Board Culture

Do Nonprofit Boards Proactively Engage Their Stakeholders?

Do Nonprofit Boards Proactively Engage Their Stakeholders?

By: Eugene H. Fram

Nonprofit directors and trustees need to take overview responsibility for engaging all of the organization’s stakeholders.

The first step must involve defining the term“stakeholder” in the broadest action oriented terms. Most boards will quickly agreethat clients and board members are stakeholders, but what about others such as external auditors and significant vendors. For example, if a charity is depending on one vendor for a substantial part of its grocery supplies, that vendor needs to be viewed as a stakeholder—its failure to delivery properly affects the efficiency and effectiveness of the organization.

Following are some guidelines for engaging all types of stakeholders. Don’t marginalize, dismiss or ignore any stakeholder: Nonprofits do this with termed-out board members. * After six active years, a typical tenure, many former board members only received boilerplate materials or development solicitations. The board’s rationale is that they have served welland there is a downside on more frequent communication.This tactic assumes all board members want such a communications approach.

However, for board members who have been very active, it maybe counterproductive from development and future interest viewpoints. The ED and Board Chair need to keep a list of name of this special group and see that they keep in personal touch with the members once or twice a year.

I have observed several cases in which this unintentional marginalized has resulted in losing substantial financial gifts and needed talent. In both cases,the termed-out board members have declined with the excuse that they have been too far away from the activities of the organization. Using members of this group in advisory capacities can avoid such marginalization by forming them in alumni groups or including them insocial occasions and celebrations.

Recognize who may be a true partner: Such a partner can range a vendor that has supplied the organization or a volunteer whose interests have moved to another nonprofit. “ It is generally easier to build consensus,request help and engender trust when those who support you are well-informed, candidly an truthfully.” *

If stakeholders don’t know about the nonprofit’s challenges and needs, even the best-managed nonprofits have their ups and downs. During the latter periods, having stakeholders knowledgeable about the issues can help to dissuade some to avoid protesting job cuts and other receactions. Self–perpetuating boards can became insular and lose touch with other stakeholders: “These boards tend to retreat into a silo-or bunker-mentality that only serves to intensify bad habits and practices, as well as preclude consideration of other that only serves to intensify bad habits and practices, as well as preclude consideration of other perspectives.” * At difficult times, the board can tend to lose trust in the ED even when the problem is beyond the EDs control. If the board is at fault, it may look for a scapegoat on which to hang the the problem, often people in senior management.*

http://www.huffingtonpost.com/eugene-fram/how-does-your-nonprofit-r_b_5393736.html* https://www.linkedin.com/pulse/what-sweet-briar-reminded-us-alumni-engagement-mark-w-jones

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-

Is Your Nonprofit Recruiting & Retaining by Using a Mission-Driven Approach?
Is Your Nonprofit Recruiting & Retaining by Using a Mission-Driven Approach?

By: Eugene Fram     

Recruiting and retaining able people for nonprofit careers has always been a challenge.  Salary levels have not been comparable to business organizations and some government posts. Many small and medium sized nonprofits have frontline personnel organizationally located only two levels below the Board of Directors.  Consequently, career paths can appear stymied.

The employment situation has changed for two population cohorts.  They are: some millennials (born between 1981 and 1996) and those in the Generation Z cohort (born between 1997 and 2012).

(more…)

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”

When Nonprofit Missions Get Muddled

 

By: Eugene Fram  

It happens over time. A passionately conceived mission starts to drift from its original intentions. Stakeholders begin to view a nonprofit’s purposes from a different angle. There is a discrepancy between how the organization is committed to act and external perceptions of its current actions. Nonprofit boards need to be on the alert to such misalignments that can go unnoticed in the perceptual “fog” of daily challenges. It can limp along for years without acknowledging the impact of the client reality by which the nonprofit is being judged.   

A good start would be a five year review of how others see the organization, i.e. volunteers, funders, clients, members, etc. The study can be conducted by an outside firm or developed internally by analyzing imperfect metrics. (See this article: http://bit.ly/OvF4ri). Based on those findings, nonprofits can either be assured that the perceptual status quo is congruent with the mission as stated– or, if there are material inside/outside differences, take steps to begin to rectify the discrepancies. These can range from mission modifications to a complete mission overhaul. Here are some considerations:

• Is the name of your organization confusing? Take the Family Service organization, for example, multipurpose human services agencies that, in some cases, were being perceived as resources for family planning. A few organizations’ first move to reinforce their stated mission was to change their names to Families First.

