audit comitttees

Nonprofit Boardroom Elephants and the ‘Nice Guy’ Syndrome: A Complex Problem?

By: Eugene Fram   

At coffee a friend serving on a nonprofit board reported plans to resign from the board shortly. His complaints centered on the board’s unwillingness to take critical actions necessary to help the organization grow.

In another instance the board refused to sue a local contractor who did not perform as agreed. The “elephant” was that the board didn’t think that legally challenging a local person was appropriate, an issue raised by an influential board member. However, nobody informed the group that in being “nice guys,” they could become legally liable, if somebody became injured as a result of their inaction.

Over the years, I have observed many boards with elephants around that have caused significant problems to a nonprofit organization. Some include:

• Selecting a board chair on the basis of personal appearance and personality instead of managerial and organizational competence. Be certain to vet the experience and potential of candidates carefully. Beside working background (accounting, marketing, human resources, etc.), seek harder to define characteristics such as leadership, critical thinking ability, and position flexibility.

• Failure to delegate sufficient managerial responsibility to the CEO because the board has enjoyed micromanagement activities for decades. To make a change, make certain new board members recognize the problem, and they eventually are willing to take action to alleviate the problem. Example: One board refused to share its latest strategic plan with it newly appointed ED.

• Engaging a weak local CEO because the board wanted to avoid moving expenses. Be certain that local candidates are vetted as carefully as others and that costs of relocation are not the prime reason for their selection.

• Be certain that the board is not “rubber-stamping” proposals of a strong executive director/CEO. Where major failures occur, be certain that the board or outside counsel determines the causes by conducting a postmortem analysis.

* Retaining an ED who is only focusing on the status quo and “minding the store.” The internal accounting systems, human resources and results are all more than adequate. But they are far below what can be done for clients if current and/or potential resources were creatively employed.

* A substantial portion of the board is not reasonably familiar with fund accounting or able to recognize financial “red flags.” Example: One CFO kept delaying the submission of an accounting accounts aging report for over a year. He was carrying as substantial number of noncollectable accounts as an asset. It required the nonprofit to hire high-priced forensic accountants to straighten out the mess. The CEO & CFO were fired, but the board that was also to be blamed for being “nice guys,” and it remained in place. If the organization has gone bankrupt, I would guess that the secretary-of-state would have summarily removed part or all of the board, a reputation loss for all. The board has an obligation to assure stakeholders that the CFO’s knowledge is up to date and to make certain the CEO takes action on obvious “red flags”.

* Inadequate vetting processes that take directors’ time, especially in relation to family and friends of current directors. Example: Accepting a single reference check, such as comments from the candidate’s spouse. This actually happened, and the nominations committee made light of the action.

What can be done about the elephant in the boardroom?

Unfortunately, there is no silver bullet to use, no pun intended! These types of circumstances seem to be in the DNA of volunteers who traditionally avoid any form of conflict, which will impinge upon their personal time or cause conflict with other board members. A cultural change is required to recruit board members who understand board member responsibilities, or are willing to learn about them on the job. This is an important interview question to pose to candidates because it highlights the importance of good governance as a contribution. I have seen a wide variety of volunteer board members, such as ministers and medical personnel, successfully meet the challenges related to this type of the board learning. Most importantly, never underestimate the power of culture when major changes are being considered.

In the meantime, don’t be afraid to ask naive questions which forces all to question assumptions, as in Why are we doing the particular project? Have we really thought it through and considered other possibilities?

Board members need to have passion for the organization’s mission. However, they also need to have the prudence to help the nonprofit board perform with professionalism.

Reversing Traditional Nonprofit Board Barriers

Reversing Traditional Nonprofit Board Barriers

By: Eugene Fram         

Clearly the purpose of a nonprofit board is to serve the constituency that establishes it—be it community, industry, governmental unit and the like. That said, the “how” to best deliver that service is often not so clear. An executive committee, for example, can overstep its authority by assuming powers beyond its scope of responsibility. I encountered this in one executive committee when the group developed a strategic plan in an interim period where there was no permanent ED. The board then refused to share it with the incoming executive. In another instance, an executive committee took it upon itself to appoint members of the audit committee—including outsiders who were unknown to the majority on the board.

