How Does a Nonprofit Board Know When a CEO Is “ Just Minding The Store?”
By: Eugene Fram
David Director (DD) has been the chief executive of a nonprofit for about 15 years. Currently, the organization has a budget of $1.5 million, mainly from governmental contracts and a sprinkling of donations. The nonprofit employs about 20 people full and part-time, and annually serves about 500 people in dire need.
Following is an abstract of the board’s evaluation of DD as the CEO.
• High Job Satisfaction: * DD enjoys his work and his position as a chief executive. Staff turnover is very low, and last year, DD led a board-staff committee to configure the new sign in front of the building. An engaging personality, he is liked by both board and staff. He has good press relationships and frequently uses press releases to call attention to client success stories.
• A Healthy Organization: During DD’s tenure, revenue growth has averaged about 2% annually. Client growth has been in the same proportion. Organizational finances are is good shape with a balanced budget plus a modest yearly surplus. He has a dashboard to monitor finances.
• A Fully Engaged Board: Board members enjoy working on committees such as the new sign campaign (see above), the annual dinner-dance and selecting endowment investments. The audit committee only meets once a year after the completion of the financial audit and its accompanying management letter has been received.
• Positive Community Impact: DD keeps records of clients who exit the programs each year, but has been unable to track their long-term impact on the community.
The big question is whether or not DD is just minding the store? I argue that he is.
This hypothetical organization is typical of the types of nonprofits I have encountered over a long time period. The basic fault is that the board is composed of well meaning people attracted to the mission as well as the personality of the chief executive. As a result, the operations of the organization are kept at a steady state with the active support of the board. Their rationale for this support is the need to focus on the mission. There also might be a mistaken view that the board must protect staff positions.
Some directors come to the conclusion that there is little one can do to drive change, but stay on to enjoy the networking relationships that can develop. Others who join the board resign quickly, citing work pressures. Still others decline board invitations.
A number of other hints are contained in the case:
• Low staff turnover and DD’s interest in the sign committee. The committee can spend hours talking about its color and lettering!
• Revenue and client growth percentages are very low, probably supported by certainty, to date, that government dollars will continue to be available.
• The committees cited don’t contribute much to clients.
* Many directors who don’t have financial responsibilities seem to get some satisfactions out of making decisions about moving endowment assets around. A robust audit committee meets more than once a year.
• There is no strategic planning indicated. Nonprofits, like these, also can confuse a SWAT analysis with a strategic plan. Where financial or behavioral objectives are established, measurement outcome data are not included to more rigorously assess outcomes and impacts.
• DD evidently does have the ability to become an effective development person but prefers to spend his time on smaller operational items, such as the new sign committee.
• DD does not provide any strategic insights or vision on trends in his service field.
Summary
In my opinion, there are thousands of nonprofits like the one described. Making changes in their governance or operations is difficult; culturally changes can only take place after a long tenured CEO leaves. Since they never measure up to what they could be, are those organizations with “store minding” leadership limiting the financial and human (board and management) resources needed to serve more clients in dire need?
*Categories described by Molly Polidoroff, Executive Director, Center for Excellence in Nonprofits, Redwood City, CA.
Nonprofit Management 
To answer Dr. Fram’s question, a board has to be effectively engaged and there should be an acceptable level of independence and objectivity. A board needs to avoid the creation of a state of sufficiency, which can arises when board members have a lot of positive affinities with the CEO or when they admired the CEO. In the particular case of this case, it is clear that there has been a state of group think among members of the board of directors. I have not worked for a long time for a non-profit organization but I would think that for many non-profit organizations, the absence of need for profits may favors sufficiency and absence of urgency toward significant continuous improvement.
Dr. Fram’s analysis clarifies some relevant issues that may arise in the management of non-profit boards. For a non-profit board to be engaged, I would thing the following has to happen:
1) Board members’ roles have to be clearly defined
2) There should be a hierarchy within the board members, meaning leaders of committees need to be selected with objective criteria and given the power act.
3) Committees need to meet preferably once per quarter but more than once per year and the board itself needs to meet more than once per year
4) Board members should be voted for a short duration (three years for instance) to avoid sufficiency
5) The board needs to make sure that there is an active vision with a strategic plan for the non-profit organization
6) The board needs to make sure that the non-profit organization has effective measurable: Customer satisfaction, project completion, cost control, other operation measurable, waste minimization, adaptability and growth.
7) The board needs to also define objective measurable for the CEO: Integrity, strategic planning, customer satisfaction, work with the community, adaptability, and growth among the few.
8) Not for profit boards need to define assessment processes for second party audits that are not cumbersome but that emphasize the most important criteria that may determine whether or not a not for profit board is effective.
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Thanks for your detailed comments. I agree. Sorry to be so late in acknowledging them.
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