Nonprofit governance

Reversing Traditional Nonprofit Board Barriers

 

Reversing Traditional Nonprofit Board Barriers

By: Eugene Fram          Free Digital Photo

Clearly the purpose of a nonprofit board is to serve the constituency that establishes it—be it community, industry, governmental unit and the like. That said, the “how” to best deliver that service is often not so clear. An executive committee, for example, can overstep its authority by assuming powers beyond its scope of responsibility. I encountered this in one executive committee when the group developed a strategic plan in an interim period where there was no permanent ED. The board then refused to share it with the incoming executive. In another instance, an executive committee took it upon itself to appoint members of the audit committee—including outsiders who were unknown to the majority on the board.

The fuzziness of boundaries and lack of defined authority call for an active nonprofit system of checks and balances. For a variety of reasons this is difficult for nonprofits to achieve:

  • A typical nonprofit board member is often recruited from a pool of friends, relatives and colleagues, and will serve, on a median average, for four to six years.   This makes it difficult to achieve rigorous debate at meetings (why risk conflicts with board colleagues?). Directors also are not as eager to thoughtfully plan for change beyond the limits of their terms. Besides discussing day-to-day issues, the board needs to make sure that immediate gains do not hamper long-term sustainability.
  • The culture of micromanagement is frequently a remnant from the early startup years when board members may have performed operational duties. In some boards it becomes embedded in the culture and continues to pervade the governmental environment, allowing the board and executive committee to involve themselves in areas that should be delegated to management.
  • The executive team is a broad partnership of peers –board members, those appointed to the executive committee and the CEO. The executive committee is legally responsible to act for the board between meetings–the board must ratify its decisions. But unchecked, the executive committee can assume dictatorial powers whose conclusions must be rubber-stamped by the board.

 

Mitigating Oversight Barriers: There is often little individual board members can do to change the course when the DNA has become embedded in the organization. The tradition of micromanagement, for example, is hard to reverse, especially when the culture is continually supported by a succession of like-minded board chairs and CEOs. No single board member can move these barriers given the brevity of the board terms. But there are a few initiatives that three or four directors, working in tandem, can take to move the organization into a high-performance category.

  • Meetings: At the top of every meeting agenda there needs to be listed at least one policy or strategy. When the board discussion begins to wander, the chair should remind the group that they are encroaching on an area that is management’s responsibility. One board I observed wasted an hour’s time because the chair had failed to intercept the conversation in this manner. Another board agreed to change its timing of a major development event, then spent valuable meeting time suggesting formats for the new event—clearly a management responsibility to develop.
  • “New Age” Board Members: While millennial directors are causing consternation in some nonprofit and business organizations, certain changes in nonprofits are noteworthy. Those directors in the 40- and- under age bracket need some targeted nurturing. I encountered a new young person who energized the board with her eagerness to try innovative development approaches. She was subsequently appointed to the executive committee, deepening her view of the organization and priming her for senior leadership.

Board members who understand the robust responsibilities of a 21st century board need to accept responsibilities for mentoring these new age board people, despite their addictions to electronic devices.

  • Experienced Board Members: Directors that have served on other high-performance boards have the advantage of being familiar with modern governance processes and are comfortable in supporting change. They are needed to help boards, executive committees and CEOs to move beyond the comfortable bounds of the past. They will be difficult to recruit, but they are required ingredients for successful boards.
  • NEW Projects: Boards and the CEO must be bold and try new approaches to meet client needs. For example instead of going through a complete planning process for a new program the board must ask management to complete a series of small experiments to test the program. When a series of results are positive, the nonprofit can work on a plan to implement the program.

Conclusion: Individual board members working alone will probably become frustrated in trying to contend with the three overview barriers discussed. But working with three or four colleagues, over time, on a tandem basis, they can make inroads on the barriers. Meetings can become more focused on policies/strategies, new age board members can become more quickly productive, experienced board members can become role models and new programs and other projects can be more quickly imitated via the use of small scale experiments.

 

 

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Can A Nonprofit Board Change Its DNA?

Can A Nonprofit Board Change Its DNA?

By: Eugene Fram        Free Digital Image

Genetic codes aside, the term DNA is now commonly used to describe distinctive characteristics and qualities in almost anything –living or inanimate. Every nonprofit has a DNA! And every board member, if questioned, will probably have a different take on that invisible life blood which — for better or worse—impacts the  actions of his/her board. One author goes so far as to suggest that   “…one common element to create sustainable success is evaluating and interjecting the right DNA.”

