team building

Nonprofit Board Members Must Be Vigilant

By: Eugene Fram

Based on the outcome of the Lemington Homes case precedent cited below, not being rigorous about their due care evaluation responsibilities can be peronally costly to nonprofit board mmbers.

The personal cost of director inattentiveness is made painfully clear in an important federal appeals court decision. The U.S. Court of Appeals decided the decision, in re Lemington Homes, on January 26, 2015 for the Third Circuit. … [T]hese difficult facts arose from a small, nonprofit organization. … Yet the standards for board members applied by the appeals court are quite clear.* (The case results) also addresses the appropriateness of punitive damages against officers and board members…).

The court determined that (15 of 17) board members took no action, despite clear evidence of deficient care to the institution’s residents. …[T]his breach of care, (led to) $2,250,000 in joint and several compensatory damages. As such, the decision offers a particularly valuable — and practical — board education opportunity.

The lack of nonprofit director and officer care is not unusual, possibly because board members are part-time volunteers, sometimes not understanding their potential liabilities.

Following are some examples of board laxity that I have encountered over the decades that I have been involved with nonprofits that might lead to personal liabilikty.

• Failure to assess staff realities – A social work staff became concerned with the authoritarian style of a newly appointed ED. The community style board felt that to avoid negatively publicity about the agency it needed to give the ED a second chance to improve relations. In the meantime a local electrical workers union heard about the problem and, without the board’s knowledge, began to take steps to unionize the agency’s social work staff. At the end of six difficult months, the staff voted to be unionized, and the ED was fired for failing to develop positive staff relationships. The organization’s United Way funding was temporarily placed in jeopardy — a reputation loss to the board members and management.

• Lacks an effective audit committee — I have encountered many nonprofit boards that don’t have an audit committee, even when it is a state requirement. This is especially prevalent when nonprofit boards feel too rigorous an examination indicates that the board does not trust management and staff. The other extreme that has been reported in the press is where the ED is clearly guilty of an offense, but the board refuses to take proper action and state authorities have to replace the board members.

• Board members don’t protect each other — I have encountered situations where the board has refused to purchase D&O insurance for its directors and managers. The faulty rationale was that the board is very close to the finances, and “(fraud) can’t happen here.” At the time, the board had responsibilities for a $400K annual budget, a $700K reserve fund and $24 million in real estate assets. Note, if a $1 million D&O policy only covered theboard member fines in the Lemington Homes case, the 15 directors together would be personally responsible for the balance, an aver each plus a reputation loss.

• Boards are not attentive to compliance basics such as: —
1. Making certain that all directors are thoroughly familiar with duties of due care; their responsibilities related to the IRS Form 990, the Intermediate Sanctions Act and the basics of fund accounting for financial reports
2. Requiring all persons involved with finances take two weeks vacation each year.
3. Making certain that the board and top management are serious about punishing those who use organizational resources for themselves.
4. Requiring board members to sign a conflict of interest statement each year.
5. Making certain that all non-routine expenditures over XX have signatures of two board members.
6. Making certain all persons with access to cash are covered by a surety bond policy.
7. Changing auditing firms or the partner in charge of the account every three to five years.

The Art of the “Ask”: Six tactics frequently ignored by nonprofit board members, CEOs and fund Developers

By: Eugene Fram      

Nonprofit board members and managers have acquired a measured of savvy when it comes to raising funds for their organizations. They have learned that building trust with current and prospective donors is the key to maintaining meaningful support. Here are some overlooked tactics to further strengthen relationships. *

