Author's Note: There are several excellent books and articles on this topic. I have taken the liberty of excerpting liberally from a few of them as their authors are more clear, concise and eloquent on this topic than I could ever be.
When one joins aboard of a nonprofit organization, one takes on an extraordinary responsibility -- that of fiduciary. A fiduciary is a person to whom property or power is entrusted for the benefit of another (a beneficiary). In the case of a museum or historical society, the fiduciaries are the trustees and the beneficiaries are those individuals and groups the organization serves through its charter or mission. By its very definition, the word trustee means a person or body of persons appointed to administer the affairs of a company or institution; a person who holds title to property for the
benefit of another. 1
In her book, Museum Governance: Mission, Ethics, Policy, Marie C. Malaro writes, "in a nonprofit organization...the assets of the organization are controlled by the governing board but the board is under an obligation to exercise its powers only in order to benefit that segment of the public (the beneficiaries) which is to be served." 2 That's why it is a most serious and egregious offense when governing boards fail to uphold their fiduciary responsibility, whether it's due to poor oversight, a misunderstanding of their role, mismanagement, or downright malfeasance. Ignorance doesn't cut the mustard -- when one volunteers to serve an organization as a board member, one automatically accepts the legal and ethical responsibilities that go with it.
There are rules of thumb Malaro points out. Distinctions between core (mission-related) functions and subsidiary functions can help boards sort out the standards to which they are held. "Dedication to mission and proper motivation, which are at the core of nonprofit governance, are not readily measured, and stricter standards of conduct in these areas afford extra protection. When it is difficult to measure success, there must be greater reliance on the diligence and integrity
of those in control." 3
The fiduciary responsibility can be too easily, sometimes unwittingly, jeopardized, and it often occurs in the most visible areas of an organization: collections acquisition and management, conflicts of interest, in financial oversight, and more recently in exhibition development and sponsorship.
Take, for example, the board that places too much trust in its director's glowing economic predictions only to find out too late that it has taken on significant debt, nearly bankrupting the organization. "We didn't do our job," one trustee lamented, "We didn't provide sufficient oversight."
Another example might be the newly relocated organization that front-loads its operation with hefty start-up expenses hoping to offset them with an "if we build it, they (and the money) will come" attitude. Poor timing and poor planning conspire to force the board into seeking permission to sell collections to pay down operating debt -- an ethical boondoggle that may seriously impact future gifts of any type to this museum.
Or the board that continually approved deficit budgets with the rationale that by funding new programs and audience development initiatives from the endowment, the museum was making an investment in its future that would someday pay off. In his published case study of the New-York Historical Society's organizational trauma, Kevin Guthrie writes about the loss of control over fiduciary responsibility when a nonprofit organization sinks into financial crisis:
When a stable institution first encounters operating deficits, the board has many options for responding to the problem, both in terms of managing short-term cash flow and making longer-term revenue and expenditure adjustments. As deficits mount, however, either financial assets are depleted or debts are incurred, and financial flexibility is sacrificed. If the situation does not turn around, the institution is then forced to look to outside parties to help it avert a financial crisis, a step that sacrifices strategic control. Fundamental decisions about the mission and long-term direction of the institution can end up largely in the hands of outsiders. If the situation devolves further into public controversy played out in the press, the attorney general's office, or politicians' public hearings, the board's ability to direct or even to frame the debate concerning important questions will be lost. The implication of this progression is clear: trustees of institutions facing difficulty must resist the very real temptation to wait for circumstances to improve; they must take action while they still have the power to be effective. 4
Do boards have a fiduciary responsibility to hire the best director they can find and to regularly evaluate that person's performance? To periodically assess their own performance and effectiveness? To review the organization's mission statement on a regular basis? To understand and deal with conflicts of interest? To accept anything into a museum's collection? To take on significant or continuing debt that could cripple the museum's ability to achieve its mission? To perpetuate outdated practices and policies? To set the bar too low?
Effective governance of a nonprofit depends not so much on management technique as it does on sensitivity to one's responsibility to see that the organization serves its public thoughtfully and with integrity. This does not rule out innovation, but it does mean that the prudent nonprofit trustee always bears in mind the importance of being accountable, the importance of acting so as to merit confidence, and the importance of always weighing long-term effects on mission. 5
1. Definitions are taken from from the Random House Dictionary, unabridged.
2. Malaro, Marie C. Museum Governance: Mission, Ethics, Policy. Washington: Smithsonian Institution Press. 1994. p. 8.
3. Ibid. p. 12.
4. Guthrie, Kevin. The New-York Historical Society: Lessons from One Nonprofit's Long Struggle for Survival. San Francisco: Jossey-Bass Publishers. 1996. p. 174.
5. Malaro. p. 14.
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