Once Again! The Possibility Of Fraud – A Nonprofit Board Alert
By: Eugene Fram Free Digital Image
“According to a Washington Post analysis of the filings from 2008-2012 … of more than 1,000 nonprofit organizations, … there was a ‘significant diversion’ of nonprofit assets, disclosing losses attributed to theft, investment frauds, embezzlement and other unauthorized uses of funds.” The top 20 organizations in the Post’s analysis had a combined potential total loss of more than a half-billion dollars. *
One estimate, by Harvard University’s Houser Center for Nonprofit Organizations, suggests that fraud losses among U.S. nonprofits are approximately $40 billion a year. **
Vigilant nonprofit boards might prevent many of these losses. Here’s how:
How Does Cultural Intelligence (CQ)* Impact A Nonprofit Board?
By: Eugene Fram Free Digital Photo
There are many ways to assess the balance of capabilities on a nonprofit board. EDs and board chairs are generally familiar with the implications of terms like IQ (cognitive ability) and EQ (emotional intelligence). New research has added a third characteristic— cultural intelligence or CQ. Obviously, CQ comes into focus when boards are dealing with global or international issues. But its usefulness is still germane to community-based and/or domestically focused professional/trade associations. Making a change in board strategy is at best a challenging process. But when that plan collides with cultural differences, board culture will trump change. To paraphrase Peter Drucker’s pronouncement—“Culture Eats Strategy for Lunch.” Following are a few of the many types of nonprofit CQ divisions that I have observed:
Baby Boomers vs. Millennials: Up to this point in their history, NFP boards have tended to be organizationally conservative, but this may be changing rapidly. One of the most prominent developments is the influence of the millennials, those born rough between 1980 and the turn of the new century. The new cohorts tend to have cultural values that are quite different from those of their parent or grandparents.Millennial work patterns, for example, are more informal, often spanning long hours and ignoring 9 to 5 routines. All of this can create a cultural gap between themselves and their boomer board colleagues and between baby boom management and millennial staffs. As they move into senior management positions,will they collide with those who have adhered to traditional conservative nonprofit cultures? Currently their social values align with those of many human service nonprofits. But in the future, will cultural values they encounter frustrate them to the point of turning their energies toward other career opportunities? One current report concludes, “Despite what you may have heard, millennials aren’t lazy. In fact they’re downright work-obsessed–and it’s making life worse for everybody.”
Entrepreneurs vs. Public Service Backgrounds: Persons with public service backgrounds tend to move slowly in bringing about change. For example, the challenge of developing consensus among city council members can be daunting. In contrast, an entrepreneur must be able to pivot his/h organization quickly from plan A to plan B. Consequently, “processing” takes precedence over “pivoting” when an NFP organizational change is proposed. These two board types brings different tempos to board discussions. If the gap is left unresolved, the entrepreneur may leave and a valuable voice is lost. Unfortunately, in my experience, I have met too many entrepreneurs who simply refuse to accept nonprofit board positions because of this discrepancy.
Management Backgrounds vs. Independent Contributors: Persons with management background are directors who have had leadership responsibilities with small or large groups of subordinates. Independent contributors are those who basically work alone or may only have responsibilities for just a few subordinates—e.g., attorneys, professors, planners or physicians. Board members in the latter group can assume they have management knowledge superior to the executive director’s or other senior personnel. Often their insights are outside a manager’s experience “space.” This creates a cultural gap that can be harmful to nonprofit’s operations. Example: A medical association board refused to set performance standards. for its executive director and staff. One staff member commented, “Board members don’t want to build trust and establish mutually accepted goals, these guys just want to give orders.” The cultural gap was substantial because management and staff did not know the standards and behaviors by which they will be judged annually. Another staff colleague angrily commented, “I’m not going to allow a twenty-something medical intern order me what to do!”
How to bridge the gap
Board chairs and EDs should develop a realistic inventory of the types of CQs on their board to be certain that one style is does not dominate.
