non-profit management

Critiquing My Blog: “All Nonprofit’s are a Business – Need to be Run Like a Business”

Critiquing My Blog: “All Nonprofit’s are a Business – Need to be Run Like a Business”

By: Eugene Fram

I encountered a torrent of comments from consultants, chief executives and staffers replying to the blog listed above. Following are some abstracts of support and questioning I received:

One could say this is true, if we know what is truth, but one should avoid ALL. … We are called to be faithful, not to be successful. Why do we… avoid all ethical questions? … Granted, one should hope to wind up with excess revenues at year-end but to affirm who you suggest doesn’t appear to be worked through.” Philip S. Wood, CPA.

Sorry I disagree. Many/most nonprofits are aimed at creating social good. To be run like a business means risk – (taking) decisions for the short/near term, based on financial tradeoffs. While I agree nonprofits benefit from excellent leadership, discipline, solid strategy and financial planning, they should be run as nonprofits. Linda Williams

If businesses exist to create and retain customers, then nonprofits exist to create and retain members. I think this could be a good learning for many of the nonprofits I have (encountered). This is terrific, but they cannot do this without capital. The more those inside the nonprofit are motivated by their own sprite of “contribution to the world,” the more they could undermine their ultimate survival. (Companies that focus) inside-out rather than outside in will run into trouble.
Elliott Schreiber

I work for an organization … that (has a) mind-set to a for-profit business, … keeping in mind our core values, mission and vision. …

• A research department … regularly checks to make our programs are successful. We follow clients for two years after receiving services.
• Though measuring programs, … our donors have confidence is what we do and we have expanded contacts in the community.
• Our strategy department ensures that expansion will not drain resources from other areas.
• Our direct service employees are results oriented and goal focused.
• Also we take our employees very seriously. We would hate to expand, hire people or have our staff relocate and then havet o close up shop one year later.
• We are more mission focused – we are fiscally solvent, jobs are not in danger and have the numbers to prove that what we do works. Catherine Hayley

My Reactions

Philip: You hit the nail on the head with you comments about “ALL.” I concede the adjective was not well placed. However, some businesses also have a mission or creed to generate social good, like Ben & Jerry’s Ice Cream. However, if you examine the product that emanates from the firm, one can easily view it as creating obesity. Businesses and nonprofits must be judged on their missions and how they execute them.
I would take Ben & Jerry’s over a commercial call center that says its mission is to help charities, but then takes, as fees, 75% of the money donated. Or it might be a nonprofit that gives excess benefits to its management. (The IRS now has become a watchdog over these giveaways.)

Linda: Some businesses also have a double bottom line. For example utility companies have to please their stakeholders and meet utility commission regulations. Unfortunately, the term “being run like a nonprofit has become a negative term and only a high senior nonprofit mangers, who execute the functions you listed at a effective and efficient levels, will contribute to improving the situation.

Elliott: In my opinion you are correct. Nonprofit strategic plans should always have a section showing the estimated economic impact of what is projected. For an example, according to Cynthia Montgomery, a Harvard business professor, a nonprofit hospital whose mission is to “save lives” will not succeed long term if it does not “save lives efficiently and effectively.”

Catherine: I just want to join the chorus of people who commented how fortunate you are to work with an organization with a structure that makes such impacts.
It really shows that many nonprofits need to move towards a business model.

As one other respondent stated, nonprofits in the 21st century need to be “SMART i.e., Sympathetic, Malleable, Active, Realistic and Timely.

Nonprofit Innovation: What Can Barbers Teach Nonprofits?

Nonprofit Innovation: What Can Barbers Teach Nonprofits?

By: Eugene H. Fram

Reading several different blogs comments on nonprofit innovation reminded me of a story I tell my marketing. Here is a brief abstract: When men started to wear their hair longer in the 1980s, two classes oh barbers responded. One class cursed the change, while they became innovative stylists. In the area in which I was living, during the 80s, the number of barbers dropped from 1,000 to 300.

