Nonprofit boards of directors typically appoint one or more committees to perform specified tasks. Each committee is a subset of the full board of directors. Some committees have authority to make decisions on their own. Others can only make recommendations for action by the full board.
The larger a nonprofit's board of directors, the more helpful and convenient a committee structure will be. A large board of 15 or more members can be hard to get together or work efficiently, while a committee of three or four board members can work much more quickly.
Some states require nonprofits to have certain types of committees. For example, California requires all nonprofits with annual incomes over $2 million per year to have an audit committee. You should check your state nonprofit law to determine if your nonprofit is legally required to form one or more committees.
There are two basic types of committees: standing committees and special committees.
Standing committees are permanent and are usually formed when a nonprofit begins operation. They may be provided for in the nonprofit’s bylaws or board resolutions. Nonprofit standing committees may include:
Executive committee: Many nonprofits boards meet relatively infrequently—once a month or even less. Thus, many boards form executive committees to deal with less significant issues that arise between the full board meetings. This committee also formulates the agenda for full board meetings.
Audit committee: An audit committee’s function is to hire and consult with the nonprofit’s audit or accounting firm, review the auditor’s reports, review the nonprofit’s accounting policies and internal financial controls, and deal with disputes between the outside auditor and nonprofit management staff.
Compensation committee: The compensation committee’s function is to determine how much directors, officers, and key employees of the nonprofit should be paid. To avoid any claims by the IRS or others that compensation is excessive, the compensation committee should research what other nonprofits pay for similar positions and document how it makes it decisions.
Nominating committee: The nominating committee helps identify and recruit new members for management and for the board of directors.
Investment committee: The investment or finance committee helps determine how to invest a nonprofit’s money. This committee is especially important if the nonprofit has a substantial endowment.
Special committees (also called “ad hoc committees”) are temporary and are formed to deal with a specific issue or problem. They are usually formed by a resolution of the board of directors. For example, a nonprofit’s board of directors may form a special committee consisting of two or three board members to search for a new president for the nonprofit or to deal with a lawsuit.
Current members of the board of directors may serve on board committees. In addition, in some states board committees can include nonboard members. For example, if your state laws permits it, your executive committee may include not only two or more directors, but the nonprofit’s chief executive officer and/or chief financial officer as well.