Board Expectations from Management – The Nonprofit Story – Part I

Board Expectations from Management – The Nonprofit Story – Part I

I am indebted to Dr. Richard Leblanc of York University for the action headings used in this blog. The blog uses headings developed by Dr. Leblanc for his blog: “What a Board Expects from Management, and What Management Expects from a Board,” January 27, 2013, York University Governance Gateway Blog. (rleblanc.apps01.yorku.ca) For reading simplicity, Dr. Leblanc’s specific quotations, which can apply to either FP or NFP boards, are noted in italics.

1. No Surprises or Spin
The biggest surprise that I ever a received as a nonprofit board director was in a situation where the executive committee of the board acquired a profit-making business without a full open discussion by the board. The agreement package presented placed the board in an untenable position. I quietly resigned soon after, but the remainder of the board, largely senior business executives, stayed, which was quite a mystery.

I am sure that my experience is not unique in the annals of nonprofit boards. However directors need to be especially alert when a potential change is discussed to make certain it is fully appraised. This must take place before tentative agreement is reached.

If the CEO (ED) manages the board, or holds cards too close to the vest, this is a problem for the (nonprofit) board.

2. Bad News Must Rise
For nonprofits, operational transparency is critical in the 21st century. Communication opportunities are so vast that any misstep can be noted across the world before the board knows about it. Charitable boards are most vulnerable to these problems, as evidenced by the well-reported debacle with the Central Asia Institute.

Management needs to have systems, process and incentives that has full transparency and reporting…without any spin.

3. Deep Expertise in the (Field)
Nonprofit boards need to be certain that the organization’s management group has the proper array of strengths, especially in the finance and accounting areas. The knowledge can be a critical challenge in the nonprofit area because many chief executives have a career path, which takes them through service operations without any financial and accounting experiences, plus prior for-profit or nonprofit board experiences.

Consequently, the board needs to overview the abilities of financial personnel with significant care. While the board must delegate the selection of the management team to the chief executive, it must be comfortable that the CFO is appropriate to the needs of the organization. For example, in some nonprofit organizations, the CFO only needs to be able to generate accurate financial statements on time. In others, he or she needs to be able to do creative financial planning. CEOs have to be competent enough to be able to certify that the finances are in order. See liability results for one volunteer who failed to heed this advice (http://bit.ly/J3gHqD)

4. Visibility of Management Thinking
Management’s thinking and assumption needs to be fully transparent to the board and open to critique. Many nonprofits operate on the basis of having the executive director presenting alternatives to the board for board decision. However, the board (in addition to seeing the proposed operations they) should see what was rejected and why. Weak executive directors can use this process to delegate responsibility upward to the board within an older nonprofit organization format that may be difficult to change, even long after it is no longer needed. If the project is not successful, the chief executive executive’s excuse is, “The board told me to do it.” Unfortunately I have openly discussed this issue with executive directors whose organizations operate in this manner, and they want to perpetuate it. It is a throwback to the days when board members literally ran the organization.

5. Full Information
The board is entitled to any piece of information or access to any personnel to do the job. Since the passage of Sarbanes-Oxley, the common wisdom is that directors have an obligation or a right to openly communicate with persons at all levels who may have pertinent information. However, communication should be completed with the full knowledge of the chief executive, and the information developed shared with senior management. I have used this process, as a director, with both FP and NFP boards for many years.

Summary:
Boards need to enforce the actions listed above to have an effective and effective nonprofit. The challenges have continued into the 21st century.

Continued on Pat II

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