With the continual turnover of board membership and with annually changing board chairs, the ED needs to assume long-term responsibility for the inventory.
It probably is not possible to develop a perfect balance of cultural norms. As a result, the chair and ED must make sure that those who have “minority CQs,” such as the entrepreneur described above, feel that their participation is meaningful and appreciated.
Never underestimate the impact of culture and its various CQ components. The dominant legacy, especially with successful nonprofits, must be widely accepted. But it also should be reviewed occasionally to make certain that the board is not simply accepting it at face value. The Impacts must be robust performance for all clients, along with innovative and operational effectiveness. Assessing board member’s CQ categories can be a challenge for many chairs and EDs. These categories often do not fit into discrete groupings like age and educational levels. But practice with them over time should be helpful. They allow chairs and EDs to better retain those productive outliers whose CQs may not fit the traditional legacy culture.
Guidelines For Developing Authentic Nonprofit Board Leaders
By Eugene Fram Free Digital Image
As an antidote to the leadership succession problems that have plagued business and nonprofits in the last several decades, the Authentic Leadership model proposed by William George, Harvard professor, may be of interest. 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)
Authentic leadership is built on your character, not your style: According to George, these leaders must have flexible styles to be able to fill different role at different times—coach, mentor and inspiring others who must work with a minimum of management guidance. Example: He/s has to “stay on message” in any discussions of mission, vision and values. This is especially important when the economic environment is turbulent.
Because nonprofit boards must draw their candidates from a broad base of backgrounds, any board, in my opinion, can only hope to have three or four board members who can be authentic leaders and eventually fill the board chair position. Often professionals, such as physicians, professors and lawyers, as independent contributors, can lack leadership and strategic insights. Consequently, the CEO must contribute these insights when such a knowledge gap exists on the board in relation to strategy. Several nonprofit boards I have recently encountered, mainly composed of mid-level managers and independent professionals have lacked a single board member with any strategic background. Results: The strategic plan consisted of a broad-brush “strengths, weaknesses, opportunities and threats” (SWOT) analysis. Hardly a valuable planning document for the 21st century.
In terms of management selection, boards need to seek those who can make the hard decisions such as CEO termination and/or having to implement a board decision that is vigorously opposed by a small minority. But the leader must still remain an authentic person, even under these difficult circumstances. Example: One CEO I encountered had the amazing ability of being able to fire a subordinate but still maintain good interpersonal relations with the person—an amazing interpersonal managerial talent, indicating an authentic leader.
Authentic leaders are real and genuine. A nonprofit board member can be a distant personality to the management and staff. Only a crisis may determine the level of authenticity of his or her leadership style. But board members in working with management and staff on projects and in social contacts need to show that they are flexible and fair persons in their decision processes. Nonprofits are somewhat different from for-profits because the staff can be only two organizational levels below the board. Consequently staff members monitor board changes closely because they know a new strong personality can impact their futures and working conditions. Example: Two professors persuaded their board colleagues to adopt an overly detailed Management by Objectives program. It stressed the staff to spend a huge amount of time reviewing and assessing objectives, instead of client center work.
One way to view these characteristics is in the evaluation process of the CEO and organization. The process must be unscrupulously rigorous but fair to all concerned. (Example: see http://bit.ly/OvF4ri) Otherwise the management and staff will view the board as a distant body, only dedicated to financial results. Organizational morale will be impacted.
Authentic leaders are constantly growing. In terms of their board membership, they are seeking to learning about the organization’s environment, concerns and opportunities. They are curious people always seeking insights into the personal, professional, cultural and civic worlds in which they live. Harvard’s George defines their behaviors in this way, “ They do not have a rigid view of themselves and their leadership. Becoming authentic is a developmental state that enables leaders to progress through multiple roles, as they learn and grow from their experiences.”