The fuzziness of boundaries and lack of defined authority call for an active nonprofit system of checks and balances. For a variety of reasons this is difficult for nonprofits to achieve:

  • A typical nonprofit board member is often recruited from a pool of friends, relatives and colleagues, and will serve, on a median average, for four to six years.   This makes it difficult to achieve rigorous debate at meetings (why risk conflicts with board colleagues?). Directors also are not as eager to thoughtfully plan for change beyond the limits of their terms. Besides discussing day-to-day issues, the board needs to make sure that immediate gains do not hamper long-term sustainability.
  • The culture of micromanagement is frequently a remnant from the early startup years when board members may have performed operational duties. In some boards it becomes embedded in the culture and continues to pervade the governmental environment, allowing the board and executive committee to involve themselves in areas that should be delegated to management.
  • The executive team is a broad partnership of peers –board members, those appointed to the executive committee and the CEO. The executive committee is legally responsible to act for the board between meetings–the board must ratify its decisions. But unchecked, the executive committee can assume dictatorial powers whose conclusions must be rubber-stamped by the board.

Mitigating Oversight Barriers: There is often little individual board members can do to change the course when the DNA has become embedded in the organization. The tradition of micromanagement, for example, is hard to reverse, especially when the culture is continually supported by a succession of like-minded board chairs and CEOs. No single board member can move these barriers given the brevity of the board terms. But there are a few initiatives that three or four directors, working in tandem, can take to move the organization into a high-performance category.

  • Meetings: At the top of every meeting agenda there needs to be listed at least one policy or strategy topic. When the board discussion begins to wander, the chair should remind the group that they are encroaching on an area that is management’s responsibility. One board I observed wasted an hour’s time because the chair had failed to intercept the conversation in this manner. Another board agreed to change its timing of a major development event, then spent valuable meeting time suggesting formats for the new event—clearly a management responsibility to develop.
  • “New Age” Board Members: While millennial directors may be causing consternation in some legacy-bound nonprofit and business organizations, certain changes in nonprofits are noteworthy. Those board members in the 43- and- under age bracket need some targeted nurturing. I encountered a new young person who energized the board with her eagerness to try to innovative development approaches. She was subsequently appointed to the executive committee, deepening her view of the organization and primed her for board chair leadership.

Board members who understand the robust responsibilities of a 21st century board need to accept responsibilities for mentoring these new age board people, despite their addictions to electronic devices.

  • Experienced Board Members: Board members who have served on other high-performance boards have the advantage of being familiar with modern governance processes and are comfortable in supporting change. They are needed to help boards, executive committees and CEOs to move beyond the comfortable bounds of the past. They will be difficult to recruit, but they are required ingredients for successful boards.
  • NEW Projects: Boards and the CEO must be bold and try new approaches to meet client needs. For example instead of going through a complete planning process for a new program the board must ask management to complete a series of small experiments to test the program. When a series of results are positive, the nonprofit can work on a plan to implement the program.

Conclusion: Individual board members working alone will probably become frustrated in trying to contend with the three overview barriers discussed. But working with three or four colleagues, over time, on a tandem basis, they can make inroads on the barriers. Meetings can become more focused on policies/strategies, new age board members can become more quickly productive, experienced board members can become role models and new programs and other projects can be more quickly imitated via the use of small scale experiments.

Moving Toward a High Performance NonProfit

By Eugene Fram

Clearly the purpose of a nonprofit board is to serve the constituency that establishes it—be it community, industry, governmental unit and the like. That said, the “how” to best deliver that service is often not so clear. An executive committee, for example, can overstep its authority by assuming powers beyond its scope of responsibility. I encountered this in one executive committee when the group developed a strategic plan in an interim period where there was no permanent ED. The board then refused to share it with the incoming executive. In another instance, an executive committee took it upon itself to appoint members of the audit committee—including outsiders who were unknown to the majority on the board.

The fuzziness of boundaries and lack of defined authority call for an active nonprofit system of checks and balances. For a variety of reasons this is difficult for nonprofits to achieve:

  • A typical nonprofit board member is often recruited from a pool of friends, relatives and colleagues, and will serve, on a median average, for four to six years.   This makes it difficult to achieve rigorous debate at meetings (why risk conflicts with board colleagues?). Directors also are not as eager to thoughtfully plan for change beyond the limits of their terms. Besides discussing day-to-day issues, the board needs to make sure that immediate gains do not hamper long-term sustainability.
  • The culture of micromanagement is frequently a remnant from the early startup years when board members may have performed operational duties. In some boards it becomes embedded in the culture and continues to pervade the governmental environment, allowing the board and executive committee to involve themselves in areas that should be delegated to management.
  • The executive team is a broad partnership of peers –board members, those appointed to the executive committee and the CEO. The executive committee is legally responsible to act for the board between meetings–the board must ratify its decisions. But unchecked, the executive committee can assume dictatorial powers whose conclusions must be rubber-stamped by the board.

