In my decades of involvement with nonprofit boards, I have encountered several instances in which the CEO has failed to engage the services of a COO–when this addition to the staff was clearly needed. In each case and for whatever reasons, this reluctance to act left the nonprofit organizationally starved.
This means that the CEO continues to handle responsibilities that should have been delegated, some of which a predecessor may had assumed during the start-up stage. I once observed a nonprofit CEO with an annual $30 million budget personally organize and implement the annual board retreat, including physically rearranging tables/materials and cleaning the room after the retreat! When top leadership is deflected in situations at this level, client services and the general health of the organization is likely being negatively impacted.
Nonprofit Board Discourse: a Meeting of the Minds??
By: Eugene Fram
Several years ago, a nonprofit board member complained to me that there was too little “conflict” at board meetings. Too few hands were raised to challenge or simply question the efficacy of certain important agenda items. Having participated in hundreds of nonprofit meetings, I have observed that this laissez-faire response still typifies a significant number of board member’s attitudes, especially for items that deserve vigorous discussion. Why is that? And why can the term conflict be perceived as an asset to an organization that is determined to move forward?
Below are some answers based on my own experience in the nonprofit environment.
Major Focus is on Operations: As I have commented in other posts, focusing on operations seems to be a default option for many nonprofits. Unlike members of business boards who have substantial financial investments in their organizations, nonprofit board members are volunteers with little personal risk and with insufficient motivation to challenge the status quo. Since the median nonprofit director’s term of service is seldom greater than 6 years, a board member can lack significant interest in the nonprofit’s long-term future. In addition operational items are more concrete and inherently more interesting because many center on people related decisions. Then there’s the “nice guy” impulse—directors’ meetings are usually brief (1 to 1.5 hours) and board member are often reluctant to voice dissenting views that may offend colleagues and extend meeting times.
Encouraging “Constructive Conflict”
Preparation Is Critical: Review of governance agenda materials leads the way to more rigorous discussions. This requires nonprofits to provide meeting materials at least one week in advance to facilitate fact- based discussions. Some may argue that busy board members will ignore materials well in advance of the meetings. But isn’t it a solid advantage to have some of the most interested board members well briefed for the meeting?
The importance of mission: As much as possible, the board chair needs to frame each agenda item in light of its impact the nonprofit’s mission. This helps eliminate frivolous comments and questions, e.g., voting on the color of the menu at the annual diner. These distractions, like responding to tweets, detract from discussing substantive issues. Chairs can diplomatically eliminate them by simply suggesting the distraction issue can be handled “off line.”
Recruitment: Nominating candidates for the board who have the abilities to interact effectively at meetings are important to improving the quality and quantity of meeting discussions. While nonprofits often need a diversity of board members from different fields and backgrounds, they also must have a core of directors who know the differences between governance and operational activities, who understand what is involved in critical thinking, have demonstrated leadership elsewhere and have broad understandings of what constitutes strategic planning. Otherwise the board, like the one I encountered, had many very busy middle level managers types who did well on time-constrained specific projects, but they had no interest in governance or strategic planning. The de facto result was that the Board Chair authoritatively operated the board.
Getting Together: Currently, most nonprofit board members live time-compressed lifestyles and only connect with others at formal board or committee meetings. To build an effective team decision-making, board members need to know each other personally and professionally. Board chairs and CEOs must take steps to provide social or professional occasions for the board at which directors can interact. Sometimes a simple 10-minute agenda item at a meeting asking each member to briefly review personal or professional events can help—as proven by organizations like Rotary.
Passion vs. Passivity:The nonprofit board member who lamented the absence of “conflict” in the boardroom recognizes that an engaged and often challenging governing body is in the best interest of a healthy and forward moving organization.
Ideally, change takes place only when is a critical mass of board and staff want it. A significant portion of leadership must realize that the status quo won’t do. Based on my experiences, this ideal is rarely achieved because:
The CEO needs to support the changes being suggested and/or mandated by a majority of the board. But, if not fully invested in the change, the CEO can accede to board wishes for action but move slowly in their implementations. The usual excuse for slow movement is budget constraint.
Complicating the situation is the fact that most nonprofit boards are hesitant to remove a CEO who has a nice personality but lacks vision, makes modest revisions each year and keeps budgets in balance. As volunteers, board members know that removing a “status quo” CEO can cause board and staff conflict. These events require more meeting times and can cause board members to turn against one another. Volunteers accept board positions to promote positive outcomes, not to become involved with the stresses that accompany conflict.
Changing a CEO, board members or the governance model, etc., can easily send negative signals to the staff because they may view it as leading to disruption in their jobs and working environments. Most nonprofit staffs are only one or two organizational levels away from the board and may become concerned that new influential board members can have significant impact.
For example, two professors persuaded their board colleagues that the agency needed a “management by objectives program.” The staff became so involved in establishing and measuring objectives that they neglected client services .
Critical actions that boards can take to overcome these barriers.
