Strategic planning

How The Nonprofit CEO Can Exit Gracefully

 

How The Nonprofit CEO Can Exit Gracefully

By: Eugene Fram         Free Digital Image

Like many nonprofit CEOs, Tom Smith has held the position for 10 or more years. As he reported, and I agreed with his assessment, the association he heads was doing well. The membership has increased substantially, revenues exceed expenses each year, and through a series of development events, the reserve account now exceeds $5 million. But Tom was not satisfied. He said the job has become “boring.” In his words, it’s like turning on automatic at the beginning of each year—adjusting to a new board chair, developing a budget and being alert for “Black Swan” events that nobody can anticipate.   He quietly said to himself at the beginning of each year, “I wonder what the big problem is going to be this year?”

Preplanning  

Tom had a preplan: Several years ago, he had purchased an avocado farm in California, and had a partner-manager operating it successfully. He and his wife planned to move there, once he decided it was time to leave his CEO position.

Other potential preplanning actions he might have taken:.

  • Quietly investigate the potential to join a nonprofit consulting firm.
  • Assess whether or not he can be successful as a solo consultant.
  • Quietly interact with contacts in nearby education institutions to determine how his experiences and educational credentials might qualify him for teaching or administrative positions.
  • Review grant proposal requests from foundations and governments to assess how his expertise might match those of people needed to manage the grants.   (Be certain none of this type of activity creates a conflict of interest with his current CEO position.)
  • Register with search firm to test his “marketability’ for a more interesting CEO position. (Beware of any firm that requires a fee from you.)

Be Proactive

Once preplanning is complete, discuss it carefully with your family, financial advisors and possibly with an attorney if a major relocation is going to be involved. Be sure that they view the change as you do. Make certain they don’t see a missed opportunity within the current position. Also be certain that the time frame is reasonable for the CEO and the organization. It would be a mistake for the CEO to leave when the CFO is planning to retire. Traditionally, a one to three year period is needed from first discussion to the time the CEO departs.

Inform the Board

This should be accomplished in several steps. First quietly inform the board chair. Then at intervals alert other members of the board, the management team and staff.   The CEO msy have been around for a long time and has an obligation to prepare the organization for a major change. I recently watched a nonprofit executive group “tread water,” for 18 months from the rumors of the CEO’s departure through the selection of the new CEO and his arrival at the office.   To develop a graceful exit, the incumbent needs to be aware of the situation and help provide s smooth transition.

Leaving With Dignity 

Leave as scheduled. Any delay will extend the uncertainty that surrounds the transition.   As noted above, nonprofit organizations have their own ways of remaining static during these transition periods.   Your CEO nonprofit successor deserves better strong support.

The Possibility Of Fraud – A Nonprofit Board Alert

The Possibility Of Fraud – A Nonprofit Board Alert

By: Eugene Fram              Free Digital Image

“According to a Washington Post analysis of the filings from 2008-2012 … of more than 1,000 nonprofit organizations, … there was a ‘significant diversion’ of nonprofit assets, disclosing losses attributed to theft, investment frauds, embezzlement and other unauthorized uses of funds.” The top 20 organizations in the Post’s analysis had a combined potential total loss of more than a half-billion dollars. *

One estimate, by Harvard University’s Houser Center for Nonprofit Organizations, suggests that fraud losses among U.S. nonprofits are approximately $40 billion a year. **

Vigilant nonprofit boards might prevent many of these losses. Here’s how:

• Have an audit committee charged with reviewing the overall results of a yearly independent audit conducted by an outside auditor.
• Carefully oversee executive compensations, pension benefits and other finance activities.
• Conduct a yearly review of conflict-of–interest policies, have employees/board members sign a conflict-of-interest statement and have board members involved with development of IRS Form 990 before submission.***
• Assure new hires are well vetted for honesty by searching background.
• Meet with external auditors at specified times, including an executive session without management present.