Seth Godin, the famous marketer, thinks that nonprofits have a charter to be innovators. But they aren’t he states in a recent blog. “The thing about most cause/welfare non-profits is that they haven’t figured out how to solve the problem they’re working on (yet). … Too many don’t have a method for getting to the root cause of the problem and creating permanent change.” He than suggests that some nonprofits should, “Go fail. And then fail again. Nonprofit failure is rare, which means that non-profit innovation is too rare as well. Innovators understand that their job is to fail, repeatedly, until they don’t. ”

Comments to a recent BoardSource exchange on innovation had the following reactions:
• Nonprofit founders are focused on specific goals and never go beyond them.
• Decision makers in nonprofits follow the “not invented here” viewpoint and fresh ideas are threatening.
• Many executive directors do not see the “potentially positive role board-level committees (including of non–board members & staff) can play in generating new ides.”

My reaction is that Godin is off base, although I strongly suggest that nonprofits can prosper by adopting the better business practices and vice versa. Few foundations would play “venture capitalist” to nonprofit leaders who have a record of failure. For example, Geoffrey Canada has successfully led the development of the Harlem Children’s Zone. Although the HCZ model is well know, it has yet to be duplicated elsewhere.

The comments from the BoardSource blog have been developed from field experience and remind us that nonprofit innovative leaders are in short supply. The barbers of the 1980s teach us that we must be prepared to innovate when change impacts our field, whether it be style or technological innovation.

But be prepared to think outside of the box. I still go to one barber who cuts my hair, less often, but he still doesn’t work on two heads at a time. Similarly, it is unlikely that marriage counselors will soon be mediating two warring couples at a time, unless some drug company comes up with a pill that enables the counselors to be more innovative.

Nonprofit innovation, as shown by the HCZ project, is very difficult, but it is still very possible in the nonprofit governance arena. For some practical examples, see my blog (http://bit.ly/yfRZpz) & book (http://amzn.to/eu7nQl )
What do others on this exchange see as the state of nonprofit innovation? Is it as dire as indicated by the comments cited above?

Designating a ‘Lead Director’ Can Help Nonprofit Boards Improve Their Operations

For several years, I have suggested that some NFP boards experiment with the addition of a Lead Director to their rosters, just as for-profit boards successfully have since 2002.  This blog is divided into two sections.  First is an abstract of an article published I published on  the topic in the Chronicle of Philanthropy (June 2, 2011, p.34). This will help the viewer understand how I am adapting a business board process to a nonprofit board   Following that is a field critique of my proposal provided by Mark Soundie.   Mark is uniquely qualified to comment. He provides counsel to boards for the following types of nonprofits:  social housing providers, voluntary & social enterprise organizations from all sectors and all sizes & types of charities,  His essay below  provides an excellent summary of the pros and cons. Also, I have noted from a current study that about 37% of a small subgroup of 420 nonprofit directors responding to an NACD study have designated directors on their nonprofit boards. In addition, 88% of the group concluded that their lead directors enhanced board effectiveness.* These nascent results are encouraging news. Finally, a link follows to a comprehensive article on lead directors that appeared in April, 2012 in The International Journal of Not-For-Profit Law, Vol.14, Numbers 1-2.pages 52-57.
Lead director article: bit.ly/15s4eVv

At this point, April 2013, there has been little field interest in my proposal.  If some NFP boards are interested in conducting a trial or experiment with the idea, I would be  delighted to be in contact. Please send me an e-mail at frameugene@gmail.com . 

ABSTRACT

Few nonprofit boards do a great job of overseeing their organizations. Both nonprofit board members and CEO’s share that concern: Asked to rank their performance with academic-style grades by the nonprofit group BoardSource, chief executives gave their boards a C+, while board members gave themselves a B. <!–more–>

The use of such directors became popular as a way to deal with the public concern about the business world that prompted passage of the Sarbanes-­Oxley law in 2002. That legislation spurred the New York Stock Exchange to enshrine the idea of lead directors as a way to show that a company was well governed.

Given how time consuming it is to serve as a nonprofit board chair, especially of a complicated organization like a university or hospital, it seems logical to empower another volunteer to formally fulfill some of the responsibilities expected of a board chair.

