Nonprofit impacts

Should Mature Nonprofits Allow Board Micromanagement?

 

Should Mature Nonprofits Allow Board Micromanagement?

Commonly accepted View of  Nonprofit Micromanagement: Board members spend more time with the details of the operations instead of planning the organization’s short-term and long-term growth strategies. 

The Need for a Micromanaging Board
Board micromanagement is an appropriate approach when a nonprofit is in a start-up stage. Financial and human resources are modest, and the volunteer board members must assume some responsibilities normally executed by compensated staff. The chief executive often has managerial responsibilities as well as a list of clients to service. It is not unusual to promote a person who is only familiar with direct service to become the first chief executive of the organization. In turn , this neophyte manager has to depend on board members for managerial counsel and direction. A culture of board dependency is created out of necessity.

Problems Arise
The micromanaging board is a worthy model for smaller nonprofits that stay at a start-up level for a long time. Some nonprofits retain this governance model, with its dependency relationships, long after it is needed. Example: One nonprofit I encountered required its department heads to first discuss major issues with designated board members before reviewing them with the chief executive, e.g., the program manager follows instructions of the board program committee chair.

Major Organizational Impacts Of Continuing Micromanagement
• Management and staffs wait for board signals or instructions before taking action. One CEO reported: “I give the board options and let them choose the course of action.” Implication: I don’t want the responsibility for the action chosen. “The board told me to implement it.”
• It’s more difficult to hire talented managers with these types of organizations. Most, from CEO down, are “C” players. They fear “A” and “B” players and then hire more “C” players like themselves. More qualified personnel may reject offers.
• Management & staff just don’t have the “right stuff” to be creative. They don’t properly question authority. Boards are shown great deference.
• Impacts and outcomes at best are minimal, but this is not readily recognized by the community or sponsoring organization. As long as income meets expenses each year, the board does not note any long-term red flags.

Changing the Culture — The Important Issue
Governance and management changes do not occur easily when an organization has maintained a micromanagement culture well beyond the start-up period. Following are some ways that I have seen changes take place.
• Several forward-looking members of the board, including the chair, develop a plan to seek change. Opinion leaders or well-respected veterans must be included.
• Over time, often a year or more, a change plan is developed and then formally adopted by the board. This usually involves giving the chief executive full responsibility for operations, along with a robust annual assessment of the CEO and operations.
• During the process, all stakeholders must be informed about the proposed changes, and the reasons for change. Naysayers will quietly spread internal and external rumors about it. Actual Example: “We will be losing our family culture and our great interpersonal relationships.”
• The CEO must be in favor of the changes to be instituted. If not, the board needs to wait until the CEO retires or leaves. Of course, the board can terminate the CEO, but this will certainly lead to conflict with the staff and the stakeholder constituency he/s has developed.
• When a new CEO is engaged, make certain the person has a desire and some experience to manage and the interpersonal skills to relate to the staff at its current state.
• Some members of the board will become “displaced directors,” persons cemented to the older order. Look for them to resign quietly and/or take potshots at the new governance-management arrangement. Actual Example: In one organization, when the traditional ED title for the chief executive was abandoned and the title President /CEO instituted, a board member derisively questioned, “Do we call him ‘Presco’ ?”

Summary
The tendency of nonprofit boards to micromanage organizational operations is still prevalent. In fact, it appears to be part of the nonprofit’s DNA! With the huge problems confronting nonprofits, it’s high time for a 21st century culture change!

Once Again! Mismanagement Causes Huge Agency Failure—A Word To The Wise Nonprofit?

 

Once Again! Mismanagement Causes Huge Agency Failure—A Word To The Wise Nonprofit

By: Eugene Fram.    Free Digital Image 

Rarely do failed for-profit or nonprofit organizations get a posthumous review of what actually went wrong.The collapse of one of the largest nonprofits in the US, the Federal Employment Guidance Service (FEGS)of New York City, is a noteworthy exception. Details of the causes that led to the human service’s demise were aired widely throughout NY media. *  This organization had a $250 million budget, with 1900 employees who served 120,000 households covering a range of mental health and disability services, housing, home care and employment services.

