Developing nonpofit management trust

Dysfunctional Levels in Nonprofit Boards & Organizations.

Dysfunctional Levels in Nonprofit Boards & Organizations.

By: Eugene Fram

Article and studies from a Google search on “ Dysfunctions in Nonprofit Boards & Organizations,” yields 445,000 items in .32 of a second. These items show dysfunctions on charter school boards, church boards, healthcare boards, trade associations, 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. (more…)

Nonprofit Risk and Crisis Management: Challenges for the 21st Century

Nonprofit Risk and Crisis Management: Challenges for the 21st Century

The nonprofit leadership literature recommends that every nonprofit organization have a comprehensive crisis management plan, but it has little focus on risk. Perhaps nonprofit boards are too risk averse and are really unable to maximize their resources to assist clients? Is it that nonprofit boards see little personal gains from taking reasonable risks fearing potential reputation and financial losses? I reviewed over 300 nonprofit articles related to nonprofit crises and related risks; only a handful centered on how a nonprofit board can respond to handling risk and crises in a strategic manner. A great deal seemed to depend on the position of organization of the nonprofit board and its culture, provided in these principles: (more…)

The Dangers of Board Micromanagement

The Dangers of Board Micromanagement

By: Eugene Fram

Accepted View of Micromanagement: “…Directors spend more time with the details of the operations instead of planning its short-term and long-term growth strategies. …
(http://linkd.in/1q84pMm)

The Need for a Micromanaging Board
Board micromanagement is an appropriate approach when either a nonprofit or for-profit is in a start-up stage. Financial and human resources are modest, and the directors often assume some responsibilities normally executed by compensated staff. The chief executive often has managerial responsibilities as well as a list of low-level operational duties. (more…)

Better Board Governance. Is it the same for both business & nonprofit organizations?

Better Board Governance. Is it the same for both business & nonprofit organizations?

Both BoardSource in 2012 and the Charted Global Management Accountant (CGMA) in 2012 have issued reports on improving board governance. The former group focuses on nonprofit boards and the latter focuses on business boards globally.* Both the nonprofit and business organization reports listed the following prime areas for board improvement or focus:The CGMA report called for improved strategy development & risk analysis; better boardroom behaviors; better relationships between board & management. The BoardSource report asked for improved focus on strategy, with much less emphasis on operations; more board commitment, engagement, & attendance; better self-assessment, recruitment & development. (more…)

What Can A Nonprofit Chair Do To Fix A Dysfunctional Board?

What Can A Nonprofit Chair Do To Fix A Dysfunctional Board?

By: Eugene Fram

There are times when the governing body of any organization may appear to be “broken.” The directors, whether for profit or nonprofit, may be polarized—progress is stunted – apathy and confusion replace purpose and efficiency.
A listing of ways to resuscitate dysfunctional business firms http://bit.ly/1w4Tutv prompted me to expand on actions for nonprofits in similar condition. When a nonprofit is in trouble, any chair, who is aware of his/ her leadership responsibilities, should aspire to be the “fixer “of the fractured board. But there is just so much he/s can do. Some failures have deep endemic roots such as outdated structure, personality conflicts etc. The following actions are within the chair’s capability, and they can be useful in repairing board disruption. (more…)

What Key Elements Make A Nonprofit Board Great?

What Key Elements Make A Nonprofit Board Great?

By: Eugene Fram

According to an old Chinese proverb—the wise man learns from his own experience—the wiser man learns from the experience of others. A group of 300 for-profit directors recently took the time to answer questions posed by the RHR International and NYSE Governance Services. Their opinions were subsequently compiled and published in a major study “about the crucial elements in making and maintaining a strong board.” (http://bit.ly/1qTjPXI) Following are my best estimations on how these findings can apply to nonprofit boards.

