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.
A vital concern to the future of any nonprofit organization is frequently neglected. Responsibility for the lack of strategic planning must reside with the chief executive, board members and the tactical challenges that inevitably flow to the board.
Before a nonprofit board can begin successful strategic planning, it must: • fully understand the difference between strategic and tactical planning.* • have a fully engaged chief executive involved with the board in the leadership of the strategic planning process. • have a proportion of board directors with some specific types of strategic oriented experiences.
For example, one faith based organization recreational facility I know built a modern new building. However, the leadership was unaware of the quietly growing demand for preschool education in the area. As soon as the new building was opened, several parts of the structure had to be remodeled to accommodate a growing preschool population.
While I admit that planning for coming societal and behavioral, changes is difficult, like the one in the example, I suggest that any nonprofit board needs to take “inventory” of the following backgrounds of the current chief executive and board members.
How strategically capable is the organization’s chief executive? Does he or she stay at the leading edge of the field? Has the board recruited the chief executive for a strategic acumen or for just keeping the organization on a stable course?
How successful has an organization been in recruiting some of the following types of board members? 1. Those with enough time to become thoroughly acquainted with field related to the mission, visions of the organization’s operations. After all, many nonprofit directors serve on boards whose fields of focus are quite different from those in which they have working experience. 2. Those who can distinguish between a strategic plan and a tactical plan? 3. Those capable of critical thinking, questioning past assumptions as they relate to the future assumptions. 4. Those who have had successful strategic planning experiences at a high (not tactical) levels on other FP or NFP boards. 5. Those who have innate visionary abilities to assess future opportunities or roadblocks. 6. Those who have failed with past unsuccessful strategic plans but learned from their mistakes. 7. Those who can realistically project the financial challenges a strategic plan will develop. 8. Those with significant prior NFP or FP experience who can be models for younger directors with time restrictions who contribute via time limited task force assignments. But they need much more seasoning with understanding governance functions because they often rubber stamp board chair or CEO suggestions.
Addressing these recruitment issues in a forthright manner should enable nonprofit organizations to determine if they are strategically deprived. This move also might improve nonprofits’ records for strategic planning.
* “strategy is the action plan that takes you where you want to go, the tactics are the individual steps and actions that will get you there”.
Nonprofit CEOs and Board Directors: How Expert Is Your CFO?
By: Eugene Fram Free Digital Image
When hiring a chief financial officer (CFO), nonprofit organizations often find themselves with a major challenge, since many financial and accounting functions and compliances are identical with those of for-profit organizations. To compete, the nonprofits may need to offer higher salaries than typical for nonprofit organizations. Some may trim the level of expertise required to fill the position. They hire a person with a bookkeeping background when the organization needs somebody with financial analysis skills. This is a dangerous move, especially when the organization is growing. It is difficult to terminate a financial person who is satisfactory for a startup, but isn’t able to navigate the challenges of rapid growth. Also it is a continuing challenge for the Board and CEO, to make certain that the person in the position now has the requisite skills. A mistake by a person who is not current with financial changes and compliances can make a major error that will harm the organization’s reputation, leading to a board restructuring and/or firing the CEO.
Both the nonprofit CEO and the board need to assess the CFO’s expertise annually by:
*Asking knowledgeable board members if they are receiving financial data and analysis in a format helpful for decision-making.
*Having an executive session with the external auditors yearly to obtain the firm’s assessment of the expertise of all financial personnel with whom they had have contact.
*Keeping track of reports that are submitted late. Something might be radically wrong. (I know of one case where the Board and CEO were only receiving a subsidiary report intermittently. The problem was the data reported involved old accounts that should have been written off months ago. The organization had to hire forensic accountants to determine what needed to be done to resolve the situation. The board terminated the CFO and then the CEO.)
*Making certain all financial personnel take two weeks vacation each year, so that a substitute needs to handle the duties.
*Having the CEO review the CFO’s expertise annually with knowledgeable board members, external accountants or others. Acknowledging the growth point when the nonprofit needs a CFO with analytical abilities as opposed to bookkeeping ones.
