Nonprofit Boards Should Consider the Implications of Artificial Intelligence (AI)
BY: Eugene Fram Free Digital Image
AI is rapidly being implemented in many environments, some with aggressive intensity. Walmart, for example, will be replacing 7,000 jobs with artificial intelligence powered technology. Foxconn will be replacing 60,000 factory jobs with machines. * While this is a minuscule portion of Walmart’s total employment, it presents a new reality—machines create fascinating outputs that require less energy to produce and do so at lower costs. They are capable of making decisions, regardless of skill level. *
Questions For Nonprofit Board Meetings—And Why They Are Needed
My greatest strength as a consultant is to be ignorant and ask a few questions. – Peter Drucker
By: Eugene Fram
Knowing the right questions to ask at a nonprofit board meeting is a critical part of a board member’s responsibility. Following is a list that, as a nonprofit director, I want to keep handy at meetings. * I also will suggest why I think each is important in the nonprofit environment. Compliance and overviewing management alone do not guarantee success.
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 an 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 well managed internal structure that can achieve impacts for clients. Like the Zuckerberg gift to Newark schools, many business people are aware that process goals can be achieved without having client impacts.
Unfortunately nonprofit organizations have a reputation among many members of the business community as being less effective and efficient. These people may not have encountered many local nonprofit leaders, as I have, with significant management savvy. Consequently, nonprofit representatives, 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.
A Nonprofit Board Must Focus On Its Organization’s Impacts
By: Eugene Fram
“One of the key functions of a (nonprofit) board of directors is to oversee (not micromanage) the CEO, ensuring that (stakeholders) are getting the most from their investments.” * State and Federal compliance regulations have been developed to make certain that boards have an obligation to represent stakeholders. These include the community, donors, foundations and clients, but not the staff as some nonprofit boards have come to believe. The failure of nonprofit boards, as reported frequently by local national blog sites, show something is wrong. Following are some inherent problems that derail boards from focusing on impacts.
Over decades of nonprofit board membership and consulting, I have rarely observed volunteer board members effectively networking with their peers to develop best board practices. Also rarely do I see them accompany management to regional or national conferences related to the nonprofit’s mission. These types of exposures are necessary to have groups of board members capable of making generative suggestions.
For directors who are willing and able to network, I suggest the following: *
The Enron Debacle, 20 years Ago—2021 Lessons for Nonprofit Boards?
By: Eugene Fram Free Digital Image
In 2001 Enron Energy collapsed due to financial manipulations and a moribund board. It was the seventh-largest company in the United States. Andrew Fastow, the former CFO and architect of the manipulations served more than five years in prison for securities fraud. He offered the following comments to business board members that, in my opinion, are currently relevant to nonprofit boards. (http://bit.ly/1JFGQ6T) Quotations from the Fastow article are italicized.
• One explanation of his downfall was he didn’t stop to ask whether the decisions he was making were ethical (moral).
Nonprofits directors and managers can find themselves in similar situations. One obvious parallel is when a conflict of interest occurs. In smaller and medium sized communities, it is wise to seek competitive bids, especially when the purchase may be awarded to a current or former board member or volunteer.
Board members and managers themselves can be at personal financial peril, via the Intermediate Sanctions Act, if they wittingly or unwittingly provide an excess salary benefit to an employee or an excess benefit to a volunteer or donor. Examples: The board allows a substantial above market salary to offer to the CEO. Also the board allows a parcel of property to be sold to a volunteer or donor at below market values. See: https://www.irs.gov/charities-non-profits/charitable-organizations/intermediate-sanctions
One subtle area of decision-making morality centers on whether a board’s decision is immoral by commission or omission. Examples: In its normal course of client duties, the board allows managers to travel by first class air travel. Obviously, resources that are needed by clients are being wasted and morally indefensible. On the other hand the moral issue can come in to play, if the nonprofit is husbanding resources well beyond what is needed for an emergency reserve. The organization, in a sense, is not being all it can be in terms of client services or in seeking additional resources. Overly conservative financial planning, not unusual in nonprofit environments, can result in this latter subtle omission “moral” dilemma. Overtly, universities with billions of dollars on their balance sheets have been highlighted as having the issue, but I have occasionally noted smaller nonprofits in the same category.
• He (Fastow) said he ultimately rationalized that he was following the rules, even if he was operating in the grey zones (area).