• Ask the auditors:
1. Have they perceived any fraud problems?
2. Are internal controls adequate, e.g., those handling financial matters must take at least two weeks vacation per year so their duties can be temporarily assigned to others?
3. Are financial records accurate? To what extent were material mistakes located or was there an increase in non-material mistakes?
4. Do the proper managers or officers properly authorize activities and expenditures?
5. Do all assets reported actually exist?
6. Is the organization performing any activities that might endanger its tax-exempt status? For example, provide misinformation on the IRS Form 990.
7. Is the organization paying its payroll taxes, sales taxes and license fees on time? ****

Trust But Verify

Some board members argue boards can do little to prevent fraud. I argue that every member should know enough about finances to raise issues about questionable activities. At the least, everyone in the organization should be alerted to the fact that board members are paying attention to the possibility of fraud. That knowledge, in itself may deter some people from trying to steal.

* Joe Stephens & Mary Pat Flaherty (2013) “Inside the hidden world of thefts, scams and phantom purchases at the nation’s nonprofits,” Washington Post, October 23rd.

**Janet Greenlee, Mary Fischer, Teresa Gordon & Elizabeth King, “An investigation of the fraud in nonprofit organizations: occurrence & deterrents, “ Working Paper#35 hauser-center@harvard.edu.

***https://papers.ssrn.com/sol3/papers.cfm?abstract id=2604372

****More actionable details can be found: Eugene Fram & Bruce Oliver (2010) “Want to avoid fraud? Look to your board,” Nonprofit World, September-October.
Eugene Fram (2013) “Preventing and managing leadership crises in nonprofit organizations, “ in Handbook of Research on Crisis Leadership in Organizations, Andrew J. DuBrin, editor, London, Edward Elgar International Publishing.

Is Your Nonprofit Board Chair Productive?

Is Your Nonprofit Board Chair Productive?

 

Is Your Nonprofit Board Chair Productive?

By: Eugene Fram         Free Digital image

Hundreds of articles have probably been published about the skills and abilities nonprofit CEOs need to have to meet the challenges of the nonprofit environment. These include: reduced funding, increased use of technology and increased responsibilities for fundraising.

Relatedly, nonprofit board chairs have been encountering escalating challenges to recruit able board personnel. Current chairs must develop a more active partnership with the CEO in fundraising and lead the board in making difficult financial, technology and other strategy decisions.

To address these challenges, following are the attributes that I think a nonprofit board chair should have to be productive, within the confines of being a volunteer (part-time) chairperson.

• Great Communication Skills: Current issues can be so pressing that chairs will need to be the types of people who don’t limit their board communications to regular meetings. Those who head the board must be in positions to return phone calls or other communications promptly and proactively seek the counsel of directors as needs arise. As a communicator, the chair should listen intently as well as provide outward-bound communications.
• Understands Importance of External Stakeholders: Traditionally chairs have not have much contact with external stakeholders. This is rapidly changing as funders want more assurance about board overview involvement in the grants they award; those providing gifts want more assurance that the intent of donor is being clearly recognized. The chair understands that an organization’s modern stakeholders range broadly from vendors to staff/management to donors. She/h understands that the nonprofit board represents the interests of a community, profession or trade association.
• Manages Board as an Organization: The chair makes certain that all directors understand their roles to overview, to have robust compliant financial and legal processes and to generate civil meeting discussions. He/s is able to abort any board attempts at micromanaging the executive group or staff. Board decisions should be viewed as being democratically developed, even when there is not unanimous agreement.
• Positive Relations With CEO: Mutual respect between the two is the hallmark of the relationship. Differences are settled without rancor, understanding that each role has boundaries – the board has the final word on policy and strategy while, at the same time, the CEO has final authority on operational decisions.
• Acquainted With Technology Basics: Since the use of technology is pervasive, the chair should be able to intelligently lead the board discussions on major technology issues. These currently include the use of the Internet, use of cloud computing and social media. Discussions can range from purchasing technical hardware and software to questions of privacy protection.
• Strategy/Policy Development: The chair has major responsibility to see that these topics are placed on the agendas, and, where approved, are implemented on a timely basis. Over the years, both issues on FP and NFP agendas have not been given the discussion time they deserve. These topics can range from pension reforms to whether or not an organization should have an acquisition/merger strategy.

The challenges facing nonprofits, their CEOs and board chairs have escalated and will likely continue to escalate. The managerial requirements for nonprofit CEOs have risen. But it has not been the same for the board chairs. Although a part-time position, nonprofit boards and their stakeholders should realize that they need to elect people with leadership know-how. They are not necessarily the people who make the largest financial donations. The two can be the same, but nomination committees must be certain that whoever is chosen to preside as board chair has the requisite skills to do so.

