CEO Evaluations

Two Nonprofits Merge: Synergy or Collision Course?

 

Two Nonprofits Merge: Synergy of Collision Course?

By Eugene Fram              Free Digital Image

Having led a merger committee that resulted in a successful merger with another nonprofit, I thought my field observations might be of interest to others contemplating a merger. These comments center on a merger of two equal partners, which plan to form a new organization, not the acquisition of one nonprofit by another.

Assuming both organizations have merger committees that meet frequently, over an extended time period, the following initial issues need to be reviewed:

• Are the mission, vision and values of both organizations the same or sufficiently similar?

• Are there any financial issues that might cloud the negotiations?

• Do the two merger committees work well together and view each other positively as potential colleagues?

• Are both groups willing to invest the board time and financial resources to bring about a melding of the two groups?

• Are there any factions in either of the two organizations that might be emotionally opposed to the merger?

• What, at this early stage, might be some barriers (“deal breakers”) to the merger?

• What needs to be done to move the merger process forward and to develop an implementation plan, if both boards agree to the merger?

• How will the impact of the merger be determined and at what intervals will it be measured?

• In the event that either or both organizations are dissatisfied with the merger, what specific detail need to be specified in a “prenuptial” breakup agreement?

• How will the CEO of the merged organization be determined? This will have to be decided amicably

• How can morale of both organizations be maintained during merger discussions? What incentives need to be developed to maintain those who will certainly need a new job, e.g. CFO?

The Devil Is In The Details – Are These “Deal Breakers?”

• Consider various stakeholders who might be impacted by the merger. (These can include: community leaders, managers, staff, funders, vendors, media, etc.) How can consensus be achieved?

• Where will the new nonprofit be physically located? What are the real estates implications?

• The combination will probably require layoffs and new reporting arrangements. How will these be decided?

• How will the new board be constituted? Will a larger new board be necessary? If not, what is the plan for paring down the size of the new board.

• What legal counsel will be needed and at what costs? Will foundation support be needed to establish the merger?

• What systems or interpersonal relationships are necessary to avoid “surprises” before or after the merger?

Never Underestimate the Importance of Culture

The failure of the AOL-Time Warner merger has become an all time classic example of the failure of the two cultures to blend into a new culture. I have observed that blending two nonprofit organizations will certainly encounter cultural “bumps in the road,” starting about six months after the merger and can continue for several years. Although the mission, vision and values of both groups may be identical, culturally inspired blips can arise from differences in which previous boards operated, from expectations of the CEO, from staff differences, etc. However, they do take time, persistence and board leadership to resolve.

Any merger will have its own specific imprint. However, I hope that the guidelines cited above will be helpful in navigating the rough shoals that frequently appear after the honeymoon period.

 

Once Again!! Dysfunctional Levels in Nonprofit Boards & Organizations.

 

 

By: Eugene Fram.       Free Digital Image

Articles and studies from a Google search on “Dysfunctions in Nonprofit Boards & Organizations,” yields nearly two million items in less than a minute. These items show dysfunctions on charter school boards, church boards, healthcare boards, trade associations, human services boards etc.

Rick Moyers, a well-known nonprofit commentator and nonprofit researcher, concluded:

“A decade’s worth of research suggests that board performance is at best uneven and at worst highly dysfunctional. ….. The experiences of serving on a board — unless it is high functioning, superbly led, supported by a skilled staff and working in a true partnership with the executive – is quite the opposite of engaging.”

These data and comments can lead one to conclude that all nonprofit boards are dysfunctional. I suggest that nonprofit boards can generate a range of dysfunctional behavioral outcomes, but the staff can muddle through and continue to adequately serve clients.

Mildly Dysfunctional: Board meeting attendance can be a problem, left unattended by the board chair and CEO. Agendas are not completed within the meeting time frame. Strategic planning discussions takes place once a year with little reference to it between annual meeting retreats. Goals are established without measured outcomes, or more importantly–Impacts.
On the other hand, budgets and finances are reasonably well handled. Incremental growth each year is modest. Board recruitment takes place largely based on board contacts and friendships, with a few recommendations by the CEO. Most everyone on the board is mildly or fully dedicated to the organization’s mission.

Moderately Dysfunctional: Many of the above dysfunctions, plus one or more of the following ones:

• The board chair and/or the CEO receive heightened deference in board discussions.
• Important decisions are made without full participation by all board members. One of two directors set the tone for the discussions and the outcomes.
• Either the board chair or CEO has inadequate backgrounds to develop a robust board. Nearly all agenda topics center on operational issues.
• The board does not trust the CEO but is unwilling to take action to remove him or her.
• The mission is not clearly defined and “mission creep” can be a problem. In this instance, the staff can be productive, if some managers are able to isolate staff from the board dysfunctions.

Highly Dysfunctional: Many of the following board behaviors are exhibited:

• The board is divided into unyielding factions, a la the current US congress.
• Board discussions go beyond civil discourse into personal barbs, often disguised as humor.
• Board committees are not functioning properly. Important decisions are often delayed for a year or more.
• Rumors about the board conflicts are reaching funders, who are asking questions about the rumors.
• It is becoming difficult to recruit talented board members or professional personnel.
• The board chair and other board directors refuse to acknowledge the problems.

