Nonprofit CEO performance

The Wells Fargo Debacle—Insights for Nonprofit Directors

 

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The Wells Fargo Debacle—Insights for Nonprofit Directors

By: Eugene Fram                          Digital Free Image

Like apples and oranges, a comparison between a $23 billion corporation and a typical nonprofit organization is hardly appropriate. Yet the recent upheaval at the Wells Fargo Corporation provides a cautionary tale for those who serve on nonprofit boards.

On September 8, 2016, the following report appeared in The New York Times: (more…)

WHAT NONPROFIT BOARD MEMBERS AND MANAGERS DON’T KNOW CAN HURT THEM FINANCIALLY: IRS FORM 990 AND THE INTERMEDIATE SANCTIONS ACT

International Journal of Not-for-Profit Law / vol. 18, no. 1, February 2016 / 78
Article
WHAT NONPROFIT BOARD MEMBERS AND MANAGERS
DON’T KNOW CAN HURT THEM FINANCIALLY:
IRS FORM 990 AND THE INTERMEDIATE SANCTIONS ACT
EUGENE H. FRAM, ED.D1
Nonprofit 501(C)(3) charitable organizations and 501(C)(4) social welfare organizations
fall under two IRS regulations—the extended annual Form 990 and the Intermediate
Sanctions Act (Act). Form 990 requires answers to 38 corporate questions on corporate
governance operations. The Act covers prohibitions related to providing or seeking
excess benefits. Most board members know about the Form 990, but few know about its
board obligations; and few board members and managers know the Act exists. With the
IRS aggressively enforcing the Act to eliminate faux nonprofits, unwitting nonprofit
board directors and managers can become ensnared financially.
Two classes of nonprofit organizations, 501(C)(3) charitable organizations and 501(C)(4)
social welfare organizations, are covered by two IRS regulations not applicable to for-profit
corporations. One regulation requires the organization to file an IRS Form 990 each year, including
financial data plus answers to 38 questions related to corporate governance. Many board
members may be unaware of their obligations to be involved in preparation of the form each
year. If there were an audit involving the 38 board questions, further, board members might be
expected to know about any exceptions to be reported, such as conflicts of interest. For example,
any board member whose firm or employing firm has a business relationship with the nonprofit
must specify it as a conflict of interest on Form 990 and probably abstain from voting on related
issues. Also, if the report is late, the nonprofit must file an IRS form, and the board needs to be
advised of the situation.
If the organization ignores any of the requirements, it can lose its tax-exempt status—a
penalty already imposed on thousands of smaller nonprofits. In some instances, moreover, failure
to heed the requirements might leave nonprofit board members open to personal liability for
failing in their corporate duties for “due care.” (more…)

Big Data Are Great—But Imperfect Metrics Work for Nonprofit Boards!

Big Data Are Great—But Imperfect Metrics Work for Nonprofit Boards!

By Eugene Fram

Nonprofit boards need to expand their evaluations of nonprofit managers and their organizations adding more behavioral impacts * to their evaluations.
For example it might be the number of volunteers that have been trained by the organizations. But boards must go to the next level in the 21st century.
In the case of volunteers, they must seek to understand the impacts on those trained. They need, for instance, to understand how well these volunteers are assisting clients and how they are representing the nonprofit to the clients. The training is a process, but their relationships with clients are impacts.

Qualitative data must be developed to the next level, and the average nonprofit CEO will argue that he/she doesn’t have the staff or expertise to develop impact data. Engaging an outside organization to complete a simple project can cost thousands of dollars. (more…)

Suggested & Field Practices From Most Viewed 2015 Blog Posts

Suggested & Field Practices From Most Viewed 2015 Blog Posts

By Eugene Fram

Currently my blog-site has over 350 posts on nonprofit governance. Following are six 2015 posts that stand out based on viewer interest.

1. https://non-profit-management-dr-fram.com/2015/11/15/the-nonprofit-strategic-plan-is-finished-tools-to-move-forward/
The nonprofit’s 3 or 5-year strategic plan has been completed with the entire board management and staff reading from the same document. But what about the shoals that must be bridged before its benefits can be implemented? For example:

2. https://non-profit-management-dr-fram.com/2015/11/08/the-nonprofit-ceo-exceeds-hisher-authority-what-happens-then/
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.

3. https://non-profit-management-dr-fram.com/2015/10/25/why-are-some-nonprofit-boards-missing-the-mark-what-to-do-2/.
For-profit organizations or nonprofit organizations, in my opinion, have five identical basic board guidelines. For Deloitte Partners, a worldwide accounting and financial advisory firm, these constitute board responsibilities that can’t be delegated to management. The board has responsibilities to have: a viable governance structure, annual assessments of (board and) organizational performance, driven strategic planning, improved management talent and assured organizational integrity. A relentless pursuit of these lofty goals will enable nonprofits to be “on the mark.”