A Nonprofit Board Must Focus On Its Organization’s Impacts

A Nonprofit Board Must Focus On Its Organization’s Impacts

By: Eugene Fram        Free Digital Image

“One of the key functions of a (nonprofit) board of directors is to oversee (not micromanage) the CEO, ensuring that (stakeholders) are getting the most from their investments.” * State and Federal compliance regulations have been developed to make certain that boards have an obligation to represent all stakeholders.  These include the staff, community, donors, foundations and clients, but not only the staff as some nonprofit boards have come to believe.   Following are some inherent problems.

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How Often Do Nonprofit Board Members Need to Question Strategic Norms?

How Often Do Nonprofit Board Members Need to Question Strategic Norms?

By Eugene Fram                Free Digital Image

A new nonprofit director has a lot to learn. Considering that his/h term of service will be relatively short (typically four to six years), he/s must quickly learn the “ropes” to participate in a meaningful way. In this process, colleagues and leadership will acquaint him/h with prevailing board systems and culture—often ignoring the depth of expertise she/h can employ. Example: An expert in financial strategies may be asked to assist the CFO with accounting details, far below the person’s skill level. Oftentimes the new board member also is greeted with a mantra that says, “We’ve always done it this way.” As the director moves in his path from novice to retiree, during a short tenure, there is little opportunity to suggest innovations that differ from the accepted fundamentals and to successfully advocate for change.

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A Nonprofit Paradox: Weak Leadership Pool, Positive Organizational Outcomes?

A Nonprofit Paradox: Weak Leadership Pool, Positive Organizational Outcomes?

By:  Eugene Fram                   Free Digital Image

It happens: one or both of the two nonprofit engines—governance and/or management — sputters out, yet the organization continues to meet its goals and deliver adequate service to its constituents. Some examples: a child placement agency manages to maintain the quality of its oversight while struggling to deal with an admittedly inept board and CEO. Another example: An ineffective volunteer board at a youth center, meeting quarterly for a couple of hours, allows the CEO to really manage the board and to motivate the staff. The CEO realized she and the agency were in dangerous positions without an innovative board providing standard oversight, although client services were positive.

A staff, dedicated to its own professionalism, can on occasion compensate for a lackluster board and/or senior management team by continuing to provide reasonable value to the nonprofit’s clients. Another example involved the ED, simultaneously a deputy sheriff, and his law enforcement colleagues taking payments to refer wayward youths to ED’s shelter. However, the staff continued to provide valuable services. In the end it’s about leadership and the ability to step up to the plate when dysfunction occurs. In the last case, the staff acted in a professional manner, although the management was entirely corrupt and the board evidently inept.

Klaus Schwab, founder of the World Economic Forum, has some innovative thoughts on that subject. He identifies four key characteristics he believes are critical to strong innovative organizational leaders. * I have listed them below, and the ways I think his ideas can be applied to nonprofit governance. (more…)

Errors That Can Cloud Nonprofit Board’s Decision Making–Tread With Care

 

Errors That Can Cloud Nonprofit Board’s Decision Making–Tread With Care

By Eugene Fram            Free Digital Image

In this age of information overload, nonprofits need to continually scrutinize the quality and source of the material received in preparation for major decisions. Since board members often come without broad enough experience in the nonprofit’s mission arena, they may not be prepared to properly assess its progress in moving forward–and not equipped to make relevant comparisons with similar nonprofits.  In addition, naive or unscrupulous CEOs and highly influential directors may inundate their boards with information and data as a  distraction tactic to keep them busy in the “weeds,” reviewing what has been presented.  Board members need to avoid donning “rose-colored glasses” when assessing proposals from these sources.

I once encountered a nonprofit whose board was about to acquire a for-profit organization, headed by its founder.  Pushing for the “deal” were the nonprofit’s CEO and an influential board member who were not, it turned out, capable of the due diligence needed for a project of this complexity. But the board approved the acquisition without sufficient review.  When the acquisition was consummated, the founding CEO of the subsidiary refused to take directions from the CEO of the nonprofit. In addition, the normal financial settlement of the project requires that a portion of the price be withheld, in escrow, pending adequate performance.  In this instance, the nonprofit paid cash for the acquisition.  Based on  a lack of performance, the operation was finally closed with a substantial loss.

