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Once Again!! Dysfunctional Levels in Nonprofit Boards & Organizations.

 

 

By: Eugene Fram.       Free Digital Image

Articles and studies from a Google search on “Dysfunctions in Nonprofit Boards & Organizations,” yields nearly two million items in less than a minute. These items show dysfunctions on charter school boards, church boards, healthcare boards, trade associations, human services boards etc.

Rick Moyers, a well-known nonprofit commentator and nonprofit researcher, concluded:

“A decade’s worth of research suggests that board performance is at best uneven and at worst highly dysfunctional. ….. The experiences of serving on a board — unless it is high functioning, superbly led, supported by a skilled staff and working in a true partnership with the executive – is quite the opposite of engaging.”

These data and comments can lead one to conclude that all nonprofit boards are dysfunctional. I suggest that nonprofit boards can generate a range of dysfunctional behavioral outcomes, but the staff can muddle through and continue to adequately serve clients.

Mildly Dysfunctional: Board meeting attendance can be a problem, left unattended by the board chair and CEO. Agendas are not completed within the meeting time frame. Strategic planning discussions takes place once a year with little reference to it between annual meeting retreats. Goals are established without measured outcomes, or more importantly–Impacts.
On the other hand, budgets and finances are reasonably well handled. Incremental growth each year is modest. Board recruitment takes place largely based on board contacts and friendships, with a few recommendations by the CEO. Most everyone on the board is mildly or fully dedicated to the organization’s mission.

Moderately Dysfunctional: Many of the above dysfunctions, plus one or more of the following ones:

• The board chair and/or the CEO receive heightened deference in board discussions.
• Important decisions are made without full participation by all board members. One of two directors set the tone for the discussions and the outcomes.
• Either the board chair or CEO has inadequate backgrounds to develop a robust board. Nearly all agenda topics center on operational issues.
• The board does not trust the CEO but is unwilling to take action to remove him or her.
• The mission is not clearly defined and “mission creep” can be a problem. In this instance, the staff can be productive, if some managers are able to isolate staff from the board dysfunctions.

Highly Dysfunctional: Many of the following board behaviors are exhibited:

• The board is divided into unyielding factions, a la the current US congress.
• Board discussions go beyond civil discourse into personal barbs, often disguised as humor.
• Board committees are not functioning properly. Important decisions are often delayed for a year or more.
• Rumors about the board conflicts are reaching funders, who are asking questions about the rumors.
• It is becoming difficult to recruit talented board members or professional personnel.
• The board chair and other board directors refuse to acknowledge the problems.

There is little that the staff can do in this situation, except to hope for a funding angel to cover the financial problems that will develop. However, I did observe one organization that recovered from such highly dysfunctional board behaviors and finally succeeded in recruiting more talented board members. It also adopted a new governance format. The change led to some board members to resign. (One was insisting that the board members should evaluate individual staff personnel!) However the mistrust between the board and staff, as a result of the dysfunctional board behaviors, continued for decades.

Associations, Board agendas, Board meetings, Board Recuitment, Building Trust, CEO Evaluations, Charity, Consistency, Crisis Management, Dysfunctional nonprofits, foundation boards, Good governance, Ineffective directors, Long-term Sustainability, Non-profit board of directors, Nonprofit board barriers, Nonprofit governance, Nonprofit impacts, Nonprofit mangement, Trustees, Trustees, 

 

     

     

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    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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    Guidelines For Developing Authentic Nonprofit Board Leaders

    Guidelines For Developing Authentic Nonprofit Board Leaders

    By Eugene Fram               Free Digital Image

    The problems of Wells Fargo and Enron  have provided negative examples for future leaders, according to William George, Senior Fellow at the Harvard Business School. As an antidote to these and others serious problems that have plagued business and nonprofits in the last several decades, he cites the movement towards Authentic Leadership. He further lists six guidelines to identify behaviors in such leaders. Following are my views on how his guidelines can be useful to directors and managers in the nonprofit environment. (http://hbswk.hbs.edu/item/authentic-leadership-rediscovered)

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    Once Again: How to Keep Nonprofit Board Members Informed.

