nonprofit boards. nonprofit directors. nonprofit director term limits

What’s In a Name? Benefits Of The Nonprofit President/CEO Title

What’s In a Name? Benefits Of The Nonprofit President/CEO Title

Note: This article has received constant attention since being published

in May 2010 by The Alliance for Children & Families.

I am reissuing it here in the event some new readers might have missed it.

Best wishes to my U.S. viewers for a happy and healthy Thanksgiving holiday.

What’s in a Name? Benefits of the President/CEO Title

BY EUGENE FRAM

Over the last 100 years, senior managers of nonprofits typically have held the executive director title. For about the last 30 years, many nonprofits have changed the title to president/CEO, following a common business practice. Many more nonprofits need to consider the same change to obtain some subtle but useful organizational benefits.

A recent study reports that only 22 percent of trade association chief staff officers hold the president/CEO title. For professional societies, the proportion is only 9 percent.1 Many chief staff officers in larger faith-based human service and health-related organizations still hold the executive director title. Even the senior manager of Carnegie Hall in New York City still carries the executive director title.

A wide range of nonprofits use the executive director title: churches, human service agencies, trade associations, and medical facilities. An executive director can be the only manager in a church with an annual budget of $200,000, or be the head of a medical facility with a $10 million annual budget and 200 employees. These significant differences in responsibility levels can serve to: <–more–>

    1. demean the significant contributions of many executive directors in the eyes of some important audiences, and
    2. minimize audience perceptions of the contributions of their organizations.

The Executive Director in Nonprofit Organizations

Nonprofit senior managers are called, “executive director instead of chief executive officer in order to avoid the business connotation which the latter name evokes. … It also distinguishes them from … members of the (volunteer) board of directors from non-executive directors who are not actively involved in running the corporation.”2

Using the title of executive director made sense during the early part of the 20th century when nonprofit organizations were modest ones with a handful of employees, and volunteers regularly filled managerial or service roles. As late as the 1960s, one occasionally witnessed volunteer board members having internal operational roles. Those who advocate for the continued use of the executive director title argue that use of the title is empirical evidence of board involvement in the activities of the organization. However, the negative side of the argument is that continued use of the title leads to board micromanagement of operations, which stunts organizational growth.

Nonprofit organizations became larger and more complex in the latter part of the 20th century. Local professional societies became regional organizations; hospitals became regional healthcare systems; and so on. The proportion of volunteers involved in management operations and staff work declined. Consequently the trend to use the president/CEO title became more appealing to focus operational responsibility on management and staff. If properly structured, the title requires the chair and CEO to develop a more trusting professional relationship and assures the stakeholders of higher levels of performance. Organization results become focused on outcomes, not process.

The President/CEO in Nonprofit Organizations

In the latter part of the 20th century, business organizations began to add the title of CEO to the title of either their president position or board chair position.3 The objective was to clearly designate which of the two had final operational authority, except for those actions which are reserved by the firm’s bylaws for the board (usually acquisitions, pension plans, and long-term contracts). In the business environment, as contrasted to the nonprofit environment, both the chair and the president can be corporation employees.

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About 1980, nonprofit organizations began to mirror business organizations managerially. Many developed marketing departments, installed complex information technology, and a few even hired experienced business executives to head their organizations. The older philosophy, listed above, of “avoiding the businesses connection” was quickly being eroded. Today, specialized programs operated by many associations prepare aspiring nonprofit executives to advance through managerial positions to presidential positions.

Nonprofit boards, after 1980, when hiring new senior managers, offered titles of president/CEO4 and made bylaw provisions for other persons in the senior management teams to become vice presidents.
Nonprofit board chairs can do their job well without final CEO operating authority. Traditionally, chairs are volunteer personnel who should focus board activities on strategic issues not operational concerns. Some president/CEOs even became voting members of their boards, if permitted by their state laws. It was not unusual for some incumbent executive directors to seek the new title, if it was politically expedient. However, many conservative boards still look upon the change as a managerial power grab, which evidently has slowed the change process.

Nearly three decades have passed since the early adopters made the first changes. Yet, as indicated before, there are still thousands of complex nonprofits operationally headed by managers holding the executive director title, although these persons may have robust and complex operational duties.

