Reputation

Why Are Some Nonprofit Boards Missing the Mark? What to Do?

Why Are Some Nonprofit Boards Missing the Mark? What to Do?

By Eugene Fram     Free Digital Image

Stephen Miles of the Miles group  (https://miles-group.com/) recognizes that many business boards are coming up short in performance. As founder and CEO of a strategy and talent development agency, Miles has identified five areas of potential improvement for commercial boards. I believe these categories are also quite relevant to nonprofit board operations in the following ways:

Knowledge Gaps

Many new board members are in the dark about some of the operating issues facing their organizations. Such information gaps are less prevalent in trade and professional associations because most board members are in associated fields or are in practitioner positions. However, new directors of community based charitable organizations and human services focused nonprofits should be much more attuned to discussions at initial board meetings. Current methods of orienting new directors don’t seem to be doing the job. This is critical for those boards with rapid turnover. For example, one board with which I am acquainted has 80% of its membership turnover with no more than 18 months tenure.

Orientations can take a variety of forms, ranging from brief pre-board session to pre-meeting phone calls from the CEO or Board Chair. These updates will provide the new board member with information that should make his/her participation in the board meeting more meaningful.

Lack of Self-Assessment

“When it comes to the (business) boards (assessing their) own performance, this is often done by using the check-in-the box exercise, (along) with some form of gentle peer review,” reports Miles. In the nonprofit environment, board self-assessments are not usually a priority because nonprofit directors often have time constraints. In addition, nonprofits need to more broadly examine qualitative outcomes, such as community impacts. But business boards are also beginning to move in the same direction, and at this time seem to be behind nonprofits!.*

The media, Internal Revenue Service, foundations and accreditation organizations are asking for more information and transparency to ensure that nonprofits have quality processes to overview management impacts. Few nonprofit boards can afford rigorous third party directed board self-assessment, the gold standard. However a self-review deficit might leave some board members with significant personal liabilities.** Consequently, it is my personal opinion that nonprofit boards need to make good faith efforts to have reasonable self-reviews, understanding that management and board members may hesitate to negatively reflect on volunteer directors been poor decision makers.

Self-Delusion

“Management Capture” occurs when a board too readily accepts a delusional view from management that organizational performance is significantly better than reality. As a result, some board self-examinations may take place only after a crisis has been resolved. So it is mandatory that the boards develop rigorous impact measures, both quantitative and qualitative by which to judge organizational and board performance. Models for self-board assessments are available from professional groups and consultants.

Recruitment Shortcomings & Board Inexperience

Miles maintains that most for-profit directors lack real experience in succession planning: this is also true of nonprofit directors. Even in for-profit boards where a chief executive is temporarily incapacitated, there often is no plan for interim succession. Plus there is always the possibility that a CEO will leave quickly for a variety of reasons. Planning for his/her unanticipated exit should be an ongoing board concern.

One root cause for having a nonprofit culture of board inexperience is that often there are too few directors who have served on other for-profit or nonprofit boards and know how to be role models for newer recruits. Also, normally serving one or two terms, lasting three years, some experienced nonprofit board members may not be motivated to serve in this role because there are no financial incentives offered. However, as demonstrated in the Penn State debacle, a director’s reputational  risks can be substantial. How a board evaluates and improves its organizational talent pool is critical to performance. Miles characterizes the optimal board as composed of ” … directors who are active in their roles engaging individually and collectively (to engage with) other directors and (overview) management.” It is a tall order in today’s nonprofit environment.

For-profit organizations or nonprofit organizations, in my opinion, have five identical basic board guidelines. For Deloitte Partners, a worldwide accounting and financial advisory firm, these constitute board responsibilities that can’t be delegated to management. The board has responsibilities to have: a viable governance structure, annual assessments of (board and) organizational performance, driven strategic planning, improved management talent and assured organizational integrity.

A relentless pursuit of these lofty goals will enable nonprofits to be “on the mark.”