    Once Again: How to Keep Nonprofit Board Members Informed.

    By: Eugene Fram.            Free Digital Image

    With high performing nonprofit organizations, board members will rarely be invited by the CEO to participate in operational decisions. As a result, management will always have more information than board members. Yet the board still needs to know that is happening in operations to be able to perform their overview process. The name of the game is for the CEO to communicate the important information and to keep board members informed of significant developments. Still, there’s no need to clutter regular board meetings by reporting endless details about operations.

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    Nonprofit Boardroom Elephants and the ‘Nice Guy’ Syndrome: An Evergreen Board Problem?

    Nonprofit Boardroom Elephants and the ‘Nice Guy’ Syndrome: An Evergreen Board Problem?

    By: Eugene Fram    Free Digital Image

    At coffee a friend serving on a nonprofit board reported plans to resign from the board shortly. His complaints centered on the board’s unwillingness to take critical actions necessary to help the organization grow.

    In specific, the board failed to take any action to remove a board member who wasn’t attending meetings, but he refused to resign. His three-year term had another 18 months to go, and the board had a bylaws obligation to summarily remove him from the board. However, a majority of directors decided such action would hurt the board member’s feelings. They were unwittingly accepting the “nice-guy” approach in place of taking professional action.

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

     

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

    By Eugene Fram      Free Digital Image

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

    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.


    * 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

    Raising The Bar For Nonprofit Involvement

    Raising The Bar For Nonprofit Involvement

    By Eugene Fram            Free Digital Image

    It’s no secret that some nonprofit board members cruise through their term of board service with minimal involvement. McKinsey Company, a well-known consulting firm, has suggested five steps that can be used to counteract this passivity in for-profit boards. * With a few tweaks, McKinsey suggestions (in bold) are relevant to the nonprofit board environment where director engagement is often a challenge.

    Engaging between meetings: Nonprofit boards traditionally meet monthly, bimonthly or quarterly. Unless the board is a national one, these meetings range from one to three hours, with the three hours being typical of quarterly meetings. The meeting agendas are usually packed, and they leave little time for individual board members to enhance discussions. ** In addition, a sense of anonymity develops among board members who do not know each other personally, a significant barrier to team building. I have encountered nonprofit boards where disconnect between board colleagues is simply a nod—or less– when passing each other.

    Board cohesion based on interpersonal relationships has an important impact on the quality of board discussions. It allows a board member to more fully understand the perspectives and goals of his/her fellow  or “where they’re coming from.” With this information at hand on both sides of a discussion, it increases board members possibility of creating “win-win” impacts for the nonprofit.

    Responsibility for promoting between-meeting engagements needs to rest with the board chair. As a staring point, the chair can sponsor a few informal Jefferson dinners. The topic should be a cause which can excite the invitees. It needs to be a challenge to the board Members. ***

    Engage with strategy as it’s forming—do not just review & approve it: Traditionally most of what becomes an organization’s strategy will emanate from the management and staff. But the board must proactively help to form strategy or step in to fill gaps when the management refuses to do it.

    In forming strategy the board has an obligation to make certain all viewpoints are heard. Staffs as well as management ideas need to be considered. In addition, the board may need to take direct actions when the organization fails to fulfill a mission obligation. Example. A counseling agency only offered services during normal business hours–9 am to 5pm, five days a week. Its board required management to offer services, 24/7 with an emergency phone line when the office was not open. The management, a creative group, found a way to do it, without increasing costs.

    Engage by cultivating talent: The nonprofit board has several responsibilities in regard to talent.   First, it must engage and then evaluate the CEO. This is a complex duty because the vast majority of the board members are not full-time employees and many have only tangential attachments to the organization’s mission field. Second, the board must overview the quality of the staff talent so that it is in line with budget constraints. Third, it must be aware of those within the staff who may be promotable to management. Finally it must be alert to succession opportunities internally and externally in the event the CEO was to leave abruptly. Succession planning for the CEO must also include considerations about the talents that will be needed beyond the current one.