Agreement about what “change” means. Perhaps it is increasing clients served and/or simultaneously having to increase donations to maximize the mission’s service? These changes can be readily measured. However, nonprofits often have revisions that can only be measured approximately in the short-term because of the significant costs involved. These include such items as improving public awareness or community influence. They require use of more qualitative measures over time to assess trends and improve the measures. *
Those responsible for change need to be reminded that words have meaning, and the words used to describe revisions can create negative attitudes from board members and staff. Those with negative connotations include “profit, efficiency and restructuring.” Positive words include “mission, serving and compassion.”
Radical honesty about the hurdles standing in you way. It’s important to be upfront about the “bandwidth” in staff and board resources needed to implement any major modifications. This involves having three or four board members who are experienced with implementing change, willing to assume leadership of the process and have the interpersonal skills necessary to “sell” other board members on the benefits of the new plan. In one situation, where a governance model was changed and the ED’s title revised to President/CEO, a traditional board member was dissatisfied. He complained about the new title “What do we call the ED now, Presco?” The implication was that the new title was satisfactory for the head of a business organization but too sophisticated for the operating head of a nonprofit organization.
Commitment to do whatever it takes. Driving changed from a nonprofit board position isn’t for the person or team that gives up easily. A realistic plan is to anticipate the bumps in the road along the way. For example, if some board members agreed to a revision with limitations, it’s the responsibility of the CEO and board members to make certain they are consulted as the change progresses, helping them, if they can, to be more comfortable with it. If the change has substantial impact on the staff, the CEO and board members need to be certain that false rumors are handled appropriately when they appear. This also applies to rumors circulating in the community or in an industry, if the nonprofit is an association.
When boards fail to take the types of actions cited above, the impact can affect the nonprofit’s culture for decades. For example, a nonprofit engaged a new executive director with an authoritarian leadership style. His long-term predecessor developed a relaxed culture, often casually taking staff meeting time to read poetry. The Board concluded major changes were necessary.
As a first step to solve the problem, the board made a mistake by demanding the new ED modifies his authoritative management style. But concurrently, a union organizer heard about the dissatisfaction and persuaded the social workers on the staff to form a union. Results: the problematic ED was finally terminated, and an experienced ED, who had worked previously at the agency, was engaged. But the social work staff is still unionized. Trust between management and the professional staff was never restored.
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.
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.
My blogs have been drawing an unusual number of views related to dysfunctional nonprofit boards. Is it because:
Nonprofit evaluations have become a prime media interest?
Compliance regulations have forced a greater number of nonprofits to substantially review their charters?
More boards have found board problems arising as a result of reviewing the expanded 990-form section on governance?
More audit committees are being given expanded responsibilities?
Can a nonprofit organization focus on its mission vision and values if it has a dysfunctional nonprofit board? I have seen this accomplished in situations where the CEO is managerially oriented and can live with the board’s problems or foibles. For example, one nonprofit I encountered had an eleven person board, four of which never attended meetings and several others were sometimes absent for personal reasons. Meeting minutes clearly showed a focus on operational detail. However a strong CEO was able to focus well, and the organization prospered. On the other hand,the CEO openly complained that she was overworked, needed board member assistance and easily could become financially liable board, missteps.
In another situation I encountered, the board chair and ED were very strong, but the board governmentally weak. Work and family pressures constrained the time board members could devote to their governance responsibilities. While the organization performed reasonably well, performance problems and board liability issues might arise, if either the chair or ED retired or resigned.
Although not desirable station, a dedicated mission oriented staff can, at a minimum, perform reasonably well when its board may be dysfunctional. However the following conditions are needed.
Management is able to keep the staff focused on mission, vision and values.
A legacy staff person(s) becomes a mentor(s) for more recently engaged staff.
The dysfunction is relatively brief and resolved by board member rotation. If too long, organizational performance will decline.
Board members involved with the dysfunction do not seek to involve staff in their disputes.
Board Members Need to Review Unwritten Protocols to Boost Nonprofits’ Effectiveness
By: Eugene Fram
Nonprofit boards are governed by a series of obligations —some are clearly defined as legal responsibilities such as financial actions. Others, however, are less clearly defined and relate to people who are, in some way, associated with the organization. Guidelines to these diverse interactions are not typically archived in policies but are important to the overall professionalism of the board. They include consideration of its: board structure, internal operations, recruitment methods and leadership style.
Like the Streisand song lyric, nonprofit people who need people must first have the know-how to choose and cultivate those people! If not, the risks to a board can range from modest to substantial. It all begins with making the right choices and vetting board and CEO candidates. Most nonprofit board members know that they are only required to make one hiring decision—the engagement of the CEO. This is a process that always involves some risk factors. Take the case of the university that has expended substantial amounts to engage a CEO. After a brief “honeymoon period” it was determined that the candidate lacked the requisite background to move the organization forward. His resignation was forthcoming, and with it, a disruption that was costly not only in dollars but in board/faculty morale and public confidence.
A nonprofit board is usually confronted with several people risks. Following are some that should be noted by board members.