A lead director can assist the chair in the day-to-day needs of leading a board (while not micromanaging) and to assist in rehabilitating a dysfunctional board. This is especially important when the chair has little management or board experience. (Example: a concert pianist chairs a social-services board.)

At first glance, adding a lead director to the structure of a nonprofit board seems like formalizing a position in a way that could impede the relationship among the chair, the CEO, and other board members.

The lead director should be viewed as just the opposite, as the business world has demonstrated.  H/she can help the CEO work more effectively and efficiently with board committees, especially in driving the work of the strategic-planning groups.

What’s more, the lead director can be an additional consultant or mentor to the CEO, especially when the board chair is unavailable. Because the lead director would help the board run better, this move could also do much to build morale at nonprofit groups.

CRITIQUE FROM MARK SOUNDIE

I think this is a great concept and the introduction of a Lead Director into most non-profits could make a huge difference.

These are my thoughts;

The role of Lead Director as outlined is a real departure from the established governance model that NFP organizations have worked to since their inception. The successful implementation of this new model would be a real challenge to many organizations that may see this as a criticism of their performance.

This is a multi-skilled and multifaceted position that most would find daunting (more than most are prepared to do). To support prospective Lead Directors there would have to be a specific and quite intense training programme (although I hate to use qualifications in respect of board members in the NFP sector this role could call for this level of commitment and validation). I believe that the title (Lead Director) is unhelpful in the NFP arena due to the connotation that a board member has a higher role than others and is a possible barrier to organizations looking at this model. I will continue to use the title in my response, but strongly recommend a change of title (still with director in it).

The relationship with the Chair and other board members needs a Lead Director to have great people skills, otherwise there is a danger of a “Big Brother” feeling developing. There also needs to be clear lines of demarcation between this role and that of others such as Company Secretary. I feel that as each of the identified roles in your article are developed for the NFP sector; they are built into a framework document for Lead Directors that contains a set of guidance documents, good practice examples and reference points. I see a real need for flexibility of approach within a strong framework as an essential factor in the successful delivery of Lead Directors.

To ensure continuity of role and delivery a Lead Director may have to be appointed in the same way that a Company Secretary can be and not subject to Board rotation/renewal in the same way as other board members. The role would then have to be written into the rules/constitution of the organization

To ensure quality and standards for Lead Directors an assessment criteria would have to be developed (probably internal and external validation).  Some sort of organisation/resource for Lead Directors would be needed to provide information, advice, training and networking opportunities. [Note: For-profit boards in the U.S. have a group of lead directors, from Fortune 500 companies, which meet several times a year.  Their suggestions are published in [Lead Director Network–Tapestry-Network — See Google]

There is a challenge in trying to sell this to a sector that does not have a great deal of confidence in its boards. The NFP sector sometimes need a proven model before they will adopt new thinking, this could be delivered through a pilot programme either delivered through academic means or by attracting funding or private sector support, this would probably take three years to design, implement, trial and evaluate. If the value of having a Lead Director can be established and then championed by those in the pilot, the sector is far more likely to adopt this.

Unfortunately some CEO’s are happy to have a weak board that does not challenge them too much, and this role could be perceived as a real threat by them (resistance from organisations in most need)

It is a shame that non-profits have not as yet seen the benefit of this but as with all new ideas a level of marketing/promotion is needed before people begin to see the possible advantages.

Mark Soundie, Governance Matters UK & Independent Community, Housing & Tenant Advisor

* NACD Nonprofit Governance Survey, 2012 – 2013, pp.10-11

The truth is that ALL nonprofits are actually businesses. And–they need to.be run like a business.

Sylvia Helper of Launching Lives commented to one of my recent blogs tilted : “What’s in a Name? Benefits of the Nonprofit President/CEO Title”    

“While this irritates and offends many nonprofit senior staff, the truth is that ALL nonprofits are actually businesses. And–they need to.be run like a business.”

Sylvia: I strongly agree with your statement. 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.

Mistakenly conclude that using business titles (such as CEO) appears more prestigious than is merited. This mistaken attitude persists in organizations with well over 15 employees and budgets well over $1 million!