Authentic leaders match their behavior to their context. Often they may have modest Intelligence Levels (IQ) levels but they have very high Emotional Intelligence (EQ), providing them with outstanding people skills. They can quickly recognize interpersonal challenges around them, and they provide moderating solutions. Many are described as not being quick to anger. Most importantly in the nonprofit board situation, they can empathize with board, management and staff problems, even though their full-time occupations are outside the organization’s mission arena.
Authentic leaders are not perfect, nor do they try to be. Nobody does his/h job perfectly, and authentic nonprofit board leaders are quick to accept this reality for themselves and others around them, for example the CEO. They know from experience that leaders can learn from their mistakes and become better leaders.
Summary Authentic leaders are frequently chosen today for the key roles in business and nonprofits, according to William George. In an era when nonprofits are being challenged by budget cuts and a surplus of unfulfilled client needs, it behooves board nominations and CEO search committees to review the above list of behaviors. Those who are fortunate to engage these leaders, in turn, should improve board and staff performance –“A” players hire “A” players.
How Prepared Are Board Members for the Challenges of the Nonprofit Culture?
By: Eugene Fram Free Digital Image
Given that the typical tenure of a new board member is six years. In addition, a new board member’s intention may be to make his/her unique contribution to the organization’s progress before he/s rotates off the board and is supplanted by another “new” director. With these factors in mind, I estimate that many volunteers enter the boardroom with little understanding of nonprofit culture. Even those who have served previously on business boards may initially spend valuable time in accommodating to the nuances of nonprofit practices and priorities before being poised to make contributions to the “greater good” that nonprofits create. Following are some areas that are endemic to nonprofits:
• Mission is Impact: Whereas the central mission of corporate boards is to make money for shareholders, nonprofit organizations, with their multitude of diverse missions, are commonly invested in impact. Most nonprofit directors, managers and staff are committed to helping the nonprofit organization fulfill its unique mission. I have seen staff and managers, often with highly marketable skills, remain with nonprofits despite financial pressure to move on. Dedication to the organization’s raison d’etre is a strong motivator that keeps good people working towards its accomplishment. Both types of organizations can report financial results quarterly, but nonprofits struggle to measure such long-term mission outcomes as ” … enhanced quality of life, elevated artistic sensitivity, community commitment and successful advocacy… .” The elusive nonprofit challenge becomes how to measure impact in order to assess mission fulfillment. (http://bit.ly/OvF4ri)
• A Slower Pace: The pace of the decision process is decidedly slower in nonprofits than in the corporate board. This can occur for a number of possible reasons. It could be that the NFP’s charter may purposely set up requirements that preclude hasty and possibly unwise decisions—by mandating a period of deliberation before an action is formally voted upon. It may possibly be that the organization recognizes that it has insufficient staff for fast implementation. And there have been a number of cases when a nonprofit board has had to defer action because a succession of meetings has not produced a voting quorum!
• Get or Give Obligations: Nonprofit board members are said to stand “10 feet tall” in response to their commitment and service to the organization. The value of their time, energy and expertise is immeasurable. Another important aspect of good board management is ensuring the availability of adequate funds. To this end, many nonprofits ask board members to help generate and/or make annual donations themselves within the parameters of their resources. Commonly, directors are urged to make a “stretch” gift– and there are times when they are even requested to make their largest donation to that organization or seek donations or services from others. Some directors resist this type of pressure. But even with a development staff taking proactive development responsibility, it is still the board’s responsibility to pursue funds by every appropriate means.
• Board Chair, CEO and Staff Relationships: This triumvirate of positions makes up the lifeline of any nonprofit organization. Both Board Chair and CEO have their own designated spheres of influence that sometimes succumb to a board culture that is resistant to change. The staff has its own set of issues related to the nonprofit’s “flat” structure. Here are some cultural breakdowns in internal relationships that can be disruptive to the organization.
