Sustainability: Hot Nonprofit Governance Issue
In the next four years, nonprofit boards will face exceptional challenges affecting long-term financial and operational sustainability. It is likely that governmental grants will substantially decline. Business/individual donor gifts can be reduced should the economy teeter towards recession or the tax code changes in an unfriendly way. But, as usual, demand for nonprofit services will increase substantially.
Based on national survey data, Alice Korngold, highly regarded nonprofit consultant, concludes that these issues are driving the problems.
- Demand for services has increased every year since 2008.
- 50% of nonprofit survey respondents are unable to satisfy demand.
- Half of the organizations surveyed only have three months of cash readily available.
- Government contracts don’t provide full costs for programs. *
Practices to Resolve the Sustainability Challenges
- The board must envision the organization’s long-term potential two major ways, along with a number of barriers.
- Nonprofit board members have median tenures of four to six years. This, in my opinion, generates a short-term focus for all but a small group of visionary board directors. It reduces the ability to motivate the nonprofit’s management to achieve its long-terms potentials. When the board does not have any visionary directors, and is distracted by operational details, the task defers to the CEO who may be the only one with institutional memory. As a result, long-term financial and strategic planning horizons rarely go beyond a couple of years.
- All CEOs are not necessarily visionary. Boards frequently hire CEOs because they are good at “minding the store” and can add small incremental gains each year. In addition, law mandates conservative financial management practices. This, in turn, makes boards highly risk aversive when it comes to overviewing operational issues.
- When the issues cited above (#s1+2) connect operationally, the board members can bureaucratically call for strategy planning before action can be commenced—for example, a fund raising strategy needs to be in place before a development tactic can be tested. This fails to employ an entrepreneurial mindset that calls for a series of low cost, small-scale experiments that continue as long as positive insights are achieved. It is a process of “being ready, then fire and finally adjusting the aim.”
- Fund development: A solid partnership between Board and CEO is essential: But as reported by Korngold, only 68% of nonprofit boards include fundraising in the nonprofit’s business model. In addition only 51% feel they really know what funding expectations the organizations have for board members. Occasionally, I have seen valuable directors resign because they “don’t want to be asking for money.” But all board members can’t be active fundraisers, beyond meeting “get or give” policies. It is important to cherish and focus on those who are willing to be active fundraisers.
Alice Korngold in another post**provides the following summary: Too often (nonprofit) boards neglect their responsibility to ensure that an organization is maximizing its greater potential, which can only happen when there are sufficient funds for good salaries for quality staff, innovation and sustainable programs.