Important: Robust Evaluations of Nonprofit CEOs

By Eugene Fram

Like any group, the vast majority of nonprofit CEOs are hardworking managers dedicated to the mission, vision and values of their organizations. The nonprofit evaluation processes of the past, typically involving a cursory examination of the financials plus a simple questionnaire to directors, simply isn’t sufficient for the 21st century. A much more rigorous process is needed if to keep the public’s faith in nonprofit world. I have been involved with these types of evaluations, and the professional CEOs involved understood their necessity.

Following are the steps I consider necessary for a robust CEO evaluation.

• Have active audit committee. Have this committee meet at least four times a year. Sarbanes-Oxley, strongly suggests that the chair have a strong accounting background. This will give some assurance that management’s data interpretations, whether from the CEO or CFO, are reasonable. In addition, the external auditor should have direct access to the committee and/or its chair.
• Have external auditors meet with the committee without management present. Classical board questions posed at these meetings include: Was management cooperative in the conduct of the audit? Did you note any unusual payments? How expert are our personnel handling financial information? What, if any changes are needed in internal accounting systems?
• Have a process (per Sarbanes-Oxley) that encourages directors to meet occasionally with key personnel below the management level. This process should become one with which management and staff can become reasonably comfortable. (Note: I have used this process, for decades as a FP or NFP director.)
• Qualitative impacts have not been assessed in the past. These included such outcomes as enhanced life quality, elevated artistic sensitivity, community commitment, successful advocacy or any of the other honorable but inherently vague goals that nonprofits frequently adopt. These are important outcomes for many nonprofits and need to be included in the process. Specifics on how to measure qualitative goals, developed jointly by the CEO and board, that track progress and drive change are located at:http://bit.ly/OvF4ri .
• Develop a feedback mechanism by which all information can be routed to management for corrective changes. Unless it has been indicated that the CEO may be involved with nefarious activities, the board has an obligation to report all material information to the CEO. Some information may need to be reported anonymously to protect staff privacy.
• Consider installing a whistle-blower telephone line. Its availability is extremely effective and cost effective. With the assistance of legal counsel establish a written policy to avert conflicts with privacy issues. .

All of these steps have been used by for profit organizations and some high performance nonprofits since the beginning of the century. They do not negatively affect the trust that needs to be built between the CEO and the board. In fact, I can point to experiences in which they enhance trust. It is part of the board’s 21st century overview responsibility to “Trust But Verify.” But it’s also important for boards and CEOs to understand the full implications for utilizing these steps.