A SUGGESTIVE FORMAT FOR BOARD DIVERSITY
The matrix below is intended to be an indicative format to be kept in mind while building a diverse Board:
WHAT IS THE PROCESS OF CREATING A SUPPORT BASE OF POTENTIAL BOARD MEMBERS?
In order to create a pool of potential Board members the first step is to have categories fixed. The organization has to set the skills/expertise that is required in the Board so that new dimensions can be brought into the Board. Finding potential members from diverse backgrounds with positive attitude to join the Board is essential. (See ‘A Suggestive Format for Board Diversity’ to ensure you too have diversity while identifying potential Board members.)
Possible sources from which an organization can identify members for the support base are:
Board members of similar sized organizations
CEOs of other unrelated charitable organizations
Advisory committee members
Staff of un-related donor agencies
Just creating a data base or pool of volunteers is not enough for an organization. Even though these groups of people are legally not part of the governance process of the organization, efforts must be made to involve them in the organization in various ways. They can be made part of the organization in various ways. They can be made part of any sub-committee of the organization.
WHAT ARE THE VARIOUS LEVELS IN THE STRUCTURE OF A GOVERNING BOARD?
In an organization a General Body and a Governing Body is legally mandated and all the members are mostly volunteers. Some organizations also have an Executive Committee that is above the Governing Body. Executive Committee comprises of key staff and some volunteers. However, it is very much necessary to create a supporter or volunteer base from where the organization can pick up its potential Board members.
This volunteer base is not mandated legally but is a desirable practice that an organization may choose to follow. The size of the volunteer base should be around 2.5 times the General body size so that in case of rotation/change of Board members the organization will have ample choices to opt from.
Keeping all this in mind, an organization has to systematically create a support base of potential Board members.
WHAT IS THE PROCESS OF CREATING A DIVERSE BOARD?
Creating a diverse Board may sound lot easier than actually doing it. At first an organization has to determine the set of competencies, priorities and expertise that are necessary to be present in a Board in order to be more effective. Once the competencies are determined, the organization has to have some process for screening of these qualities. The next immediate step for an organization is to conduct a gap analysis of the Board to identify the experience & competencies that are already there in the Board and to flag off areas where it’s lacking.
After completing a thorough analysis, organization has to set high priority on the skills that they are looking for. However, the most important point here is to choose the members from a varied pool so that the balance of the Board is maintained in terms of gender, age, finance, governance & other specialized skills, etc
WHY IS IT IMPORTANT TO HAVE A DIVERSE BOARD?
The Board must be a fine blend of individuals drawn from different walks of life & diverse sections of community. It is sometimes observed that few members actually discharge their responsibilities while rest are decorative or play a peripheral role. Moreover, when members are too alike, the overall thought process becomes stereotyped and predictable. Therefore, it may hamper the decision making process, since others ideas/ issues are not debated/discussed.
Diversity of background, skills and perspectives are considered essential ingredients of effective Boards. Multiple perspectives are necessary to bring in creativity and to challenge stereotype thought process. Diversity leads to more innovation, more outside box thinking and better governance.
AS AN NGO, HOW DOES ONE CREATE A BUSINESS ENTITY WHICH CONTINUES TO LOOK ATTRACTIVE TO FUNDING ORGANIZATIONS?
Some background of the question:
A decade-old Central India based organisation has been enabling women to build livelihood skills through handloom weaving. They have recently started showing a profit through the sale of indigenously produced goods.
Currently, they are registered under the Mumbai Sarvajanik Vishwavyavastha Adhiniyam 1950 Registration Act of 1860 and hold:
·a certificate of importer and exporter and are
·registered as Manufacturer exporter in The Handloom Export Promotion Council, Chennai.
They require advise on these aspects.
As per the law a not for profit organization can be taxable if the income goes more than 25 lacs per year. The tax will be applicable on both business and grant incomes. To protect grants, the NGO should set up another entity for the purposes of the manufacturing and sales business.
Currently, the NGO impacts 200 artisans with an annual business of 1.5 crore. The future objective is to impact as many women as possible.
How does one create a business entity which continues to look attractive to funding organizations? It would be more interesting for funding agencies for considering an NGO for long term funding, if the NGO can demonstrate impact in larger number and especially the collective business model where NGO empowers the community in working in scale as well as their participation in decision making, governance & ownership.
In such cases, it is better to set up a public charitable trust or a sec. 25 (sec. 8) company, which does not obtain sec. 12A registration. This ensures that the profits generated by the NPO are not used for anyone’s personal gains, there are no grey areas regarding ownership, and therefore the NPO remains eligible for financial support from trusts. The caveat is that some donors might still ask for 12A registration, at which point they need to be educated (another alternative could be to obtain 12A registration, with the knowledge that the new NPO will not actually get tax exemption).
Alternative forms to consider are cooperative society or a Producer Company. Both result in some loss of control over operations.