Following are my interpretations of what its board should have done to avoid such a tragedy

.• Failure of nonprofits: Failure of small nonprofits is rampant for a wide variety of known reasons. Outside of fraud being involved, the FEGS failure demonstrates that no nonprofit is too big to fail because of a lack of board due care. Boards have to be acutely aware of the professional financial competencies of their CFO and CEO or well-meaning people who naively believe that loans could be easily repaid. There should have been a well-documented financial strategy. The nonprofit closed with $47million in loans/liabilities/debts.

• Symptoms of impending collapse: Clearly with $47 million being owed, common financial ratios should have alerted knowledgeable board members to the coming catastrophe. But in the nonprofit environment, it is not unusual to that find board members, even business executives, are unfamiliar with the fund accounting approach used by nonprofit organizations. In addition, contracting city and state agencies failed in their reviews of the organization’s finances . However, some nonprofits, either intentionally on unintentionally, can saddle contract reviewers and board members with so much information that even the most conscientious can’t spot problems. (Humorously, board members in this category are referred to as “mushroom directors” because like growing mushrooms, they are kept in the dark an covered with excrement. But this type of tactic was successfully used against IRS auditors in the famous Madoff debacle.)

• Government or Foundation Contracts: In accepting these contracts, nonprofits must be realistic about whether or not there is enough money to cover full costs. They can’t be blinded by what the contract can do for the organization’s client. If adequate overhead funding is not attached to one or more of these agreements, they eventually can cause bankruptcy, because the nonprofit eventually will have to borrow or seek additional donations to cover them.

How Nonprofit Boards Can Avoid Problems

• Review Financials: Current financials need to be given to board members monthly, or at least quarterly if the board meets less often. The very detailed budget data can often be difficult for board members without budget experience. At the least, everybody on the finance committee needs to be able to intelligently review the income statement and balance sheet. Also they need to be aware that fund accounting permits some unusual twists—food donations, for example, can be included in revenues, based on an estimate of their value. Consequently, cash revenues and expenditures need to be a focus for board members’ analysis. Make certain that financials are delivered on timely and complete bases.

A nonprofit CFO didn’t submit an accounts receivable reports for nine months because he said he was too busy to compile it. Neither the board nor the CEO demanded issuance of the report. When finally delivered, it was clear that the CFO was listing a substantial number of uncollectible accounts as active ones. Both the CFO and CEO were fired, and the nonprofit had to hire expensive forensic accountants to review the impact.

• Gaps Between Revenues and Expenditures: This is the ultimate red flag, if not followed carefully. It may vary from period-to-period in a predictable pattern that everybody understands, but if the gap continues, say for four to six months, strong board action is necessary.

• Adopt written financial policies: These are necessary to make sure all concerned with finances are on the same page. Since interpretation is often required in financial decisions, nothing should be left open to broad interpretation

.• Contracts with governments, foundations and others: Make certain that reimbursements for indirect costs are included. If not included, have a benefactor ready to step in to cover the costs.

An old Chinese proverb, “A wise man (or woman) learns from his/h own experience. The wiser man (or woman) learns from the experiences of others.” One hundred twenty thousands households and individuals lost services from an 80 year old human service nonprofit. There is much to learn from the collapse of FEGS.

* https://nonprofitquarterly.org/the-fegs-autopsy-a-case-of-bad-nonprofit-business-in-a-tough

 

Do Your Board Members View Their Board Work As Being Meaningful?

 

Do Your Board Members View Their Board Work As Being Meaningful?

By Eugene Fram                  Free Digital Image

For several decades, I have suggested that nonprofit Board Chairs and CEOs have a responsibility to be sure that each board member perceives his/h continuing relationship as being meaningful. Following are some organizational guidelines that can assist Board Chairs and CEOs in this effort.*

  1. Developing or hiring strong executive leadership: Obviously when hiring externally it is necessary to engage a person with a managerial background. But many nonprofit CEOs can be appointed after years of being an individual contributor or leading a small department. These experiences condition them to do too much themselves, rather than to assume a strong management posture. This involves focusing more on strategy, on talent development, interacting more with the board/community and creating a long-term vision.