The NFP Board Chair is probably more important than in an FP organization. The rank and file board members often defer to the current chair on proposed actions– generally to avoid conflict, which might impact donations or hobble potential networking efforts. This hesitancy to challenge the leadership cannot only impede progress but is apt to give the board a “rubber stamp” image..
The CEO will be the keystone to implementing a high-performance culture in a nonprofit organization. Boards are frequently resistant to consider replacing a CEO as long as he/s is producing at a “C” or “B” level. “If it’s not broken, why fix it?” is the view, albeit a short-term response. Understandably, the frequently shifting body of board members finds that maintaining the status quo is less disruptive. It is not, however, always in the best interest of the organization and its potential to grow and serve clients.
The Staff, unlike in the FP hierarchy, is structurally often only one or two levels below the board, thus well attuned to the frequent rotations of board personnel. A continual shifting body of directors makes staff members vulnerable to changing priorities, which can significantly impact their work. Nonprofits should offer many opportunities for staff and board to communicate appropriately—to interact in informal settings and on board-staff committees. But creeping board micromanagement needs to be avoided as a danger for nonprofits.
Summary: Once acclimated to the unique challenges of the nonprofit culture, serving on the board can provide an exceptionally rewarding experience. Board members will have a chance to work with others who are dedicated to the work of serving people with significant personal needs, improving the positive contributions of professional and trade associations and bringing value and enrichment to their communities.
Lifestyle & Behavioral Information – Some New Ways To Seek High Performance Nonprofit Board Members?
By: Eugene Fram Free Digital Image
Over several years, I have conducted nonprofit board recruitment projects. Two boards with which I worked had rather similar challenges. • They had concerns recruiting sufficient numbers of board members to fill their needs. • Current board members, largely composed of younger people, in the 30-40-age range, had significant problems balancing work and family obligations and attending board and committee meetings. • Attendance was sporadic. Although the boards were small, board members really did not know each other, and, in another situation, a board member sent a work subordinate to attend board meetings. A well-regarded board member never attended meetings and only occasionally met with the ED to offer advice. In both instances EDs and board chairs had significant power. One of the EDs complained she was doing the work of operating the organization and operating the board, and this may lead to too much potential personal liability. • Although these organizations, with budgets in the $8-$10 million range were operating successfully, the EDs involved realized that they were in line for long-term problems if board recruiting didn’t change.
What to Do • Consider establishing two boards, a board for governance and a consulting board. For the governance board, make certain the typical directors in the 30-40 year age range have a good understanding of their work-family obligation to be able to devote time for the organization. • For the consulting board, ask volunteers to work on projects that have a defined time limit. They will not be asked to be involved in more than one or two projects per year, an ideal inducement for millennials who are used to short bursts of activities. It may be necessary to recruit several persons with the same skills to provide coverage for several projects. • Keep communications flowing to the consulting board like one would to the governing board. Have social and educational events that allow the groups to meet informally. If the organization has a volunteer manage the consulting board, this person should be charged to keep the communications flowing. Members of the consulting board will only have occasional contact with the organization. • Overlay the traditional nonprofit skills grid with several time dimensions to recruit: 1. Recently retired people, both those traditionally retired and those who retried early, who may have time to be candidates for both the governing and consulting boards. 2. Seek individual contributors who may have more control of their time, such as medical doctors, lawyers, professors and small business owners. 3. Seek successful entrepreneurs who can schedule their own time, can resonate with the organization’s mission, vision and values and who want to give back to the community. • Beyond the time requirement, seek persons with experience on for-profit or nonprofit boards so they can share their board knowledge and become models for those having their first board experience. Their questions and behaviors can teach as much or more than formal seminars.
Summary The traditional nonprofit board skills grid can still be helpful in the 21st century. However it needs to incorporated lifestyle and behavioral information for each board candidate. These are important candidate attributes that must be thoroughly vetted.
