SuccessionPlanning

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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Establishing Effective Nonprofit Board Committees–What to Do

Establishing Effective Nonprofit Board Committees–What to Do

By: Eugene Fram          Free Digital Image

Based on my board and consulting experiences, following are ways that effective nonprofit boards have established  board committees.

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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…)

Board Members:  Are Your Managers & Staffs Effectively Engaging Business Donors?

Board Members:  Are Your Managers & Staffs Effectively Engaging Business Donors?

By: Eugene Fram          Free Digital Image

Fund development should be a partnership between board members and CEOs/Development Officers, if the latter is available. However, I have noted that board members don’t take sufficient responsibility to make certain that CEOs and Development directors are well prepared when they approach potential business donors. This, in my view, is the first step in building a relationship fundraising approach. Many involved with NFP fundraising or management have spent their entire careers in the nonprofit environment, resulting in a gap in communicating with those in the business environment.*  Some may even privately believe that those in business contribute less significantly to society.  While little can be done about the latter, here is what I think can be done to fill or reduce the unfortunate gap in cultures often found between for-profits and nonprofits, especially when it relates to fund development.

Homework: Development officers, executive directors and others meeting potential business donor have an obligation to know a great deal about the potential donor’s firm. The worst opening for those seeking a business donation or grant is, “Tell me about what XXX produces.” It appears the solicitor has no interest in the environment in which the firm operates. In the Internet age, there is no excuse for such lapses. A Google or LinkedIn search is also critical in preparing to understand each of the persons who might be involved in initial contacts.

With this information, a conversation can be appropriately opened with “How’s business been recently?” It can be followed by a discussion of the donor’s industry trends and challenges, establishing a level of comfort for the donor.

What can your nonprofit do for the donor? Sophisticated development officers have ways of asking this important question. Some examples: (1) In the case of a university, this may range from suggesting capable entry-level employees for the firm to answering personal questions such as guidance on seek a relative’s admission to a selective university. (2) In the case of a nonprofit whose mission to assist qualified persons to find locate new employment, its work can be related to the firm when the firm has significant layoffs.

A Business Posture: A development officer or executive director needs to convey they have grounding in the business world and its basics, especially to be able to quickly show that their nonprofit is well managed. A recent study of Silicon Valley donors and nonprofit leaders cited a  empathy gap between the two.  Generally speaking, nonprofit leaders and new philanthropists don’t move in the same social circles. For the latter, community is increasingly defined not by physical place but by socioeconomic class: a particular psychographic and a set of shared experiences that only wealth can buy.*

The objective is to develop a continuing conversation with the donor related to his/h business interests and outlook. This offers a connection to show that the nonprofit fulfills a human service, professional or social need. These may include:

  • Explaining the scope of the “executive director” title directly or indirectly if the operating CEO does have the well-known title “president/CEO.” The ED title puzzles many in the business environment, since the top operational person in a business firm most often is the “president/CEO.” ** 
  • Showing the nonprofit has a viable mission that is being carefully shepherded and the organization doesn’t engage in mission creep. 
  • Clarifying that an achievable business plan is available.
  • Having a well managed internal structure that can achieve impacts for clients. (Like the results of the Zuckerberg gift to Newark schools, many business people are aware that process goals can be achieved without having client impacts.)

Unfortunately nonprofit organizations can have a reputation among members of the business community as being less effective and efficient than for-profit ones. These people may not have encountered many local nonprofit leaders, as I have, with significant management savvy. Consequently, nonprofit representatives first  need to be sure they begin their relationships with donors by showing interest in their business, industry, or firm. This then offers the opportunity to demonstrate that the nonprofit’s mission is managerially strong and looks to impacts, not processes, as measures of success.

*https://www.linkedin.com/pulse/key-trends-silicon-valley-philanthropy-tatiana-fedorova/

**https://non-profit-management-dr-fram.com/2010/05/31/non-profit-governance-executive-title-ceo-versus-executive-director/

How Can Nonprofit Boards Overcome the Inertia of Certain Board Members?