Changing the title of the chief staff officer to president/CEO can positively influence:

  1. the organization’s internal and external perceptions,
  2. its culture, and
  3. its financial growth.

Perceptions of the Organization

There appears to be little public understanding of the robust responsibilities of an executive director of larger nonprofits, although a board may have delegated him or her full operational authority. Most persons holding the title can relate stories of how frequently they have had to describe their jobs to persons not familiar with nonprofits. On the other hand, a substantial portion of the population recognizes that a person holding the title of president/CEO is the head of the organization with substantial authority to lead its employees and to direct operations. (Nonprofit senior managers are not the only ones who face this issue. Persons in legal firms with titles of managing partner and those in financial organizations with titles of managing director also face the same title recognition challenges.)

Read the original article, which prompted Eugene Fram’s response.

A nonprofit operating head with a president/CEO title can more easily help focus on building the public brand image of the organization through his or her force of personality and the clear perception of who is leading the organization’s mission. She or he should be in the best position to staff the “bully pulpit” for the mission of the organization.

Staff discipline and morale may also be compromised when the executive director title is employed. In local or regionally based nonprofit groups, staff members often are personal friends of their board members. It is not unusual to have disaffected staff personnel directly complain to the board when they disagree with one or more of management’s operational or human resource decision.5 It can be hypothesized that some of these cases may have their roots in a lack of understanding of the role of the executive director and who has final operational authority in the organization.

Also, the senior manager from time to time may have opportunities to be interviewed by the media. This can be a critical responsibility when a rapid response to a crisis is needed or an unusual public relations opportunity arises. Consequently, the president/CEO title enables him or her to move quickly and authoritatively; there is no ambiguity related to the leader’s authority.

How leaders and organizations are perceived by stakeholders are realities with which leaders must deal, whether or not the perceptions are accurate. Providing the chief staff officer with the president/CEO title can help develop more desirable internal and external perceptions of the strength of an organization and the responsibilities of the person leading it.

Organization Culture

Organizations which make the title change quite often do so in connection with developing a structure that brings more formality and managerial professionalism to the culture. In the past, years of volunteer involvement in operations often developed a more family culture which is a positive force when the nonprofit is in its early stages. But it is hard to maintain a family environment as the number of employees grows. A new formality, brought about with the senior manger’s title change along with a group of former managers now titled vice presidents, may be seen by older members of the staff as making the operation “uncaring” towards staff and clients.

As time progresses, with the president/CEO being the communications nexus between the board and staff, there will be less personal contact between the two groups This requires the CEO to be concerned that a mistrusting atmosphere may develop. Under his or her guidance, contact between the board and staff can take place on ad hoc committees, on strategic planning projects, at various board orientations, and at organization celebrations. In these ways, the board can seek the participation and advice of all staff in establishing the major programs involved with missions, visions, and values.

If managed properly, the change in top titles and the greater formality it can bring may raise some trust issues with older staff.6 However, management needs to convey a message to the staff that the change is a result of the board placing more trust for operations in the hands of management and staff.

Financial Growth

Some nonprofits take the position that fund development is the responsibility of the board, since board members have the broadest range of community and other outside contacts. With a president/CEO in the top management position, fund development becomes the joint responsibility of the president/CEO, the development person—if one is employed—and board members capable of fundraising. The new title gives the senior manager the immediate recognition necessary to credibly approach donors and, with the consent of the board, to make commitments on behalf of the organization.

To involve the board more directly, the president/CEO can work collaboratively with board members to develop contacts opened by the board. (As one nonprofit executive person explained the situation, “Top people readily communicate with persons in similar positions.”) In seeking support funds, the new title can open doors and communications that might not be available to one holding an executive director title because the title conveys such an unspecified range of responsibility. It might, per se, even raise an unarticulated question in the minds of some donors as to why the person has not been given the title of president/CEO to clearly demonstrate his or her operating authority.

Summary and Final Thoughts

Compared to the duties of a president/CEO, the duties of an executive director range much more widely on a management activity scale. Some executive directors are simply clericals  while others are sophisticated senior executives. Any organization that ignores this fact can leave a psychological gap in public perceptions relating to the group’s strategic posture and the senior manager as a substantial leader. Where warranted by higher responsibility levels, changing a senior manager’s title to president/CEO can help present a better public posture for the senior executive and a better strategic posture for an organization.

