Raise the Board’s Financial IQ
What is your board’s financial IQ? That’s a question every association CEO should be able to answer. While you may not have a Warren Buffett in the group, hopefully, there are some above-average number crunchers.
To adequately fulfill the three duties of a nonprofit board member—Care, Loyalty, and Obedience—a solid understanding of the organization’s financial activities is needed. A director who can’t read your balance sheet, can’t be a great leader. And, in the current volatile environment, you need the best governance you can get.
If you represent the American Bankers Association, financial acumen probably isn’t a problem. But for the rest of us, ensuring that volunteer leaders are up to speed on the numbers is a significant responsibility.
Even when board members come to the job with some financial background, they may not be familiar with nonprofit accounting standards, their new leadership responsibilities, or your organization’s statements. Younger members in particular may need coaching.
Reading a report about the bells and whistles in the new website is a lot more interesting to most of us than combing through columns of figures in the audit or IRS form 990. But a poor web design won’t get anyone on the bad side of the law whereas ignoring those important statements might.
So how do you make the financial report a bingeable presentation? Is that even possible? Yes, you can get people to put down their phones and pay attention.
A healthy balance sheet is the source of innovation, impact, and engagement. When directors understand their role in stewarding and growing resources, keeping track of that progress becomes a lot more interesting.
Don’t assume that prospective directors understand the depth of their commitment. Board members are personally responsible for the organization’s compliance with all applicable laws and regulations. This includes the laws relating to financial reporting and fundraising.
Explain the importance of that liability clearly. Directors should understand this responsibility before they accept their appointment. But it should be reinforced in person during the orientation for new members and in the documentation they receive. This is a concept that bears repeating, so don’t hesitate to remind the group, from time to time, where the buck stops.
Introduce Key Players
Meeting new colleagues is easier when someone facilitates introductions. Make sure new members are familiar with key financial players. Orientation is a good opportunity for the CFO to develop a rapport with incoming volunteers and an understanding of their individual capabilities. Allow plenty of time on the agenda for the financial staff to explain when and how statements will be available, review banking, investment, and auditing arrangements, and answer questions.
The treasurer and the finance committee also have important roles to play. They should explain their activities and how they interface with staff and other finance professionals. Personal anecdotes about their own learning experiences can help new members feel more confident.
Create a casual atmosphere that makes it easy for people to feel comfortable discussing what they don’t know and asking about what they don’t understand. Don’t try to cover everything in one meeting. Describe the board development programs that will be available in the future.
If you’ve paired new members with a mentor, make sure financial topics are included in their post-orientation meetings.
Financial development is an excellent opportunity to promote your organization’s culture of learning. Plan educational activities throughout the year that generate interest and inspire directors to become better financial stewards. Don’t limit the possibilities to understanding monthly statements. Be creative and include a variety of options, such as:
- Financial literacy workshops. Cover topics like budgeting, investing, and managing debt.
- Presentations from experts.
- Organize panel discussions featuring the Finance Committee.
- Invite the auditor to present to the group as preparation for the audit review. Be sure to allow time for questions. Auditors can also be asked to explain the basics of nonprofit accounting as well as the significance of IRS Form 990.
- Invite your investment team to explain your organization’s allocation and risk strategies and investment reports.
- Ask fundraising or deferred giving experts to discuss estate planning.
- Online courses. Offer the opportunity for independent online learning.
- Share information. Circulate articles and information on best practices and trends in finance.
- One-on-one coaching. Provide an opportunity for board members to get personal training in reading statements and financial reports from a staff member or other expert.
Keep it Simple
Many people don’t feel comfortable with numbers and statistics. Complex financial statements can easily overwhelm new learners. Make your reporting easier for the experts to explain and for the novices to understand by—
- Using clear, concise language and avoiding financial jargon.
- Eliminating unnecessary details. Only include information that is needed to see the big picture.
- Developing a consistent format that allows for easy comparison across months and years.
- Labeling headings clearly.
- Color coding when appropriate.
- Illustrating the numbers with graphics.
- Offering online dashboards that make financial trends easy to spot.
- Providing a glossary and or footnotes to explain unfamiliar terminology.
If board members seem disengaged during the financial presentation, find out why. Ask the treasurer and the finance committee to connect with their colleagues to determine what would increase their involvement. Distribute a survey to identify where there is room for improvement.
Don’t Forget Policies and Procedures
There’s more to oversight than reading the financial statements. Be sure to review important policies and procedures. Conflict of interest, investment, reimbursement, spending, whistleblower, and other guidelines for financial oversight should be easily available.
Make it Meaningful
This is probably my most important piece of advice. Members join an association board because they want to make a difference for their profession and society. Tell your financial story. Don’t leave the numbers out in the cold. Tie them to the hot buttons in the mission.
Your strategic plan and your budget are key components in this process. Bring that connection to life. Explain how both documents reflect organizational priorities, goals, and objectives. To highlight the significant metrics, describe the relationship between the budget, the plan, and initiatives that are important to members. An integrated strategic plan makes identifying these dependencies easier.
Lastly, reputation is everything. This might seem obvious, but the relationship between member engagement, transparency, and financial accountability is too important to leave to assumptions. Members must trust that their representatives are acting on their behalf. Raising the board’s financial IQ strengthens that critical bond and increases your credibility as a leader.
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