 

How Can Nonprofit Boards Overcome the Inertia of Certain Board Members?

BY: Eugene Fram        Free Digital Image

Making major changes in nonprofit  mission, board structure, management or other significant matters is difficult. The typical nonprofit board will be divided into several groups on the issue: 1) members who want change, 2) members opposed to change, some strongly opposed and 3) what I call “process board members,” persons uncomfortable with major decisions who always want more data or information before voting.

The first and third groups (members who want change and process directors) will be very willing to appoint a committee to review the alternatives, but it’s up to the board chair to satisfy process members who create obstacles.

Process members like to sit back and examine issues, often, in my opinion, sincerely feeling that their questions allow them to be on the cusp of showing some insights that others have failed to notice. They always ask, “Have we consulted everybody?” Or say, “Let’s make sure we have considered everything.” Often they are members who call for postponement of the vote, even after a lengthy discussion.

Process members  are well-intentioned, sincere individuals. However, the board has to be careful that these members don’t allow the board to continually examine one angle after another until they lose sight of the board’s main job. They can keep action in limbo indefinitely! It is up to the board chair to makes certain that this does not happen. But board chairs want to develop an inclusive board where all who want to voice their views can be heard.

A certain level of board process is necessary to operate efficiently. But when it gets out of hand, it can have a serious negative effect. Boards often lose some of their best volunteers, who get frustrated and quietly resign. Their usual reason for resigning is “the pressure of job obligations.” To me, that’s a covert message that the board is getting mired in minutiae, usually initiated by process members.

One friend recently from a board, using the “job obligations” excuse. The real reason was that the executive director, a process oriented person, used board-meeting time inappropriately, including asking the full board to review detailed public relations powerpoint presentations.

In another situation, I watched a board make a strategic decision involving the combining of two programs. Even after a thorough discussion of the decision, the board insisted on discussing the tactical decisions needed to implement the change, all of which were the responsibility of management. The board was unable or unwilling to shed an imbedded process culture that the status quo nonprofit had used for over 50 years.

Six Approaches to Innovation for Nonprofit Boards

 

 Six Approaches to Innovation for Nonprofit Boards

By Eugene Fram                     Free Digital Image

The Bridgespan Group, supported by The Rockefeller Foundation, completed an exciting research study. The results identified “six elements common to nonprofits (in bold/italicized) with a high capacity to innovate” * Following are my suggestions on how to implement these elements.

  1.  Catalytic Leadership that empowers staff to solve problems that matter. 
    This involves the board to lead with committed and generative leadership. ** Board members must be ready to ask tough questions. They must require management to respond to the classic question, “Who would miss the nonprofit if it were to disappear?” Board members should be able to suggest new ideas drawn from business and the public sector that can be adapted, assessed and tested by management and staff

