Anticipating Tomorrow’s Nonprofit Crises Today
By: Eugene Fram Free Digital Image
In the decades in which I have been a nonprofit/business board member or consultant, I fortunately have only been in the mire of a crisis situation twice. In both cases, the board was totally unprepared to take appropriate actions to minimize the turmoil that followed.
Following some guidelines that nonprofit boards can use to plan to respond effectively to crises in the 21st century: *
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Once Again! Mismanagement Causes Huge Agency Failure—A Word To The Wise Nonprofit
By: Eugene Fram. Free Digital Image
Rarely do failed for-profit or nonprofit organizations get a posthumous review of what actually went wrong.The collapse of one of the largest nonprofits in the US, the Federal Employment Guidance Service (FEGS)of New York City, is a noteworthy exception. Details of the causes that led to the human service’s demise were aired widely throughout NY media. * This organization had a $250 million budget, with 1900 employees who served 120,000 households covering a range of mental health and disability services, housing, home care and employment services.
Following are my interpretations of what its board should have done to avoid such a tragedy
.• Failure of nonprofits: Failure of small nonprofits is rampant for a wide variety of known reasons. Outside of fraud being involved, the FEGS failure demonstrates that no nonprofit is too big to fail because of a lack of board due care. Boards have to be acutely aware of the professional financial competencies of their CFO and CEO or well-meaning people who naively believe that loans could be easily repaid. There should have been a well-documented financial strategy. The nonprofit closed with $47million in loans/liabilities/debts.
• Symptoms of impending collapse: Clearly with $47 million being owed, common financial ratios should have alerted knowledgeable board members to the coming catastrophe. But in the nonprofit environment, it is not unusual to that find board members, even business executives, are unfamiliar with the fund accounting approach used by nonprofit organizations. In addition, contracting city and state agencies failed in their reviews of the organization’s finances . However, some nonprofits, either intentionally on unintentionally, can saddle contract reviewers and board members with so much information that even the most conscientious can’t spot problems. (Humorously, board members in this category are referred to as “mushroom directors” because like growing mushrooms, they are kept in the dark an covered with excrement. But this type of tactic was successfully used against IRS auditors in the famous Madoff debacle.)
• Government or Foundation Contracts: In accepting these contracts, nonprofits must be realistic about whether or not there is enough money to cover full costs. They can’t be blinded by what the contract can do for the organization’s client. If adequate overhead funding is not attached to one or more of these agreements, they eventually can cause bankruptcy, because the nonprofit eventually will have to borrow or seek additional donations to cover them.
How Nonprofit Boards Can Avoid Problems
• Review Financials: Current financials need to be given to board members monthly, or at least quarterly if the board meets less often. The very detailed budget data can often be difficult for board members without budget experience. At the least, everybody on the finance committee needs to be able to intelligently review the income statement and balance sheet. Also they need to be aware that fund accounting permits some unusual twists—food donations, for example, can be included in revenues, based on an estimate of their value. Consequently, cash revenues and expenditures need to be a focus for board members’ analysis. Make certain that financials are delivered on timely and complete bases.
A nonprofit CFO didn’t submit an accounts receivable reports for nine months because he said he was too busy to compile it. Neither the board nor the CEO demanded issuance of the report. When finally delivered, it was clear that the CFO was listing a substantial number of uncollectible accounts as active ones. Both the CFO and CEO were fired, and the nonprofit had to hire expensive forensic accountants to review the impact.
• Gaps Between Revenues and Expenditures: This is the ultimate red flag, if not followed carefully. It may vary from period-to-period in a predictable pattern that everybody understands, but if the gap continues, say for four to six months, strong board action is necessary.
• Adopt written financial policies: These are necessary to make sure all concerned with finances are on the same page. Since interpretation is often required in financial decisions, nothing should be left open to broad interpretation
.• Contracts with governments, foundations and others: Make certain that reimbursements for indirect costs are included. If not included, have a benefactor ready to step in to cover the costs.
