Nonprofit board barriers

OnceAgain! How Can Nonprofit Boards Support Management & Staff and Refrain From Micromanaging?

Once Again! How Can Nonprofit Boards Support Management & Staff and Refrain From Micromanaging?

By: Eugene Fram                    

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.

    • Respect Management & Staff: The Board needs to accept the CEO as professional manager, not as a person dedicated to a field specialty—police officer, physician, attorney, etc.—with part-time management efforts. * He/s should know how to hire well, interrelate with staff, board and other stakeholders and make certain day-to-day operations are effective and efficient. It is possible, however, to have a mediocre board and an effective management and staff that is devoted to the nonprofit’s mission. Hopefully, a few board members recognize the situation and are able to build a culture of respect for the management and staff, often a difficult task when the board is micromanaging the nonprofit.
    • The Importance of Long-Term Goals: Currently nonprofits tend to plan on a three-year to five-year cycle because the environments in which they operate change so quickly. With nonprofit board members having 4-6 median terms, this suggests many will have one short-term outlooks. But, in my opinion, much longer-term planning needs to be considered, perhaps for as long as ten years. This way current planning can influence longer-term planning. This generative thinking will also provide some benchmarks for the types of abilities and skills that future CEOs will need to possess.
    • Understand Psychological & Non-Monetary Benefits: Flexible benefits are required by nonprofits to compete with business and other nonprofits paying higher wages. For example, in many areas, hospital chains compete with human service agencies for people with social-work abilities. They must also compete with businesses for computer specialists. One way is to offer flexible scheduling to all personnel needing it. Another way is for the board to formally honor staff for successes and make certain that management provides appropriate praise frequently, a requirement for millennial, and possibly generation Z age staffs.
    • Empower the CEO and staff: Boards need to be sure that the CEO is fully empowered to make tactical operating decisions without board interference. On an overview basis, the board needs to request management to ask small staff teams to work on projects that can yield tangible results. This will encourage groups and teams to become more responsible.

Within its overview responsibilities, nonprofit board members can be quite proactive in assisting management and staff when they meet routine operational challenges. The above discussions demonstrate ways this can be accomplished. Nonprofit boards can add to them to meet local challenges.

* Some growing nonprofits unfortunately elect the CEO from the staff and allow him/h to continue to have some staff responsibilities.

Are Nonprofit Boards Capable of Evaluating Themselves?

A study of business boards by Stanford University yielded the following results:

  • Only one-third (36%) of board members surveyed believe their company does a very good job of accurately assessing the performance of individual directors.
  • Almost half (46%) believe their boards tolerate dissent.
  • Nearly three quarters of directors (74%) agree that board directors allow personal or past experiences to dominate their perspective.
  • And, perhaps most significant, the typical director believes that at least one fellow director should be removed from the board because the individual is not effective. *

Given that many of these business boards have the financial power to employ legal counsel or consultants to conduct a rigorous impartial evaluation, what can a nonprofit board, with limited financial resources, do to make sure that the board and its members are being fairly evaluated to drive change?

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What Should Nonprofit Board Members Know?

By Eugene Fram       

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.

 

For-Profit Boards Versus Nonprofit Boards: Similar Challenges?

   

By: Eugene Fram  

For-Profit Boards Versux Nonprofit Boards: Similar Challenges?                               

The wise person learns from his/h own experiences. The wiser person learns from the experiences of others. Chinese Proverb

The CEO Forum published an article covering the governance views of five business board members, known for their wisdom and vision.   Following are some of topics in the article that relate to nonprofit boards. *

Good governance is dependent upon well-curated boards. This means that nonprofit boards must look beyond the functional competencies (e.g. accounting, marketing, law, etc.) for candidates. Within these groupings, they need to seek candidates who have strategic outlooks, are comfortable with critical thinking and have documented leadership skills.   This requires recruiting and vetting efforts that go well beyond the friends, neighbors and colleagues who traditionally have been the sources for board positions. Also related is the issue of board succession, since that many will leave the board after a four to six year period. The current board(s) has an obligation to make rigorous recruiting and vetting become part of the nonprofit’s culture.