Colleagues on the Board- Modest Risk: Except when a crisis occurs necessitating additional time and effort to address the problem, there is often little opportunity for collegiality among nonprofit board members. In recent times, with many board members living time-compressed lifestyles, colleagues not only don’t know each other but may pass each other on the street without recognition! This lack of personal interaction makes it difficult for directors to understand and share perspectives regarding the organization. It is clearly the board and CEO’s responsibility to provide these opportunities by organizing social events and/or small gatherings for board people to interact– perhaps over breakfast, lunch or wine. Another option is to extend an invitation to attend local or regional professional events. Or to invite board members to join a conference call during the weekly call between the board chair and the CEO. People contact within the board cements relationships and becomes an asset to working together as a group.
Financial Personnel-Might Be Substantial Risk?: Financial people, as a group or individually, can constitute a potential risk group. At the very least, each board member should be thoroughly acquainted with the CFO, his/h senior reports and the professional qualifications of each, especially in relation to their abilities to stay current with financial requirements. The board needs to provide sufficient signals to all staff personal that it is alert to unethical behavior, especially fraud. Similarly, the board and/or its committees need to make certain that there is substantial compliance with all regulations imposed by governmental or professional organizations. Example: One CFO delayed the delivery of an accounts receivable report for an extended time period. Neither the board nor management demanded it. When the report finally arrived, the board found that the CFO had been carrying a substantial number of bad debts as assets. To rectify the situation, the nonprofit had to engage costly forensic accountants. Although the board was also substantially at fault in its due care, both the CFO and CEO were fired.
The CEO-Can Be A Substantial Risk: Like a marriage, there needs to be substantial trust between the board members and CEO. However the CEO should to be comfortable with a policy of “trust but verify.” This requires that the board members and/or its audit committee ask questions or make inquiries that sometimes might appear be insulting. Some examples:
The Staff- Can BeModerate Risk: Board members need to be have enough contact with management and staff in order to be able to help identify those who with talent may be eligible for promotion, understanding that traditionally the CEO has is responsible for internal promotions. Unfortunately this is a nonprofit board responsibility that is often neglected. But it needs to be reviewed annually at the time that CEO succession is reviewed by the board.
A nonprofit is only as good as its team of people. With many of the board members rotating off after their terms have expired, it becomes an ongoing challenge to keep them apprised of potential risks and challenges. The board must develop its own way to a nonprofit’s success. In addition, it must overview management and staff to build background knowledge on those with potential to become future leaders.
Chinese Proverb: The wise person learns from his/h own experiences. The wiser person learns from the experiences of others
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 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?”
Gene Takagi, noted San Francisco attorney, who specializes in nonprofit organizations published an article listing 12 reasons for resigning from a nonprofit board. It is worth reading.*
BUT
Nonprofit board members often become impatient with the slow pace of progress toward positive change. Here are some actions that may change the situation, improve service to clients and prepare the organization for any long-term mission disruptions.
• Talk With The CEO: He/s may feel the same frustrations and be delighted to find a board member who shares his goals. In fact, she/h may be thinking of leaving or be wedded to the current area only because of a family situation. As a result, your conversation may give a chief executive new hope and energy. On the other hand, if the CEO is too aligned with the past, it will be unlikely that the board will terminate the current CEO, unless there are some performance malfeasances involved. Then, estimate the CEO’s remaining tenure and use remaining time to find opportunities to make modest increments in change.
• Talk With Other Directors: Between board meetings, have informal coffee sessions with other directors to determine their views on the areas in which you feel change is necessary. Three or four board opinion leaders can garner positive movement, assuming there are no strong objections from the CEO.
• Outside Validation. If sufficient budget is available, ask the board to engage a consultant to examine the potentials for change. The rationale for the request might be: “We are doing well, let’s determine how we can better serve our clients.” If budget isn’t available or the CEO is against the expenditure, try to have the board arrange, for an outside speaker or two who might validate the need for change. This might be a person from the field or a local professor who has some insights aligned with change-focused board members .
• Seek Outside Financing: Personally seek sources for capacity grants that, if awarded, might be developed to further help clients. Ask the board to take leadership in applying for several of these grants. A single successful grant might be the linchpin to promote the type of change desired by the group having similar views.
• Chair The Nominations Committee: As chair, the director can be in a position to search for candidates who are forward looking. In addition, the committee, under the urging of the chair, can seek candidates who have served on other nonprofit boards and who have proven their meddle to bring about change.
Summary For any single board member of a status quo nonprofit to lead a change on organizational culture will require tenacity, time and patience. The person will need to be extremely dedicated to the organization’s mission and want to improve the services to its clients. Very few board members have the grit to lead such a change. However, a small-motivated group can be an advanced guard to initiate some actions in the right direction. But the group will have to keep Peter Drucker’s insight in mind when the going gets tough, “Culture eats strategy change for breakfast.”
An unusual case of an ED accused of serious malfeasance, but the board refused to fire him. http://bit.ly/1om6XUw
Nonprofit Management 