Topic 3B: Governance Practice and Case Studies

Governance in Practice: Case Studies and Analysis

This topic applies governance principles from Topic 3A to real-world scenarios, helping you recognize governance strengths, weaknesses, and areas for improvement in actual nonprofit organizations.

Case Study 1: Board Conflict Resolution

Scenario: Small community health clinic with 7-member board. Board member Angela owns a medical supply company that the clinic purchases from annually ($50K). When the board debates switching to a cheaper competitor, Angela pushes back strongly, saying “the quality difference is critical for patient care.”

Governance Issues:

• Conflict of interest: Angela benefits financially from current vendor relationship
• Lack of disclosure: It’s unclear if other board members know about her financial tie
• Decision-making process: Board proceeding without addressing the conflict

Best Practice Response:

• Angela must disclose her financial interest immediately
• Angela recuses herself from the vendor discussion and vote
• Board compares vendors objectively (price, quality, service) with Angela absent
• Document the conflict disclosure and recusal in meeting minutes
• Consider rotation of vendor contracts to prevent long-term conflicts

Learning: Duty of loyalty requires managing conflicts even when they seem minor. Nonprofit organizations must establish conflict of interest policies and follow them consistently.

Case Study 2: Financial Oversight Failure

Scenario: Homeless services nonprofit with $2M budget and 6-member board. Executive Director handles most accounting. Finance Committee meets quarterly for 30 minutes. Over 18 months, board discovers $75,000 was spent on “consulting fees” to a firm owned by the ED’s cousin, with no contract or deliverables documented.

Governance Failures:

• Insufficient financial oversight (quarterly meetings, short duration)
• No segregation of duties (ED controlled finances without checks)
• Lack of competitive bidding for major expenses
• Finance Committee didn’t question unusual spending categories
• Board didn’t verify consultant deliverables

Corrective Actions:

• Immediately terminate consultant relationship
• Hire independent auditor to review all expenditures
• Require board approval for any single expense exceeding $5,000
• Establish Finance Committee with trained members (CPA or similar)
• Meet monthly, not quarterly
• Separate ED responsibilities from financial oversight
• Implement accounting software with transaction documentation

Learning: Duty of care requires active monitoring and questioning. “We trusted the ED” is not acceptable governance.

Case Study 3: Board Composition and Program Understanding

Scenario: Youth mentoring organization with all-volunteer board of 12 members: 8 business executives, 3 retired professionals, and 1 former program participant. Board is very strong on fundraising (raised $500K last year) but consistently votes against program expansion recommendations from staff.

Issues Identified:

• Board composition lacks program expertise (only 1 member with direct experience)
• Business-oriented board may undervalue social impact
• Possible disconnect between mission and board priorities
• Staff feels unheard in strategic planning

Recommendations:

• Recruit 2-3 new board members with current program staff or service population representation
• Conduct annual board skills assessment
• Ensure Program Committee includes both businesspeople and program experts
• Have Program Committee present quarterly outcome data to full board
• Board members should participate in program activities annually
• Review whether program expansion ROI concerns are financial or philosophical

Learning: Diversity on boards improves decisions. Boards need representation from people closest to the mission, not just financial experts.

Case Study 4: Succession Planning Success

Scenario: Family services nonprofit with same Executive Director for 18 years planning retirement. Smart board recognized 2 years in advance that transition was coming and:

• Identified internal leadership candidate
• Budgeted for 6-month co-leadership overlap
• Transitioned board chair 1 year early to new chair to avoid simultaneous transitions
• Hired an executive coach for the incoming ED
• Created documented processes for major operations
• Gradually shifted Board chair responsibilities during transition

Results:

• Smooth leadership transition with no service disruption
• New ED had support and mentoring
• Staff turnover stayed below 5% (typical is 20-25% during leadership change)
• Funding relationships maintained
• Organization continued growing

Key Success Factors:

• Board planned ahead (18-24 months minimum)
• Invested in transition (coaching, overlap salary)
• Clear communication throughout process
• Documentation of processes and relationships
• Board chair transition before ED transition

Learning: Governance includes succession planning. Early, intentional planning prevents crises.

Analysis Exercise

For each case study:

1. Identify duties: Which duties of care, loyalty, or obedience were at issue?
2. Spot problems: What early warning signs should have alerted the board?
3. Recommend: What policies would prevent this situation?
4. Apply: Have you seen similar issues in organizations you know? How were they handled?

Your understanding should demonstrate:

• Recognition of governance problems in real scenarios
• Application of governance principles to solve problems
• Ability to design systems and policies that prevent conflicts
• Understanding of why board structure and composition matter practically