  2. A curious culture, where staff looks beyond their day-to day obligation, question assumptions, and constructively challenge each other’s thinking as well as the status quo.
    This, in my view is difficult to achieve, but boards should attempt to take every advantage to develop it. Boards that question the status quo are hard to find in all fields. They should, at the least, involve the staff in strategic planning efforts and pay close attention to its development. Staffs then are in an excellent position to challenge the status quo. One staff person in a human services agency, for example, challenged the status quo by observing the nonprofit did not have a “safety net” mission, but in reality had a “sustainability” mission. The agency was not only helping clients on a day-to-day basis but also was trying to assist them to achieve sustainable lifestyles.
  1. Diverse teams with different backgrounds, experiences, attitudes and capabilities—the feed-stock for growing an organization’s capacity to generate breakthrough ideas.
    As the Bridgespan Group has noted, it is necessary to have board members, “who are diverse across their dimensions: demographics, cognitive and intellectual abilities and styles with professional skills and experiences. In my opinion, nonprofits have been successful in recruiting board members in all of these categories except two—cognitive and intellectual abilities. I have encountered nonprofit boards without a single director with strategic planning or visionary abilities. Board members’ full time occupations often do not require them to have these abilities. As a result, strategic planning was just a SWAT (strengths, weakness and threats) review without any real analytical depth. To rectify the situation, nonprofits need to add these abilities to their recruitment grids. Unfortunately, this makes the recruiting effort more difficult since the abilities don’t appear on many resumes. Candidates must be assessed from an in-depth interview process.
  1. Porous boundaries widen the scope for innovations, by allowing fresh ideas to percolate up from staff at any level—as well as constituents and other outside voices—and seep through silos.
    Because many nonprofits have small travel budgets, they may operate in “bubbles, ” consisting of themselves and similar neighboring organizations. In addition, they can acculturate board members to the “bubble” traditions and environments.   For example, they may ask a new board member, with strong financial abilities to help the CFO with accounting issues, instead of asking her/h to develop a strategic financial plan for the organization. Perhaps as national webinars become more available to nonprofit managements and their staffs, these information flows will help to change the innovation roadblocks. Then they can, “generate new ideas systematically, test ideas using articulated criteria, metrics methodologies and prioritize and scale the highest potential ideas.”
  1. Idea Pathways that provide structure and processes for identifying, testing and transforming promising concepts into needle-moving solutions.
    For example, the process of Lean Management can allow testing of new ideas quickly. Instead of waiting for a new strategic plan to establish a pathway for   something new, a nonprofit can test it with a series of small-scale efforts to determine its viability. The idea can be dropped if positive results are not developed after a couple of tests.   If after successive tests with viable information results, the idea can be moved quickly to an implementation stage when the nonprofit has the necessary resources.

  2. The ready resources—funding, time, training and tools—vital to supporting innovation work.
    To fully take advantage of most of these six innovation guidelines, fundraising is critical. But each board and staff cannot do it alone. It must be a partnership between the board members and the CEO that recognizes fundraising for innovation is a necessary part of the nonprofit’s resourcing efforts.

*https://ssir.org/articles/entry/is_your_nonprofit_built_for_sustained_innovation

**https://www.bcg.com/publications/2022/all-about-generative-leadership-and-its-benefits

Does Your Nonprofit Have A Process For Implementing Strategy?

 

Does Your Nonprofit Have A Process For Implementing Strategy?

By: Eugene Fram           Free Digital Image  

My observation is that intense interest in nonprofit organizational strategy only takes place  very three or five years when the strategic plan needs to be reviewed.  The cause, as I see it, is that substantial numbers of nonprofit board members and senior managers lack substantial strategic  backgrounds and interests to enable them to give the plan implementation attention. Most boards I have encountered are fortunate to have one or two  board members with broad based strategic experiences. With nonprofit board members rotating every four to six years, it’s likely that any board member will only participate in one strategic plan change experience.  Also some nonprofit CEOs and senior managers can be directly appointed from staff positions, lacking knowledge of strategy development.    

Based on a survey of commercial organizations by McKinsey, it appears that these boards and their managements have similar strategic challenges as nonprofits. * 

Following (in bold) are McKinsey’s three suggestions for implementing strategy development and my suggestions for adapting them to nonprofit organizations (more…)

Common Practices Nonprofit Boards Need To Avoid

 

Common Practices Nonprofit Boards Need To Avoid

Peter Rinn, Breakthrough Solutions Group, * published a list of weak nonprofit board practices. Following are some of the items listed (in bold) and my estimation of what can be done about them, based on my experiences as a nonprofit board director, board chair and consultant.

• Dumbing down board recruitment – trumpeting the benefits and not stressing the responsibilities of board membership. Board position offers frequently may be accepted without the candidate doing sufficient due diligence. At the least, the candidate should have a personal meeting with the executive director and board chair. Issues that need to be clarified are meeting schedules, “give/get” policies and time expectations. In addition, the candidate, if seriously interested, should ask for copies of the board meeting minutes for one year, the latest financials, and the latest IRS form 990.. These reports and the data revealed tell a great about the sustainability and impact of the nonprofit.

