Board micromanagement

The Nonprofit President/CEO–How Much Board-CEO Trust Is Involved?

 

The Nonprofit President/CEO–How Much Board Trust Is Involved

By: EugeneFram    Free Digital Image

The title, full time president/CEO for the operating head of a nonprofit, clearly signals to the public who has the final authority in all operating matters and can speak for the organization.* It is not an ambiguous set of titles. However, the terms “manager” or “executive director” can be quite ambiguous and do not generate the same external understanding or respect. An executive director can be the administrator in a small church or the operational head of a large arts organization. The public and some corporate directors often view managers and executive directors (because of the organizational history of nonprofit) as “hired hands,” not as professionals who, with strategic vision, are able to manage all operational activities.

The  full time president/CEO designation calls for a trusting relationship with the board based on mutual respect, drawing from the symbolism that he or she is the operating link between board and staff. It is a newer type of partnership culture. However, a solid partnership does not allow the board to vacate its fiduciary and overview obligations. The board has moral and legal obligations to “trust but verify” and to conduct a rigorous evaluation of outcomes and impacts of the CEO and organization annually.

Following are some of the behaviors that signify a trusting partnership is in place:

  • The president/CEO:
    • Has authority to initiate short-term loans from a bank for emergency funding. The board has established a limit on the amount to be borrowed.
    • Sees himself/her as an equal partner in fundraising efforts. Knows how to effectively interact with top managers in stakeholder organizations.
    • Is comfortable is interfacing with senior executives of other NFP organizations, especially those to which the organization wishes to emulate.
    • Is confident about his/h management experiences and expertise, understanding that nobody does a job perfectly.         Occasional modest management missteps are viewed by the board in proper perspective.
    • Has good professional relationships with board members.
    • Does not view the job as being in jeopardy.
    • Feels comfortable in disagreeing with board members.
    • Feels comfortable with the processes the board uses to have executive sessions without management present.
    • Feels comfortable with a rigorous examination of CEO performance.
  • Board Members:
    • View CEO as a peer who deserves respect, not seen as a board servant.
    • Do not discuss the CEO’s professional limitations outside of the boardroom.
    • View the CEO as an effective staff leader.
    • Look to the CEO to be have state-of-art knowledge and vision for the areas in which the mission has been defined.
    • Expect the CEO to grow professorially and tries to support that growth within the financial means of the organization.

“In order for a trust-based governance system to work, …(nonprofits) must first develop a culture that discourages self-interest.”** In the nonprofit environment, many work to achieve a mission at the expense of self-interest. Consequently, a “high-trust” culture should be easier to establish at the senior levels. While the trust the board has in its chief operating officer can’t be described in exact quantitative terms, viewing it through the lens of a set of behaviors can give an idea of whether it is excellent, good or nonexistent.

* Note Well: In many states a volunteers who carry the title of president /CEO can accrue personal liabilities not incumbent on other board members.
** David F. Larcker and Brian Tayan (2013) “Trust: The Unwritten Contract in Corporate Governance,” Stanford Closer Look Series, July 31st.

 

 

     

    A Nonprofit Board Must Focus On Its Organization’s Impacts

    A Nonprofit Board Must Focus On Its Organization’s Impacts

    By: Eugene Fram        Free Digital Image

    “One of the key functions of a (nonprofit) board of directors is to oversee (not micromanage) the CEO, ensuring that (stakeholders) are getting the most from their investments.” * State and Federal compliance regulations have been developed to make certain that boards have an obligation to represent all stakeholders.  These include the staff, community, donors, foundations and clients, but not only the staff as some nonprofit boards have come to believe.   Following are some inherent problems.

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    Nonprofit Board Disruption—A Board Member’s Reflections

    Nonprofit Board Disruption—A Board Member’s Reflections

    By: Eugene Fram          Fre Digital Image       

    A tsunami can suddenly erupt on a nonprofit board. Or, instead, dissension can smolder within the organization, and finally burst into flame. In any case, polarization of opinion can damage an organization unless skillfully managed. It can occur on many fronts: fraud, sharp division of opinion, staff morale or any number of issues. In turbulent times such as the Covid 19 environment, latent problems can swiftly escalate and create chaos.