An old Chinese proverb, “A wise man (or woman) learns from his/h own experience. The wiser man (or woman) learns from the experiences of others.” One hundred twenty thousands households and individuals lost services from an 80 year old human service nonprofit. There is much to learn from the collapse of FEGS.
* https://nonprofitquarterly.org/the-fegs-autopsy-a-case-of-bad-nonprofit-business-in-a-tough
Do Your Board Members View Their Board Work As Being Meaningful?
By Eugene Fram Free Digital Image
For several decades, I have suggested that nonprofit Board Chairs and CEOs have a responsibility to be sure that each board member perceives his/h continuing relationship as being meaningful. Following are some organizational guidelines that can assist Board Chairs and CEOs in this effort.*
A strong CEO, if appointed internally, should understand the role changes that take place once appointed. He/s must delegate activities that were once performed within a comfort zone and seek new challenges. Examples: The new CEO needs to be enthusiastic about becoming a fundraiser. She/h must become well acquainted with peer CEOs regionally and nationally to stay abreast of the state-of-art in both management and mission areas. He/s needs to become acquainted with cohorts in the business and public management communities. Over time, those involved with the nonprofit internally and externally must perceive the organization is lead by a capable executive.
To solve the problem, both the Board Chair & CEO must acknowledge that it exists—in the above example; it took an extensive personal interview board survey to highlight the problem. Then creative tactics like the following can be employed.
While no nonprofit will be perfect, those with the best opportunity to provide meaningful board experiences will have a well formulated strategic plan that allows it to be stable operationally and financially.
*https://grantspace.org/resources/blog/high-impact-volunteer-engagement-six-factors-for-success/
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.
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 3,530,000 items in .53 of a second. 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.
The Nonprofit CEO–How Much Board-CEO Trust Is Involved?
By; Eugene Fram Free Digital Image
The title, 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.* .
The CEO designation calls for an unwritten trusting contact with the board based on mutual respect, drawing from the symbolism that he or she is the manager of the operating link between board and staff. It is a 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 annual evaluation of outcomes and impacts CEO has generated for the organization.
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 CEO and/or Board behaviors can give an idea that a significant level of trust is involved in the relationship.
Following are some of the behaviors that signify a trusting partnership is in place:
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.
How Can Nonprofits Accommodate To External Influences? Some Field Observations
By Eugene Fram Free Digital Image
Ruth McCambridge, former editor of Nonprofit Quarterly, points out “Our organizational management, (board) styles and structures are affected by the four external influences.” See paraphrased bolded items below. (http://bit.ly/1HSwrZY) Following are some specific field observations I have encountered that, over several decades, support her model relating to external influences.
The nonprofit’s mission field: McCambridge points out that arts organizations have dual have leadership models—artistic and business. However, unless specified which has final authority, the system can lead to continual conflict between the two; the artistic leader wanting the most authentic productions and the business leader concerned with budget realities. The final authority is often determined by which leader has the CEO title.
Nonprofit Boardroom Elephants and the ‘Nice Guy’ Syndrome: A Complex 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 board members decided such action would hurt the board member’s feelings. They were unwittingly accepting the “nice-guy” approach in place of taking professional action. (more…)
Identify Nonprofit Staff Groups To Help Drive Organizational Change.
By Eugene Fram Free Digital Image
Nonprofit executive directors Board Members tend to think of the staff professionals as individual contributors. These individuals are persons who mainly work on their own and but increasingly also have to contribute as team players – for instance, counselors, health care professionals, curators and university faculty. However, many executive directors fail to recognize that these individual contributors can be grouped according to identifiable types, with differing work-value outlooks. Each group needs to be motivated differently to drive change in today’s fast moving social, political and technological environments. Nonprofit board members can use these groupings in their responsibilities for overseeing promotable staff members.
Nonprofit Management 