• Overlooking the continued absence of board members at board meetings, strategic and planning meetings. Many bylaws have provisions dropping board members who do not meet meeting attendance criteria established by the bylaws. However, such actions are difficult to execute because of the interpersonal conflicts that can arise. For example, one organization with which I am familiar had a director who did not attend any meetings, but did make a financial contribution to the organization. When his resignation was requested, he refused. Not wanting to create conflict, the board simply kept him on the board roster until his term expired and then sent him a note acknowledging the end of his term. The board chair, not the CEO, has a responsibility to have a personal conversation with the recalcitrant director. He/s needs to offer a “tough love” message in the name of the board.

• Taking a board action without conducting enough due diligence to determine whether the transaction is in the nonprofit’s best interest. Although each board member should sign conflict of interest statement each year, my impression is that this is rarely done. Board members should understand the potential personal liabilities that might be accrued as a result of violation of the federal Intermediate Sanctions Act (IRS Section 4958) and other statues. For example, under IRS 4958, a board member can have his or her personal taxes increased if involved in giving an excess benefit, such as selling property to the wife of a board member for less than the market rate. Some boards and their members need to be frequently reminded about their “due-care” responsibilities.

• Allowing board members to be re-elected to the board, despite bylaw term limitations. This often occurs when the board has given little thought to a succession plan, and the only person who seems qualified is currently in place. It also happens when the board has significant problems and nobody on the board wants to take the time to hold a time consuming position. Some boards, however, have a bylaw exception that allows a board chair, if scheduled for rotation, an extra year or two to be chairperson. Succession planning needs to be a yearly routine for top managers and for the board itself.

• Allowing board members to ignore their financial obligations to the nonprofit. To assess board interest in a nonprofit, foundations and other funders like to know that every board member makes a financial contribution within their means or participates in the organization’s “give/get” program. This topic should be discussed at the outset of recruitment so it can be full understood by all directors.

• Overselling the protection of a Directors’ and Officers’ (D&O) insurance and laws limiting the liability of directors. The importance of a nonprofit having a D&O policy, even a small one, can’t be overstated. I recently encountered a nonprofit that had operated for seventeen years without a D&O policy, although its annual budget was $500,000, and it was responsible for real estate valued at least $24 million. Each director should be knowledgeable about the potential personal liabilities involved with the board position. Frequently, board members assume that a D&O insurance policy covers too wide a range of situations.

• Allowing ignorance and poor practices to exist keeps leadership in control. Changing leadership and practice is difficult for both for-profit and nonprofit organizations. However, in the nonprofit environment it is more difficult because poor leadership and practices can continue for a long time period, as long as current revenues meet expenditures. They can even become part of the organization’s culture. In some situations, this state of affairs continues because the board has low expectations of management and staff. It’s critical that the leadership needs to be thoroughly evaluated annually.

There is much that nonprofit boards can do about avoiding common practices that weaken the effectiveness of the board.

* aka The Nonprofit Entrepreneur, Placitas, New Mexico

Anticipating Tomorrow’s Nonprofit Crises Today

 

Anticipating Tomorrow’s Nonprofit Crises Today

By: Eugene Fram            Free Digital Image

In the decades in which I have been a nonprofit/business board member or consultant, I fortunately have only been in the mire of a crisis situation twice.   In both cases, the board was totally unprepared to take appropriate actions to minimize the turmoil that followed.

Following some guidelines that nonprofit boards can use to plan to respond effectively to crises in the 21st century: *

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How Can A Chief Operating Officer (COO) Advance Your Nonprofit Organization?

How Can A Chief Operating Officer (COO) Advance Your Nonprofit Organization?

By: Eugene Fram                Free Digital Image

In my decades of involvement with nonprofit boards, I have encountered several instances in which the CEO has failed to engage the services of a COO–when this addition to the staff was clearly needed. In each case and for whatever reasons, this reluctance to act left the nonprofit organizationally starved.

This means that the CEO continues to handle responsibilities that should have been delegated, some of which a predecessor may had assumed during the start-up stage. I once observed a nonprofit CEO with an annual $30 million budget personally organize and implement the annual board retreat, including physically rearranging tables/materials and cleaning the room after the retreat! When top leadership is deflected in situations at this level, client services and the general health of the organization is likely being negatively impacted.

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