Trustee Boards

Can Nonprofits Build on Bill Gates’s Business Insights?

Can Nonprofits Build on Bill Gates’s Business Insights?

By: Eugene Fram

In a recent Wall Street Journal article, Bill Gates shares some of his convictions about what makes or breaks developing businesses. * Based on his vast experience I suggest that many of his insights can serve as models as well as caveats in the nonprofit environment:

• Internal Communications – Both in the corporate and nonprofit world the communications focus is typically on external audiences. The obvious message is the organization’s product or purpose and is targeted to donors, users, clients, media etc. In both business and nonprofit areas, neglecting to clearly and regularly share information internally can lead to significant damage to an organization. While the board may feel it is “staying on message” communication with staff members can easily rupture. Information can become distorted by word of mouth as it travels through the employee “grapevine.” Rumor of possible changes in the nonprofit, as an example, can lead to fear and resistance from staff members and in some cases, loss of top level employees who may seek positions elsewhere

This can be a vexing problem for nonprofit boards since directors are part-time volunteers who only occasionally interact with employees. A comprehensive plan should be in place to demystify the communication, especially in the area of employee engagement. This can be accomplished in a variety of ways. Google, a leader in this area, and others keep their worldwide cache of employees informed about developments by holding regular open video town hall meetings in which employees have an opportunity to pose questions to senior personnel. As the “lifeblood” of the organization, internal communications must be consistently updated and informed.

• Anticipating Disruptions – Many nonprofits are experiencing what is referred to as “disruptions” which, in many cases, can change the direction or scope of operations. Their client bases are declining, foundations and governments are closing traditional sources of funding or technology has become so costly that it is no longer viable to maintain quality services.

The harbingers of disruption are usually apparent well in advance of their impacts. Easter Seals, for example, was founded in 1931 to focus on the elimination of polio. It had adequate lead-time to plan changes after the polio vaccine was introduced in the 1950s. The Board acted on the information to move services to providing help to people with developmental disabilities. The organization still flourishes today.

Nonprofit boards need to be proactive in seeking information that might lead to the consideration of organizational changes in their fields. There are a myriad of examples ranging from universities currently faced with decisions regarding the advent of online learning to mental health counseling agencies that are being impacted by advances in new pharmaceutical treatments.

Unlike business organizations, most nonprofit clients do not have a direct relationship with buyers. In the nonprofit environment the organization that pays for the service (i.e. foundation or donor) is separated from client populations that may be aging, disabled, homeless etc. This leads to a potential planning disconnect, “..between what users or constituents need and want and what the buyers think they ought to have.”**

The CEO of every nonprofit must have 20/20 field insights, effectively scanning his/her professional environment for unexpected opportunities to grow the organization. These so-called disruptions can have a significant impact on the nonprofit’s future.

• Mind the Mission but Don’t Miss the Opportunities: -The nonprofit bible wisely begins and ends with mission, vision and values. These elements are appropriately drilled into the subconscious of every director and board recruit. Rigid adherence to the stated mission can, however, can blind the organization to growth opportunities to serve new and needy populations. While “mission creep” can stretch resources too thinly, a board strategically must always view the big picture and recognize what new and tangential development might mean to the future of the nonprofit.

Gates refers in his article to the folly of Xerox, which, in its R&D division, developed the first computer mouse. Because the firm apparently regarded itself to be in the copier business rather than the information services business, it did nothing with it!

Bill Gates sees that answers to these challenges are addressed by recruiting the “right” people. “For one thing,” he suggests, “there’s an essential human factor in every business endeavor.” He raises three questions: “Which people are you going to back? Do their roles fit their abilities? Do they have both IQ and EQ to succeed?”

Nonprofit response: Amen!

*William Gates, (2014) “Bill Gates’s Favorites Business Book,” The Wall Street Journal, July 11th.
**Ruth McCambridge & Lester Solomon (2003) “In, but not of, the Market: The special Challenge of Nonprofit-ness” Nonprofit Quarterly Newswire, March 21st.

How Seriously Does Your Nonprofit Board Take the Matter of Ethics?

How Seriously Does Your Nonprofit Board Take the Matter of Ethics?

By Eugene Fram

Most board members are aware of their obligation to ensure their nonprofit’s compliance with certain standard regulations e.g. making tax payments, submitting IRS Form 990s and/or avoiding potential fraud. But what I have found missing in the nonprofit environment is a sense of director responsibility to provide for and sustain a viable ethics program. (more…)

What Defines the Culture of Your Nonprofit Board?

What Defines the Culture of Your Nonprofit Board?

By: Eugene Fram

The General Motors debacle is fresh in everyone’s minds. A deficit in the company culture was recognized as being responsible for the disaster that resulted in the deaths of 13 people. (more…)

Can A Nonprofit Organization Have A President/CEO & An Executive Director?