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Can Small Experiments Test Nonprofit Strategic Validity?

Can Small Experiments Test Nonprofit Strategic Validity?

By: Eugene Fram        Free digital image

When given a series of potential mission changes, modifications or opportunities, most nonprofit boards take the following steps: (1) Discuss alternatives (2) Develop working plans, board/staff presentations and funding proposals (3) All three usually are packaged into a three or five year strategic plan for implementation. Typically the process can take about six months to “get all stakeholders on board.” When something new is suggested, the conservative board and nonprofit management immediately respond, “Great idea, let’s consider it in the new strategic plan.” Results: It can take three to five years to implement the idea, assuming the plan actually gets off the shelf, not an unusual occurrence for nonprofit organizations!


Another alternative being implemented by some nonprofit is to use a rapid experimentation approach called Lean. “First developed for use in the for-profit world, … the method focuses on new ideas for products through iterative experiments. Lean practitioners build simple prototypes ‘called minimum viable products (MVPs),’ …move quickly to get feedback on these items from constituents/stakeholders.” * As long as they have some positive iterations they continue to full product development.

Example: The software division of a large firm suggested a program that it felt certain would have great marketability because of it perceived uniqueness. The software developers were required to present it personally to a small group of potential customers. As a result of the interviews, both marketing and development executives dropped it.

How Can Nonprofit Boards Utilize Lean Experimentation?

These lean experiments can be conducted at minimum costs and with small samples that initially may not be statistically significant. (For example, in the software case cited above, there were only four customers in the sample, but they generated significant sales.)

Not being able to afford the time and money to develop excellent metrics, nonprofit boards, especially in assessing ambiguous and qualitative impacts, need to initially glean what they can from the use of imperfect metrics. (http://bit.ly/OvF4ri). The metrics can be anecdotal, subjective, interpretive or qualitative. For most nonprofits, it is a great leap forward from doing nothing or taking years to implement action. Also it offers an opportunity for client centered investigations.  The most critical requirement is that the directors and management agree that the process is reasonable and that outcomes from each experimental iteration constitute fair and trustworthy information.

A Current Example

There seems to be a growing body of knowledge of how to apply the art of lean in the nonprofit environment. * The use of lean to assess the proper venues to select social media by which to communicate with donors and other stakeholders is an example. All agree that the use of various social media venues is difficult to assess for both for-profits and nonprofits.

Here, as an example, is what might be done to obtain some directions on using social venues to reach millennials. Charitable nonprofits are seeking ways to communicate with this group as potential volunteers and future donors. Instead of a board waiting to take action on a broad social media strategy before taking some action on social media, it might start with some small-scale, low cost experiments. The information it obtains from one or two MPVs would be useful in backing into a comprehensive social media strategy when a new strategic plan is needed. But an early MPV also might also provide some information for immediate action.

Summary: Like any management process lean is not a panacea for either the business or nonprofit sectors. It has its advantages and disadvantages and will not replace more rigorous process, when required–longitudinal studies and strategic planning. However, its experimental design feature can help drive the nonprofit decision process to be more effective and efficient. That alone can help to recruit more able directors, who because of time-compressed lifestyles, now are impatient with the traditional pace of nonprofit decision-making.

* For a robust report of the use of lean in the nonprofit sector see: Peter Murray & Steve Ma (2015) “The Promise of Lean Experimentation,” Stanford Social Innovation Review, summer, 14pp. (http://ssir.org/articles/entry/the_promise_of_lean_experimentation)

 

A Special Relationship: Nurturing the CEO-Board Chair Bond
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A Special Relationship: Nurturing the CEO-Board Chair Bond

By Eugene Fram              Free Digital Photo

Here are tips to assure the best possible partnership between the board chair and CEO.

Keeping boards focused on strategic issues is a major challenge for nonprofit leaders.  This leadership crisis is intensified by the fact that board chairs tend to have short terms (according to BoardSource, 83% stay in office only one or two years). Thus, nonprofit CEOs  and board chairs need to bond quickly. For the good of the organization, they must come together swiftly and create a partnership that works. Here are golden rules for the CEO and board chair to follow:

1. Be sure the CEO and board chair share strategic issues with each other—negative as well as positive ones. A failure by either the chair or CEO to share information, such as a potential cash flow issue, can be disastrous for the nonprofit.