It’s no secret that some board members cruise through their term of board service with minimal involvement. McKinsey Company, a well-known consulting firm, has suggested five steps that can be used to counteract this passivity in for-profit boards. * With a few tweaks, McKinsey suggestions (in bold) are relevant to the nonprofit board environment where director engagement is often a challenge.
Engaging between meetings: Nonprofit boards traditionally meet monthly, bimonthly or quarterly. Unless the board is a national one, these meetings range from one to three hours, with the three hours being typical of quarterly meetings. The meeting agendas are usually packed, and they leave little time for individual directors to enhance discussions. ** In addition, a sense of anonymity develops among board members who do not know each other personally, a significant barrier to team building. I have encountered nonprofit boards where disconnect between board colleagues is simply a nod—or less– when passing each other.
Board cohesion based on interpersonal relationships has an important impact on the quality of board discussions. It allows a board member to more fully understand the perspectives and goals of his/her fellow board members or “where they’re coming from.” With this information at hand on both sides of a discussion, it increases the possibility of creating “win-win” impacts for the nonprofit.
Responsibility for promoting between-meeting engagements needs to rest with the board chair. As a staring point, the chair can sponsor a few informal Jefferson dinners. The topic should be a cause which can excite the invitees. It needs to be, a challenge to the directors. ***
Engage with strategy as it’s forming—do not just review & approve it: Traditionally most of what becomes an organization’s strategy will emanate from the management and staff. But the board must proactively help to form strategy or step in to fill gaps when the management refuses to do it.
In forming strategy the board has an obligation to make certain all viewpoints are heard. Staffs as well as management ideas need to be considered. In addition, the board may need to take direct actions when the organization fails to fulfill a mission obligation. Example. A counseling agency only offered services during normal business hours–9 am to 5pm, five days a week. Its board required management to offer services, 24/7 with an emergency line when the office was not open. The management, a creative group, found a way to do it, without increasing costs.
Cultivate talent: The nonprofit board has several responsibilities in regard to talent. First, it must engage and then evaluate the CEO. This is a complex duty because the vast majority of the board members are not full-time employees and many have only tangential attachments to the organization’s mission field. Second, the board must overview the quality of the staff talent so that it is in line with budget constraints. Third, it must be aware of those within the staff who may be promotable to management. Finally it must be alert to succession opportunities internally and externally in the event the CEO were to leave abruptly. Succession planning for the CEO must also include considerations about the talents that will be needed beyond the current one.
Engage the field: Since nonprofit board members have full-time occupations outside the mission field, it’s important that they receive a flow of information about leading edge changes taking place outside the organization. However, CEOs sometime can operate a “mind the store” nonprofit, by looking at past successes without a visionary component. To help avoid this occurrence, specific directors might be assigned to become more deeply familiar with key projects in order to assess their progress.
Engaging on tough questions: A difficult task on a nonprofit board where politeness is an overriding value. Peers are friends and business associations and generally there are few potential penalties for “going along to get along.” In all my decades as a nonprofit board member, I have yet to see one board member ask that his/h dissenting vote be recorded in the minutes. A necessary action when he/she feels that the vote being passed by the majority may lead to harming the organization.
** In California, the Brown Act might prohibit such meetings. The Brown Act covered concerns over informal, undisclosed meetings held by local elected officials. City councils, county boards, and other local government bodies that were avoiding public scrutiny by holding secret “workshops and study” sessions.
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”.
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.
How Nonprofit Boards Can Support Management & Staff and Refrain From Micromanaging!
By: Eugene Fram Free Digital Image
The dilemma is common to nonprofit organizations. As start-ups, everyone aspires to do everything. Passion for the mission and determination to “get it right” imbue board members with the desire to do it all. But once the organization starts to mature, board roles shift to focus more broadly on policy and strategy issues. With the advent of qualified personnel to handle operations, there are many overview activities, sans micromanaging, available to board members. Following are some ways that boards can assist and demonstrate support for operations, CEOs and staffs without interfering.
Nonprofit Management 