Can A Nonprofit Organization Have A President/CEO & An Executive Director?

By: Eugene H. Fram

Yes, if the organization has the following structure:

Board With A Volunteer Chairperson
President/CEO With Full Authority for Operations
Executive Director for Division A
Executive Director for Division B

However this structure can be confusing to persons in the nonprofit arena. (more…)

Do Nonprofit Board and For-Profit Boards Face Similar Major Challenges?

Do Nonprofit Board and For-Profit Boards Face Similar Major Challenges?

By: Eugene Fram

The answer is Yes! Although the nonprofit’s objective is to develop maximum impact for its mission, while the business organization wants to maximize shareholder returns, a listing of current major challenges by Deloitte Touche Tomatsu indicates the two types of boards face similar challenges*

1. Overseeing enterprise risk management
Many nonprofits facing reductions in financial support must make heartbreaking choices between focusing on financially viable programs and dropping needed programs. Fraud is a continuing concern for nonprofit directors, both from a reputational standpoint and potential personal liabilities. Developing new competitive services and products continues to be a top priority for business concerns.

2. Focusing on executive compensation programs and related regulations
Regulators and media outlets are focusing on outsized salaries for some top managers in both nonprofit and for-profit organizations, especially where nonprofit and commercial organizations are in the same field, e.g., health care. Increased governance attention to the expanded IRS form 990 and to the Intermediate Sanctions Act, covering granting illegal excess benefits, are challenges for nonprofit boards. I have noted that many volunteer directors and nonprofit executives are unaware of the latter piece of legislation.

3. Ensuring corporate strategy will achieve long-term value creation
Numerous nonprofit and for-profit reports indicate both type of boards need to focus more on strategic planning. Both types of boards are wrestling with the problems of making investment decisions about emerging technologies.

4. Addressing heightened levels of shareholder (stakeholder) activism
Nonprofit stakeholders, such as foundations, are expecting grantees to show impact results for their financial grants. Both types of boards are expected to respond to environmental and business sustainability concerns, whether they be forest conservation or child obesity.

Conclusion: A board is a board is a board … The Major Challenges Are The Same!!
* Deloitte Touche, Tomatsu (2014) “Selected Challenges for Boards of Directors in the Current Environment”

Once Again! Nonprofit CEO: Board Peer – Not A Powerhouse

Once Again! Nonprofit CEO: Board Peer – Not A Powerhouse

By: Eugene Fram

Some nonprofit CEOs make a fetish out of describing their boards and/or board chairs as their “bosses.” Others, for example, can see the description, as a parent-child relationship by funders. The parent, the board, may be strong, but can the child, the CEO, implement a grant or donation? Some CEOs openly like to perpetuate this type of relationship because when bad decisions come to roost, they can use the old refrain: the board made me do it.

My preference is that the board-CEO relationship be a partnership among peers focusing on achieving desired outcomes and impacts for the nonprofit. (I, with others, would make and have made CEOs, who deserve the position, voting members of their boards!)

There are many precedents for a nonprofit CEO to become a peer board member, some without voting rights, some with full voting rights. One nonprofit group is university presidents, where shared governance with faculty bodies can be the norm. For example, when General Eisenhower became president of Columbia, he referred to the faculty in an initial presentation as “Columbia employees.” Later a senior faculty member informed him “With all due respect, the faculty is the university.”

Another nonprofit group is hospitals where the CEO may also be or has been the chief medical officer. The level of medical expertise needed to lead requires that a peer relationship be developed. Also if the hospital CEO is a management person, he and the chief medical officer must have a peer relationship, which extends to the board.

Hallmarks of a Peer Relationship
• The CEO values the board trust assigned him/her, and carefully guards against the board receiving surprise announcements.
• The board avoids any attempts to micromanage, a natural tendency for many nonprofit boards.
• When a board member works on a specific operating project, it is clearly understood that he is accountable to the CEO for results.
• The CEO has board authority to borrow money for short term emergency needs
• The CEO understands need for executive sessions without his/her presence.
• The CEO understands the need for robust assessment processes to allow the board to meet its overview duties.
• Both board and CEO are alert to potential conflicts of interest which may occurs.
• Both value civil discussion when disagreements occur.
• The board realizes that nobody does his/her job perfectly, and it does not react to occasional CEO modest misjudgments.

Summary
Elevating a nonprofit CEO to a status of board peer does not automatically make the CEO a powerhouse. The board legally can terminate the CEO at will. However, in my opinion, the following benefits can accrue to the organization.

The peer relationship help will:

• Help the organization to build a desirable public brand.
• Allow a capable person to interface with the media.
• Define a role for the CEO to lead in fundraising.
• Allow the organization to hire better qualified personnel.
• Allow the organization to present a strong management environment to funders. After all, top people readily communicate with people in similar positions.