    Engage the field: Since nonprofit board members have full-time occupations outside the mission field, it’s important that they receive a flow of information about leading edge changes taking place outside the organization. However, CEOs sometime can operate a “mind the store” nonprofit, by looking at past successes without a visionary component. To help avoid this occurrence, specific directors might be assigned to become more deeply familiar with key projects in order to assess their progress.

    Engaging on tough questions: A difficult task on a nonprofit board where politeness is an overriding value. Peers are friends and business associations and generally there are few potential penalties for “going along to get along.” In all my decades as a nonprofit director, I have yet to see one board member ask that his/h dissenting vote be recorded in the minutes. A necessary action when he/she feels that the vote being passed by the majority may lead to harmful to the organization.

    *http://www.mckinsey.com/business-functions/organization/our-insights/changing-the-nature-of-board-engagement

    ** In California, the Brown Act might prohibit such meetings. The Brown Act covered concerns over informal, undisclosed meetings held by local elected officials. City councils, county boards, and other local government bodies that were avoiding public scrutiny by holding secret “workshops and study” sessions.

    ***For details on the background and planning for Jefferson dinners see: http://jeffersondinner.org/jefferson-dinner/

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    The Nonprofit President/CEO–How Much Board-CEO Trust Is Involved?

     

    The Nonprofit President/CEO–How Much Board Trust Is Involved

    By: EugeneFram    Free Digital Image

    The title, full time president/CEO for the operating head of a nonprofit, clearly signals to the public who has the final authority in all operating matters and can speak for the organization.* It is not an ambiguous set of titles. However, the terms “manager” or “executive director” can be quite ambiguous and do not generate the same external understanding or respect. An executive director can be the administrator in a small church or the operational head of a large arts organization. The public and some corporate directors often view managers and executive directors (because of the organizational history of nonprofit) as “hired hands,” not as professionals who, with strategic vision, are able to manage all operational activities.

    The  full time president/CEO designation calls for a trusting relationship with the board based on mutual respect, drawing from the symbolism that he or she is the operating link between board and staff. It is a newer type of partnership culture. However, a solid partnership does not allow the board to vacate its fiduciary and overview obligations. The board has moral and legal obligations to “trust but verify” and to conduct a rigorous evaluation of outcomes and impacts of the CEO and organization annually.

    Following are some of the behaviors that signify a trusting partnership is in place:

    • The president/CEO:
      • Has authority to initiate short-term loans from a bank for emergency funding. The board has established a limit on the amount to be borrowed.
      • Sees himself/her as an equal partner in fundraising efforts. Knows how to effectively interact with top managers in stakeholder organizations.
      • Is comfortable is interfacing with senior executives of other NFP organizations, especially those to which the organization wishes to emulate.
      • Is confident about his/h management experiences and expertise, understanding that nobody does a job perfectly.         Occasional modest management missteps are viewed by the board in proper perspective.
      • Has good professional relationships with board members.
      • Does not view the job as being in jeopardy.
      • Feels comfortable in disagreeing with board members.
      • Feels comfortable with the processes the board uses to have executive sessions without management present.
      • Feels comfortable with a rigorous examination of CEO performance.
    • Board Members:
      • View CEO as a peer who deserves respect, not seen as a board servant.
      • Do not discuss the CEO’s professional limitations outside of the boardroom.
      • View the CEO as an effective staff leader.
      • Look to the CEO to be have state-of-art knowledge and vision for the areas in which the mission has been defined.
      • Expect the CEO to grow professorially and tries to support that growth within the financial means of the organization.

    “In order for a trust-based governance system to work, …(nonprofits) must first develop a culture that discourages self-interest.”** In the nonprofit environment, many work to achieve a mission at the expense of self-interest. Consequently, a “high-trust” culture should be easier to establish at the senior levels. While the trust the board has in its chief operating officer can’t be described in exact quantitative terms, viewing it through the lens of a set of behaviors can give an idea of whether it is excellent, good or nonexistent.

    * Note Well: In many states a volunteers who carry the title of president /CEO can accrue personal liabilities not incumbent on other board members.
    ** David F. Larcker and Brian Tayan (2013) “Trust: The Unwritten Contract in Corporate Governance,” Stanford Closer Look Series, July 31st.

     

     

       

      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.