. Make term renewal contingent on previous performance.
Motivation and commitment assessment. Align recruitment priorities and practices to properly identify suitable and committed board members. Rigorously select new board me