Breaking the Cycle:

There is often little individual board members can do to change the course when the DNA has become embedded in the organization. The tradition of micromanagement, for example, is hard to reverse, especially when the culture is continually supported by a succession of like-minded board chairs and CEOs. No single board member can move these barriers given the brevity of the board terms. But there are a few initiatives that three or four directors, working in tandem, can take to move the organization into a high-performance category.

  • Meetings: At the top of every meeting agenda there needs to be listed at least one policy or strategy topic. When the board discussion begins to wander, the chair should remind the group that they are encroaching on an area that is management’s responsibility. One board I observed wasted an hour’s time because the chair had failed to intercept the conversation in this manner. Another board agreed to change its timing of a major development event, then spent valuable meeting time suggesting formats for the new event—clearly a management responsibility to develop.
  • “New Age” Board Members: While millennial directors may be causing consternation in some legacy-bound nonprofit and business organizations, certain changes in nonprofits are noteworthy. Those board members in the 43- and- under age bracket need some targeted nurturing. I encountered a new young person who energized the board with her eagerness to try to innovative development approaches. She was subsequently appointed to the executive committee, deepening her view of the organization and primed her for board chair leadership.

Board members who understand the robust responsibilities of a 21st century board need to accept responsibilities for mentoring these new age board people, despite their addictions to electronic devices.

  • Experienced Board Members: Board members who have served on other high-performance nonprofit or for-profit boards have the advantage of being familiar with modern governance processes and are comfortable in supporting change. They are needed to help boards, executive committees and CEOs to move beyond the comfortable bounds of the past. They will be difficult to recruit, but they are required ingredients for successful boards.
  • NEW Projects: Boards and the CEO must be bold and try new approaches to meet client needs. For example instead of going through a complete planning process for a new program the board must ask management to complete a series of small experiments to test the program. When a series of results are positive, the nonprofit can work on a plan to implement the program.*

Conclusion

Individual board members working alone will probably become frustrated in trying to contend with the three overview barriers discussed. But working with three or four colleagues, over time, on a tandem basis, they can make inroads on the barriers. Meetings can become more focused on policies/strategies, new age board members can become more quickly productive, experienced board members can become role models and new programs and other projects can be more quickly imitated via the use of small scale experiments.

*https://www.forbes.com/councils/forbesnonprofitcouncil/2023/09/14/lean-mean-nonprofit-machine-an-intro-

OnceAgain! How Can Nonprofit Boards Support Management & Staff and Refrain From Micromanaging?

Once Again! How Can Nonprofit Boards Support Management & Staff and Refrain From Micromanaging?

By: Eugene Fram                    

The dilemma is common to nonprofit organizations. As start-ups, everyone aspires to do everything. Passion for the mission and determination to “get it right” imbue board members with the desire to do it all. But once the organization starts to mature, board roles shift to focus more broadly on policy and strategy issues. With the advent of qualified personnel to handle operations, there are many overview activities, sans micromanaging, available to board members. Following are some ways that boards can assist and demonstrate support for operations, CEOs and staffs without interfering.