  1. Show the donors “what’s in it for them:” Some development officers still lead by focusing on what is of interest to them—the construction of a new building, providing funds for the nonprofit’s strategic development plan, etc.   But they often lack certain perspectives. These are the skills to effectively interact with business executives like those holding C-Suite positions. These senior managers value evidence that the nonprofit representatives have “done their homework.” Pre-meeting preparation must include generating information on the executive (s’) professional and career background(s) that is readily available from LinkedIn. Also it is necessary to have some information about the challenges the firm or its industry are encountering. This level of preparation helps set a basis for better communications and managerial discussions that C-Suite personnel value.
  1. Consistency: Be ready to clearly indicate that the nonprofit has a well-developed mission that is future oriented. A nonprofit with a record of financial results that consistently meets budget requirements is one example. Low turnover at the management and/or staff level is another. But also be ready to answer such visionary questions as, “How do you expect your organization to change in the next five years?”
  2. Reputation: Every nonprofit, large of small, has a reputation among its peers and the general public.   Be certain that the donor has a clear idea of what it is and is not a wish list of what it might be. Emphasize the impact data available, supported by impact information.   For example, Family Service nonprofits are actually multi-purpose human service organizations. But the chapter names can deliver a different message—organizations devoted to family planning. As a result of this potential interpretation, the names of some chapters have been changed to e.g. Family and Children’s Service or Families First.
  3. Building Personal Relationships: Personal connections are the basic building blocks of donor relationships. Some professional development officers suggest that major donors should be thanked seven times. ** But thanking is only the beginning of a continuing process. Nonprofit CEOs and board chairs need to be proactive in visiting major donors on an annual basis, or more often if the donor wants more contact. The purpose here is not to seek additional funding but rather to reinforce a message related to mission impact. An invitation to a social event is another way of maintaining these connections. Sometimes a follow-up to a major donor can yield unusual results. I recently observed a situation where a board member made an effort to follow through  on a social event invitation to a long-term donor. It yielded a substantial contribution within 10 days of the event.   Every nonprofit board needs a proactive donor response program. These responsibilities should be noted in the CEO’s and Board Chair’s responsibilities.
  4. Be honest, even if that means saying “No”: When a gift involves undesirable mission creep or an unfunded charge to current assets, be prepared to say “No.” Universities, for example, have been known to accept buildings as gifts that can quickly become maintenance liabilities. Cash grants may have unfavorable strings attached tot them. Donor intent must clearly be understood. Princeton University had to return a large endowment when the donor’s heirs proved the university did not use it in a manner that confirmed the donor’s wishes.
  5. Open your Doors to Donors: Where possible, invite current and potential donors to the nonprofit’s offices or operational facilities. Even when the office is a series of enclosures or open offices, the visit gives the donors a feel for the culture and a chance to know the people dedicated to the mission.   A visit is even more helpful when the facility is an active one, such as a food distribution pantry, sheltered workshop or a call center.

The fog of the nonprofit board overviewing processes often obscures the importance of cultivating donor relationships that may, in time, fuel a nonprofit’s progress. The above review is a reminder to board members and management of their responsibilities to the artful pursuit of asking.

*https://www.forbes.com/sites/forbesnonprofitcouncil/2018/04/04/seven-ways-nonprofits-can-build-trust-with-donors/#4d6836067d26

** For more details, see: https://michaelrosensays.wordpress.com/2014/03/18/ensuring-repeat-gifts-the-rule-of-7-thank-yous/

Can Using Imperfect Data Assist Nonprofits in Defining Impacts?

 

By Eugene Fram

Nonprofit boards need to expand their evaluations of nonprofit managers and their organizations adding more behavioral impacts * to their evaluations.

For example, a nonprofit might count the number of volunteers that have been trained. But boards must go to the next level in the 21st century.
In the case of volunteers, they must seek to understand the impacts on those trained. They need, for instance, to understand how well these volunteers are assisting clients and how they are representing the nonprofit to the clients. The training is a process, but it determines their relationships with clients and yields impact data.

Qualitative data must be developed to the next level, and the average nonprofit CEO will argue that he/she doesn’t have the staff or expertise to develop impact data. Engaging an outside organization to complete a simple project can cost thousands of dollars.

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Does A New Nonprofit Board Member Really Understand Your Organization?  The New Board Member Nurturing Challenge!

 

Does A New Nonprofit Board Member Really Understand Your Organization?  The New Board Member Nurturing Challenge!

By: Eugene Fram       Free Digital Image

The careful nurturing of a new board member, whether for-profit or nonprofit, is critical. The pay-off of a robust orientation process is an informed and fully participating board director. The following are very similar occurrences in both for-profit and nonprofit boards:

The CEO of a transportation firm agrees to become a board director of a firm developing computer programs. He has risen through the transportation ranks with a financial background, but he knows little about the dynamics of the computer industry.