Quality of boardroom dialog and debate:
Achieving this objective in the nonprofit environment can be a challenge. First, even on boards that meet monthly or quarterly for a couple of hours, directors often don’t have enough interactive time to get to know each other. Second, nonprofit board conflict is usually avoided because it can easily lead to interpersonal problems. Consequently, the board chair and CEO need to develop a board culture that allows for vigorous dissent as a positive process. One board chair I encountered faced with this challenge set a goal of trying to imitate more “conflicts” in board discussions. According to the above study, “The way board members operate together, not who they are, is what differentiates a great board from an average one….”

Ability to ask the tough questions of management:
As volunteers, nonprofit directors often find they must make decisions about issues that are far afield from their career interests, hobbies or their family interests. To effectively relate to management and staff, directors need to take time to better understand the environment in which the nonprofit operates. However, even without this background, it is possible to raise many fair and rigorous questions, such as the level of due diligence behind a recommendation or the impact of the proposal on coming budgets. A director should be duty-bound to ask these types of questions, even at the risk of embarrassing management and developing board conflict. In addition boards need to provide “constructive feedback to (individual) board members on the quality of their contributions.” …

Diversity of thought and experience:
While nonprofit boards select board members on the basis of their experiences, such as marketing, accounting or human relations and demographic divisions, little focus is placed on seeking to develop an inclusive board, with representation from all major stakeholder groups. (Example: Every board should have some people who have strategic perspectives.) Seeking these traits can only be done by reputation, not by career backgrounds. Developing such a board, within the confines of maximum board membership, is necessary to achieve diversity of thought. It also will require creative recruiting and ongoing director “maintenance” by the board chair and CEO to be certain that all directors are engaged in meaningful projects.

Summary
Nonprofit boards need to be evaluated on the way they work together with open dialog, debate and, at times, vigorous dissent. In my opinion, too many directors, because they do not have a financial investment in the nonprofit, vote to go along and/or to avoid conflict. Rarely do nonprofit directors vote “no” to record a different perspective on a proposal. Rigorous, but fair, questioning of management must be the norm. The need for nonprofit board diversity has been well documented for decades. A new view is evolving calling for nonprofits to develop inclusive boards. Some boards have moved in this direction, where legal by state law, to have the CEO as an ex-officious member or voting member of the board to represent staff stakeholders.

When extended to nonprofit board practices the RHR-NYSE study results provide some interesting bases for evaluating how nonprofit boards operate.

How Prepared Are Directors for the Challenges of the Nonprofit Culture?

How Prepared Are Directors for the Challenges of the Nonprofit Culture?

By: Eugene Fram

Given that the typical tenure of a new board member is six years. And assuming that a new director’s intention is to make his/her unique contribution to the organization’s progress before he rotates off the board and is supplanted by another “new” director. With these factors in mind, I estimate that many volunteers enter the boardroom with little understanding of nonprofit culture. Even those who have served previously on business boards may initially spend valuable time in accommodating to the nuances of nonprofit practices and priorities before being poised to make contributions to the “greater good” that nonprofit create. Following are some areas that are endemic to nonprofits: (more…)

Should Mature Nonprofits Allow Board Micromanagement?

Should Mature Nonprofits Allow Board Micromanagement?

By: Eugene Fram

Accepted View of Micromanagement: “…Directors spend more time with the details of the operations instead of planning its short-term and long-term growth strategies. …
(http://linkd.in/1q84pMm)

The Need for a Micromanaging Board
Board micromanagement is an appropriate approach when a nonprofit is in a start-up stage. Financial and human resources are modest, and the volunteer directors must assume some responsibilities normally executed by compensated staff. The chief executive often has managerial responsibilities as well as a list of clients to service. It is not unusual to promote a person who is only familiar with direct service to become the first chief executive of the organization. In turn , this neophyte manager has to depend on board members for managerial counsel and direction. A culture of board dependency is created out of necessity. (more…)

What To Do About Weak Nonprofit Board Practices

What To Do About Weak Nonprofit Board Practices

By Eugene Fram

Peter Rinn, Breakthrough Solutions Group, published a list of weak nonprofit board practice. * 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.