    Disruption on the Board can only be resolved with strong leadership. In most cases, the Board Chair (BC) assumes the responsibility of addressing the problem. In my 30+ years of board/consulting participation, I have had a number of opportunities to view nonprofit boards in trouble. In this post, I share some of the suggestions that have “worked” to resolve problems and help rebuild broken organizations.

    When the BC has to accept the challenge of uprooting the problem, he/she is likely to be met with some resistance. Board members may resign from the board in anticipation of a substantial increase in meetings and time involved. Some may be concerned that their management reputation could be sullied or personal financial liabilities leveled by the IRS, the possibility of lawsuits.

    If the BC is unable to persuade the distressed board members that their expertise is needed to achieve the nonprofit’s mission, and has made them aware of the Directors & Officers’ Insurance policy which will protect them from financial liability, it will be difficult to recruit new people in this period of instability.

    However, the BC can ask former board members to return for another year. In one case, a human service organization persuaded a board member about to be termed out to stay for another two years. He happened to be a senior vice president of a listed firm–and a valuable asset to the nonprofit.   He accepted the offer to stay and agreed to become BC of the weakened organization. During his extended tenure, he successfully recruited some former members dedicated to the organization’s mission.

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    Errors That Can Cloud Nonprofit Board’s Decision Making–Tread With Care

     

    Errors That Can Cloud Nonprofit Board’s Decision Making–Tread With Care

    By Eugene Fram            Free Digital Image

    In this age of information overload, nonprofits need to continually scrutinize the quality and source of the material received in preparation for major decisions. Since board members often come without broad enough experience in the nonprofit’s mission arena, they may not be prepared to properly assess its progress in moving forward–and not equipped to make relevant comparisons with similar nonprofits.  In addition, naive or unscrupulous CEOs and highly influential directors may inundate their boards with information and data as a  distraction tactic to keep them busy in the “weeds,” reviewing what has been presented.  Board members need to avoid donning “rose-colored glasses” when assessing proposals from these sources.

    I once encountered a nonprofit whose board was about to acquire a for-profit organization, headed by its founder.  Pushing for the “deal” were the nonprofit’s CEO and an influential board member who were not, it turned out, capable of the due diligence needed for a project of this complexity. But the board approved the acquisition without sufficient review.  When the acquisition was consummated, the founding CEO of the subsidiary refused to take directions from the CEO of the nonprofit. In addition, the normal financial settlement of the project requires that a portion of the price be withheld, in escrow, pending adequate performance.  In this instance, the nonprofit paid cash for the acquisition.  Based on  a lack of performance, the operation was finally closed with a substantial loss.

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    A Special Relationship: Nurturing the CEO-Board Chair Bond
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    A Special Relationship: Nurturing the CEO-Board Chair Bond

    By Eugene Fram              Free Digital Photo

    Here are tips to assure the best possible partnership between the board chair and CEO.

    Keeping boards focused on strategic issues is a major challenge for nonprofit leaders.  This leadership crisis is intensified by the fact that board chairs tend to have short terms (according to BoardSource, 83% stay in office only one or two years). Thus, nonprofit CEOs  and board chairs need to bond quickly. For the good of the organization, they must come together swiftly and create a partnership that works. Here are golden rules for the CEO and board chair to follow:

    1. Be sure the CEO and board chair share strategic issues with each other—negative as well as positive ones. A failure by either the chair or CEO to share information, such as a potential cash flow issue, can be disastrous for the nonprofit.

    2. It’s critical for the CEO to conduct orientation sessions with a new chair, explaining the challenges facing the nonprofit, and reviewing the fundamentals of the mission. The CEO can help the chair keep the board focused on strategic issues, whether they’re programmatic or financial.  With many nonprofits electing a new president each year, the CEO needs to prioritize these tasks.

