The Nonprofit CEO Exceeds His/Her Authority–What Happens Then?

By: Eugene Fram

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It happens! When it does, it’s the board’s job to inform the CEO that he or she has taken on too much authority. As a board chair of a human service nonprofit, I encountered such a situation. The CEO signed a long-term lease contract on his own that should first have been approved by the board. The financial obligations involved weren’t significant. When the CEO recognized his error, I then asked for formal board ratification. None of us does out jobs perfectly. But a CEO has to recognize the board’s ultimate authority for long-term contracts and similar issues, even when the financial obligations are insignificant.

I don’t believe there is a need for as much Board-CEO trust in the for-profit world as in the nonprofit world. In the former, the “bottom Line” can give directors a reasonably clear (not exact) indication of how the CEO is performing. In the nonprofit world, there is no organizational solid bottom line, except the one that says income must match expenses. Also of importance, there are many qualitative outcomes, such as community impact, that are not part of the financial statements and must be considered in the evaluation. Interestingly the for-profit environment also is starting to examine CEO qualitative outcomes. Example: One board member of a multi-million-dollar for-profit recently indicated that 25% of the CEO’s evaluation centered on such qualitative outcomes as participation in industry associations, community enterprises and employee morale.

Board directors must trust in the ability of the CEO they have selected to do the job, and clearly make the person accountable. Since there is no complete long-term performance bottom line for many nonprofit organizations, and the costs of obtaining sold qualitative performance metrics is so high, most nonprofits have to rely on imperfect metrics to obtain a semblance of comprehensive long-term performance. *

For a nonprofit organization, it is necessary to hire a president/CEO or executive in whom the board can place a high degree of trust. But along with the trust, the board must ROBUSTLY annually evaluate the CEO and the organization’s performance.
*See “Using Imperfect Metrics Well: Tracking Progress and Driving Change.”
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