Assessing long-term sustainability. In the past, nonprofits have projected longevity because there will always be a need for the services or products they provide. This is no longer an assured proposition. Nonprofit day care centers now must compete with those that are for-profit. Improvements in medication have decreased the need for individual counseling and many new technologies can quickly solve problems that are embedded in the nonprofit’s mission.

Review governance best practices carefully! Know who is suggesting them and make certain they are appropriate for a specific organization. For example, some experts suggest that executive committees should be eliminated. However an executive committee that is responsible for a slim board committee structure can be effective in driving change and promoting better communications throughout the organization. **

Changing public accounting firms. Nonprofit accounting practice suggests changing public accounting firms about every five years. However one expert suggests, “It is important to ensure that judgment areas such as nonGAAP disclosures are well-defined, supporting calculations are well-documented and that the definitions and calculations are consistent across reporting periods.” At times of accounting firm change, nonprofit board members need to be able to add these issues to their question that they pose to management.

Ethics & Compliance. Like business organizations, nonprofits are subject to significant lapses in ethics and compliance. One study of  nonprofit fraud found that it 46% involved multiple perpetrators.  ***  As shown in the recent Wells Fargo debacle, establishing the tone for rigorous applications of a standard needs to start with the board and flow through all management levels. In the current environment, audit committees have to be especially alert and take immediate actions when red flags arise in either the ethics and/or compliance areas.   In my opinion, a nonprofit audit committee that meets only once or twice a year is not doing the necessary job.

Strategy. The nonprofit board has an obligation to help management see “around the next corner.” This involves board members assessing coming trends and sparking civil and meaningful board and committee discussions.

Board member comfort zones. Like their business counterparts, few nonprofit board members are “comfortable testing how to rock the norms.” It is easier to acculturate new directors to the current norms, a process that is inward bound and self-defeating. But a start can be initiated with questions such as, “If we were to start a new nonprofit across the street, what would it look like and who of the present board and a staff members would we ask to join us?

*https://www.forbes.com/sites/robertreiss/2017/05/22/americas-five-governance-experts-share-perspective-on-boards/#2a2ee326659a   

**For documentation see: https://goo.gl/QEL8x3

***https://nonprofitquarterly.org/nonprofit-fraud-its-a-people-problem-so-combat-it-with-governance/P

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Nonprofit Board Discourse: a Meeting of the Minds??
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Nonprofit Board Discourse: a Meeting of the Minds??

By: Eugene Fram       

Several years ago, a nonprofit board member complained to me that there was too little “conflict” at board meetings. Too few hands were raised to challenge or simply question the efficacy of certain important agenda items. Having participated in hundreds of nonprofit meetings, I have observed that this laissez-faire response still typifies a significant number of board member’s attitudes, especially for items that deserve vigorous discussion. Why is that? And why can the term conflict be  perceived as an asset to an organization that is determined to move forward?

Below are some answers based on my own experience in the nonprofit environment.

  • Major Focus is on Operations: As I have commented in other posts, focusing on operations seems to be a default option for many nonprofits. Unlike members of business boards who have substantial financial investments in their organizations, nonprofit board members are volunteers with little personal risk and with insufficient motivation to challenge the status quo. Since the median nonprofit director’s term of service is seldom greater than 6 years, a board member can lack significant interest in the nonprofit’s long-term future. In addition operational items are more concrete and inherently more interesting because many center on people related decisions. Then there’s the “nice guy” impulse—directors’ meetings are usually brief (1 to 1.5 hours) and board member are often reluctant to voice dissenting views that may offend colleagues and extend meeting times.

Encouraging “Constructive Conflict”