END NOTES:

1. Mark Alcorn, “Evolving Titles for Association Executives,” Articles & Whitepapers, ASAE, September 2006.

2. See http://en.wikipedia.org/wiki/Executive_director. Non-executive directors are volunteers who mentor or advise an operating division within the nonprofit, such as the development office.

3. In the nonprofit corporation, the board chair is usually an unpaid volunteer who also might hold the CEO title, indicating that person has final operational authority.

4. Eugene Fram, “Changing Expectations for Third Sector Executives,” Human Resource Management, Fall 1980, pp. 8-15. Eugene Fram with Vicki Brown, Policy vs. Paper Clips: Selling the corporate model to your nonprofit board, 1988. 1st edition, 1995, 2nd edition, Families International, Milwaukee, 3rd Edition Policy vs Paper Clips: How using the corporate model makes a nonprofit board more efficiency & effective, Create Space, March, 2011.

5. This action is often called an “end run” by nonprofit managers.

6. This also assumes that those directly reporting to the president/CEO are concurrently given vice president titles.

Eugene Fram, Ed.D, is professor emeritus at the E. Philip Saunders College of Business of the Rochester Institute of Technology. In 2008, Fram was awarded the university’s Presidential Medallion for Outstanding Service, and in 1997 he received Rochester Institute of Technology’s highest award for outstanding teaching. Recently (2011) an anonymous alumnus donated $3 million to establish the The Eugene Fram Endowed Chair in Critical Thinking.  Now semi-retired in California, Fram continues to add to his published list of more than 100 articles, is involved in for-profit and nonprofit consulting, and is frequently quoted in newspapers, magazines and blogs. Marketing, corporate governance, and nonprofit management are his major expertise areas. Well known in the Alliance community, Fram served on the board of Family Service America, which merged with the National Association of Homes and Services for Children in 1998 to form the Alliance for Children and Families. He was an active participant in the merger. After the merger, he served as co-chair of the first Alliance Board of Directors. He also served on the board of Families International, the parent organization of the Alliance.His book, Policy vs. Paper Clips,Third Edition (2011), has been used by thousands of nonprofits to model their board structures. Available on Amazon.com (http://amzn.to/eu7nQl).  His blog site on nonprofit governance  and management can be found at http://bit.ly/yfRZpz

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

Who is Primarily Accountable for Long Term Planning – Board or CEO?

Who is Primarily Accountable for Long Term Planning – Board or CEO?

By: Eugene Fram

THE QUESTION

 Can you further clarify whom you see as accountable for making what decisions in relation to the various aspects of corporate strategy creation and execution? If the board approves the CEO’s decisions do they not become board decisions? Where is the scope for the CEO to be accountable for making his or her own decisions?

MY ANSWER
“(My model)… promotes accountability. It requires the board and the CEO to work together to paint the big picture for the organization. It then holds the CEO accountable for implementing that vision. The (board’s) planning and resource committee (also) plays a major part in painting this picture by helping the organization and the CEO to look ahead to look to the future.” <!–more–>

Now for some details also found in “Policy vs. Paper Clips. *  (http://amzn.to/eu7nQl)

The CEO is asked, in addition to heading operations, to be looking ahead in the organization’s mission focused field. This is very important where the board is largely an eclectic group of volunteers. The CEO should be thinking about these issues 24/7 and bringing what S/he considers the important ones to the board’s planning and resource committee, from which the board has a process for selecting those that have potential for further study by a board-staff ad hoc committee or task force. Where the board is composed of field professionals, like the Associated Press, the CEO still has an obligation to be on the frontiers of field changes and opportunities, obviously very important to the AP.

* Board members from all backgrounds have an obligation to bring GENERATIVE, out-of-the-box, thinking to the board. Where this often falls short with nonprofit boards is that many attempt to acculturate directors to the culture of the organization, instead of being open to the person’s expertise and culture. For example, if a director has expertise in financial planning, nonprofits often will ask the director to be involved with immediate accounting issues, instead of expanding the organization’s financial outlook.

