The Truth About
Your Board’s Term Limits
Picture This.
A nonprofit’s board of directors is having their final meeting of the year.
As the last item of business on the night’s agenda, both the CEO and Board Chair rise to their feet and offer a fellow director (whose two-year term is expiring) their heartfelt and sincere appreciation for a “job well done.”
During the acknowledgement, the CEO looks off into the distance and reminisces, “For the past two years, all of us on the board have stood back and watched you perform your magic throughout this charity. It’s been an absolute thing of beauty.”
“In fact, looking back over the past 24 months, we all know that none of us could have accomplished the new building without you. Nor could we ever repay you for all the operational insight you’ve offered to us. And, with respect to all the wonderful donors and ambassadors you’ve attracted, well, let’s just say it’s been spectacular.”
As the meeting draws to a close, the directors, brimming with gratitude, file out.
The CEO turns out the light and gently pulls the door closed.
It’s a lovely story, isn’t it?
And it just might be the most significant mistake the charity will ever make. er houses. Bigger cars.
Term Limits: Friends or Foe
Let’s take a hard look at what just happened here.
Unanimously (led by the CEO and the Board Chair no less!) everyone just watched an ultra, ultra, ultra high-performing board member walk right out the door.
And not only did they watch her go, but they were also the ones who demanded she leave!
How so?
I can sum this disaster up in two words.
Term limits.
Now I know what you are thinking.
“But, but, but…. I’ve always heard that term limits are a good thing.”
And then, you remind yourself (wait for it…)
“We really didn’t have a choice in the whole matter anyway because we have term limits written into our organization’s bylaws.”
Mindshift: Seeing Term Limits as High-Performance Tools to Create Extraordinary Impact
As leaders of nonprofit organizations, it’s essential to understand that you have a number of “high-performance” tools right at your fingertips (e.g., your tax exempt status, access to grants, tax-deductible donations, your ability to recruit volunteers, etc., etc., etc.).
Interestingly, one of the most unrecognized (and underutilized!) high-performance tools that you have at your disposal is your board’s “term limits” policy.
By definition, “term limits” are policies within an organization’s bylaws that define the maximum number of consecutive terms a director can serve before being required to step down.
And contrary to popular belief, there are very few regulations surrounding your organization’s term limits policy.
“But aren’t term limits required by the IRS?” you ask.
Nope. They are not.
“Certainly, they are required by the State of North Dakota.”
Nope. They are not.
In fact, while the North Dakota Nonprofit Corporation Act governs the structure of charity organizations, it does not mandate specific term limits for directors.
Said differently, term limits are instead a matter of best practices and should be defined in an organization’s internal bylaws in a way that best suits your charity’s individual needs.
And this, my friends, is your opportunity to utilize your board’s term limits policy as a high-performance tool in order to create extraordinary impact.
In fact, if you coordinate your board’s term limits policy carefully you can keep your board:
- Energized and Engaged: With new talent perpetually cycling on to your board, a well-coordinated term limits policy can keep your directors both energized and engaged. This happens because, with careful orchestration, there is always a new group of directors coming on to your board who are fresh, eager, and looking to make some serious noise. This energy, in turn, gets everyone who’s been on the board for a while seriously excited.
- Working With A Sense of Urgency: With some careful thought, you can leverage your organization’s term limits policy to create high levels of urgency (whereby everyone is showing up early and staying late!) because people realize that their time together is limited.
- Balanced and Inquisitive: Thirdly, if you do it right, your charity’s term limits policy can keep your board balanced in the sense that you always have a fresh set of new talent interacting with a more seasoned one. As a result, the newbies are always eager to get the veterans’ perspectives and vice versa. This kind of dialogue is powerful because everyone is working together to tease out the best and most viable ideas.
- Functional and Focused. Last but not least, regular rotation of your board’s directors prevents a small group from dominating decisions.This, in turn, affords your board more functional interactions (which allow the group to focus on what really matters—not just on what the most vocal think).
3 Board “Term Limits” Best Practices
To maximize the impact of your charity’s term limits policy, three best practices are recommended.
Term Limits Best Practice #1: Structure It.
Currently, the standard best practice is two to three consecutive, three-year terms—totaling 6–9 years. Anything shorter and your directors won’t have a solid grasp of what your organization really does or the business cycles it goes through.
Sadly, most (yes, most!) nonprofits only have their directors serve for two to four years in total.
This is a big mistake.
Term Limits Best Practice #2: Stagger It.
For maximum impact, it’s essential that you stagger your directors’ terms to ensure that not all board members roll off at once.
This is essential if you want to preserve institutional knowledge and cultural continuity!
Term Limits Best Practice #3: Suggest it.
Smart nonprofits do not etch the board’s term limits in stone. Rather, they “suggest” the desired terms.
For example, in our opening scenario, the charity in view had hard and fast term limits written into their bylaws. As a result, they had no other option than to let an uber-talented director go.
If they had just modified the term limits portion of their bylaws to be “guidelines” rather than strict rules, the whole situation could have been avoided.
Specifically, the language would look something like this.
“Directors may serve two to three consecutive three-year terms. At the completion of their tenure, and contingent upon board approval, a director may be invited to stay on for additional terms.”
This is such a simple, yet powerful, strategy to ensure that you never lose good people simply because their terms are completed.
Extraordinary Impact
For the uninitiated, hard and fast term limits might be seen as just another regulation that must be adhered to.
However, for those charities who are dedicated to pursuing extraordinary impact, term limits are a powerful tool that can be leveraged to ensure that the organization retains its very best talent.
And here’s another thing to consider.
The most recent research about board tenure tells us that long-time board members, those who have remained on the board for 10-15+ years, add significant value.
In fact, organizational performance is 6.5% higher with at least one long-tenured director than without any.
Researchers speculate that the reason for this is that long-tenured directors protect the firm from making big, value-destroying mistakes.
And that’s worth its weight in gold.
That said, we urge you to make it a point to review the portion of your board’s bylaws that addresses term limits—and then incorporate the three best practices suggested earlier.
It might just be the most important thing you will ever do.
Until next time.