A finance professor is asked to serve on the board of a nonprofit school serving handicapped children. She has no children of her own and has never had any contact with handicapped children, social workers or teachers serving handicapped children.

In these similar cases, the new board member needs to become reasonably conversant with a new industry or a new human service field in order to be able to better apply policy development skills, strategic planning skills and to allow generative thinking.

On nonprofit boards, the problem is exacerbated when the new board member often is asked to immediately join a specific board committee without being able to understand the board perspectives and the organization’s mission vision and values. Following are ways in which the nonprofit board can resolve this problem:

  • Don’t appoint the new board member to committee until she/h has completed a board orientation program including a review of board procedures, attending several board meetings, has had visits with the staff, as they normally operate, and becomes alert to the major trends in the field. This ideally should take about six months assuming the board member is employed full-time elsewhere.
  • During this time, the chief executive and board president should be available to visit with the new board member as frequently as she/h wants in order to respond to questions.
  • Hopefully, the chief executive would informally meet the new board member (and each established director) quarterly to review current issues and opportunities. In addition to the information presented at the board meetings, this will provide a better perspective of the board’s mission, vision and values.
  • Ideally, the board volunteer should attend one staff meeting and one outside professional meeting to acquire a feeling for the topics reviewed at these gatherings and the field terminology.
  • During the first year, a senior board member needs be seated next to the new person at meetings to act  as a “host” for the new board member.

If most of these actions can be accomplished within a six-month period, major blind spots are removed, and the new board member can then join a standing board committee or an active task force. Now, reasonably understanding the organization and her/h own participation on the board, she/h has a background to make a substantial contribution for years to come.

What Role Should 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.

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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.

NONPROFIT BOARDS HIRE AND CEOs MUST ACT!

NONPROFIT BOARDS HIRE AND CEOs MUST ACT!

By: Eugene Fram               Free Digital Image

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

  • Visionary: It’s all about the organization’s future. The ED/elect should bring or at least begin to cultivate a deep concept of where the nonprofit is, should be and what the trajectory should look like. He/she can do that by immersing himself in the mission field—reading widely and remaining in contact with regional and national leaders in the field. A state-of-the-art CEO should be available for consultation with colleagues with similar issues. Included in his span of vision are potential disruptions that might affect the organization– and how to help the board focus on and implement appropriate change.
  • Board Enabler: The new chief understands the limits of his/h operational responsibilities and the governance overview role required by the board. To build trusting relationships with the board, she/h realizes that transparency is key.
  • Fundraiser: The optimal fundraising relationship is a partnership between the CEO and the board. Board members must be alert to outside funding opportunities and the CEO, alert to funding opportunities from sources related to the mission field. Once an opportunity is identified, the CEO and the board work closely together to develop a proposal and to meet with the donor(s). If the organization has a development director, the person filling the position must be brought into the discussion at an early stage.
  • Communicator: To be organizationally successful, the Board and CEO must be in a position to interact with a variety of stakeholders: government officials, donors, vendors, clients and their surrogates, foundations, etc. One area in which many nonprofit CEOs need improvement is communications with the business community. It goes beyond simply joining the Rotary or Chamber groups. Nonprofit CEOs must have rudimentary knowledge of many businesses so they can interact intelligently with business leaders they encounter in development efforts. This information can be about specific organizations they are approaching or general knowledge acquired from perusing publications like Business Week or The Wall Street Journal.
  • Spokesperson: Although some suggest that the volunteer president must be the spokesperson for the nonprofit, I suggest that the Executive Director/CEO must hold this position for several reasons.
  1. If a volunteer becomes a president/CEO, he/s may acquire some liabilities that other directors don’t have. The executive director must be the CEO. Some nonprofits have given the chief operating person the title of president/ceo and the senior board person, board chair.  This eliminates confusion that often surrounds the ED title when contacting business or government officials.
  2. The volunteer president does not work in the organization daily and does not understand its nuances as well as the CEO.
  3. In a crisis situation, the media may contact board members.   It should be clearly understood that the CEO is the only person to comment to the media.
  4. In ceremonial situations, it may be appropriate for the president to be a spokesperson.
  5. The CEO needs to become the “face” of the organization because volunteer presidents come and go, some annually.
  • Team Builder: She/h needs to build a strong management team, some of whom, over time, may become capable of becoming an Executive Director. The CEO, as head of the management team, needs to be sure all staff are performing well with some being bench strength to move to higher positions.
  • Tone Setter: The CEO needs to set an ethical tone where everybody feels free to express their suggestions for improving the organization. This tone, in various ways, must also be communicated to all stakeholders by the Executive Director..
  • Performance Monitor: Hopefully the board has a rigorous and fair system for evaluating the CEO and the organization, and the values of this system are embedded in staff evaluations.

