Nonprofit board barriers

Nonprofit Boardroom Elephants and the ‘Nice Guy’ Syndrome: A Complex Problem

 

Nonprofit Boardroom Elephants and the ‘Nice Guy’ Syndrome: A Complex Problem

By: Eugene Fram            Free Digital Photo

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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 term had another year 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 director’s feelings. They were unwittingly accepting the “nice-guy” approach in place of taking professional action.

In another instance the board refused to sue a local contractor who did not perform as agreed. The “elephant” was that the board didn’t think that legally challenging a local person was appropriate, an issue raised by an influential director. However, nobody informed the group that in being “nice guys,” they could become legally liable, if somebody became injured as a result of the inferior work and their inaction.

Over the years, I have observed many boards with elephants around that have caused significant problems to a nonprofit organization. Some include:

• Selecting a board chair on the basis of personal appearance and personality instead of managerial and organizational competence. Be certain to vet the experience and potential of board candidates carefully. Beside working background (accounting, marketing, human resources, etc.), seek harder to define characteristics such as leadership, critical thinking ability, and position flexibility.

• Failure to delegate sufficient managerial responsibility to the CEO because the board has enjoyed micromanagement activities for decades. To make a change, make certain new board members recognize the problem, and they eventually are willing to take action to alleviate the problem. Example: One board refused to share its latest strategic plan with it newly appointed ED.

• Engaging a weak local CEO because the board wanted to avoid moving expenses. Be certain that local candidates are vetted as carefully as others and that costs of relocation are not the prime reason for their selection.

• Be certain that the board is not “rubber-stamping” proposals of a strong board member or CEO. Where major failures occur, be certain that the board or outside counsel determines the causes by conducting a postmortem analysis.

* Retaining an ED who is only focusing on the status quo and “minding the store.” The internal accounting systems, human resources and results are all more than adequate. But they are far below what can be done for clients if current and/or potential resources were creatively employed.

* A substantial portion of the board is not reasonably familiar with fund accounting or able to recognize financial “red flags.” Example: One CFO kept delaying the submission of an accounting accounts aging report for over a year. He was carrying as substantial number of noncollectable accounts as an asset. It required the nonprofit to hire high-priced forensic accountants to straighten out the mess. The CEO & CFO were fired, but the board that was also to be blamed for being “nice guys,” and it remained in place. If the organization has gone bankrupt, I would guess that the secretary-of-state would have summarily removed part or all of the board, a reputation loss for all. The board has an obligation to assure stakeholders that the CFO’s knowledge is up to date and to make certain the CEO takes action on obvious “red flags”.

* Inadequate vetting processes that take less board members’ time, especially in relation to family and friends of current board members. Example: Accepting a single reference check, such as comments from the candidate’s spouse. This actually happened, and the nominations committee made light of the action.

What can be done about the elephant in the boardroom?

Unfortunately, there is no silver bullet to use, no pun intended! These types of circumstances seem to be in the DNA of volunteers who traditionally avoid any form of conflict, which will impinge upon their personal time or cause conflict with other board members. A cultural change is required to recruit board members who understand their responsibilities, or are willing to learn about them on the job. I have seen a wide variety of directors such, as ministers and social workers, successfully meet the challenges related to this type of the board learning. Most importantly, never underestimate the power of culture when major changes are being considered. As Peter Drucker noted, “Culture can eat strategy for breakfast.”

In the meantime, don’t be afraid to ask naive question which forces all to question assumptions, as in Why are we really taking this action? Have we really thought it through and considered other possibilities? http://bit.ly/1eNKgtw

Board  members need to have passion for the organization’s mission. However, they also need to have the prudence to help the nonprofit board perform with professionalism.

CEOs Need To Develop Partnering Relationships With Board Members

CEOs Need To Develop Partnering Relationships With Board Members

By Eugene Fram               Free Digital Image

When a CEO publicly introduces a board member as “my boss,” (as I have overheard more than once) there is a problem. It’s true that both parties—CEO and board member—have specific roles in the success of a nonprofit organization. But the hierarchy of authority should be deemphasized when it comes to interpersonal connections. The most effective mindset for CEO and directors is to view each other as partners in working to achieve the organization’s mission and their impacts.

The CEO’s efforts to cultivate such relationships are key. The following are some initiatives that he/she can utilize: *

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The Nonprofit Board’s New Role In An Age of Exponential Change

The Nonprofit Board’s New Role In An Age of Exponential Change

By Eugene Fram                 Free Digital Image

Most nonprofit boards are being faced with huge pressures—reduced financial support, challenges in integrating new technologies, recovering from Covid impacts and difficulties in hiring qualified personnel who will consider “nonprofit” wages. To survive long term, board members need to be alert to potential opportunities. These may be far from the comfort zones of current board members, CEOs and staff.

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Establishing Effective Nonprofit Board Committees – What to Do

 

Based on my experiences, following are ways that effective nonprofit boards have established  board committees. (more…)

Once Again: How to Keep Nonprofit Board Members Informed.

Once Again: How to Keep Nonprofit Board Members Informed.

By: Eugene Fram.            Free Digital Image

With high performing nonprofit organizations, board members will rarely be invited by the CEO to participate in operational decisions. As a result, management will always have more information than board members. Yet the board still needs to know that is happening in operations to be able to perform their overview process. The name of the game is for the CEO to communicate the important information and to keep board members informed of significant developments. Still, there’s no need to clutter regular board meetings by reporting endless details about operations.

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Once Again! What Are te Best Risk Levels for Your Nonprofit’s Investments in a COVID 19 environment and after it?

Once Again! What Are the Best Risk Levels for Your Nonprofit’s Investments in a COVID 19 environment and after it?