    • Respect Management & Staff: The Board needs to accept the CEO as professional manager, not as a person dedicated to a field specialty—police officer, physician, attorney, etc.—with part-time management efforts. * He/s should know how to hire well, interrelate with staff, board and other stakeholders and make certain day-to-day operations are effective and efficient. It is possible, however, to have a mediocre board and an effective management and staff that is devoted to the nonprofit’s mission. Hopefully, a few board members recognize the situation and are able to build a culture of respect for the management and staff, often a difficult task when the board is micromanaging the nonprofit.
    • The Importance of Long-Term Goals: Currently nonprofits tend to plan on a three-year to five-year cycle because the environments in which they operate change so quickly. With nonprofit board members having 4-6 median terms, this suggests many will have one short-term outlooks. But, in my opinion, much longer-term planning needs to be considered, perhaps for as long as ten years. This way current planning can influence longer-term planning. This generative thinking will also provide some benchmarks for the types of abilities and skills that future CEOs will need to possess.
    • Understand Psychological & Non-Monetary Benefits: Flexible benefits are required by nonprofits to compete with business and other nonprofits paying higher wages. For example, in many areas, hospital chains compete with human service agencies for people with social-work abilities. They must also compete with businesses for computer specialists. One way is to offer flexible scheduling to all personnel needing it. Another way is for the board to formally honor staff for successes and make certain that management provides appropriate praise frequently, a requirement for millennial, and possibly generation Z age staffs.
    • Empower the CEO and staff: Boards need to be sure that the CEO is fully empowered to make tactical operating decisions without board interference. On an overview basis, the board needs to request management to ask small staff teams to work on projects that can yield tangible results. This will encourage groups and teams to become more responsible.

Within its overview responsibilities, nonprofit board members can be quite proactive in assisting management and staff when they meet routine operational challenges. The above discussions demonstrate ways this can be accomplished. Nonprofit boards can add to them to meet local challenges.

* Some growing nonprofits unfortunately elect the CEO from the staff and allow him/h to continue to have some staff responsibilities.

What Should Nonprofit Board Members Know?

By Eugene Fram       

A blog developed by an internationally known  board expert* raises some pertinent governance questions mainly targeted to for-profit boards. Following are my suggestions how these questions could apply to nonprofit and trustee boards. In addition, field examples show what happened when the questions had to be raised in crises situations.

Does bad news rise in your organization?
“You may be the last to know.” For example, the board of a human services organization knew that the professional staff was not happy with a new ED with an authoritarian management style, but the board felt it needed to give him a chance to modify his style. Board members didn’t know that the staff  professionals had been meeting with a union organizer for nine months.
A labor election resulted, with the professional staff agreeing to work under a trade union contract.

Do your CEO & CFO have integrity?
“If the CEO or CFO holds back, funnel information, manages agendas, is defensive or plays…. cards too close to the, vest, this is a warming sign.” For example, a CFO was delinquent in submitting a supplementary accounts receivable financial report. The board and CEO accepted his excuses, but the data, when submitted, had a significant negative impact on the financials. Both the CEO and CFO lost their positions.  Should the board have also accepted some responsibility for the crisis?  

Do you understand the (mission) and add value?
The board members need to seriously answer this question:
If this organization were to disappear tomorrow, who would care?

Do you know how fraud can occur in your (nonprofit)?
Common wisdom prevails that there is little for-profit or nonprofit boards can do avoid fraud. To review nonprofit boards actions that can be taken, especially for medium and small size nonprofit boards, see; Eugene Fram & Bruce Oliver (2010) “Want to Avoid Fraud? Look to your Board,” Nonprofit World, September/October, pp.18-19.

Do you compensate the right behaviors?
“You are at the helm as board members. Whatever you compensate, management will do.”
Be certain the organization is compensating for outcomes and,more importantly, today impacts. Too often compensation is given for completing processes that are not tied to client impacts

Do you get disconfirming information?
Management is only one source of information. With the agreement of management, visit privately with people below the management level. Set a Google Alert for the name of the organization to see what others on the Internet are saying about your nonprofit’s relationships.

Do you get exposures to key (operational areas) and assurance functions?
“Bring key people into the boardroom, without Power Points. See how they think on their feet. It is good for succession planning and is an excellent source of information.”

Do you get good advice and stay current?
“Bring tailored education into the board room and stay on top of emerging developments. “ This is especially important for the nonprofit directors or trustees who serves on a board that is out of their area of expertise. For example, bankers might serve on a hospital boards.

Do you meet with (stakeholders) – apart from management?
Board members need to join with management in meeting key funders occasionally to determine if their expectations are fully met and what the board might do to foster a continuing relationship. This lets funders know that the board is involved over-viewing the organization’s outcomes and impacts.

*Richard Leblanc, “The Board’s Right to Know and Red Flags To Avoid When You Don’t.” http://www.boardexpert.com/blog, September 14, 2012
Note: Bold & quoted items are from the above blog.

 

The “Compliant” Nonprofit Board—A CEO Takes Charge Like a Founder!

The “Compliant” Nonprofit Board—A CEO Takes Charge Like a Founder!