There is little that the staff can do in this situation, except to hope for a funding angel to cover the financial problems that will develop. However, I did observe one organization that recovered from such highly dysfunctional board behaviors and finally succeeded in recruiting more talented board members. It also adopted a new governance format. The change led to some board members to resign. (One was insisting that the board members should evaluate individual staff personnel!) However the mistrust between the board and staff, as a result of the dysfunctional board behaviors, continued for decades.

Associations, Board agendas, Board meetings, Board Recuitment, Building Trust, CEO Evaluations, Charity, Consistency, Crisis Management, Dysfunctional nonprofits, foundation boards, Good governance, Ineffective directors, Long-term Sustainability, Non-profit board of directors, Nonprofit board barriers, Nonprofit governance, Nonprofit impacts, Nonprofit mangement, Trustees, Trustees, 

 

     

     

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    What Role Should nonprofit Board Members Play in Overviewing Management /Staff Talent?

     

    What Role Should Nonprofit Board Members Play in Overviewing Management /Staff Talent?

    By: Eugene Fram    Free Digital Image

    Nonprofit boards rarely develop an in-depth strategy for assessing its organization’s human capital. Some will keep informal tabs on the CEO’s direct reports to prepare for the possibility of his/her sudden departure or is incapacitated. Others –smaller organizations with fewer than 20 employees—need only a basic plan for such an occurrence.

    Need for Strategy: In my view, maintaining a viable talent strategy to assess staff and management personnel is a board responsibility, albeit one that is often ignored. The latter stems from the constant turnover of nonprofit board members whose median term of service is 4-6 years—hardly a lifetime commitment. Like for-profit board members whose focus is on quarterly earning results, their nonprofit counterparts are likely more interested in resolving current problems than in building sufficient bench strength for the organization’s long-term sustainability.

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    Guidelines For Developing Authentic Nonprofit Board Leaders

    Guidelines For Developing Authentic Nonprofit Board Leaders

    By Eugene Fram               Free Digital Image

    The problems of Wells Fargo and Enron  have provided negative examples for future leaders, according to William George, Senior Fellow at the Harvard Business School. As an antidote to these and others serious problems that have plagued business and nonprofits in the last several decades, he cites the movement towards Authentic Leadership. He further lists six guidelines to identify behaviors in such leaders. Following are my views on how his guidelines can be useful to directors and managers in the nonprofit environment. (http://hbswk.hbs.edu/item/authentic-leadership-rediscovered)

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    Nonprofit Boardroom Elephants and the ‘Nice Guy’ Syndrome: An Evergreen Board Problem?

    Nonprofit Boardroom Elephants and the ‘Nice Guy’ Syndrome: An Evergreen Board Problem?

    By: Eugene Fram    Free Digital Image

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

    In specific, the board failed to take any action to remove a board member who wasn’t attending meetings, but he refused to resign. His three-year term had another 18 months to go, and the board had a bylaws obligation to summarily remove him from the board. However, a majority of directors decided such action would hurt the board member’s feelings. They were unwittingly accepting the “nice-guy” approach in place of taking professional action.

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    Measuring Nonprofits’ Impacts: A Necessary Process for the 21st Century

     

    Measuring Nonprofits’ Impacts: A Necessary Process for the 21st Century

    By Eugene Fram      Free Digital Image

    Unfortunately, outcomes and impact are often unrelated, which is why a program that seems to produce better outcomes may create no impact at all. Worse, sometimes they point in opposite directions, as can happen when a program works with harder-to- service populations resulting in seemingly worse conditions, but (has) higher value-added impact. … Rigorous evaluations can measure impact (to a level of statistical accuracy), but they are usually costly (a non starter for many nonprofit), difficult and slow. * But how do the medium and small size nonprofits measure actual results in the outside world such as enhanced quality of life, elevated artistic sensitivity and community commitment?

    A Compromise Solution:

    To close the gap, funders and recipients would need to agree to apply imperfect metrics over time. These are metrics that can be anecdotal, subjective or interpretative. Also they may rely on small samples, uncontrolled situational factors, or they cannot be precisely replicated. ** This would require agreement and trust between funders and recipients as to what level of imprecision can be accepted and perhaps be improved, to assess impacts. It is an experimental approach

    How To Get to Impact Assessment:

    1. Agree on relevant impacts: Metrics should be used to reflect organizational related impacts, not activities or efforts. Impacts should focus on a desired change in the nonprofit’s universe, rather than a set of process activities.
    2. Agree on measurement approaches: These can range from personal interviews to comparisons of local results with national data.
    3. Agree on specific indicators: Outside of available data, such as financial results, and membership numbers, nonprofits should designate behavioral impacts for clients should achieve. Do not add other indicators because they are easily developed or “would be interesting to examine.” Keep the focus on the agreed-upon behavioral outcomes.
    4. Agree on judgment rules: Board and management need to agree at the outset upon the metric numbers for each specific indicator that contributes to the desired strategic objective. The rules can also specify values that are “too high” as well as “too low.”
    5. Compare measurement outcomes with judgment rules to determine organizational impact: Determine how may specific program objectives have reached impact levels to assess whether or not the organization’s strategic impacts have been achieved.

