Bridging Effectiveness Gaps in Nonprofit Organizations*

By: Eugene Fram

Like for-profit boards, nonprofit, “Effective board oversight demands information that is as current and relevant as possible. There are, however, natural gaps between what management communicates and what the board needs to know. “ The purpose of this blog is to highlight major gap areas, cited in the NACD report listed below, and to show their relations to nonprofit governance.

Strategy and Risk
A 2012 BoardSource study reported that about 40% of over 1300 chief executives gave their boards a C, D or F for their strategic efforts. Nonprofits, like for-profits, operate through key service processes such as interpersonal counseling, services to the elderly, services to a professional organization as well as accounting and legal processes. As a result, nonprofits need to focus more on process outcomes and impacts that can’t be measured in financial terms.

One gap that seems to be endemic to nonprofit boards is a lack of interest and action on crisis management. These can range from a lack of temporary succession planning when a chief executive is temporarily incapacitated to the steps that need to be taken in the event of a fire or flood.

Another nonprofit area that relates to strategy and risk is the role of the audit committee in focusing on financial outcomes. However, the audit committee can’t have the sole responsibility. All board members should understand the financial DNA of the organization and be aware of the potential organizational and personal liabilities that can develop from solely relying on audit committee recommendations without asking critical questions that my surface a potential problem.

Executive Compensation
As a consultant, I have often seen boards leave development of nonprofit executive compensation packages to one or two directors when in reality, compensation packages needs to be, “…thoroughly vetted and deserve greater attention from the full board. … Often the full board will concur with the committee’s option and only scratch the surface with questioning of the pay package.”

Nonprofit boards have a special obligation to consider more non-financial measures, examples: community impact, and brand building, when determining executive compensation. **

Board Evaluations
“Some (nonprofit) directors tout the benefits of (their board) self-evaluations, while other question the value it brings.” It is often very poorly accomplished by simply distributing a simple questionnaire to board members annually.

“Some directors believe that a board may be “worse off” by criticizing a (fellow volunteer} director because board dynamics will be harmed. “There are no easy answers to this problem.” However, nonprofit accrediting organizations have placed more emphasis on board evaluations and nonprofits are being forced to follow. A few nonprofit boards have utilized external evaluators and 360-degree evaluations to obtain outside perspectives.

Conclusion
“A (nonprofit) board, like any other organization, will have its share of difficulties. These usually derive from some level of communications breakdown. Often information is not transferred wholly or accurately. In other cases the classic problem of “stove–piping” by standing committees is the culprit. Regardless, (nonprofit) boards have an opportunity to solve these issues by opening dialog … Though communication was often the problem (in the NACD study), it was also always the solution.”
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*Sections in quotations reprinted with the permission of the National Association of Corporate Directors copyright 2013 National Association of Corporate Directors (NACD), White paper: Bridging Effectiveness Gaps: A candid look at Board Practices (Washington DC: NACD, 2013), All other rights reserved.

**Jerry Talley & Eugene Fram, (2010) Using Imperfect Metrics Well: Tracking Progress and Driving Change, Leader-to-Leader, winter, pp. 53-58.