Term Limits for Nonprofit Boards: Best Practice?

Best practice pinned on noticeboard

Nonprofit boards often ask us about “best practice” regarding term limits. Some wonder whether they’re required by law to institute them. Others simply want to know what policy is considered the gold standard.

Truth be told, there is no law, nor best practice, to which an organization must adhere. In fact, the cases for and against term limits are equally valid. We recommend a board consider the pros and cons, as well as the character and composition of its board, and make its own decision about whether term limits are essential to the board’s governance function.

Take these two differing opinions: one client told us, “term limits are essential to the functioning of our board. We have a strict two-term limit, for a total of six years of service. We get committed, energetic members who rotate on and off regularly.”

Yet another, similar organization said: “term limits? No way. Don’t believe in them. Never have. We believe a strong board governance and nominating committee can help members decide ‘when it is time to move on.’”

The “Pros:” Let’s consider the arguments in favor of term limits. Certainly, being assured of new directors on a regular basis means fresh insight and new skill sets as well as access to new networks of people. And, rotation on and off of a board lessens the likelihood that a board becomes tired and loses vitality.

The “Cons”: On the other hand, rotating members off opens up the potential for loss of institutional memory and potential loss of dedicated donors and volunteers.

What does the IRS think? The IRS offers nothing formal – there are no state nor federal laws mandating nonprofit board term limits. If pressed, the IRS would say it leans toward having limits, on the grounds that a board with static membership might be prone to adopting unhealthy insider attitudes, and begin to govern out of self-interest rather than for the good of the organization.

One thing we should all agree on: all board members must be elected for a specific term in office – usually two or three years. Having a specified term allows a board to graciously move unproductive members off. Likewise, it offers members wanting to leave, for any reason, a graceful exit.

Should your board decide to impose term limits, it must carefully consider how many consecutive terms it will permit. Most organizations with term limits allow for 2-3 terms, meaning members can serve for 6-9 years. Having a board member serve for up to nine years can help the organization benefit from mature judgment and institutional knowledge.

Some organizations, worried about losing dedicated members, especially during critical times, offer options for extended service. Some boards have a provision in their bylaws allowing for an extension of service for 1-2 additional years, with approval of the board. Others offer outgoing members the opportunity to serve as ad-hoc committee members. Still others allow board members to return to service after taking a specified hiatus.

Clearly, every board must decide for itself whether term limits are essential to good Governance, and thus an engaged, committed group of members.

by: Molly Galo, Senior Consultant HUB Philanthropic Solutions

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