By Eugene Fram      Freed Digital Image

Some nonprofits have significant investment accounts. The following are some guidelines to help develop investment policies during and after COVID 19. These funds may have been accrued through annual surpluses/donations or have been legally mandated to cover future expenditures through a reserve account.

  1. How does your committee define risk, and how much are you willing to take? *  Most nonprofit by-laws require a nonprofit to conservatively manage and invest its funds. This give the investment committee a wide range of policies to employ.

I have encountered ultraconservative nonprofits that invest all funds in several bank savings accounts that are protected by the Federal Deposit Insurance Company (FDIC). Those that advocate this position feel that they don’t want to assume responsibility for loss of donor or membership funds that might occur, even temporarily, with investments in a mix portfolio of investment opportunities such as stock funds and/or rated bonds. (more…)

Nonprofit Board Members—Are They Aware of Their Independent Director Duties?

Nonprofit Board Members—Are They Aware of Their Independent Director Duties?

By Eugene Fram     Free Digital Image

The vast majority of nonprofit board members serve as independent directors. They are not members of management, have other occupations as their major focus, but have some significant responsibilities to a community, profession, government or professional/trade association. Mary Jo White, Former Chair, U.S. Securities & Exchange Commission, outlined the responsibilities of fund board members who also are independent directors to overview the investment dollars made by 53 million U.S. households. Many of her comments easily apply to nonprofit board members and their responsibilities as Independent directors. Note: The italicized materials following are White’s direct quotations. *

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Time Compressed Non Profit Board members – Recruit & Retain Them

Time Compressed Non Profit Board members – Recruit & Retain Them!

By: Eugene Fram               Free Digital Image

Every nonprofit board has had the experience of having board positions open and being unable to fill them with highly qualified people. The usual response from qualified candidates is that they are too busy to be accept a board position. However, the real reasons, if speaking privately, are that they perceive the nonprofit decision process to be too slow, board agendas loaded with minutiae, presentations that take up more time than they should, unfocused discussion, etc. (more…)

Common Practices Nonprofit Boards Need To Avoid

 

Common Practices Nonprofit Boards Need To Avoid

Peter Rinn, Breakthrough Solutions Group, * published a list of weak nonprofit board practices. Following are some of the items listed and my estimation of what can be done about them, based on my experiences as a nonprofit board director, board chair and consultant.

• Dumbing down board recruitment – trumpeting the benefits and not stressing the responsibilities of board membership.
Board position offers frequently may be accepted without the candidate doing sufficient due diligence. At the least, the candidate should have a personal meeting with the executive director and board chair. Issues that need to be clarified are meeting schedules, “give/get” policies and time expectations. In addition, the candidate, if seriously interested, should ask for copies of the board meeting minutes for one year, the latest financials, and the latest IRS form 990.. These reports and the data revealed tell a great about the sustainability and impact of the nonprofit.  

• Overlooking the continued absence of board members at board meetings, strategic and planning meetings.
Many bylaws have provisions dropping board members who do not meet meeting attendance criteria established by the bylaws. However, such actions are difficult to execute because of the interpersonal conflicts that can arise. For example, one organization with which I am familiar had a director who did not attend any meetings, but did make a financial contribution to the organization. When his resignation was requested, he refused. Not wanting to create conflict, the board simply kept him on the board roster until his term expired and then sent him a note acknowledging the end of his term. The board chair, not the CEO, has a responsibility to have a personal conversation with the recalcitrant director. He/s needs to offer a “tough love” message in the name of the board.

• Taking a board action without conducting enough due diligence to determine whether the transaction is in the nonprofit’s best interest.
Although each board member should sign conflict of interest statement each year, my impression is that this is rarely done. Board members should understand the potential personal liabilities that might be accrued as a result of violation of the federal Intermediate Sanctions Act (IRS Section 4958) and other statues. For example, under IRS 4958, a board member can have his or her personal taxes increased if involved in giving an excess benefit, such as selling property to the wife of a board member for less than the market rate. Some boards and their members need to be frequently reminded about their “due-care” responsibilities.

• Allowing board members to be re-elected to the board, despite bylaw term limitations.
This often occurs when the board has given little thought to a succession plan, and the only person who seems qualified is currently in place. It also happens when the board has significant problems and nobody on the board wants to take the time to hold a time consuming position. Some boards, however, have a bylaw exception that allows a board chair, if scheduled for rotation, an extra year or two to be chairperson. Succession planning needs to be a yearly routine for top managers and for the board itself.

• Allowing board members to ignore their financial obligations to the nonprofit.
To assess board interest in a nonprofit, foundations and other funders like to know that every board member makes a financial contribution within their means or participates in the organization’s “give/get” program. This topic should be discussed at the outset of recruitment so it can be full understood by all directors.

• Overselling the protection of a Directors’ and Officers’ (D&O) insurance and laws limiting the liability of directors.
The importance of a nonprofit having a D&O policy, even a small one, can’t be overstated. I recently encountered a nonprofit that had operated for seventeen years without a D&O policy, although its annual budget was $500,000, and it was responsible for real estate valued at least $24 million. Each director should be knowledgeable about the potential personal liabilities involved with the board position. Frequently, directors assume that a D&O insurance policy covers too wide a range of situations.

• Allowing ignorance and poor practices to exist keeps leadership in control.
Changing leadership and practice is difficult for both for-profit and nonprofit organizations. However, in the nonprofit environment it is more difficult because poor leadership and practices can continue for a long time period, as long as current revenues meet expenditures. They can even become part of the organization’s culture. In some situations, this state of affairs continues because the board has low expectations of management and staff. It’s critical that the leadership needs to be thoroughly evaluated annually.

There is much that nonprofit boards can do about avoiding common practices that weaken the effectiveness of the board.

* aka The Nonprofit Entrepreneur, Placitas, New Mexico

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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