By Eugene Fram             

According to BoardSource, “ ‘Founderitis’ and ‘founder’s syndrome’ are terms often used to describe a founder’s resistance to change. When founderitis surfaces, the source of the dilemma often is a founder’s misunderstanding of his or her role in an evolving organization.” * I would like to suggest that a nonprofit CEO also might suffer from the “founderitis illness,” sometimes with the board only being mildly or completely unaware of it.

Board Member Tenure versus CEO

The average board member tenure is six years (e.g., two three year terms) as compared with the average almost 13-year CEO tenure. ** The CEO has twice as longer period to influence polices and strategies. More importantly, she/h has more opportunity and time to acquire background knowledge and influence the organization’s culture.

“CEO Founderitis”—Typical Board Members & CEO Behaviors

  • The board is a dependent one, cancels or reschedules major committee/board meeting when the CEO can’t attend.
  • The CEO is overly verbose in presenting background information at meetings.
  • Concurrently, the number of board member comments is limited at most meetings.
  • The CEO places limits on the types of contacts the staff can have with board members, in the name of avoiding staff “end runs. “
  • The CEO carefully covets outside relationships and donor relationships. Board members are only marginally involved in fund development.
  • The Executive Committee does not challenge the CEO when setting the agenda.
  • The nonprofit board is satisfied with marginal gains each year, without seeking broader challenges to provide enhanced client services.
  • The CEO’s performance isn’t rigorously assessed.
  • The board rarely, if ever, overviews CEO and staff talent successions.
  • Board actions and activities are not rigorously reviewed or discussed.
  • Led by the CEO, Board resistance to change is substantial.

What should the board do if the CEO takes charge like a founder?

Three Options:

Does Nothing: This assumes the CEO is performing reasonably well in developing positive program impacts, not outcomes. (i.e, Program objectives can be achieved, but they can have little impacts on clients.)

The CEO and Board are satisfied with program outcomes as performance measures. As a result, the organization inadvertently may not be innovative. In addition, long-term organizational sustainability may be compromised. There may be long-term challenges on the horizon that go beyond the typical three to five year planning cycles.

A majority of board members may feel comfortable with this option because the CEO acts strongly, even though he/s occasionally may encroach on a board’s perogrative.

Makes Changes: This will probably require the CEO & Board to change, modifying some of the behaviors listed above. The CEO then forms a partnership with a changing independent board.

Some board members will be satisfied the status quo, little is required of them. But others may want to remove a CEO who leads like a founder. Internal conflict will likely arise on both sides to delay or abort change.

A Solution? Don’t rock the boat. Only when the CEO, especially one with long tenure, suffering from “founderitis” makes a graceful exit will there be opportunity for change. Hopefully, the new CEO will develop a partnership culture with the board.

* https://boardsource.org/resources/founders-syndrome/

** See: “Average tenure of nonprofit CEO Nonprofit Times”

How Seriously Does Your Nonprofit Board Take the Matter of Ethics?

How Seriously Does Your Nonprofit Board Take the Matter of Ethics?

By Eugene Fram                          

Most board members are aware of their obligation to ensure their nonprofit’s compliance with certain standard regulations e.g. making tax payments, submitting IRS Form 990s and/or avoiding potential fraud. But what I have found missing in the nonprofit environment is a sense of board member responsibility to provide for and sustain a viable ethics program.

Board members, as representatives of a community, profession or industry, have a significant responsibility to mitigate risks for their supporting constituencies. To ensure their integrity and prevent tainting the organization’s reputation, an internal ethical culture must prevail. An emphasis on ethical conduct should cover everyone from board members to the lowest ranking employee, and address issues that range from personal use of facilities to various types of harassment.

Following are some thoughts on putting ethics in their rightful place:

• The Audit Committee in responsible-business organizations often have a full-time corporate counsel or compliance officer who are charged with seeking evidence of unethical behavior. On the other hand, nonprofits must vest significant ethics responsibilities in the audit committee. As a base approach, the audit committee should have the CEO investigate installing a hotline system that can surface questionable behaviors and issues. 

• Ethical Behaviors Start with the Board – A review of existing ethical standards should be included in the orientation process of every new board member or employee– and reinforced briefly each year. Potential conflict of interest in board members can skew decision-making and jeopardize outcomes. Engaging in “sleight of hand” decisions can reverberate throughout the organization. For example: it is not unusual for nonprofit boards to seek grant dollars that support programs that are not directly related to the organization’s mission. Similar relaxation of standards can propel an organization down the slippery slopes of ethical boundaries. This also applies to senior managers whose behavior or actions are perceived to be inappropriate.