2. It’s critical for the CEO to conduct orientation sessions with a new chair, explaining the challenges facing the nonprofit, and reviewing the fundamentals of the mission. The CEO can help the chair keep the board focused on strategic issues, whether they’re programmatic or financial.  With many nonprofits electing a new president each year, the CEO needs to prioritize these tasks.

3. Make sure staff know who has the final say. Some employees mistakenly view the board chair as the ultimate authority, even when the organizational table lists the CEO as holding that position. As a result, they may try an end run around the CEO, asking the board to overturn the CEO’s decision about salaries, promotions, or programs, for example. Both the CEO and board chair must emphasize the fact that the CEO is the final authority. If they make this message clear enough, they can probably keep staff from attempting any end runs. If an end run still occurs, the board chair must refer the issue to the CEO for resolution, except if the CEO is being charged with malfeasance.

4. The CEO should arrange for individual board members to meet with management staff on occasion so that the board can gather information about how the organization is operated and obtain an understanding of the promotional abilities of managers. The Sarbanes-Oxley act (a federal statute relating to public corporation boards) recommends this process for for-profit boards, and it’s also a good one for nonprofit board members.

5. Give staff members opportunities to participate in strategic planning and to support board committees. The board chair and CEO should work together to arrange such board-staff interactions, including joint celebrations of organizational success.

6. The CEO and board chair need to agree on the use of ad hoc board committees or task forces and their relationship to standing committees. For example, should the HR/personnel committee be a standing one or only an ad hoc one to address major personnel policies? In the 21st century, a board should only have maximum of five standing committees, many can only have three.  If task forces are used to provide provide options for occasional policy issues, for example pension plan changes, there may be little need for a standing board HR/personnel committee.

7. The board chair and CEO should be the active leaders in fundraising efforts, with the CEO as administrative leader. The board chair and other board members must provide the CEO entrée to funding sources. They often need to accompany the CEO on fundraising visits. The CEO should keep the board chair informed of all entrepreneurial development activities being explored.

8. The board has only one major employment decision to make – to recruit and hire the CEO. It’s usually a long and exhausting process. But once it’s completed, the employment of all other staff personnel is the responsibility of the CEO and the CEO’s management team. For senior positions, most CEOs ask their chairs and/or other board members to meet with candidates, but the ultimate responsibility remains with the CEO.  The board also has a responsibility to overview staffing to make certain that adequate bench-strength in in place for succession placements,  at the CEO and the senior management

9. When hiring a CEO, or soon after employment, the board chair and CEO must face a stark reality—the need for emergency leadership should the CEO become temporarily incapacitated. These plans can either be established informally by the chair-CEO partnership or more formally via board resolution. The following are possible interim CEOs: a senior manager in the organization, a semi-retired experienced CEO living near headquarters, a consultant living in a neighboring city. CEO succession planning is an important issue for the partnership should the CEO decides to leave or retire.

10. The CEO can be helpful to the board chair in recruiting new board members by suggesting possible volunteer candidates or other contacts who have demonstrated an interest in the organization’s mission, vision, and values. Board candidates will want to meet with the CEO as part of the interview process. As a result, the two partners must agree on how to present the organization to board candidates.

11. The chair and CEO need to lead in establishing meeting agendas. The two partners must work together to assure there’s sufficient meeting time to discuss and resolve strategic issue While many nonprofits call their top executive the “executive director,” the term CEO or president/CEO is a more leader-focused.

12. For the current environment, board members should be ready and willing to be ready to involved in a heightened level of board activity.   If not, the board chair and board member should determine what constraints the member needs to be in place for his/h activity.

Nonprofit Boards and the Oversight Gap in Internal Leadership Development 

Nonprofit Board and the Oversight Gap in Internal Leadership Development 

By: Eugene Fram                    Free Digital; Image

Although the nonprofit CEO is charged with nurturing the development of his/h staff, the board is responsible for over-viewing the process. Research evidence shows both board and management may be neglecting their duties in regard to this responsibility. Only (20% to 30%) of nonprofit CEO positions are filled internally, a rate that can be about half the rate of for-profit organizations–(about 30% to 50%.) The same research shows that, “Hiring the more (internal personnel) can improve performance at the two-year mark by 30%.”  * These figures are averages and can vary widely based on organizational practices and industry standards. (more…)