Once Again! Are Three Standing Nonprofit Board Committees Enough?

Once Again! Are Three Standing Nonprofit Board Committees Enough?

By: Eugene Fram

Nonprofit boards are often known for the proliferation of board standing committees. Current thinking is to reduce the number substantially. Following is one model, with only three standing committees which has been used by thousands of nonprofit organizations for over 20 years. Ad hoc committees or task forces, are used when needed for investigation of policy decisions and major strategic issues such as changes in pension plans.

  1. Executive Committee – It consists of the CEO, corporate officers and an at-large member elected by the board. The committee acts for the board between meetings, subject to later board ratification; sets the meeting agendas, reviews reports for board discussion; and appoints all standing committees and ad hoc committees.

    2. (more…)

Is Your Nonprofit Board Chair Productive?

Is Your Nonprofit Board Chair Productive?

By: Eugene Fram

Hundreds of articles have probably been published about the skills and abilities nonprofit CEOs need to have to meet the challenges of the nonprofit environment. These include: reduced funding, increased use of technology and increased responsibilities for fundraising.

Relatedly, nonprofit board chairs have been encountering escalating challenges to recruit able board personnel. Current chairs must develop a more active partnership with the CEO in fundraising and lead the board in making difficult financial, technology and other strategy decisions.

To address these challenges, following are the attributes that I think a nonprofit board chair should have to be productive, within the confines of being a volunteer (part-time) chairperson.

• Great Communication Skills: Current issues can be so pressing that chairs will need to be the types of people who don’t limit their board communications to regular meetings. Those who head the board must be in positions to return phone calls or other communications promptly and proactively seek the counsel of directors as needs arise. As a communicator, the chair should listen intently as well as provide outward-bound communications.
• Understands Importance of External Stakeholders: Traditionally chairs have not have much contact with external stakeholders. This is rapidly changing as funders want more assurance about board overview involvement in the grants they award; those providing gifts want more assurance that the intent of donor is being clearly recognized. The chair understands that an organization’s modern stakeholders range broadly from vendors to staff/management to donors. She/h understands that the nonprofit board represents the interests of a community, profession or trade association.
• Manages Board as an Organization: The chair makes certain that all directors understand their roles to overview, to have robust compliant financial and legal processes and to generate civil meeting discussions. He/s is able to abort any board attempts at micromanaging the executive group or staff. Board decisions should be viewed as being democratically developed, even when there is not unanimous agreement.
• Positive Relations With CEO: Mutual respect between the two is the hallmark of the relationship. Differences are settled without rancor, understanding that each role has boundaries – the board has the final word on policy and strategy while, at the same time, the CEO has final authority on operational decisions.
• Acquainted With Technology Basics: Since the use of technology is pervasive, the chair should be able to intelligently lead the board discussions on major technology issues. These currently include the use of the Internet, use of cloud computing and social media. Discussions can range from purchasing technical hardware and software to questions of privacy protection.
• Strategy/Policy Development: The chair has major responsibility to see that these topics are placed on the agendas, and, where approved, are implemented on a timely basis. Over the years, both issues on FP and NFP agendas have not been given the discussion time they deserve. These topics can range from pension reforms to whether or not an organization should have an acquisition/merger strategy.

The challenges facing nonprofits, their CEOs and board chairs have escalated and will likely continue to escalate. The managerial requirements for nonprofit CEOs have risen. But it has not been the same for the board chairs. Although a part-time position, nonprofit boards and their stakeholders should realize that they need to elect people with leadership know-how. They are not necessarily the people who make the largest financial donations. The two can be the same, but nomination committees must be certain that whoever is chosen to preside as board chair has the requisite skills to do so.

New Confernce Board Interest – Philanthropy

The prestigious nonprofit organization, The Conference Board, has added a new blog post interest. Thought my followers might be interested. See post below for more information:

Alex Parkinson

“Prof. Eugene Fram, Professor Emeritus at Saunders College of Business at Rochester Institute of Technology, suggests how to get the most out of a nonprofit board on The Conference Board Giving Thoughts http://bit.ly/Ur195E” Giving Thoughts

What Nonprofit Boards Are Not Doing – But Should! A 2013 Top Post With 681 Viewers!

What Nonprofit Boards Are Not Doing – But Should! A 2013 Top Post With 681 Viewers!

By Eugene Fram

A recent New York Times article* reports that public company directors are coming under scrutiny this proxy season based on what they are not doing. Based on my experiences with dozens of nonprofit organizations, the litany of complaints cited in the Times article, can easily apply to nonprofits, whether they are professional organizations, trade associations, educational institutions or charitable organizations. (more…)