 He goes on to recommend three steps to make the necessary changes in the nonprofit culture: Assessment, New Genetics and a Gestation period— the last step being essential …“for the new approach to take hold and grow.” * Here, as an example, is how it might apply if a nonprofit board needs to move from a traditional Community Board to a Policy/Strategy Board.  This is a situation where the board increases its overview responsibilities and decreases or eliminates its involvement in operations, i.e. micromanagement.    (more…)

Nonprofit Boards’ Relationship with Executive Directors: A Delicate Balance

 

Nonprofit Boards’ Relationship with Executive Directors: A Delicate Balance

By: Eugene Fram 

When an individual with business board experience agrees to serve on a nonprofit board, the result can be culture shock! The new arrival can become impatient with the deliberate crawl of action in the nonprofit sector. Or the fact that he/she has no stake in the organization’s financial outcome can diminish interest and participation. Even more disturbing is the fuzziness of the relationship between board member and Executive Director, a sharp contrast to the corporate director/ CEO interaction. In the nonprofit, the ED can assume a more entrenched position due to cultural and governance protocols.

  • Long before and after the new board member’s four to six year term has expired, it’s likely that the same ED will be in place. Based on national data, a nonprofit executive director’s average tenure is 12 years. In addition, directors’ career interests are likely to be very different from those operating the nonprofit. These two factors invest the ED with “institutional memory.” This requires him/her to structure a field of vision on which directors are often dependent. If the ED lacks foresight, the nonprofit will probably not reach its potential to serve clients during his/her tenure.
  • Board members will have a difficult time modifying a nonprofit’s conservative ambiance. Full support of the ED will be required for change. If a board is unable to modify his/her behavior, a termination action will be needed—this will likely create board conflict.
  • Nonprofit directors are often not eager to replace an ED who “minds the store” but doesn’t move it significantly forward. Without malfeasance or performance issues, many directors are willing to maintain an ED in place whose performance is, at best, undistinguished.

Based on my experiences with 12 nonprofit boards as a board member plus having consulted with dozens more, following are ways I have seen business persons become acculturated to the nonprofit ED’s leadership styles. Instead of resigning, as some do, there remain many who continue to work productively with the ED to enhance the organization. Following are profiles, albeit stereotypical, of undaunted directors with business board experience (and without). (more…)

A Nonprofit’s Reputation Rests on the Quality of its Directors

A Nonprofit’s Reputation Rests on the Quality of its Directors

By: Eugene Fram         Free Digital Image

Reputations are universally seen as valuable, but reputation risk is poorly understood. As a result, reputations are left unnecessarily at risk.*

Reputation matters in the nonprofit world. Few nonprofit boards exist today that don’t worry about how they are perceived in the communities or associations they serve. And to make sure their images remain pristine, many turn to crisis consultants and other forms of expert assistance. A tarnished reputation can have a huge impact on a vast network of stakeholders as confidence in the organization ebbs and support starts to dwindle. Nonprofit board members must be sensitive to signals of impending reputation risk and immediately roll up their sleeves in an attempt to rebuild confidence.

I was once involved in a board that was bitterly divided over an issue—so much so that the intense conflict in the boardroom became public knowledge. As an anomaly, the staff continued to be productive and the organization maintained its functionality. But the damage had been done. The United Way placed the organization on “probation,” warning that financial support would be reduced unless the board took measures to heal the rift.

Recalling this near-catastrophe, I resonated with a recent post that focused on board composition. (http://bit.ly/1BFQcLh) (more…)

How Do Nonprofits Determine CEOs’ Productivity?

How Do Nonprofits Determine A CEOs’ Productivity?

By: Eugene Fram         Free Digital Image

Nonprofit organizations can’t have bottom line profits. If they did, CEO productivity determination could be less complicated. Determining a fair CEO benefit, based on productivity, can be a complex issue for a nonprofit board. Providing too little or too much can be dangerous for the organization and possibly the board members. Although the spadework for benefits needs to be done by a small committee, the entire board needs to fully agree on the rationale for the final decision.

Following are some of significant challenges that I have noted nonprofit boards face when determining CEO benefits.