Many of these field insights are covered in my blog site, now numbering a selection of over 100 current blogs. http://bit.ly/yfRZpz

See previous blog:  Differences: Nonprofit Board Board Policy/Strategy Development vs. Management Operations

*PS: Recent Comment on the Model

Our Board applied the principles in Policy Vs. Paper Clips after the first edition came out many years ago. We were fortunate to have the author himself consult with us. I can unequivocally state that the Corporate model spelled out in this book works and is responsible for the incredible growth and success my not for profit has experienced over the last 15 years. More importantly the Board members love it because they are engaged at a strategic level that allows them to use their brains and contribute in a meaningful way. Every not for profit CEO and Board member should read this book regardless of size or scope of the organization. Its how Boards need to work in the 21st century.

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

The Nonprofit CEO Exceeds His/Hers Authority – What Happens Then?

The Nonprofit CEO Exceeds His/Hers Authority –  What Happens Then?

By: Eugene Fram

It happens!  When it does, it’s the board’s job to inform the CEO that he or she has taken on too much authority.  As a board chair of a human service nonprofit, I encountered such a situation. The CEO signed a long-term lease contract on his own that should first have been approved by the board.   The financial obligations involved weren’t significant. <!–more–>  When the CEO recognized his error, I then asked for formal board ratification. None of us does out jobs perfectly.  But a CEO has to recognize  the board’s ultimate authority for long-term contracts and similar issues, even when the financial obligations are insignificant.

I don’t believe you need as much Board-CEO trust in the for-profit world as in the nonprofit world.  In the former, the “bottom Line” can give directors a reasonably clear (not exact) indication of how the CEO is performing.    In the nonprofit world, there is no organizational solid bottom line, except the one that says income must match expenses.  Also of importance, there are many qualitative outcomes, such as community impact, that are not part of the financial statements and must be considered in the evaluation.

Board directors must trust in the ability of the CEO they have selected to do the job, and clearly make the person accountable.  Since there is no complete long-term performance bottom line for many nonprofit organizations, and the costs of obtaining sold qualitative performance metrics is so high, most nonprofits have to rely on imperfect metrics to obtain a semblance of comprehensive long-term performance. *

For a nonprofit organization, it is necessary to hire a president/CEO or executive in whom the board can place a high degree of trust. But along with the trust, the board must ROBUSTLY annually evaluate the CEO and the organization’s performance.

  • See my blog: http://bit.ly/yfRZpz and my 2010 article “Using Imperfect Metrics Well: Tracking Progress and Driving Change.” I can send a copy of the article to those who request it.   eugenefram@yahoo.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

A Traditional Nonprofit Board vs. A Nonprofit Policy Focused Board: The Difference is Operational

A Traditional Nonprofit Board vs. A Nonprofit Policy Focused Board: The Difference is Operational

By Eugene Fram

Scenario: The nonprofit agency, ABC, has been criticized for not having enough minority staff members. Because ABC, a large well-known organization, primarily serves urban residents in a major U.S. city, board members are concerned about the criticism. (more…)

Reissue: Can a board member ever hold a staff position in the same nonprofit organization?

Can a board member ever hold a staff position in the same nonprofit organization?

THIS BLOG CONTINUES TO HAVE CONSIDERABLE READERSHIP SINCE IT WAS ISSUED EARLIER THIS YEAR.

By Eugene Fram

Sometimes a board member acts not as a director but as a different kind of volunteer. For example, Director Z has a particular accounting skill and wants to utilize it to help the nonprofit. The CEO agrees.

In this instance the board member is not a board member, but a volunteer working under the direction of the CEO. This distinction is easy to understand if you think about the example of a Girl Scout leader who also serves as a board member on a Girl Scout regional group. As leader, she follows scouting guidelines and directives provided by the organization’s professionals. As a council director, she helps to set policy for the movement in the geographic area. In only one instance does she act as a director.

Whether or not he/she should receive a payment for the work is subject to various state law nonprofit laws and approval of the board.

Source: Policy vs. Paper Clips, Third Edition, 2011, pp.231-232.

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

What To Do About Weak Nonprofit Board Practices

What To Do About Weak Nonprofit Board Practices

By Eugene Fram

Peter Rinn, Breakthrough Solutions Group, recently 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. (more…)