    3. Make sure staff know who has the final say. Some employees mistakenly view the board chair as the ultimate authority, even when the organizational table lists the CEO as holding that position. As a result, they may try an end run around the CEO, asking the board to overturn the CEO’s decision about salaries, promotions, or programs, for example. Both the CEO and board chair must emphasize the fact that the CEO is the final authority. If they make this message clear enough, they can probably keep staff from attempting any end runs. If an end run still occurs, the board chair must refer the issue to the CEO for resolution, except if the CEO is being charged with malfeasance.

    4. The CEO should arrange for individual board members to meet with management staff on occasion so that the board can gather information about how the organization is operated and obtain an understanding of the promotional abilities of managers. The Sarbanes-Oxley act (a federal statute relating to public corporation boards) recommends this process for for-profit boards, and it’s also a good one for nonprofit board members.

    5. Give staff members opportunities to participate in strategic planning and to support board committees. The board chair and CEO should work together to arrange such board-staff interactions, including joint celebrations of organizational success.

    6. The CEO and board chair need to agree on the use of ad hoc board committees or task forces and their relationship to standing committees. For example, should the HR/personnel committee be a standing one or only an ad hoc one to address major personnel policies? In the 21st century, a board should only have maximum of five standing committees, many can only have three.  If task forces are used to provide provide options for occasional policy issues, for example pension plan changes, there may be little need for a standing board HR/personnel committee.

    7. The board chair and CEO should be the active leaders in fundraising efforts, with the CEO as administrative leader. The board chair and other board members must provide the CEO entrée to funding sources. They often need to accompany the CEO on fundraising visits. The CEO should keep the board chair informed of all entrepreneurial development activities being explored.

    8. The board has only one major employment decision to make – to recruit and hire the CEO. It’s usually a long and exhausting process. But once it’s completed, the employment of all other staff personnel is the responsibility of the CEO and the CEO’s management team. For senior positions, most CEOs ask their chairs and/or other board members to meet with candidates, but the ultimate responsibility remains with the CEO.  The board also has a responsibility to overview staffing to make certain that adequate bench-strength in in place for succession placements,  at the CEO and the senior management

    9. When hiring a CEO, or soon after employment, the board chair and CEO must face a stark reality—the need for emergency leadership should the CEO become temporarily incapacitated. These plans can either be established informally by the chair-CEO partnership or more formally via board resolution. The following are possible interim CEOs: a senior manager in the organization, a semi-retired experienced CEO living near headquarters, a consultant living in a neighboring city. CEO succession planning is an important issue for the partnership should the CEO decides to leave or retire.

    10. The CEO can be helpful to the board chair in recruiting new board members by suggesting possible volunteer candidates or other contacts who have demonstrated an interest in the organization’s mission, vision, and values. Board candidates will want to meet with the CEO as part of the interview process. As a result, the two partners must agree on how to present the organization to board candidates.

    11. The chair and CEO need to lead in establishing meeting agendas. The two partners must work together to assure there’s sufficient meeting time to discuss and resolve strategic issue While many nonprofits call their top executive the “executive director,” the term CEO or president/CEO is a more leader-focused.

    12. For the current environment, board members should be ready and willing to be ready to involved in a heightened level of board activity.   If not, the board chair and board member should determine what constraints the member needs to be in place for his/h activity.

    Reversing Traditional Nonprofit Board Barriers

     

     

    Reversing Traditional Nonprofit Board Barriers

    By: Eugene Fram          Free Digital Photo

    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 board members, 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 40- 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 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.

    Six Approaches to Innovation for Nonprofit Boards

     

     Six Approaches to Innovation for Nonprofit Boards

    By Eugene Fram                     Free Digital Image

    The Bridgespan Group, supported by The Rockefeller Foundation, completed an exciting research study. The results identified “six elements common to nonprofits (in bold/italicized) with a high capacity to innovate” * Following are my suggestions on how to implement these elements.