Evaluation Failure: Some CEOs might receive high benefits because a series of boards have not effectively evaluated her/h performance. It is not unusual to find CEOs who have not been formally and effectively evaluated for years. They are held in position because they are “minding the store,” not being professional managers.

Market Forces: Nonprofit organizations are restricted by law from providing their CEOs with excess benefits. (Section 4958 – IRS Code) As a result, the benefits offered the CEO must reflect a market level found in the geographic area and/or the person’s professional qualifications. For example, nonprofit health insurance organizations have to compensate CEO at levels that are competitive with for-profit organizations. In my opinion, unusual CEO benefits that are hard to justify market-wise are invitations for an IRS inquiry

Board Relationships: Obviously having a good, not perfect, interrelationship with the constantly changing board membership is critical to support a reasonable benefit level. It is especially important in association type nonprofits where the person holding the board chair position changes annually. I recently encountered one board chair who, although being very pleased with the CEO’s performance, expressed a concern that the CEO did not have good communications with board members. The chair welcomed a suggestion that the board might engage a professional coach to help the CEO work on the issue.

Additional Benefits: Although not usual in the nonprofit environment, special benefits can be offered the CEO, especially if they relate to job performance. These can range from special insurance coverage to extensive travel benefits , educational opportunities. or even housing and entertainment allowances. If involved with fundraising, like a college president, housing and entertainment benefits may be appropriate. In some unusual instances the person’s spouse or significant other may also receive compensation for time spent to benefit the nonprofit.

Nonprofit CEO: It is not unusual for the CEO to undervalue his/h own worth, especially when associated with a human services type of organization. This then keeps a cap on the whole salary scale and can make it difficult to hire capable people. Example: I encountered one CEO with degrees in human services and management areas plus 30 years of excellent experiences. Admired for his performance by peers in a nearby university, he refused to use that leverage to seek equitable compensation.

Personality: Now doubt a positive CEO personality can be an attribute in working with boards and staffs. But some nonprofit boards continue to support well-liked CEOs, even after they have been found to be involved with fraud. The board then has to be removed by state attorneys’ actions.

Summary:
Nonprofit boards can do a poor job of determining CEO benefits because of inherent challenges. Evaluating critical qualitative outcomes and impacts, like improving life quality and successful advocacy, can be daunting. But it can be done in a fair manner.*  CEO benefits must in line with market levels and professional qualifications, or the directors can have a personal liability if they provide a excess ones. In the face of these challenges, some nonprofit board members simply pay lip service to the task and then follow a decision of the board chair.

*https://nonprofitquarterly.org/2012/07/24/using-imperfect-metrics-well-tracking-progress-and-driving-change/

 

 

Director Independence: a Nonprofit Board Issue?

Director Independence: a Nonprofit Board Issue?

By: Eugene Fram       Free Digital Photo

In the best of all nonprofit worlds, every director is an independent agent whose ability to make critical decisions on behalf of the organization is regularly uncompromised by outside pressures. This, unfortunately, is not always the case. Based on field observation I have concluded that questionable practices can plague nonprofit boards when social or political pressures are brought to bear on a director. In governance terms nonprofit decision-makers should be “outside directors,” not overtly or covertly susceptible to management or board colleague personal pressures.

Discerning recruitment committees can screen candidates to be certain they are not subject to influences that might impair their judgment as board members. Lack of independence could easily divide and perhaps polarize the board as has happened in our country’s Congress. A candidate who is “sponsored” by a major donor and maintains personal ties with the donor can create a “hornet’s nest” for the recruitment group. There are no easy solutions to these problems. (more…)

NONPROFIT BOARDS HIRE AND CEOs MUST ACT!

NONPROFIT BOARDS HIRE AND CEOs MUST ACT!

By: Eugene Fram

Whenever the time is ripe to select a new nonprofit CEO, I think of the old joke that says “…every person looks for the perfect spouse… meanwhile, they get married.” By the same token, nonprofit directors seek perfection in a new ED or CEO– and find that they must “settle” for less. But there are certain definitive attributes that are essential to his/her success in running the organization. With the pressures of increasingly slim budgets, fund development challenges and the difficulty of recruiting high quality employees, the 21st century ED/CEO must be action oriented and come equipped with at least a modicum of the following abilities: * (more…)