• Is your mission statement clear and concise? Does the wording represent your core objectives? Is it targeted to the right clients? Has it been highlighted in both written and digital output? A university’s mission may be to develop its students’ intellectual growth over a college time period. Conversely, the student/parent perception may see a degree as a conduit to a good job. The school, in this instance, is obliged to better represent its mission statement to convey its rationale—or modify its mission to redirect its academic trajectory.

• Societal and demographic needs are constantly evolving. The former Elderhostel changed its direction significantly when it sought to attract a younger population and renamed itself “Road Scholar.” Although it’s important to accommodate a variety of new initiatives, the question is– do they fit within the organization’s framework? It’s obvious that a nonprofit can’t be all things to all people. It may be difficult to accept a new perceptual reality, but growth and survival may be dependent on accommodating it.

For-Profit Boards Versus Nonprofit Boards: Similar Challenges?

   

By: Eugene Fram  

For-Profit Boards Versux Nonprofit Boards: Similar Challenges?                               

The wise person learns from his/h own experiences. The wiser person learns from the experiences of others. Chinese Proverb

The CEO Forum published an article covering the governance views of five business board members, known for their wisdom and vision.   Following are some of topics in the article that relate to nonprofit boards. *

Good governance is dependent upon well-curated boards. This means that nonprofit boards must look beyond the functional competencies (e.g. accounting, marketing, law, etc.) for candidates. Within these groupings, they need to seek candidates who have strategic outlooks, are comfortable with critical thinking and have documented leadership skills.   This requires recruiting and vetting efforts that go well beyond the friends, neighbors and colleagues who traditionally have been the sources for board positions. Also related is the issue of board succession, since that many will leave the board after a four to six year period. The current board(s) has an obligation to make rigorous recruiting and vetting become part of the nonprofit’s culture.

Assessing long-term sustainability. In the past, nonprofits have projected longevity because there will always be a need for the services or products they provide. This is no longer an assured proposition. Nonprofit day care centers now must compete with those that are for-profit. Improvements in medication have decreased the need for individual counseling and many new technologies can quickly solve problems that are embedded in the nonprofit’s mission.

Review governance best practices carefully! Know who is suggesting them and make certain they are appropriate for a specific organization. For example, some experts suggest that executive committees should be eliminated. However an executive committee that is responsible for a slim board committee structure can be effective in driving change and promoting better communications throughout the organization. **

Changing public accounting firms. Nonprofit accounting practice suggests changing public accounting firms about every five years. However one expert suggests, “It is important to ensure that judgment areas such as nonGAAP disclosures are well-defined, supporting calculations are well-documented and that the definitions and calculations are consistent across reporting periods.” At times of accounting firm change, nonprofit board members need to be able to add these issues to their question that they pose to management.

Ethics & Compliance. Like business organizations, nonprofits are subject to significant lapses in ethics and compliance. One study of  nonprofit fraud found that it 46% involved multiple perpetrators.  ***  As shown in the recent Wells Fargo debacle, establishing the tone for rigorous applications of a standard needs to start with the board and flow through all management levels. In the current environment, audit committees have to be especially alert and take immediate actions when red flags arise in either the ethics and/or compliance areas.   In my opinion, a nonprofit audit committee that meets only once or twice a year is not doing the necessary job.

Strategy. The nonprofit board has an obligation to help management see “around the next corner.” This involves board members assessing coming trends and sparking civil and meaningful board and committee discussions.

Board member comfort zones. Like their business counterparts, few nonprofit board members are “comfortable testing how to rock the norms.” It is easier to acculturate new directors to the current norms, a process that is inward bound and self-defeating. But a start can be initiated with questions such as, “If we were to start a new nonprofit across the street, what would it look like and who of the present board and a staff members would we ask to join us?

*https://www.forbes.com/sites/robertreiss/2017/05/22/americas-five-governance-experts-share-perspective-on-boards/#2a2ee326659a   

**For documentation see: https://goo.gl/QEL8x3

***https://nonprofitquarterly.org/nonprofit-fraud-its-a-people-problem-so-combat-it-with-governance/P

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Is Your Nonprofit Forward-Focused or a Prisoner of the Past?

