Can Nonprofit Management Usurp Board Responsibilities?
By Eugene H. Fram Free Digital Image
On balance management will always have more information about the organization than volunteer board members. As a result, board members must be proactive in seeking information from management and a variety of other sources, even if they must involve employees other than senior management. Following are three field examples showing what has happened when boards failed to be proactive (more…)
Common Practices Nonprofit Boards Need To Avoid
By:Eugene Fram Free Digital Image
Peter Rinn, Breakthrough Solutions Group,* published a list of weak nonprofit board practices. Following are some of the items listed 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.
• 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 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 over stated. 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, directors 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
The Search For a New Nonprofit CEO Needs To Be Realistic
By Eugene Fram Free Digital Image
Boardmember.com in its October 11, 2012 issue carries an op-ed item by Nathan Bennett and Stephen Miles titled, “Is your Board About to Pick the Wrong CEO.” Although targeted to for-profit boards, all of the five items listed can be applied to nonprofit boards. Following are my applications to nonprofit boards. (more…)
Measuring Nonprofits’ Impacts: A Necessary Process for the 21st Century
By Eugene Fram Free Digital Image
Nonprofit boards and CEOs in the United States are being overwhelmed with requests from foundations and governmental agencies to move from providing outcome data to providing impact data. One nonprofit with which I am well acquainted has been required to reform its IT program to meet the requirements of a local governmental IT program, so that impacts can be assessed. It will be interesting to see how this scenario plays out.
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 nonstarter 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?
A Compromise Solution:
To close the gap, funders and recipients would need to agree to apply imperfect metrics over time. These are metrics that can be anecdotal, subjective or interpretative. Also they may rely on small samples, uncontrolled situational factors, or they cannot be precisely replicated. ** This would require agreement and trust between funders and recipients as to what level of imprecision can be accepted and perhaps be improved, to assess impacts. It is an experimental approach
How To Get to Impact Assessment:
1. Agree on relevant impacts: Metrics should be used to reflect organizational related impacts, not activities or efforts. Impacts should focus on a desired change in the nonprofit’s universe, rather than a set of process activities.
2. Agree on measurement approaches: These can range from personal interviews to comparisons of local results with national data.
3. Agree on specific indicators: Outside of available data, such as financial results, and membership numbers, nonprofits should designate behavioral impacts for clients should achieve. Do not add other indicators because they are easily developed or “would be interesting to examine.” Keep the focus on the agreed-upon behavioral outcomes.
4. Agree on judgment rules: Board and management need to agree at the outset upon the metric numbers for each specific indicator that contributes to the desired strategic objective. The rules can also specify values that are “too high” as well as “too low.”
5. Compare measurement outcomes with judgment rules to determine organizational impact: Determine how may specific program objectives have reached impact levels to assess whether or not the organization’s strategic impacts have been achieved.
Lean Experimentation
The five-point process described above closely follows the philosophy of lean experimentation, *** now suggested for profit making and nonprofit organizations.
Lean allows nonprofits to use imperfect metrics to obtain impact data from constituents/ stakeholders over time. Under a lean approach, as long as the organizations garners some positive insights after each iteration, it continues to improve the measurement venues and becomes more comfortable with the advantages and limitations of using these metrics.
Organizationally the nonprofit can use this process to drive change over time by better understanding what is behind the imperfect metrics, especially when a small sample can yield substantial insights, and actually improve the use of the metrics.
* http://ssir.org/articles/entry/the_promise_and_peril_of_an_outcomes_mindset
** https://nonprofitquarterly.org/2012/07/24/using-imperfect-metrics-well-tracking-progress-and-driving-change/
*** http://ssir.org/articles/entry/the_promise_of_lean_experimentation
How Can A Chief Operating Officer (COO) Advance Your Nonprofit Organization?
By: Eugene Fram
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 as this, client services and the general health of the organization is likely being negatively impacted. (more…)
Can Nonprofit Boards Afford To Underinvest In Management Leadership Development?
By: Eugene Fram:
McKinsey & Company has published a substantial nonprofit study: To better understand the state of (nonprofit) leadership in the US social sector… The findings suggest that chronic under-investment in (management) leadership development for 337,000 small or midsize nonprofits,..(may risk) the sector’s capabilities to fulfill emerging missions effectively and to adapt to fast-changing demands.
(http://www.mckinsey.com/insights/social_sector/what_social_sector_leaders_need_to_succeed) (more…)
Is there truth in the statement that ALL nonprofits are actually businesses,and they need to be run like businesses?
By Eugene Fram
In my opinion, too many board and staff members in the nonprofit environment:
Do not realize that a nonprofit can focus even more effectively on “caring” missions, visions and values while operating under a business model. Many functions of a business and are the same for both types of organizations — financial operations, human resources, marketing, board governance, etc. (more…)
Why Are Some Nonprofit Boards Missing the Mark? What to Do?
By Eugene Fram Free Digital Image
Stephen Miles of the Miles group (http://milesgroup.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 directors 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 repetitional 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.
Nonprofit Board Members Can Be Change Agents
By: Eugene Fram Free Digital Image
Nonprofit boards should always support policies that will allow the organization to drive innovative actions. Following is a list developed from successful for-profits (in italics) that can be easily adapted to the nonprofit environment. *
Having a Succession Plan: This includes two elements: The first is a plan to avoid disruption in the event that he CEO is temporarily incapacitated. Hopefully it allows designating someone internally who may be capable to take the position. However in many nonprofits, I have encountered, the CEO has not developed this staff talent because of budget limitations. When this occurs, the board should have an experienced consultant in mind to fill the position for an interim period. In my opinion, it’s not usually desirable to have a board person replace the CEO on an interim basis. This can tend to blur the line between board and management when the position is permanently filled. The new CEO may hesitate to modify changes instituted by an interim board CEO. (more…)
NONPROFITS NEED A BRAND THAT RESONATES!
By: Eugene Fram Free Digital Photo
How do people see your organization? Is your nonprofit clearly perceived, and the unique nature of its work, fully understood in the community or industry?
Nonprofit board members occasionally talk about the organizational brand image but rarely take tangible steps to define it. Yet the creation of a strong brand is a major factor in generating public respect, support and significant funding sources. Potential donors need to believe implicitly in the impact of the nonprofit on its clients. They also need to understand the realities implied in the brand image that fail to match the realities of the organization’s operations. For example, some family services agencies (actually multi-human service groups), have long struggled with a brand perception that they offer only family reproduction services.
Following are some guidelines that may help improve a current image or further clarify the mission which fuels the dedicated efforts of boards, staff and volunteers: (more…)
Nonprofit Management 