Associate business boards with financial disasters such as Enron and Tyco, while failing to perceive the business board model’s benefits, such as having only a few standing board committees.

Fail to appreciate  that today’s nonprofit managers must have the tools of professional executives to lead their organizations towards accomplishment.

Choose to continue to implement the 20th century governance practices in which staff members, often without the requisite managerial expertise, are promoted to chief executive positions.  A few succeed by growing into the job but  most continue on to do little more than “mind the store.” Truly, this can result in a significant waste of board and staff resources.

After many years of participating in nonprofit activities as a volunteer director, consultant and author, I recognized how the adaptation of a business model will positively impact the governance of a nonprofit. This prompted me to write “Policy vs. Paper Clips” which, based on sales of the first two editions, has influenced thousands of nonprofits to convert their governing structure to the model described in the book. The third updated and expanded edition was published in 2011 http://amzn.to/eu7nQl     .

My blog site http://bit.ly/yfRZpz  now contains over 100 blogs on nonprofit governance.

In summary, many nonprofit boards, managers and staff figuratively stand ten feet tall for what they accomplish.  They deserve to have the better aspects of business boards and business venues to do their jobs. 

 

Nonprofit Directors & Trustees: Are You Aware of the IRS 990 Form?

Nonprofit Directors & Trustees:  Are You Aware of the IRS 990 Form?

By Eugene Fram

The Form 990 Part VI, required of every nonprofit 501 (c)(3) organization gives the IRS a great deal of information about organization’s governance practices.*  However, I have noticed that many nonprofit directors and trustees are not involved with the development of this important federal report, nor have some ever reviewed its contents.  Part VI contains some critical qualitative questions, which, if results are audited, might negatively impact the existence of the organization. For example: <!–more–>

  • Prior to the filing, was the Form 990 reviewed by the full board or a designated committee?
  • Does the organization have a written mission statement that articulates its current 501 (c) (3) purposes?
  • Are there systems or procedures in place intended to make sure assets are properly used consistent with the organization’s mission.

To date, the IRS is an initial analysis stage of 990 results because many of the questions require qualitative responses, looking to see if the board has allowed a significant diversion of assets.   The initial analysis has found a statically significant correlation between questions related to governance practice and tax compliance:

  • Organizations with a written mission statement are more likely to be complaint.
  • Organizations that always use comparability data when making compensation decisions are more likely to be compliant.
  • Organizations with procedures in place for the proper use of charitable assets are more likely to be complaint.
  • Organizations where the 990 was reviewed by the entire board of directors are more likely to be complaint. This indicates that having the entire board engaged in what is being reported on the 990 is not only helpful, but correlates to better compliance.

Items not correlating with tax compliance are:

  • Conflict of interest policies.
  • Organizations that never or only occasionally use comparability data to set compensation.
  • Voting member having a family relationship and/or outside business relationship with any other non-voting board member, officer, trustee or key employee.

NONPROFIT DIRECTORS & TRUSTEES ALERT:  If you have not had significant involvement with the development of the organization’s annual Form 990, it is about time you raise a question about it at the next meeting.

* “IRS Charity & Nonprofit Audits:  Governance Issues, Reviewed & Updated”, 11/02/2012

Difference: Nonprofit Board Policy/Strategy Development vs. Managing Operations

Difference: Nonprofit Board Policy/Strategy Development vs. Managing Operations

By: Eugene Fram

Following is how I view the difference between the nonprofit board functions versus operations management functions. Based upon my governance model (see bottom of page), all of the responsibilities listed below are board functions. <!–more–>

A. DIRECTS MANAGEMENT
1. Establishes, in partnership with management, long-term organizational objectives
2. Sets overall policies affecting strategies designed to achieve objectives.
3. Employs the CEO.

B. JUDGES MANAGEMENT ACTIONS
1. Evaluates short-term and long-term management performance.
2. Determines whether policies/strategies are being carried out and goals achieved.