*For nonprofit qualitative outcomes, see: Jerry Talley & Eugene Fram (2010) “Using Imperfect Metrics Well: Tracking Progress & Driving Change,” Leader to Leader, winter, 52-58. For commercial boards see: Emily Chasan, (2012), “New Benchmarks Crop Up in Companies’ Financial Reports,” CFO Journal Section, Wall Street Journal, November 11th,

** For examples, see the Intermediate Sanctions Act, Section 4958 of the Internal Revenue Service Code. Also see the Expanded IRS 990 form guidelines for board structure and performance–38 questions related to nonprofit governance.

Must Nonprofits Develop Employee Benefits That Substitute For Annual Raises?

Must Nonprofits Develop Employee Benefits That Substitute For Annual Raises?

By: Eugene Fram                      Free Digital Image

An analysis in the Washington Post reports that a tsunami-style change has been taking place in the manner in which United States employees are being paid—benefits are being offered in place of annual salary increases. (http://wapo.st/1MwoIBZ) Driving the change are the needs of a substantial portion of millennials who appreciate immediate gratifications in terms of bonuses and perks, such as extra time off and tuition reimbursement. Employers like the arrangement because they can immediately reward their best performers without increasing compensation costs. Example: One sales employee spent weeks reviewing dull paperwork, was very diligent in the process and was given three extra days of paid leave. She said, “I think everybody would like to make more, but what I liked about it was the flexibility.”

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Measuring Nonprofits’ Impacts: A Necessary Process for the 21st Century

Measuring Nonprofits’ Impacts: A Necessary Process for the 21st Century

By Eugene Fram      Free Digital Image

 

Unfortunately, outcomes and impact are often unrelated, which is why a program that seems to produce better outcomes may create no impact at all. Worse, sometimes they point in opposite directions, as can happen when a program works with harder-to- service populations resulting in seemingly worse conditions, but (has) higher value-added impact. … Rigorous evaluations can measure impact (to a level of statistical accuracy), but they are usually costly (a non starter for many nonprofit), difficult and slow. * But how do the medium and small size nonprofits measure actual results in the outside world such as enhanced quality of life, elevated artistic sensitivity and community commitment? (more…)

What’s  Needed To Be A Nonprofit Change Agent?

 

What’s  Needed To Be A Nonprofit Change Agent?

By: Eugene Fram.                        Free Digital Image

Nonprofit board members often become frustrated with the moderate pace for change that is characteristic of nonprofit boards. Most resign or remain on the board as passive directors, not wanting to create internal conflict in organizations that are dedicated to developing positive  programs. Here are some qualifications for unusual board members that want to become change agents and lead boards and/or organizations to making substantial positive changes. * (more…)

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

Revised viewer favorite post

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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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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Do Nonprofit Directors Face Cyber Security Risk?

Do Nonprofit Directors Face Cyber Security Risk?

By: Eugene Fram      Free Digital Image

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.

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When Nonprofit Missions Get Muddled

 

 

When Nonprofit Missions Get Muddled

By: Eugene Fram   Free Digital Image

It happens over time. A passionately conceived mission starts to drift from its original intentions. Stakeholders begin to view a nonprofit’s purposes from a different angle. There is a discrepancy between how the organization is committed to act and external perceptions of its current actions. Nonprofit boards need to be on the alert to such misalignments that can go unnoticed in the perceptual “fog” of daily challenges. It can limp along for years without acknowledging the impact of the client reality by which the nonprofit is being judged.   

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People Problems Can Put Nonprofits at Risk

 

People Problems Can Put Nonprofits at Risk

By: Eugene Fram   Free Digital Image

Like the Streisand song lyric, nonprofit people who need people must first have the know-how to choose and cultivate those people! If not, the risks to a board can range from modest to substantial. It all begins with making the right choices and vetting board and CEO candidates.  Most nonprofit board members know that they are only required to make one hiring decision—the engagement of the CEO. This is a process that always involves some risk factors. Take the case of the university that has expended substantial amounts to engage a CEO. After a brief “honeymoon period” it was determined that the candidate lacked the requisite background to move the organization forward. His resignation was forthcoming, and with it, a disruption that was costly not only in dollars but in board/faculty morale and public confidence.

A nonprofit board is usually confronted with several people risks. Following are some that should be noted by board members. (more…)