*Reviewing the causes for a high turnover rate among financial personnel.
*Providing local financial support for the CFO and others to stay current with accounting and compliance regulations.
For a current case of a board that evidently failed to adhere to such guidelines see:
Is Your Nonprofit’s Strategy Only Stating Ambitions Rather Than Solving Problems?
By: Eugene Fram Free Digital Image
McKinsey & Company in a recent article interviewing author and academic Richard Remelt discusses this strategy question for business organizations.* Following is my estimation how the article’s information might be applied to the nuances encountered in nonprofit strategy development.
Strategy Results
In evaluating strategies, nonprofit boards often only use the easier to measure results, for examples, membership size and financial ratios.
But progress for nonprofits often also must be measured in qualitative formats. “Not being able to afford the time and money to develop excellent qualitative metrics (e.g., enhanced life quality, community commitment), to glean whatever they can from using imperfect metrics.” **
Richard Remelt suggests there is a big difference between strategies developed for actions versus ambitions. My experiences with nonprofit strategy development suggest that many nonprofits focus on ambition rather than the problems to be solved by the next three-year plan. He calls a strategy based on ambition “bad strategy.” “Bad strategy is almost a literary form that uses PowerPoint slides to say, ‘Here is how we will look as a company in three years.’ That is interesting, but it’s not a strategy.”
For nonprofits, his analysis also relates to the difference between program outcomes and program impacts. For example, A human services strategy can have good program outcomes but fail to have client impacts because basic causes aren’t/can’t be addressed.
Board Member Motivation
The median nonprofit board member serves a term ranging from four to six years. In contrast, the average tenure for a public board member is 9.7 years.
Assuming this frequent turnover, the nonprofit director/trustee will only be involved with one strategic planning cycle. Even with a board member highly dedicated to the mission’s objectives, the brief tenure structure can dampen motivations to rigorously participate in strategic planning.
I have seen this evolve frequently, especially when the board approves the performance of a “mind-the-store executive director,” as opposed to an “entrepreneurial” type. Operationally, the former executive director can be described as one seeking stability over innovation. She/h can produce modest income increases with balanced budgets, often supported by substantial legacy financial endowments.
Involving Staff in Strategic Planning and Other Insights
Rumelt suggests limiting the number of persons involved in strategic board planning. For larger nonprofits, this might only include senior and/or division management. For smaller and midsized nonprofits, this might involve management and some professional staff. Organizationally, in these nonprofits, the two groups may be only one or two levels apart.
Ask simple questions like: “If our organization were to disappear, who would miss us?” “If we were to establish a new agency, who among the staff, would we take with us?”
“Boards may not need strategy committees, but they just need a sense of best practice, just as ..(accountants).. have well-established best practice in accounting:” I agree that nonprofit boards do not need a standing strategy committee. The development and maintenance of the strategic plan is the joint responsibility of the CEO and Board Chair. Together they can use a simple maintenance device by relating most problem-solving efforts, generated in nonprofit board meetings to the strategic plan.
A Nonprofit Board Has A Problem With A Recently Hired CEO – What To Do? By: Eugene Fram. Free Digital Image
With some possible variations, is the following scenario one that is frequently repeated elsewhere?
• The nonprofit board had engaged, Joe, an experienced ED. The prior ED had been in place for 25 years, and was evidently unwilling to move to meet changing client needs. For example, the agency only offered counseling services five days a week, 9 am to 5pm, with hours extended to 8 pm on Thursday night. There were no client options for emergency calls during nights or during weekends.
The Search For a New Nonprofit CEO Needs To Be Realistic
By Eugene Fram Free Digital Image
Boardmember.com in its October 11, 2012 issue carries an op-ed item by Nathan Bennett and Stephen Miles titled, “Is your Board About to Pick the Wrong CEO.” Although targeted to for-profit boards, all of the five items listed in the article can be applied to nonprofit boards.
A blog developed by an internationally known board expert* raises some pertinent governance questions mainly targeted to for-profit boards. Following are my suggestions how these questions could apply to nonprofit and trustee boards. In addition, field examples show what happened when the questions had to be raised in crises situations.