Other issues to consider before deciding the appropriate legal format for new business entity.
The most important decision relating to taxes is the type of legal structure selected. Not only will this decision have an impact on how much is paid as taxes, but it will affect the amount of paperwork the business is required to do, and ability to raise money.
Registering a sec. 25 company increases company law compliance, but reduces BPT compliance. You need to see whether this trade-off works for you.
Another decision to be made as a promoter organization is how the company should be structured. This decision will have long-term implications, so need to consult the form of ownership that is right for the NGO and beneficiaries.
Dealt with above.
Other points where information is required for the current and new business entity.
· Applicability of the minimum wages law in old/new business entity.
Are applicable whenever an organisation is engaged in scheduled activities – most likely the organisation is already covered by Minimum Wages Act, if they are employing workers. However, if the work is given out on piece rate, then Minimum Wages Act would not apply to such contractors / vendors.
· Applicability of various provisions of labour law in old/new business entity.
Gratuity is applicable whenever you cross the threshold of 10 employees, irrespective of form of organisation. Same applies to Maternity Benefits.
ESI – to our knowledge – is not mandatory for a number of industries. Requires further checking.
PF will be applicable to the new entity depending on the number of employees. The old entity will be exempt till it retains 12A.
More information this is given in AccountAble 110: Staff Benefits.
· Applicability of minimum holidays law in old/new business entity.
Derives from Shops and Establishments Act, as applicable locally.
· Applicability of PF/Pension and other social security laws of India in old/new business entity.
Questions : WHAT IS BOARD ORIENTATION?
Board orientation is a process to thoughtfully provide new Board members with the precise information they need on their role in the organization. The purpose of Board orientation is to provide important information about the organization and about the Board’s roles and responsibilities. It also serves to build a working relationship among Board members and helps to recognize the various skills available within the Board.
New Board members need to feel like they are an integral part of the Board as soon as possible. Providing Information about the organization and roles/responsibilities will help them to feel at ease.
Questions : WHY IS BOARD ORIENTATION IMPORTANT?
Board orientation is important and required so that new Board members can find answers to some critical questions:
What skill and knowledge can each of us bring to the table?
What do we need to know and learn?
How will we function as a Board?
Within what principles will we operate?
What resources are available?
How often and where should we meet?
How will we run our meetings?
With whom and how will we communicate?
What administrative systems will we require?
Will we require outside advice on legal, planning and financial matters?
What are our legal responsibilities?
What decision-making and problem-solving techniques will we use?
Questions : ORIENTATION OF NEW BOARD MEMBERS:
There are steps you can take to move this process along. Conducting an orientation session of the entire Board shortly after the election is essential. It should occur well before the first Board meeting and can be as short as 2 to 4 hours or as long as a two-day special retreat which could be linked with a planning session.
It is important to spend time going over background material about the organization and bring them up-to date on the issues facing the Board. (Refer to the earlier topic in blog “What materials to be shared with the Board”).
Getting Board members comfortable with Board responsibilities and participating in meetings is a key objective. Not only do the new Board members start contributing right away during the meetings, they also develop a good working relationship with the veteran Board members.
The following are some key aspects to consider as part of the Board orientation:
Hold a meeting with the Board Chairperson / President, Executive Director, and new Board members. The purpose of the meeting is to set the standard for conduct and achievement required from Board members, as well as to highlight the vision of the organization that the Board is endeavouring to achieve.
Provide some of the history and evolution of the organization and review short term and long term goals.
Provide Board members with information on organizational policies and procedures.
Consider assigning a mentor - a senior member of the Board is assigned to tutor a new member in the operations of the Board.
Consider incorporating teambuilding exercises for the Board as part of the orientation process.
Questions : BOARD ORIENTATION CHECKLIST:
Below are the items to be considered in developing an orientation session for new Board members. Much of this information will be covered in the Board Manual, but should be reviewed with new Board members to ensure they are comfortable with the information.
Checklist-1 Information about the Organization
History of the organization
Organizational / Board / Staff structure
Copy of constitution & by-laws
Vision & mission of the organization
Strategic priorities, goals and objectives
Summary of the programs and services
List of Board members / staff and their contact information
Provided brochures and other promotional materials
Checklist-2 Information about Staff and Financial Management
Reviewed Executive’s / Officers’ role
Reviewed staff roles
Discussed Budget process
Provide current year's budget
Provide a copy of up-to-date audited financial statements
Provide a copy of most recent annual report
Checklist-3 Board Roles and Responsibilities and Other Information
Reviewed Board Member’s role
Provide copies of minutes from previous Board meetings
Discussed expectations for and of new Board members
Give a tour of facilities and offices
Reviewed committees and their roles
Had new Board Members sign required paper work (i.e. Oath of Confidentiality, Memo of Understanding regarding roles and responsibilities etc.)
This question and answer are sourced from Financial Management Service Foundation www.fmsfindia.org.in