The Executive Session: an underused forum for Nonprofit Boards?
By: Eugene Fram
Nonprofit boards have always used “executive sessions” to advantage. Meeting without the presence of management offers the opportunity for directors to openly discuss such topics as audit committee concerns, CEO compensation and the unexpected demands of terminations or succession. Prior to the passage of Sarbanes-Oxley I felt that such privately held meetings should be held infrequently.
However, the nonprofit governance environment of the 21st century has convinced me, and many others, that more frequent utilization of the ES can have benefits for the nonprofit. Here are some of my reasons:
• Promote Board Team Building: Some nonprofit boards can only formally meet quarterly, semiannually, or even annually. This does not give board members a substantial opportunity to really know each other and to build an effective team, even though electronic board and committee meetings can be held in periods between face-to-face meetings.
• Encourage Necessary Probing: Private conversations can be developed which might not be appropriate when management is present. For example, at every meeting with the external auditors, directors should ask auditors about their skill appraisals for all employees handling financial transactions. The board needs to determine whether or not these financial skills are adequate to meet the financial challenges being faced by the organization. Example: One nonprofit board wasn’t receiving a regular CFO report on the age of accounts receivable. The CFO was carrying some noncollectable accounts as being active. Result: The organization’s assets were far below what was being reported on the financial statements. Evidently the CFO didn’t have the requisite skills. Forensic accountants had to be engaged, at substantial costs for over a month, to correct the situation.
The “Nice Guy” Syndrome: http://bit.ly/1cRlc3T Over the years, I have observed nonprofit boards using the “nice guy syndrome.” ES can provide some opportunities to address these types of sensitive problems.
1. Recruiting directors on the basis of personal appearance, personality, or donor record, instead of managerial and organizational competence. Allows subcommittee, which can include outside advisers more chance to rigorously discuss the report of the subcommittee.
2. Failure to delegate sufficient managerial responsibility to the CEO because leaders don’t want to disturb a micromanagement culture that has existed since the organization was founded. Opportunity for a few directors to begin to ask the board to consider governance change to recognize that the organization is no longer a start-up. .
3. The board “rubber-stamps” proposals to avoid internal conflict and/or or to please the CEO. Without management present, the board can resolve internal board disputes and more openly discuss management recommendations.
• The CEO Must Be Secure: The 21st century nonprofit CEO needs to accept the fact that more executive sessions are going to be held and that fair policies need to be established for feedback from these the sessions. Whistle-blower policies must be in place to protect those generating and receiving information.
Example: One NFP chief executive I know shared his annual assessment report with his peers. When asked about his action, he replied, “It’s already public knowledge and public policy now requires all of us to become more transparent. … The people doing the inquiring (about my performance) are members of my board’s Assessment Committee doing their job. They need to talk to others to determine how I am doing and how the organization is doing. … The president/CEO of a nonprofit organization cannot be an insecure person. If I live in fear that I’ll lose my job, I won’t accomplish anything.” (pp.65-66. http://amzn.to/eu7nQl)
How Many Executive Sessions Per Year? It all depends on how often the board meets. Monthly: Have one ES planned every other month. Quarterly or Less: Plan for some ES time at each meeting. These sessions sometimes can be during an evening or early breakfast meeting, if a two or three day meeting.
• Allocate some time for an overall feed back to the CEO. Open communications are still critical, except under circumstances where there is evidence of CEO incompetent and/or unethical behavior.
• The effectiveness of the ES depends largely on the ability of the chair to steer the directors through an agenda with specific goals. The meeting, at no point, should be allowed to turn into a gripe session. By setting in advance a purposeful agenda and sticking to it, this is not likely to occur.