• Seeking Information – Although the Sarbanes-Oxley act suggests that board directors are obliged to seek information from persons below top management, this can sometimes become controversial in the nonprofit environment.

The bottom line is that (ethics) compliance must be pervasive, ongoing and actively tested, experts say, in order to maintain a healthy culture throughout the organization. By rewarding ethical behavior and mitigating risk, nonprofit board members will be doing all they can to protect themselves and preserve values for shareholders (and help to assure ethical actions in a mission-centrist nonprofit.)*

* Boardmember.com (2014), “Compliance Oversights Starts and Ends with the Board,” May 14th.

The Nonprofit Board’s New Role In An Age of Exponential Change

This image has an empty alt attribute; its file name is id-100456475.jpeg

The Nonprofit Board’s New Role In An Age of Exponential Change

By Eugene Fram                

Most nonprofit boards are being faced with huge pressures—reduced financial support, challenges in integrating new technologies, recovering from Covid impacts and difficulties in hiring qualified personnel who will consider “nonprofit” wages. To survive long term, board members need to be alert to potential opportunities. These may be far from the comfort zones of current board members, CEOs and staff.

What needs to be done?

Look for scalable opportunities to reformat the nonprofit: This may include merging, partnering or acquiring other organizations, obviously in an attempt to make both organizations more effective and efficient. One nonprofit, operating a sheltered workshop for the blind and visually impaired affiliated with a local Goodwill nonprofit. The change over many years allowed the original service organization to grow from a budget of $5 million with 160 employees to today’s budget of $50 million. Currently it has 800 employees, serving 150,000 clients annually.

To achieve results like these, the board had to move out of its comfort zone, learn about new types of operation that can help fulfill the mission and initiate bold moves. To explore and manage such changes, a “Lean Management”* approach using small-scale experimentation can be helpful.*

Acknowledge the inherent limitations of nonprofit board tenure:

The median tenure for nonprofit board members is from four to six years. With only reputation and/or emotional investment in the organization, this creates a short-term time line horizon for many board members. The CEO, probably the only one with long-term organizational memory, has an obligation to motivate the board to consider long-term actions in this time-compressed tenure environment.

    Led by the Chair & CEO what can be done?

First recognize that not all board members will be interested in developing a future scenario that goes beyond their tenure limits. The argument will be that a three-year strategic plan is sufficient.  The answer  is to have the board chair and CEO form a discussion group, not a committee to highlight longer term opportunities.  It should be composed of board members  who appear to be visionary in the mission field, in their career backgrounds back along with management and staff representation. 

Pose questions like these:

  • What do you see the mission of this organization will be a decade from now?
  • What might shape it now to grow, decline gradually or stay stable over the decade?
  • What can management do now to prepare for the next decade?
  • Are there small-scale experiments that will assist in preparing for these changes?
  • What succession plans are required to make available strong or stronger management abilities available in the next decade?

Once a scenario is developed from the discussions, ask management to develop one or two experimental programs. If successful, it will help guide the nonprofit for the next decade. Hopefully, future board members will see the value of this work, develop an appreciation for longer term planning and continue the process.

This process is all a matter of aligning board members to long-term thinking. It involves using conceptual considerations by board and management. It motivates the CEO to consider managerial abilities that will be required, and it also should be especially helpful for board members whose careers are outside the mission area of the nonprofit.

* https://npengage.com/nonprofit-management/lean-implementation/PostB

Do Nonprofit Boards Face Cyber Security Risk?
This image has an empty alt attribute; its file name is id-100325196.jpg

Do Nonprofit Boards Face Cyber Security Risk?

By: Eugene Fram     

Solarwinds and Target and others may seem far afield from the concerns of nonprofit directors, except for the giants in the area, like AARP. However, think about this hypothetical scenario.

A group of high school students hacked into the computer system of a local nonprofit offering mental health services and gain access to records of clients, perhaps even placing some of the records of other teenagers on the internet.  Considering the recent introductions of new AI tools, the power of immature teenagers and adults to initiate Cyber Security (CS) problems seems unlimited.  