  • Preparation Is Critical: Review of governance agenda materials leads the way to more rigorous discussions.   This requires nonprofits to provide meeting materials at least one week in advance to facilitate fact- based discussions. Some may argue that busy board members will ignore materials well in advance of the meetings. But isn’t it a solid advantage to have some of the most interested board members well briefed for the meeting?
  • The importance of mission: As much as possible, the board chair needs to frame each agenda item in light of its impact the nonprofit’s mission.   This helps eliminate frivolous comments and questions, e.g., voting on the color of the menu at the annual diner. These distractions, like responding to tweets, detract from discussing substantive issues. Chairs can diplomatically eliminate them by simply suggesting the distraction  issue can be handled “off line.”
  • Recruitment: Nominating candidates for the board who have the abilities to interact effectively at meetings are important to improving the quality and quantity of meeting discussions.   While nonprofits often need a diversity of board members from different fields and backgrounds, they also must have a core of directors who know the differences between governance and operational activities, who understand what is involved in critical thinking, have demonstrated leadership elsewhere and have broad understandings of what constitutes strategic planning.   Otherwise the board, like the one I encountered, had many very busy middle level managers types who did well on time-constrained specific projects, but they had no interest in governance or strategic planning.   The de facto result was that the Board Chair authoritatively operated the board.
  • Getting Together: Currently, most nonprofit board members live time-compressed lifestyles and only connect with others at formal board or committee meetings. To build an effective team decision-making, board members need to know each other personally and professionally.   Board chairs and CEOs must take steps to provide social or professional occasions for the board at which directors can interact.   Sometimes a simple 10-minute agenda item at a meeting asking each member to briefly review personal or professional events can help—as proven by organizations like Rotary.

Passion vs. Passivity: The nonprofit board member who lamented the absence of “conflict” in the boardroom recognizes that an engaged and often challenging governing body is in the best interest of a healthy and forward moving organization.

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

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

By Eugene Fram                

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.

What needs to be done?

Look for scalable opportunities to reformat the nonprofit: This may include merging, partnering or acquiring other organizations, obviously in an attempt to make both organizations more effective and efficient. One nonprofit, operating a sheltered workshop for the blind and visually impaired affiliated with a local Goodwill nonprofit. The change over many years allowed the original service organization to grow from a budget of $5 million with 160 employees to today’s budget of $50 million. Currently it has 800 employees, serving 150,000 clients annually.

To achieve results like these, the board had to move out of its comfort zone, learn about new types of operation that can help fulfill the mission and initiate bold moves. To explore and manage such changes, a “Lean Management”* approach using small-scale experimentation can be helpful.*

Acknowledge the inherent limitations of nonprofit board tenure:

The median tenure for nonprofit board members is from four to six years. With only reputation and/or emotional investment in the organization, this creates a short-term time line horizon for many board members. The CEO, probably the only one with long-term organizational memory, has an obligation to motivate the board to consider long-term actions in this time-compressed tenure environment.

    Led by the Chair & CEO what can be done?

First recognize that not all board members will be interested in developing a future scenario that goes beyond their tenure limits. The argument will be that a three-year strategic plan is sufficient.  The answer  is to have the board chair and CEO form a discussion group, not a committee to highlight longer term opportunities.  It should be composed of board members  who appear to be visionary in the mission field, in their career backgrounds back along with management and staff representation. 

Pose questions like these:

  • What do you see the mission of this organization will be a decade from now?
  • What might shape it now to grow, decline gradually or stay stable over the decade?
  • What can management do now to prepare for the next decade?
  • Are there small-scale experiments that will assist in preparing for these changes?
  • What succession plans are required to make available strong or stronger management abilities available in the next decade?

Once a scenario is developed from the discussions, ask management to develop one or two experimental programs. If successful, it will help guide the nonprofit for the next decade. Hopefully, future board members will see the value of this work, develop an appreciation for longer term planning and continue the process.

This process is all a matter of aligning board members to long-term thinking. It involves using conceptual considerations by board and management. It motivates the CEO to consider managerial abilities that will be required, and it also should be especially helpful for board members whose careers are outside the mission area of the nonprofit.

* https://npengage.com/nonprofit-management/lean-implementation/PostB

Do Nonprofit Boards Face Cyber Security Risk?
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Do Nonprofit Boards Face Cyber Security Risk?

By: Eugene Fram     

Solarwinds and Target and others may seem far afield from the concerns of nonprofit directors, except for the giants in the area, like AARP. However, think about this hypothetical scenario.

A group of high school students hacked into the computer system of a local nonprofit offering mental health services and gain access to records of clients, perhaps even placing some of the records of other teenagers on the internet.  Considering the recent introductions of new AI tools, the power of immature teenagers and adults to initiate Cyber Security (CS) problems seems unlimited.  

What due care obligations did the board need to forestall the above situation? A move to recruit directors with special expertise in information technology or cyber security would be nonproductive. A nonprofit director has broader responsibilities such as the overview of management, approval of budgets, fostering management and staff growth etc. Similarly, when social media became a prominent issue a few years ago, boards debated the advisability of seeking directors with that specific kind of background. Today, a consultant with management is likely to provide guidance to directors on these issues.

