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The board of directors plays a vital role in any organization. Whether in the nonprofit or private sector, each board has a specific function and every board faces its own set of challenges. According to Miller-Millesen, there are three broad responsibilities of a board of directors: monitoring, boundary spanning, and conforming. There are three theories of organization that further define the role played by the board of directors.

Agency Theory

The agency theory of organization for the governance of non-profits emphasizes the importance of separating ownership from control. In practice, this means that the board of directors is separate and independent from the management of the non-profit. Under this theory, the board of directors is responsible for ensuring that the interests of the management team are in coordination with the interests of the organization as a whole. The board provides a sort of checks and balances system, but ultimately has control. The board is responsible for monitoring executives and assuring that any decisions made by executives mirrors the expectations of the organization’s stakeholders. Under this theory, new board members would be responsible for managing relationships between the board members and staff (Miller-Millsen, 2003).  

Resource Dependence Approach

The resource dependency theory posits that resources are fundamental to the survival of an organization. According to this approach, the board of directors is beneficial because the board helps the organization learn about, respond to, and adapt to the constraints that dominate its operating environment. Thus, the board facilitates exchanges that reduce mutually dependent elements in the operating environment. In this role, the board decreases the number of organizational resource dependencies while increasing organizational resources. Supplemental to its role in developing exchange relationships, the board ensures that the organization remains adaptive by only releasing information that is essential to operation and representing the organization to outside customers. Board members then, are responsible for minimizing environmental uncertainty (Miller-Millsen, 2003).

Institutional Theory

The institutional theory of organization focusses its attention on the ways in which organizational structure and processes reflect pressures, rules, norms, and sanctions of the institution. Largely, this theory examines the organization’s interpretation of norms, values, and beliefs that validate governance behavior. This theory holds that the behavior of the board of directors is responsive to regulatory pressure and that the behaviors and structures are legitimized in the work environment. The nonprofit board must ensure that the organization fulfills its basic legal and ethical responsibilities. Board members act in response to external mandates (Miller-Millsen, 2003).

References

Miller-Millesen. 2003. Understanding the behavior of nonprofit boards of directors:

a theory-based approach.  Nonprofit and Voluntary Sector Quarterly.  32:521. 

            DOI:  10.1177/0899764003257463.