C. APPROVES MANAGEMENT ACTIONS
1. Critically reviews, approves, or disapproves proposals in policy areas (for example, major capital needs or expenditures and major contacts)
2. Provides formal recognition and acceptance of executive decisions when related to operational concerns.

D. ADVISES MANAGEMENT
1.Acts in an advisory consultative capacity, when sought by management.

E. RECEIVES INFORMATION FROM MANAGEMENT
1. Regularly receives reports on the organization (e.g., performance, program development, external factors, other challenges or concerns).

F. ACTS AS A PUBLIC AND COMMUNITY RELATIONS RESOURCE FOR MANAGEMENT.
1. Keeps the organization attuned to the external environment in which it operates.

G. FUNDRAISING PARTNERSHIP BETWEEN BOARD & CEO

1. CEO & staff act as “scouts” for fundraising opportunities.  Board members act as the “cavalry” to team with management,  to make generative proposals, to make formal proposals and to make needed interpersonal contacts.

For more detail on how this fits into my policy/strategy model, see: “Policy vs. Paper Clips,” Third Edition, (2011). Available on

Amazon.com: http://amzn.to/eu7nQl

My blog site: http://bit.ly/yfRZpz

Once Again: How to Keep a Nonprofit Board Informed.

Once Again: How to Keep a Nonprofit Board Informed.

By: Eugene Fram

At high-performing nonprofit boards, members of the board will rarely be invited by the CEO to participate in operational decisions. Yet the board still needs to know that is going on in operations.

The name of the game is for the CEO to communicate the important information to board members and to keep them informed of significant developments.  Still, there’s no need to clutter regular board meetings by reporting endless details about operations. <!–more–>

Probably the most effective way of keeping board members aware of what is going on within the organization is to have staff frequently make short presentations.  However, I have seen this approach used in dozens or nonprofit board meetings without success.  Two problems frequently occur.   First the staff person is so enthusiastic about an opportunity to talk with the board that the presentation time continues well beyond the allotted time, and, second, board members raise “micromanagement” level questions, which further extends the presentation session. To solve these problems, the board chair needs to suggest to detail seeking directors that the questions are very operational and can be answered “offline.” Second, the chief executive must meet with the staff person well ahead of the meeting and make sure that the material to be presented is succinct and the staff person is well aware of the time constraint. A “dress rehearsal” might even be appropriate for some staff personnel

Another technique is to use a consent agenda.  With a consent agenda, routine and previously agreed upon items are organized together in the pre-meeting agenda and then, hopefully, approved as a group.  If one or more board members questions an item in the group, it is placed on the agenda for the next board meeting. This process eliminates the time consuming effort of having a separate discussion for each item.

A third way is for the chief executive to meet with board members informally about every quarter. Occasionally, these meetings are with two directors at one time.  At these sessions, the chief executive can discuss the more “entrepreneurial or wild ideas” that might need testing and update them on operational decisions in greater detail.  Some of the meetings can happen quite informally, before or after a committee meeting or after a monthly board meeting. Some can occur at  appropriate social events. It is important to have the executive’s assistant keep track of the meetings and then to have authority to make new appointments to meet the quarterly schedule.  Obviously, the CEO would need to meet wit the board chair more often, and if the board is a national one meeting less frequently, a scheduled phone call is appropriate. One veteran CEO I know meets frequently with two board members. One is a long serving member, and the other is a newly appointed board member.

Source: “Policy vs. Paper Clips” Third Edition (2011).  Available on Amazon

My blog site: http://bit.ly/yfRZpz

Guidelines for Forming Nonprofit-Business Partnerships

Guidelines for Forming Nonprofit-Business Partnerships

By: Eugene Fram

Ashley Halligan, an analyst at Software Advice, http://www.softwareadvice.com/nonprofit, has conducted a pilot study involving business and nonprofit managers, “4 Steps Nonprofits Can Take to Establish a Lasting Business Partnership.” The study has recently been mentioned in the New York Times. Following are a few ways she (in quotations) and I suggest the steps can be implemented to initiate partnerships with business organizations.