A strong CEO, if appointed internally, should understand the role changes that take place once appointed. He/s must delegate activities that were once performed within a comfort zone and seek new challenges. Examples: The new CEO needs to be enthusiastic about becoming a fundraiser.   She/h must become well acquainted with peer CEOs regionally and nationally to stay abreast of the state-of-art in both management and mission areas. He/s needs to become acquainted with cohorts in the business and public management communities. Over time, those involved with the nonprofit internally and externally must perceive the organization is lead by a capable executive.

  1. Creating impact: In the 21st century, funders, board members and other nonprofit leaders are attracted to organizations that create impacts as opposed to outcomes. A nonprofit can have great program outcomes with little long-term impacts on clients. Impact is often hard to measure, but it can be done, only if started with imperfect measures that are improved over time. ** For example, one local human services organization, with which I am acquainted, operates groups of apartments offering social services that allow elderly clients to live independently for years on their own, rather than in an assisted living facility. The impact in this instance is well-defined and an impetus to attracting board members and donors that find the impact meaningful.
  2. Building relationships externally and internally: Board candidates who have broad contact networks are sought by search committees to enhance community or industry relationships or to strengthen the organization’s fund development efforts. Little effort is directed to fostering closer relationships among current board members who often don’t get to know each other personally because of crowded board and committee agendas. Example: I consulted with one board where some board members complained that they might not recognize their board peers when they meet them in outside social situations.

To solve the problem, both the Board Chair & CEO must acknowledge that it exists—in the above example; it took an extensive personal interview board survey to highlight the problem.   Then creative tactics like the following can be employed.

  • One CEO has a weekly one-hour conference call with the board chair to discuss current issues. Other board members are invited to join the calls if they wish. This is an excellent way for new board members to quickly become attuned to the nonprofit.
  • Another CEO, each Sunday, sends a one-page e-mail summary of major events to board members. He reports that his high school English teacher would never approve of his grammar or structure, but he knows emails are reviewed. They are reflected in the level of discussions at meetings
  • Low-key self-funded social events for board members and significant others can help board members to become better acquainted and work together.
  • Another classical approach is to allow 10 minutes each meeting to allow board members to briefly report changes in their personal or professional lives.
  • Assuming an organization is successful in developing a cohesive board, what can be done to retain these efforts once they have termed-out? The answer is to ask them to join the organization’s “Alumni Association.”   The process can be found here: (https://onlinelibrary.wiley.com/doi/epdf/10.1002/ltl.20305)

  1. Organizational stability: Unstable nonprofits have common telltale signs—rapid employees or management turnover, excessive bank borrowing, reserve depletion, late report filings, etc. It’s difficult to provide meaningful board experiences under these conditions. However it is not unusual to find board members who will accept responsibility when the nonprofit is unstable, if they are dedicated to its mission. A few may  “enjoy” a board position  to be involved in the turnaround challenge.

While no nonprofit will be perfect, those with the best opportunity to provide meaningful board experiences will have a well formulated strategic plan that allows it to be stable operationally and financially.

*https://grantspace.org/resources/blog/high-impact-volunteer-engagement-six-factors-for-success/

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

 

What Makes A Great Nonprofit Board Member?  Some Unique Suggestions!!!

What Makes A Great Nonprofit Board Member?  Some Unique Suggestions!!!

By: Eugene Fram          Free Digital Photo

Viewers may question my taking time to develop this post when a Google search, using the above title, shows about 22 million listings recorded in 0.96 of second! The answer is that I located a board article with a few interesting insights, relating to for-profit boards, that also can be useful to the selection of nonprofit directors. * Following are some of the unusual ideas.

(more…)

Dysfunctional Levels in Nonprofit Boards & Organizations.

Dysfunctional Levels in Nonprofit Boards & Organizations.