    Lean Experimentation

    The five-point process described above closely follows the philosophy of lean experimentation, ** now suggested for profit making and nonprofit organizations.

    Lean allows nonprofits to use imperfect metrics to obtain impact data from constituents/ stakeholders over time. Under a lean approach, as long as the organizations garners some positive insights after each iteration, it continues to improve the measurement venues and becomes more comfortable with the advantages and limitations of using these metrics.

    Organizationally the nonprofit can use this process to drive change over time by better understanding what is behind the imperfect metrics, especially when a small sample can yield substantial insights, and actually improve the use of the metrics.


    * https://nonprofitquarterly.org/2012/07/24/using-imperfect-metrics-well-tracking-progress-and-driving-change/
    ** http://ssir.org/articles/entry/the_promise_of_lean_experimentation

    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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    Nonprofit Boards and the Oversight Gap in Internal Leadership Development 

    Nonprofit Board and the Oversight Gap in Internal Leadership Development 

    By: Eugene Fram                    Free Digital; Image

    Although the nonprofit CEO is charged with nurturing the development of his/h staff, the board is responsible for over-viewing the process. Research evidence shows both board and management may be neglecting their duties in regard to this responsibility. Only (20% to 30%) of nonprofit CEO positions are filled internally, a rate that can be about half the rate of for-profit organizations–(about 30% to 50%.) The same research shows that, “Hiring the more (internal personnel) can improve performance at the two-year mark by 30%.”  * These figures are averages and can vary widely based on organizational practices and industry standards. (more…)

    How Do Nonprofits Determine CEOs’ Productivity?

    How Do Nonprofits Determine CEOs’ Productivity?

    By: Eugene Fram           Free Digital Image

    Nonprofit organizations can’t have a traditional bottom line profits. If they did, CEO productivity determination could be less complicated. Determining a fair CEO  salary or benefit based on productivity, can be a complex issue for a nonprofit board. Providing too little or too much can be dangerous for the organization and possibly the board members. Although the spadework for salary and benefits need to be done by a small committee, the entire board needs to fully agree on the rationale for the final decision.

    Following are some of significant challenges that I have noted nonprofit boards face when determining what is a fair system. (more…)

    Once Again! Nonprofit CEO: Board Peer – Not A Powerhouse

    Once Again! Nonprofit CEO: Board Peer – Not A Powerhouse

    By: Eugene Fram                Free Digital Image

    Some nonprofit CEOs make a fetish out of describing their boards and/or board chairs as their “bosses.” Others, for example, can see the description, as a parent-child relationship by funders. The parent, the board, may be strong, but can the child, the CEO, implement a grant or donation?  A small group of  CEOs may openly like to perpetuate this type of relationship because when bad decisions come to roost, they can use the old refrain: the board made me do it.

    My preference is that the board-CEO relationship be a partnership among peers focusing on achieving desired outcomes and impacts for the nonprofit. (I, with others, would make and have made CEOs, who deserve the position, when allowed by state laws, voting members of their boards!)

    There are many precedents for a nonprofit CEO to become a peer board member, some without voting rights, some with full voting rights. One nonprofit group is university presidents, where shared governance with faculty bodies can be the norm. For example, when General Eisenhower became president of Columbia University, he referred to the faculty in an initial presentation as “Columbia employees.” Later a senior faculty member informed him “With all due respect, the faculty is the university.”

    Another nonprofit group is hospitals where the CEO may also be or has been the chief medical officer. The level of medical expertise needed to lead requires that a peer relationship be developed. Also if the hospital CEO is a management person, he and the chief medical officer must have a peer relationship, which extends to the board.

    Hallmarks of a Peer Relationship
    • The CEO values the board trust assigned him/her, and carefully guards against the board receiving surprise announcements.
    • The board avoids any attempts to micromanage, a natural tendency for many nonprofit boards.
    • When a board member works on a specific operating project, it is clearly understood that he/s is accountable to the CEO for results.
    • The CEO has board authority to borrow money for short term emergency needs.
    • The CEO understands need for executive sessions without his/her presence.
    • The CEO understands the need for a robust assessment processes to allow the board to meet its overview duties.
    • Both board and CEO are alert to potential conflicts of interest which may occurs.
    • Both value civil discussion when disagreements occur.
    • The board realizes that nobody does his/her job perfectly, and  does not strongly react to occasional CEO modest misjudgments.

    Summary
    Elevating a nonprofit CEO to a status of board peer does not automatically make the CEO a powerhouse. The board legally can terminate the CEO at will. However, in my opinion, having the CEO as a board member can generate  following benefits.

    The peer relationship help will:

    • Help the organization to build a desirable public brand, since the related responsibility is more broadly understood when compared to the ED title.
    • Allow a capable person, with daily experience, to interface with the media.
    • Define a role for the CEO to lead in fundraising.
    • Allow the organization to hire better qualified personnel.
    • Allow the organization to present a strong management environment to funders. After all, top people in organizations readily communicate with people in similar positions.