1. Assess your Goals – The nonprofit should try to align with businesses that roughly have similar client goals as expressed in terms of the nonprofit’s mission, vision and values. <!–more–>

“For instance, Trees for the Future, a nonpro0fit, wanted to plant more trees in developing countries.” Partnering with international Celestial Seasoning, the nonprofit was able to sponsor the planting of more than one million trees. The relationship between the two was evidently based on the firm’s need for international PR & sales, and the nonprofit’s mission to sponsor the planting of more trees in developing countries. There often does not need to be based on a direct product/service relationship such as cancer prevention nonprofit and a drug company selling cancer drugs.
2. Develop a Shortlist of Potential Busyness Partners – “Look (first) for (local) businesses that have commonalities with the (nonprofit) organization.” They are the most likely to know about the nonprofit’s social values, present and past directors, staff professionals and clients the nonprofit has helped. Seek higher-level executives from the short list companies as nonprofit directors.
3. Start Some Conversations – In developing these conversations, make sure that persons representing the nonprofit are fully comfortable in dealing with senior level business executives. My observations are that few executive directors have a high comfort level in these situations. That is why I strongly recommend the nonprofit’s chief executive officer hold the title, president/CEO. This allows the businessperson to quickly know who has final operating authority. An old adage concludes, “Principals Talk With Principals.”
4. Initiate & Nurture the Relationship – “…[A] Nonprofit-Business relationship requires time and nourishment to flourish. … While the (relationship is) business (to the nonprofit), it is important to remember that the relationship is a highly personal one. Demonstrating a return on investment (ROI) is also important. … Track as many benefits to the company as you can, so you can provide a strong ROI.” *

*See my blog site: http://bit.ly/yfRZpz and my article: “Using Imperfect Metrics Well: Tracking Progress and Driving Change,” Send request for copy to: eugenefram@yhaoo.com.

Failure in Nonprofit Succession Management – What to Avoid

Failure in Nonprofit Succession Management – What to Avoid

By Eugene Fram

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.

1. Is There Interpersonal Conflict on the nonprofit board? If there is a high level of interpersonal board discord, the board is setting up the new executive director for failure, no matter how strong the e executive’s background or talents. The same can be said if the staff is “at war” with the board. No matter who the board chooses, the new person is tainted as the board’s change agent, not a collegial leader. (more…)

Attn: Crisis Planners – A Leadership Plan For a Nonprofit Organization in Trouble

Attn: Crisis Planners – A Leadership Plan For a Nonprofit Organization in Trouble

By: Eugene Fram

When a nonprofit origination encounters serious difficulty, the level of board oversight needs to increase substantially. From my own personal experience, it amounted to the executive committee reviewing and monitoring critical outcomes every two weeks for about six months, in addition to the monthly board meetings.

For the executive director, or interim executive director, it involves taking the following steps:

• Obtain a new external audit or update the most recent external audit. This provides an assessment of how financial controls are operating and highlights important financial concerns.
• Meet monthly with the board finance committee. The committee should have a good understanding of the financial situation. In addition, it can provide support if quick fiscal changes must take place.
• Ask a trusted consultant to provide an objective, third party, evaluation of key personnel. This will help provide a rationale for any personnel changes that need to be made quickly. It should also help the executive director to assess staff strengths and weaknesses more quickly.
• Establish a board-staff committee composed of individuals with reputations for being creative thinkers and doers. Ask for their suggestions for increasing revenues, enhancing fund raising efforts, cutting costs and other issues such as improving morale
• Make decisions quickly and limit participation in decision making to a reasonable level of staff involvement. Don’t let matters drag for too long. Be alert to persons or groups who want to prolong the discussion process either to further their own private agendas or because they have inadequate skills and fear change
• Make necessary administrative changes as quickly as possible. Don’t hesitate to move quickly to remedy long- standing administrative problems. The high-performance group of staff members will be delighted and low achievers may see the handwriting on the wall and plan their departures.

Source: Eugene H. Fram & Robert F. Pearse (1992), “The High Performance Nonprofit; A Management Guide for Boards & Executives.” Families International, Milwaukee, Wisconsin.

My blog site: http://bit.ly/yfRZpz