4. https://non-profit-management-dr-fram.com/2015/08/02/how-often-do-nonprofit-board-members-need-to-question-strategic-norms/
Following are four nonprofit areas that call for strategic scrutiny and, if recognized by several other current board members as constraints on the future of the nonprofit, the process may allow individual directors to seek positive change:

5. https://non-profit-management-dr-fram.com/2015/06/14/once-again-how-to-keep-a-nonprofit-informed/
With high performing nonprofit boards, directors will rarely be invited by the CEO to participate in operational decisions. As a result, management will always have more information than the board. Yet the board still needs to know that is happening in operations to be able to overview them. The name of the game is for the CEO to communicate the important information and to keep directors informed of significant developments. Still, there’s no need to clutter regular board meetings by reporting endless details about operations. Following are some practical suggestions:

6. https://non-profit-management-dr-fram.com/2015/12/13/dysfunctional-levels-in-nonprofit-boards-organizations-2/
These data and comments can lead one to conclude that all nonprofit boards are dysfunctional. I suggest that nonprofit boards can generate a range of dysfunctional behavioral outcomes, but the staff can muddle through and continue to adequately serve clients.

What’s in a Name? Benefits of the president/CEO title — Revised & Updated

What’s in a Name? Benefits of the president/CEO title Is it time to change your organizational title?

By Eugene Fram

Over the last 100 years, senior managers of nonprofits typically have held the title of “executive director.” During the past 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 wide range of nonprofits use the executive director title: churches, human service agencies, trade associations, and medical facilities. An executive director can be organizations; hospitals became regional healthcare systems;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:

demean the contributions of many executive directors in the eyes of some important audiences
minimize people’s perceptions of the organizations’ contributions.

The Executive Director in Nonprofit Organizations

According to Wikipedia, nonprofit senior managers are called executive directors instead of chief executive officers “to avoid the business connotation which the latter name evokes.” It also distinguishes them from “members of the (volunteer) board of directors and from non-executive directors, who are not actively involved in running the corporation.” (Non-executive directors are volunteers who mentor or advise an operating division within the nonprofit, such as the development office.)

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 the continued us of the executive director title argue that the title’s use is empirical evidence of the board’s involvement in the organization’s activities. 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 that assures 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, businesses began to add CEO to the title of either their president position or board chair position.* The objective was to clearly designate which of the two had final operational authority, except for those actions 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.

In the 1980s, nonprofit organizations began to mirror business organizations managerially. Many developed marketing departments and installed complex information technology. A few hired experienced business executives to head their organizations. The older philosophy of “avoiding the businesses connotation” was quickly eroded. When hiring new senior managers, nonprofit boards offered titles of president/CEO and made bylaw provisions for others in the senior management teams to become vice presidents.**

Some president/CEOs even became voting members of their boards, if permitted by their state laws. It wasn’t 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 has slowed the change process.
Three decades have passed since early adopters made the first changes. Yet thousands of complex nonprofits are still headed by managers holding the executive director title, although they may have substantial, complex operational duties.

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

1. PERCEPTIONS OF THE ORGANIZATION

There’s little public understanding of the robust responsibilities of executive directors. Most people holding the title can relate stories of having to describe their jobs to those unfamiliar with nonprofits. But most people recognize that the president/CEO is the head of the organization with authority to lead its employees and to direct operations.

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. The president/CEO title enables the senior manager 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 an organization’s strength and the responsibilities of the person leading it.

2. ORGANIZATIONAL CULTURE

When organizations change the title, they 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’s hard to maintain a family environment as the number of employees grows. A new formality, brought about with the senior manager’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 the CEO’s guidance, contact between 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.

The change in top titles and the greater formality it can bring may raise some trust issues with older staff. 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.

3. FINANCIAL GROWTH

Some nonprofits take the position that fund development is the board’s responsibility, 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 the organization’s behalf.

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 (which conveys such an unspecified range of responsibility). It might even raise an unarticulated question in the minds of some donors as to why the person hasn’t been given the title of president/CEO.

Which title Will Work Best for you?

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.

Eugene Fram, Ed.D. (frameugene@gmail.com, blog site: http:// bit.ly/yfRZpz), is professor emeritus at the Saunders College of Business, Rochester Institute of Technology. In 2008, Fram was awarded the university’s Presidential Medallion for Outstanding Service. In 2012, a former student gifted Rochester Institute of Technology $3 million to establish the Eugene H. Fram Chair in Applied Critical Thinking. Fram’s book Policy vs. Paper Clips (available in new edition at http://amzn.to/eu7nQl) has been used by thousands of nonprofits to model their board structures.

*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. A volunteer holding the CEO title may be subject to more personal liability than other board members.

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

Reprinted from the 2014 January/February/March issue of Nonprofit World Volume 32, number 1

When Will Nonprofit Boards Learn to Plan for Succession?

When Will Nonprofit Boards Learn to Plan for Succession?

By: Eugene Fram

The CEO has resigned with two weeks notice. Whatever the scenario, the pace of the organization will likely slow. Some senior managers may vie for the position or, in self-interest begin to look for new positions, as insurance. Staff members begin to speculate about the future of their department and their positions.

A search committee is cobbled together to explore possibilities for a replacement. According to a recent study, such turmoil is not unusual among nonprofits in transition periods. (more…)

How Can Nonprofit Boards More Clearly Define Operational Responsibilities? Revised & Updated

How Can Nonprofit Boards More Clearly Define Operational Responsibilities? Revised & Updated

By Eugene Fram

My experience shows that well functioning nonprofit boards establish and monitor the organization’s policies. The board operates through the president/CEO. In turn, the CEO executes policy and is responsible for the prudent and creative operations of the organization. In this role, the CEO exercises leadership resulting in the effective and efficient use of board and of other volunteer time.

Although defining what are policy issues and what are operation issues is not always clear, for both for-profit and nonprofit organizations, following is a useful set of guidelines (more…)