Can Nonprofit Boards Suffer From Agenda Deficits?
By Eugene Fram
Revised & Updated Viewer Favorite
In a recent study of 772 for-profit and nonprofit directors from around the world, McKinsey & Company found that 25% of the sample assessed their board impact as moderate or low, “… while others reported having a high impact across board functions. “ http://bit.ly/1iFEINR
Following, in italics, are brief abstracts from the study, followed by my analysis of the importance of the information to nonprofit boards.
Directors who report having a low or moderate impact said that their boards undertake “the basics” of ensuring compliance, reviewing financial reports and assessing portfolio diversification, depending on the function. … Directors reporting that their boards have a higher impact undertake these activities as well but add other practices in every function.
In a 2015 study of nonprofit boards by BoardSource, nonprofit CEOs gave their boards C, D or F academic grades in the following portions: 35% for strategy, 38% for monitoring performance, 65% for board recruitment, 54% for community relations, and 65% for fundraising. (http://bit.ly/1j71JkQ) Taken at face value, these data, although they show improvement from 2012, still indicate that nonprofit boards have a long way to go in moving beyond basic tasks. They need to offer much more leadership in assessing change in the nonprofit’s environment, discussing alternative strategies, allocating resources and reviewing board processes. For example, see this link for a potential to add a Lead Director to assist over-stressed chairs and their boards. (http://bit.ly/1oGyG4S)
More involved boards add regular performance discussions with the CEO and boards at still a higher-level engagement analyzed leading indicators and aspire to review robust non-financial metrics.
For both for-profit and nonprofit organizations the use of non-financial metrics seems to becoming more important, especially when big data can be employed or imperfect metrics can be used to assess progress and drive change. At this point using more non-financial metrics seems to be at an embryo development stage as indicated by these publications. (Nonprofit: http://bit.ly/1mf84Iv For-Profit http://on.wsj.com/1dI10fG )
Board and management succession seems to be a continuing topic of nonprofit organizational concern. More board effort need to be focused on assessing managers below the CEO so that when a CEO replacement is needed the board is in a position to immediately determine the availability of potential internal candidates.
Directors who believe that their activities have a greater impact report spending significantly more time on (other than basic activities). … For example: … Higher-impact board members invest an extra eight workdays a year on strategy. They also spend about three extra workdays on each of the following: performance management, M&A, organizational health and risk management.
The McKinsey data clearly indicate the need for nonprofit CEOs and board chairs to make certain that a substantial number of volunteer directors are meaningfully engaged in higher-impact activities such as strategy. Since nonprofit boards often draw from a more diverse pool of candidates in terms of strategic skills than for-profit boards, there will always be a need for directors to whom meaningful activity is being directly involved routine activities. Balancing the numbers in the two skill groups to keep them fully involved will be an increasingly important challenge for nonprofit board chairs and CEOs.