There can be grey zones for nonprofits. Example: IRS rules require that the nonprofit board be involved in the development of the annual Form 990 report. But what does this involvement mean—a brisk overview when the report is finished, a serious discussion of the answers to the questions related to corporate governance, a record in the board minutes covering questions raised and changes suggested, etc.? A nonprofit boards needs to make a determination on which course is appropriate.
Boards implementing government-sponsored contracts can get into grey areas. Example: Some contracts require the nonprofits to follow government guidelines for travel expenses. I wonder how many nonprofit audit committees are aware of their responsibilities to make certain these guidelines are followed?
According to Fastow, a for-profit director can ask the wrong question—“Is this allowed?” A nonprofit director can make the same mistake. Instead, in my opinion, the better question for a nonprofit should be “Will this decision help the organization to prosper long after my director’s term limit?”
As Fastow did, human service boards can invite trouble if they falsely rationalize an action as being taken for client welfare, and then conclude they are following the rules.
• Mr. Fastow said one way to start changing an entrenched culture is to have either a director on the board, or a hired adviser to the board, whose role is to question and challenge decisions.
Nonprofit directors are often recruited from friends, family members and business colleagues, etc. This process creates an entrenched board.
When elected to the board, a process begins to acculturate the new person to the status quo of the board, instead making best use of the person’s talents. Example: An accountant with financial planning experience will be asked to work with the CFO on routine accounting issues, far below her/h professional level. One answer is to accept Fastow’s suggestion and to appoint a modified lead director or adviser to a nonprofit board. (For details: see: http://bit.ly/13Dsd3v)
An old Chinese proverb states, “A wise man learns by his own experiences, the wiser man learns from the experiences of others. Nonprofit can learn a something from Andrew Fastow’s post conviction recollections to hopefully help avoid significant debacles.
Enlarging the Nonprofit Recruitment Matrix: The art of selecting new board member
By: Eugene Fram Free Digital Image
There’s never enough to say about the selection of nonprofit board members. Following my last post on board behaviors and cultures I ran across a guide fo desirable skills/abilities for “for-profit” directors. From this list, I suggest the following additions to the recruitment matrices of 21st century nonprofit board candidates to improve board productivity. * Those included will have:
• Executive and Non-Executive Experiences: These include planners with broad perspectives needed to have visionary outlooks, a well as persons with unusually strong dedication to the organization’s mission. It may include a senior executive from a business organization and a person who has had extensive client level experience. Examples for an association for the blind could be the human resources VP for a Fortune 500 corporation and/or a visually impaired professor at a local university.
• Industry Experience or Knowledge: An active or retired executive who has or is working in the same or allied field. However, those who can be competitive with the nonprofit for fund development could then present a significant conflict of interest.
• Leadership: Several directors should be selected on the bases of their leadership skills/abilities in business or other nonprofit organizations. Having too many with these qualifications may lead to internal board conflict, especially if they have strong personalities.
• Governance: Every board member should have a detailed understanding of the role of governance, their overview, financial/due diligence responsibilities and the potential personal liabilities if they fail to exercise due care. In practice, nonprofits draw from such a wide range of board backgrounds, one can only expect about one-quarter of most boards to have the requisite knowledge. But there are many nonprofit boards that I have encountered that even lack one person with the optimal board/management governance knowledge. Some become so involved with mission activities that they do what the leadership tells them when governance issues are raised. Example: One nonprofit the author encountered, with responsibilities for millions of dollars of assets, operated for 17 years without D&O insurance coverage because the board leadership considered it too costly.
• Strategic Thinking & Other Desirable Behavioral Competencies: Not every board member can be capable of or interested in strategic thinking. Their job experiences and educations require them to excel in operations, not envisioning the future. Consequently, every board needs several persons who have visionary experiences and high Emotional Quotients (EQs.) Those with high EQs can be good team players because they are able to empathize with the emotion of others in the group. Finding board candidates with these abilities takes detailed interpersonal vetting because they do not appear on a resume.
• Subject Matter Expertise: Nonprofit Boards have had decades of experience in selecting board candidates by professional affiliations like businessperson, marketing expert, accountant, etc.
• Other Factors Relevant to the Particular Nonprofit: Examples: A nonprofit dedicated to improve the lives of children needs to seek a child psychology candidate. One focusing on seniors should seek a geriatric specialist.