    1.  Catalytic Leadership that empowers staff to solve problems that matter. 
      This involves the board to lead with committed and generative leadership. ** Board members must be ready to ask tough questions. They must require management to respond to the classic question, “Who would miss the nonprofit if it were to disappear?” Board members should be able to suggest new ideas drawn from business and the public sector that can be adapted, assessed and tested by management and staff

    2. A curious culture, where staff looks beyond their day-to day obligation, question assumptions, and constructively challenge each other’s thinking as well as the status quo.
      This, in my view is difficult to achieve, but boards should attempt to take every advantage to develop it. Boards that question the status quo are hard to find in all fields. They should, at the least, involve the staff in strategic planning efforts and pay close attention to its development. Staffs then are in an excellent position to challenge the status quo. One staff person in a human services agency, for example, challenged the status quo by observing the nonprofit did not have a “safety net” mission, but in reality had a “sustainability” mission. The agency was not only helping clients on a day-to-day basis but also was trying to assist them to achieve sustainable lifestyles.
    1. Diverse teams with different backgrounds, experiences, attitudes and capabilities—the feed-stock for growing an organization’s capacity to generate breakthrough ideas.
      As the Bridgespan Group has noted, it is necessary to have board members, “who are diverse across their dimensions: demographics, cognitive and intellectual abilities and styles with professional skills and experiences. In my opinion, nonprofits have been successful in recruiting board members in all of these categories except two—cognitive and intellectual abilities. I have encountered nonprofit boards without a single director with strategic planning or visionary abilities. Board members’ full time occupations often do not require them to have these abilities. As a result, strategic planning was just a SWAT (strengths, weakness and threats) review without any real analytical depth. To rectify the situation, nonprofits need to add these abilities to their recruitment grids. Unfortunately, this makes the recruiting effort more difficult since the abilities don’t appear on many resumes. Candidates must be assessed from an in-depth interview process.
    1. Porous boundaries widen the scope for innovations, by allowing fresh ideas to percolate up from staff at any level—as well as constituents and other outside voices—and seep through silos.
      Because many nonprofits have small travel budgets, they may operate in “bubbles, ” consisting of themselves and similar neighboring organizations. In addition, they can acculturate board members to the “bubble” traditions and environments.   For example, they may ask a new board member, with strong financial abilities to help the CFO with accounting issues, instead of asking her/h to develop a strategic financial plan for the organization. Perhaps as national webinars become more available to nonprofit managements and their staffs, these information flows will help to change the innovation roadblocks. Then they can, “generate new ideas systematically, test ideas using articulated criteria, metrics methodologies and prioritize and scale the highest potential ideas.”
    1. Idea Pathways that provide structure and processes for identifying, testing and transforming promising concepts into needle-moving solutions.
      For example, the process of Lean Management can allow testing of new ideas quickly. Instead of waiting for a new strategic plan to establish a pathway for   something new, a nonprofit can test it with a series of small-scale efforts to determine its viability. The idea can be dropped if positive results are not developed after a couple of tests.   If after successive tests with viable information results, the idea can be moved quickly to an implementation stage when the nonprofit has the necessary resources.

    2. The ready resources—funding, time, training and tools—vital to supporting innovation work.
      To fully take advantage of most of these six innovation guidelines, fundraising is critical. But each board and staff cannot do it alone. It must be a partnership between the board members and the CEO that recognizes fundraising for innovation is a necessary part of the nonprofit’s resourcing efforts.

    *https://ssir.org/articles/entry/is_your_nonprofit_built_for_sustained_innovation

    **https://www.bcg.com/publications/2022/all-about-generative-leadership-and-its-benefits

    Does Your Nonprofit Have A Process For Implementing Strategy?

     

    Does Your Nonprofit Have A Process For Implementing Strategy?

    By: Eugene Fram           Free Digital Image  

    My observation is that intense interest in nonprofit organizational strategy only takes place  very three or five years when the strategic plan needs to be reviewed.  The cause, as I see it, is that substantial numbers of nonprofit board members and senior managers lack substantial strategic  backgrounds and interests to enable them to give the plan implementation attention. Most boards I have encountered are fortunate to have one or two  board members with broad based strategic experiences. With nonprofit board members rotating every four to six years, it’s likely that any board member will only participate in one strategic plan change experience.  Also some nonprofit CEOs and senior managers can be directly appointed from staff positions, lacking knowledge of strategy development.    