Does bad news rise in your organization? “You may be the last to know.” For example, the board of a human services organization knew that the professional staff was not happy with a new ED with an authoritarian management style, but the board felt it needed to give him a chance to modify his style. Board members didn’t know that the staff professionals had been meeting with a union organizer for nine months. A labor election resulted, with the professional staff agreeing to work under a trade union contract.
Do your CEO & CFO have integrity? “If the CEO or CFO holds back, funnel information, manages agendas, is defensive or plays…. cards too close to the, vest, this is a warming sign.” For example, a CFO was delinquent in submitting a supplementary accounts receivable financial report. The board and CEO accepted his excuses, but the data, when submitted, had a significant negative impact on the financials. Both the CEO and CFO lost their positions. Should the board have also accepted some responsibility for the crisis?
Do you understand the (mission) and add value? The board members need to seriously answer this question: If this organization were to disappear tomorrow, who would care?
Do you know how fraud can occur in your (nonprofit)? Common wisdom prevails that there is little for-profit or nonprofit boards can do avoid fraud. To review nonprofit boards actions that can be taken, especially for medium and small size nonprofit boards, see; Eugene Fram & Bruce Oliver (2010) “Want to Avoid Fraud? Look to your Board,” Nonprofit World, September/October, pp.18-19.
Do you compensate the right behaviors? “You are at the helm as board members. Whatever you compensate, management will do.” Be certain the organization is compensating for outcomes and,more importantly, today impacts. Too often compensation is given for completing processes that are not tied to client impacts
Do you get disconfirming information? Management is only one source of information. With the agreement of management, visit privately with people below the management level. Set a Google Alert for the name of the organization to see what others on the Internet are saying about your nonprofit’s relationships.
Do you get exposures to key (operational areas) and assurance functions? “Bring key people into the boardroom, without Power Points. See how they think on their feet. It is good for succession planning and is an excellent source of information.”
Do you get good advice and stay current? “Bring tailored education into the board room and stay on top of emerging developments. “ This is especially important for the nonprofit directors or trustees who serves on a board that is out of their area of expertise. For example, bankers might serve on a hospital boards.
Do you meet with (stakeholders) – apart from management? Board members need to join with management in meeting key funders occasionally to determine if their expectations are fully met and what the board might do to foster a continuing relationship. This lets funders know that the board is involved over-viewing the organization’s outcomes and impacts.
*Richard Leblanc, “The Board’s Right to Know and Red Flags To Avoid When You Don’t.” http://www.boardexpert.com/blog, September 14, 2012 Note: Bold & quoted items are from the above blog.
Too Much Information 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 accepted their work without question. When the acquisition was consummated, the founding CEO of the subsidiary refused to take directions from the CEO of the nonprofit. In addition, although the normal financial settlement of the project requires that a portion of the price be withheld pending adequate performance, the nonprofit had paid cash for the acquisition. Based on a lack of performance, the operation was finally closed with a substantial loss.
The Succession Dilemma: Why Do Nonprofit Boards Fail to Plan Ahead?
By: Eugene Fram Free Digital Image
There are many types of crises common to an organization. But one event seems to trigger a large proportion of the ensuing trauma. It frequently happens when a CEO or another top manager retires, resigns or leaves for other reasons. The flow of leadership is about to be disrupted and there is no viable replacement for the departing executive.
This transitional panic happens in both for-profit and nonprofit organizations. The National Association of Corporate Directors (NACD) reported that 50 % of public company directors concede that CEO succession planning needs to be improved. * In the nonprofit environment, only 27% actually have succession plans to replace a suddenly departing executive. ** This demonstrates the low priority nonprofits place on over-viewing talent succession to prepare for unexpected vacancies.
Here are some insights (in italics) from the NACD report that are applicable to nonprofit succession planning, be it management talent overview or implementing the replacement process.
“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, he/s can accede to board wishes for action but move slowly in their implementations. The usual excuse for slow movement is budget constraint.
Nonprofit Management 