Board cultures can be difficult to modify or change in for-profit and nonprofits. A recent McKinsey study demonstrated the strength of the board culture in three different levels of board operations—ineffective, complacent and striving. * Differentiated achievement seems to be largely dependent on four behaviors. (See bold type.) Centered on my experiences, they can be applied to nonprofit boards. At the least, the behaviors can motivate considerations for board modifications. (more…)
Genetic codes aside, the term DNA is now commonly used to describe distinctive characteristics and qualities in almost anything –living or inanimate. Every nonprofit has a DNA! And every board member, if questioned, will probably have a different take on that invisible life blood which — for better or worse—impacts the actions of his/her board. One author goes so far as to suggest that “…one common element to create sustainable success is evaluating and interjecting the right DNA.”
He goes on to recommend three steps to make the necessary changes in the nonprofit culture: Assessment, New Genetics and a Gestation period— the last step being essential …“for the new approach to take hold and grow.” * Following,, as an example, is how it might apply if a nonprofit board needs to move from a traditional Community Board to a Policy/Strategy Board. This is a situation where the board increases its overview responsibilities and decreases or eliminates its involvement in operations, i.e. micromanagement.
Assessment: Evaluations involve defining what the agency is doing well and what systems need to be removed or modified. Listing the former is easy, but dropping long embedded practices can lead to unproductive board conflict. Logically, board members still need to be in their third year of a median four or six-year tenure before sustainability assessment (5 to 10 Years) can be undertaken.Too much legacy culture has been embedded in the Board operations, calling for three to five year strategic plans. At that point, most or all of current board members will have been termed-out of their positions
I once observed, as an example, a board that made a strategy decision about changing the timing of an annual fund raising event. Once the decision was made, the board took the remaining meeting time to review and formulate new platforms for the event, presenting management with implementation suggestions. The prolonged discussion, in effect, was simply perpetuating a standard community board micromanaging process. When I called this to the attention of the Executive Director, he claimed that it is part of the nonprofit’s culture to be operationally involved.
Assuming it will take about two years for a board member to become acclimated to the new board organization, it is clear that no single director can bring about a sustainable long-term approach until his/her third year of a six-year term. There should be two or three other older directors who strongly support the change. Most importantly, the ED must see the value in it. Otherwise, it will have to wait for the appointment of a new ED that may probably take place outside of the tenure periods of current board members. Management and staff leadership who can take a broad view of the future also need to become involved.
New Genetics Include:
Growing the Future. Early adopters are critical to change. These are board members who, for example, fully understand the line between policy issues and operational ones. They can be helpful to the board chair in keeping meeting discussions out of the operational “weeds.”
Equip, empower and encourage: Allow the CEO to have full operational responsibility, with the understanding that a rigorous evaluation of quantitative and qualitative impact impacts will be reviewed each year. The board and CEO should jointly develop these issues. ** Under no circumstances should the board singularly establish them.
Assuming all these changes are in place and board members support them in their fourth or fifth tenure years. it’s then important to make sure that newer board members have a similar mindset. Some new directors who may have had experiences in other more traditional nonprofits might want to revert to the legacy operations because it is the way that “all nonprofits operate.”
Vet New Directors Carefully: Make certain new directors understand the new board environment that is being developed so they are comfortable with it. It can attract highly qualified directors and staff, with the DNA’s focus in creating sustainable long-term success. Some, however, may have quite different views. For example, I once encountered two board candidates, with social work backgrounds, who wanted to supersede management personnel and directly evaluate staff members, because they had field experience.
It takes four to five years to firmly install the new system. These environmental movements do not take place quickly. By then, the original directors leading the change will likely have termedout of their board positions. The recruitment committee will have to seek candidates who are attracted by the new environment and understand the need for substantial operational delegation to management. Most of the problems will have been eliminated from the DNA, and it should set the nonprofit on a course for sustainable success.
How Seriously Does Your Nonprofit Board Take the Matter of Ethics?
By Eugene Fram Free Digital Photo
Most board members are aware of their obligation to ensure their nonprofit’s compliance with certain standard regulations e.g. making tax payments, submitting IRS Form 990s and/or avoiding potential fraud. But what I have found missing in the nonprofit environment is a sense of board member responsibility to provide for and sustain a viable ethics program.