    Based on a survey of commercial organizations by McKinsey, it appears that these boards and their managements have similar strategic challenges as nonprofits. * 

    Following (in bold) are McKinsey’s three suggestions for implementing strategy development and my suggestions for adapting them to nonprofit organizations (more…)

    Should Mature Nonprofits Allow Board Micromanagement?

     

    Should Mature Nonprofits Allow Board Micromanagement?

    Commonly accepted View of  Nonprofit Micromanagement: Board members spend more time with the details of the operations instead of planning the organization’s short-term and long-term growth strategies. 

    The Need for a Micromanaging Board
    Board micromanagement is an appropriate approach when a nonprofit is in a start-up stage. Financial and human resources are modest, and the volunteer board members must assume some responsibilities normally executed by compensated staff. The chief executive often has managerial responsibilities as well as a list of clients to service. It is not unusual to promote a person who is only familiar with direct service to become the first chief executive of the organization. In turn , this neophyte manager has to depend on board members for managerial counsel and direction. A culture of board dependency is created out of necessity.

    Problems Arise
    The micromanaging board is a worthy model for smaller nonprofits that stay at a start-up level for a long time. Some nonprofits retain this governance model, with its dependency relationships, long after it is needed. Example: One nonprofit I encountered required its department heads to first discuss major issues with designated board members before reviewing them with the chief executive, e.g., the program manager follows instructions of the board program committee chair.

    Major Organizational Impacts Of Continuing Micromanagement
    • Management and staffs wait for board signals or instructions before taking action. One CEO reported: “I give the board options and let them choose the course of action.” Implication: I don’t want the responsibility for the action chosen. “The board told me to implement it.”
    • It’s more difficult to hire talented managers with these types of organizations. Most, from CEO down, are “C” players. They fear “A” and “B” players and then hire more “C” players like themselves. More qualified personnel may reject offers.
    • Management & staff just don’t have the “right stuff” to be creative. They don’t properly question authority. Boards are shown great deference.
    • Impacts and outcomes at best are minimal, but this is not readily recognized by the community or sponsoring organization. As long as income meets expenses each year, the board does not note any long-term red flags.

    Changing the Culture — The Important Issue
    Governance and management changes do not occur easily when an organization has maintained a micromanagement culture well beyond the start-up period. Following are some ways that I have seen changes take place.
    • Several forward-looking members of the board, including the chair, develop a plan to seek change. Opinion leaders or well-respected veterans must be included.
    • Over time, often a year or more, a change plan is developed and then formally adopted by the board. This usually involves giving the chief executive full responsibility for operations, along with a robust annual assessment of the CEO and operations.
    • During the process, all stakeholders must be informed about the proposed changes, and the reasons for change. Naysayers will quietly spread internal and external rumors about it. Actual Example: “We will be losing our family culture and our great interpersonal relationships.”
    • The CEO must be in favor of the changes to be instituted. If not, the board needs to wait until the CEO retires or leaves. Of course, the board can terminate the CEO, but this will certainly lead to conflict with the staff and the stakeholder constituency he/s has developed.
    • When a new CEO is engaged, make certain the person has a desire and some experience to manage and the interpersonal skills to relate to the staff at its current state.
    • Some members of the board will become “displaced directors,” persons cemented to the older order. Look for them to resign quietly and/or take potshots at the new governance-management arrangement. Actual Example: In one organization, when the traditional ED title for the chief executive was abandoned and the title President /CEO instituted, a board member derisively questioned, “Do we call him ‘Presco’ ?”

    Summary
    The tendency of nonprofit boards to micromanage organizational operations is still prevalent. In fact, it appears to be part of the nonprofit’s DNA! With the huge problems confronting nonprofits, it’s high time for a 21st century culture change!

    How Can A Chief Operating Officer (COO) Advance Your Nonprofit Organization?

    How Can A Chief Operating Officer (COO) Advance Your Nonprofit Organization?

    By: Eugene Fram                Free Digital Image

    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.

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