Domain 1: Nonprofit Leadership and Governance
What the exam tests
Nonprofit Leadership and Governance covers how a 501(c)(3) board exercises legal authority and keeps the organization mission-centered. Expect questions on fiduciary duties, board and officer roles, bylaws, committees, and the boundary between governance and management.
Core rules
- Three fiduciary duties: care (informed, prudent decisions), loyalty (put the organization first; disclose and recuse from conflicts), and obedience (follow the mission, bylaws, and law).
- The board's job: hire and evaluate the chief executive, approve mission and strategy, approve the annual budget and audit, monitor finances and risk, ensure legal compliance, and open doors for resources. The board does not run programs or supervise staff below the CEO.
- Bylaws set board size, terms, officers, quorum, voting, and committees. Quorum is whatever the bylaws say-usually a majority of seated directors-not a majority of those present.
- Committees: executive, finance, audit (independent), governance/nominating, and fundraising. An audit committee should not include the treasurer who prepares the books.
- Conflict-of-interest policy: annual disclosure, recusal from vote and discussion, and minutes that record the recusal. The interested director may answer questions but should not vote.
Worked example
A board chair wants to hire a longtime friend as executive director without a search. The correct answer: this breaches duty of care and loyalty and the conflict policy. The board should form a search committee, adopt a job description and salary benchmark, disclose the chair's relationship, and have the chair recuse from hiring votes. The full board-not the chair alone-votes.
Traps that cost marks
- Saying the board "runs" programs or supervises program staff.
- Treating the chair as the CEO's supervisor; the CEO reports to the full board.
- Confusing advisory boards (no fiduciary authority) with governing boards.
- Assuming a quorum is a majority of attendees, or that a phone call cannot count unless the bylaws allow it.