  By: Eugene Fram                 Free Digital Image

 Articles and studies from a Google search on “Dysfunctions in Nonprofit Boards & Organizations,” yields 3,530,000 items in .53 of a second. These items show dysfunctions on charter school boards, church boards, healthcare boards, trade associations, human services boards etc.

Rick Moyers, a well-known nonprofit commentator and nonprofit researcher, concluded:

“A decade’s worth of research suggests that board performance is at best uneven and at worst highly dysfunctional. ….. The experiences of serving on a board — unless it is high functioning, superbly led, supported by a skilled staff and working in a true partnership with the executive – is quite the opposite of engaging.”

These data and comments can lead one to conclude that all nonprofit boards are dysfunctional. I suggest that nonprofit boards can generate a range of dysfunctional behavioral outcomes, but the staff can muddle through and continue to adequately serve clients.

(more…)

Nonprofit Board Discourse: a Meeting of the Minds??

 

 

Nonprofit Board Discourse: a Meeting of the Minds??

By: Eugene Fram        Free Digital Image

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 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.

The absence of conflict reflects blind trust rather than a good professional relationship.  Likewise, professional tensions between the (board and management) are signs of a well-performing board. We should habitually become suspicious when we observe boards where dissent is absent.*

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.

*http://boardagenda.com/2016/10/08/conflict-makes-for-effective-boards/

The Nonprofit CEO–How Much Board-CEO Trust Is Involved?

The Nonprofit CEO–How Much Board-CEO Trust Is Involved?

By; Eugene Fram   Free Digital Image

The title, CEO for the operating head of a nonprofit, clearly signals to the public who has the final authority in all operating matters and can speak for the organization.*  .

The CEO designation calls for an unwritten trusting contact with the board based on mutual respect, drawing from the symbolism that he or she is the manager of the operating link between board and staff. It is a partnership culture. However, a solid partnership does not allow the board to vacate its fiduciary and overview obligations. The board has moral and legal obligations to “trust but verify” and to conduct a rigorous annual evaluation of outcomes and impacts CEO has generated for the organization.

While the trust the board has in its chief operating officer can’t be described in exact quantitative terms, viewing it through the lens of a set of CEO and/or Board behaviors can give an idea that a significant level of trust is involved in the relationship.

Following are some of the behaviors that signify a trusting partnership is in place:

(more…)

What Role Should Board Nonprofit Board Members Play in Overviewing Management /Staff Talent?

What Role Should Nonprofit Board Members Play in Overviewing Management /Staff Talent? By: Eugene Fram    Free Digital Image

Nonprofit boards rarely develop an in-depth strategy for assessing its organization’s human capital. Some will keep informal tabs on the CEO’s direct reports to prepare for the possibility of his/her sudden departure or is incapacitated. Others –smaller organizations with fewer than 20 employees—need only a basic plan for such an occurrence.

Need for Strategy: In my view, maintaining a viable talent strategy to assess staff and management personnel is a board responsibility, albeit one that is often ignored. The latter stems from the constant turnover of nonprofit board members whose median term of service is 4-6 years—hardly a lifetime commitment. Like for-profit board members whose focus is on quarterly earning results, their nonprofit counterparts are likely more interested in resolving current problems than in building sufficient bench strength for the organization’s long-term sustainability.

(more…)

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, and difficulties in hiring qualified personnel at what are considered “nonprofit” compensations. 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.

(more…)

How Can Nonprofits Accommodate To External Influences? Some Field Observations

 

How Can Nonprofits Accommodate To External Influences? Some Field Observations

By Eugene Fram       Free Digital Image

Ruth McCambridge, former editor of Nonprofit Quarterly, points out “Our organizational management, (board) styles and structures are affected by the four external influences.” See paraphrased bolded items below. (http://bit.ly/1HSwrZY) Following are some specific field observations I have encountered that, over several decades, support her model relating to external influences.

The nonprofit’s mission field: McCambridge points out that arts organizations have dual have leadership models—artistic and business. However, unless specified which has final authority, the system can lead to continual conflict between the two; the artistic leader wanting the most authentic productions and the business leader concerned with budget realities. The final authority is often determined by which leader has the CEO title.

(more…)