* http://nynmedia.com/news/lucky-13-what-should-we-expect-from-a-nonprofit-ceo

Lifestyle & Behavioral Information – Some New Ways To Seek High Performance Nonprofit Board Members?

Lifestyle & Behavioral Information – Some New Ways To Seek High Performance Nonprofit Board Members?

By: Eugene Fram            Free  Digital Image

Over several years, I have conducted nonprofit board recruitment projects. Two boards with which I worked had rather similar challenges.
• They had concerns recruiting sufficient numbers of board members to fill their needs.
• Current board members, largely composed of younger people, in the 30-40-age range, had significant problems balancing work and family obligations and attending board and committee meetings.
• Attendance was sporadic. Although the boards were small, board members really did not know each other, and, in another situation, a board member sent a  work subordinate to attend board meetings. A well-regarded board member never attended meetings and only occasionally met with the ED to offer advice. In both instances EDs and board chairs had significant power. One of the EDs complained she was doing the work of operating the organization and operating the board, and this may lead to too much potential personal liability.
• Although these organizations, with budgets in the $8-$10 million range were operating successfully, the EDs involved realized that they were in line for long-term problems if board recruiting didn’t change.

What to Do
• Consider establishing two boards, a board for governance and a consulting board. For the governance board, make certain the typical directors in the 30-40 year age range have a good understanding of their work-family obligation to be able to devote time for the organization.
• For the consulting board, ask volunteers to work on projects that have a defined time limit. They will not be asked to be involved in more than one or two projects per year, an ideal inducement for millennials who are used to short bursts of activities. It may be necessary to recruit several persons with the same skills to provide coverage for several projects.
• Keep communications flowing to the consulting board like one would to the governing board. Have social and educational events that allow the groups to meet informally. If the organization has a volunteer manage the consulting  board, this person should be charged to keep the communications flowing. Members of the consulting board will only have occasional contact with the organization.
• Overlay the traditional nonprofit skills grid with several time dimensions to recruit:
1. Recently retired people, both those traditionally retired and those who retried early, who may have time to be candidates for both the governing and consulting boards.
2. Seek individual contributors who may have more control of their time, such as medical doctors, lawyers, professors and small business owners.
3. Seek successful entrepreneurs who can schedule their own time, can resonate with the organization’s mission, vision and values and who want to give back to the community.
• Beyond the time requirement, seek persons with experience on for-profit or nonprofit boards so they can share their board knowledge and become models for those having their first board experience. Their questions and behaviors can teach as much or more than formal seminars.

Summary
The traditional nonprofit board skills grid can still be helpful in the 21st century. However it needs to incorporated lifestyle and behavioral information for each board candidate. These are important candidate attributes that must be thoroughly vetted.

Once Again! What Are the Best Risk Levels for Your Nonprofit’s Investments in a COVID 19 environment and after it?

 

Once Again! What Are the Best Risk Levels for Your Nonprofit’s Investments in a COVID 19 environment and after it?

By Eugene Fram

Some nonprofits have significant investment accounts. The following are some guidelines to help develop investment policies during and after COVID 19. These funds may have been accrued through annual surpluses/donations or have been legally mandated to cover future expenditures through a reserve account.

  1. How does your committee define risk, and how much are you willing to take? *  Most nonprofit by-laws require a nonprofit to conservatively manage and invest its funds. This give the investment committee a wide range of policies to employ.

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Developing Meaningful Relationships Within Nonprofit Boards

Developing Meaningful Relationships Within Nonprofit Boards

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.

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