What due care obligations did the board need to forestall the above situation? A move to recruit directors with special expertise in information technology or cyber security would be nonproductive. A nonprofit director has broader responsibilities such as the overview of management, approval of budgets, fostering management and staff growth etc. Similarly, when social media became a prominent issue a few years ago, boards debated the advisability of seeking directors with that specific kind of background. Today, a consultant with management is likely to provide guidance to directors on these issues.

After listening to a group of cyber security experts discuss for-profit challenges in this area, I have the following suggestions on how nonprofit boards might respond to similar types of challenges.

1. Carefully “wall off” all confidential information – Have management be certain that private information such as health records, are encrypted and separated from operating data that may be considered public in a nonprofit environment.
2. Review D&O and other liability policies – Determine whether or not the D&O policy protects directors and managers from CS intrusions. (It likely does not, but I understand that some carriers may offer some protection along with smaller policies.) It is clear that most general liability policies do not protect the organization against CS.
3. Board Encouragement – Devote some meeting time, perhaps 10 minutes, to a discussion of the CS topics so that management and staff are aware of the board’s concerns on the subject and will take action when necessary. Appropriate due care actions like frequent password changes should become routine. Some checklists are available online, suggesting questions directors might pose to raise awareness on the topic and avoid potential CS breaches.
4. Can third party payer help? – Many nonprofits deal with third party payers with sophisticated CS systems and may offer the nonprofit some advice or assistance.
5. Education and training of employers – Many CS crimes have been successful because employees have violated or forget to effectively protect their working accounts and information. Proper education and training can help reduce these types of lapses.
6. Finance & Audit Committees – Recent data indicate that only 20% of nonprofits have a CS vulnerability assessment in place and only about the same proportion have a plan  in place should a CS breach take place . *  Due care responsibilities seem to be missing among a large portion of nonprofits.

If a nonprofit, like the one described, is attacked, not only will records be compromised, but also the reputation of the agency will be destroyed, probably along with the nonprofit organization itself. SolarWinds and Target may be able to survive such an attack, but the typical nonprofit may not.

*https://communityit.com/nonprofit-cybersecurity/

Is Your Nonprofit Strategically Deprived?

By: Eugene Fram   

A vital concern to the future of any nonprofit organization is frequently neglected. Responsibility for the lack of strategic planning must reside with the chief executive, board members and the tactical challenges that inevitably flow to the board.

Before a nonprofit board can begin successful strategic planning, it must:
• fully understand the difference between strategic and tactical planning.*
• have a fully engaged chief executive involved with the board in the leadership of the strategic planning process.
• have a proportion of board directors with some specific types of strategic oriented experiences.

For example, one faith based organization recreational facility I know built a modern new building. However, the leadership was unaware of the quietly growing demand for preschool education in the area. As soon as the new building was opened, several parts of the structure had to be remodeled to accommodate a growing preschool population.

While I admit that planning for coming societal and behavioral, changes is difficult, like the one in the example, I suggest that any nonprofit board needs to take “inventory” of the following backgrounds of the current chief executive and board members.

How strategically capable is the organization’s chief executive? Does he or she stay at the leading edge of the field? Has the board recruited the chief executive for a strategic acumen or for just keeping the organization on a stable course?

How successful has an organization been in recruiting some of the following types of board members?
1. Those with enough time to become thoroughly acquainted with field related to the mission, visions of the organization’s operations. After all, many nonprofit directors serve on boards whose fields of focus are quite different from those in which they have working experience.
2. Those who can distinguish between a strategic plan and a tactical plan?
3. Those capable of critical thinking, questioning past assumptions as they relate to the future.
4. Those who have had successful strategic planning experiences at a high (not tactical) levels on other FP or NFP boards.
5. Those who have innate visionary abilities to assess future opportunities or roadblocks.
6. Those who have failed with past unsuccessful strategic plans but learned from their mistakes.
7. Those who can realistically project the financial challenges a strategic plan will develop.
8. Those with significant prior NFP or FP experience who can be models for younger directors with time restrictions who contribute via time limited task force assignments. But they need much more seasoning with understanding governance functions because they often rubber stamp board chair or CEO suggestions.

Addressing these recruitment issues in a forthright manner should enable nonprofit organizations to determine if they are strategically deprived. This move also might improve nonprofits’ records for strategic planning.

*  “strategy is the action plan that takes you where you want to go, the tactics are the individual steps and actions that will get you there”.