After listening to a group of cyber security experts discuss for-profit challenges in this area, I have the following suggestions on how nonprofit boards might respond to similar types of challenges.

1. Carefully “wall off” all confidential information – Have management be certain that private information such as health records, are encrypted and separated from operating data that may be considered public in a nonprofit environment.
2. Review D&O and other liability policies – Determine whether or not the D&O policy protects directors and managers from CS intrusions. (It likely does not, but I understand that some carriers may offer some protection along with smaller policies.) It is clear that most general liability policies do not protect the organization against CS.
3. Board Encouragement – Devote some meeting time, perhaps 10 minutes, to a discussion of the CS topics so that management and staff are aware of the board’s concerns on the subject and will take action when necessary. Appropriate due care actions like frequent password changes should become routine. Some checklists are available online, suggesting questions directors might pose to raise awareness on the topic and avoid potential CS breaches.
4. Can third party payer help? – Many nonprofits deal with third party payers with sophisticated CS systems and may offer the nonprofit some advice or assistance.
5. Education and training of employers – Many CS crimes have been successful because employees have violated or forget to effectively protect their working accounts and information. Proper education and training can help reduce these types of lapses.
6. Finance & Audit Committees – Recent data indicate that only 20% of nonprofits have a CS vulnerability assessment in place and only about the same proportion have a plan  in place should a CS breach take place . *  Due care responsibilities seem to be missing among a large portion of nonprofits.

If a nonprofit, like the one described, is attacked, not only will records be compromised, but also the reputation of the agency will be destroyed, probably along with the nonprofit organization itself. SolarWinds and Target may be able to survive such an attack, but the typical nonprofit may not.

*https://communityit.com/nonprofit-cybersecurity/

Is Your Nonprofit Strategically Deprived?

By: Eugene Fram   

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.
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”.

Are Dysfunctional Nonprofit Boards Interesting?
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By: Eugene H. Fram

My blogs have been drawing an unusual number of views related to dysfunctional nonprofit boards.  Is it because:

  • Nonprofit evaluations have become a prime media interest?
  • Compliance regulations have forced a greater number of nonprofits to substantially review their charters?
  • More boards have found board problems arising as a result of reviewing the expanded 990-form section on governance?
  • More audit committees are being given expanded responsibilities?

Can a nonprofit organization focus on its mission vision and values if it has a dysfunctional nonprofit board?  I have seen this accomplished in situations where the CEO is managerially oriented and can live with the board’s problems or foibles.  For example, one nonprofit I encountered had an eleven person board, four of which never attended meetings and several others were sometimes absent for personal reasons.  Meeting minutes clearly showed a focus on operational detail. However a strong CEO was able to focus well, and the organization prospered. On the other hand,the CEO openly complained that she was overworked, needed board member assistance and easily could become financially liable board, missteps.  

In another situation I encountered, the board chair and ED were very strong, but the board governmentally weak. Work and family pressures constrained the time board members could devote to their governance responsibilities. While the organization performed reasonably well, performance problems and board liability issues might arise, if either the chair or ED retired or resigned.

Although not desirable station, a dedicated mission oriented staff can, at a minimum, perform reasonably well when its board may be dysfunctional.  However the following conditions are needed.

  • Management is able to keep the staff focused on mission, vision and values.
  • A legacy staff person(s) becomes a mentor(s) for more recently engaged staff. 
  • The dysfunction is relatively brief and resolved by board member rotation.  If too long, organizational performance will decline.  
  • Board members involved with the dysfunction do not seek to involve staff in their disputes.  

Board Members Need to Review Unwritten Protocols to Boost Nonprofits’ Effectiveness

Board Members Need to Review Unwritten Protocols to Boost Nonprofits’ Effectiveness

By:  Eugene Fram                                       

Nonprofit boards are governed by a series of obligations —some are clearly defined as legal responsibilities such as financial actions. Others, however, are less clearly defined and relate to people who are, in some way, associated with the organization. Guidelines to these diverse interactions are not typically archived in policies but are important to the overall professionalism of the board. They include consideration of its: board structure, internal operations, recruitment methods and leadership style.

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