• 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. Some conflicts of interest can develop that are to the benefit of the organization and these should be acknowledged openly and listed on the IRS Form 990. On the financial side, 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.

• 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 make a bylaw exception by allowing a board chair, if scheduled for rotation, an extra year or two to be chairperson.

• 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 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.

• Over selling 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 $24 million. Each director should be knowledgeable about the potential personal liabilities involved with such a board position.

• Allowing ignorance and poor practices to continue because it 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 long time period, as long as current revenues meet expenditures. But the nonprofit can be headed for problems without a business plan covering three or more years. In some situations, this state of affairs continues because the board has low expectations of management and staff.

There is much that nonprofit boards can do about weak practices,

* Source: http://www.nextlevelnonprofits.com/board-governance

How Does a Nonprofit Board Know When a CEO Is “ Just Minding The Store?”

How Does a Nonprofit Board Know When a CEO Is “ Just Minding The Store?”

By: Eugene Fram

David Director (DD) has been the chief executive of a nonprofit for about 15 years. Currently, the organization has a budget of $1.5 million, mainly from governmental contracts and a sprinkling of donations. The nonprofit employs about 20 people full and part-time, and annually serves about 500 people in dire need.

Following is an abstract of the board’s evaluation of DD as the CEO.

• High Job Satisfaction: * DD enjoys his work and his position as a chief executive. Staff turnover is very low, and last year, DD led a board-staff committee to configure the new sign in front of the building. An engaging personality, he is liked by both board and staff. He has good press relationships and frequently uses press releases to call attention to client success stories.

• A Healthy Organization: During DD’s tenure, revenue growth has averaged about 2% annually. Client growth has been in the same proportion. Organizational finances are is good shape with a balanced budget plus a modest yearly surplus. He has a dashboard to monitor finances.

• A Fully Engaged Board: Board members enjoy working on committees such as the new sign campaign (see above), the annual dinner-dance and selecting endowment investments. The audit committee only meets once a year after the completion of the financial audit and its accompanying management letter has been received.

• Positive Community Impact: DD keeps records of clients who exit the programs each year, but has been unable to track their long-term impact on the community.

The big question is whether or not DD is just minding the store? I argue that he is.
This hypothetical organization is typical of the types of nonprofits I have encountered over a long time period. The basic fault is that the board is composed of well meaning people attracted to the mission as well as the personality of the chief executive. As a result, the operations of the organization are kept at a steady state with the active support of the board. Their rationale for this support is the need to focus on the mission. There also might be a mistaken view that the board must protect staff positions.

Some directors come to the conclusion that there is little one can do to drive change, but stay on to enjoy the networking relationships that can develop. Others who join the board resign quickly, citing work pressures. Still others decline board invitations.

A number of other hints are contained in the case:
• Low staff turnover and DD’s interest in the sign committee. The committee can spend hours talking about its color and lettering!
• Revenue and client growth percentages are very low, probably supported by certainty, to date, that government dollars will continue to be available.
• The committees cited don’t contribute much to clients.
* Many directors who don’t have financial responsibilities seem to get some satisfactions out of making decisions about moving endowment assets around. A robust audit committee meets more than once a year.
• There is no strategic planning indicated. Nonprofits, like these, also can confuse a SWAT analysis with a strategic plan. Where financial or behavioral objectives are established, measurement outcome data are not included to more rigorously assess outcomes and impacts.
• DD evidently does have the ability to become an effective development person but prefers to spend his time on smaller operational items, such as the new sign committee.
• DD does not provide any strategic insights or vision on trends in his service field.

Summary
In my opinion, there are thousands of nonprofits like the one described. Making changes in their governance or operations is difficult; culturally changes can only take place after a long tenured CEO leaves. Since they never measure up to what they could be, are those organizations with “store minding” leadership limiting the financial and human (board and management) resources needed to serve more clients in dire need?

*Categories described by Molly Polidoroff, Executive Director, Center for Excellence in Nonprofits, Redwood City, CA.