Is Your Nonprofit Forward-Focused or a Prisoner of the Past?

By: Eugene Fram           

Governance arguably suffers most … when boards spend too much time looking in the rear view mirror and not enough scanning the road ahead. *

It has been my experience that nonprofits rarely address the possibilities and perils of “…the road ahead.” An endless stream of current and pressing issues can cause both Board and CEO to take a myopic view of their nonprofit responsibilities — either totally ignoring strategic issues or procrastinating a discussion of the subject. The results can be damaging to the organization. Here are some “prompts” that might guide nonprofit board members and CEOs as they attempt to provide leadership in this important but neglected area:

Balanced Agendas — Include and highlight strategic issues on every board meeting agenda (not just when a committee report is presented) until they are resolved with action plans, policy development or thoroughly discussed and removed. This constant emphasis on planning can go a long way towards achieving concrete actions on topics of future concern. A discussion of immediate issues juxtaposed with ongoing strategic concerns will provide a balanced meeting format that may possibly discourage board member’s attempts to micromanage, a very common tendency in nonprofit boards!

Short Term Focus — In a BoardSource report,  “…only 33 percent of nonprofits report that their board members are actively involved in advocating for their missions, and many organizations aren’t advocating at all.”** To inspire and challenge board leaders to actively serve as ambassadors.  The explanation for weak performance in this area is often attributed to the fact that the directors’ terms of service on the board are usually three to six years during which time people’s interest in the long-term future of the organization may be compromised. Some boards may be disproportionately represented by “millennials” whose participation comes with heavy time constraints. Problems of this type can be mitigated by seeking board members who are partially or fully retired. They are likely to be better equipped to focus on the important governance functions and the fundamentals in which the nonprofit operates. Boards need to look to look further out than anyone else in the organization… There are times when CEOs (those operationally concerned with strategy) are the last ones to see (environmental) changes coming.

Board Recruiting — Nonprofit recruiting can be a hit-or-miss process, often producing candidates who are readily available and familiar to the current board. Rarely will the committee seek out people who have strong track records as strategists and/or competent visionaries. This is a real challenge, but a forward focused board should make every effort to identify potential directors who have these types of experience and skills. The topic of recruitment is a challenging one and the process should have continual annual evaluation.

Can Nonprofit Boards Work Smarter Not Harder?
As noted earlier, nonprofit board people are often limited in the amount of time they can devote to board participation. Given these constraints, the board chair and CEO can choose from a range of options that will help orient directors to better understand the external landscape in which the organization operates. These initiatives can include visits to comparable facilities, opportunities to attend field related conferences or inviting experts in the same or similar organizations to interact with board members. The purpose is to infuse each member of the board with an informed view of the organization’s long-term future and prepare them to take the appropriate action. The CEO and board chair must address this question with a viable plan: What actually helps… (to develop) a board environment that encourages participation and allows board members to derive meaning, inspiration and satisfaction from their (board) work?

Talent: The Key to Nonprofit Success — A nonprofit board has one hiring decision to make: the engagement of the CEO. But it also has a significant responsibility to overview long-term talent development in the staff and management. The board of a family service agency needs to assure that its counselors are up to date on current modalities of counseling. A recreational organization must be operating in the context of accepted fitness practices. Annual talent reviews need to be scheduled with CEOs and the appropriate staff. In addition, individual board members, with the concurrence of the CEO, may want to have occasional professional contact with key people below the senior management.

Make strategy part of the board’s DNA — (Many nonprofit) … CEOs present their strategic vision once a year, the directors discuss and tweak it at a single board meeting (or a short retreat), and the plan is then adopted. The board’s input is minimal and there’s not enough in-depth information to underpin proper consideration of the alternatives.

An educated nonprofit board will have the depth of understanding to be alert to the future needs and problems of its organization. Typically there is usually an unanticipated “fork” in the road ahead. Status quo, “minding the store,” participation by rote are all too easy mindsets that will only hobble the progress of an organization. Board chairs and CEOs are key actors in turning an existing board environment into one that is focused on moving forward.

*Christian Casa and Christian Caspar (2014) “Building a forward-looking board,” McKinsey Quarterly, February. Note: Quotations from this article are presented in italics.

**https://boardsource.org/research-critical-issues/

 

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.