Trustee Boards

A Nonprofit Paradox: Weak Leadership Pool, Positive Organization Outcomes?

A Nonprofit Paradox: Weak Leadership Pool, Positive Organization Outcomes?

It happens: one or both of the two nonprofit engines—governance and/or management — sputters out, yet the organization continues to meet its goals and deliver adequate service to its constituents. Some examples: a child
placement agency manages to maintain the quality of its oversight while struggling to deal with an admittedly inept board and CEO. Another example: An ineffective volunteer board at a youth center, meeting quarterly for a couple of hours, allows the CEO to really manage the board and to motivate the staff. The CEO realized he and the agency were in dangerous positions without an innovative board providing standard oversight, although client services were positive.

A staff, dedicated to its own professionalism, can on occasion compensate for a lackluster board and/or senior management team by continuing to provide reasonable value to the nonprofit’s clients. Another example involved the ED, simultaneously a deputy sheriff, and his law enforcement colleagues taking payments to refer wayward youths to ED’s shelter. However, the staff continued to provide valuable services. * In the end it’s about leadership and the ability to step up to the plate when dysfunction occurs. In the last case, the staff acted in a professional manner, although the management was entirely corrupt and the board evidently inept.

Klaus Schwab, founder of the World Economic Forum, has some innovative thoughts on that subject. He identifies four key characteristics he believes are critical to strong innovative organizational leaders. ** I have listed them below, and the ways I think his ideas can be applied to nonprofit governance.

1. Systems Thinkers (Brains): Deep knowledge in their area of work. Our current economy and future opportunities will continue to value knowledge, expertise and ideas.

Nonprofit CEOs need not only cutting edge knowledge of their field—they must have a firm grasp of what nonprofit governance implies, particularly the shared leadership style demanded by accrediting agencies. Many CEOs also need to acquire the skills involved to interact well with higher-level executives from business and governmental organizations, in order to partner with them or to take an active role in fundraising.

Nonprofit directors should have a “strategic bent’ to their decision-making and an understanding of the serious downside of micromanagement. Since most directors’ everyday professional lives center on commercial endeavors, or the professions, they must adjust their board mindsets to focus on mission not profit. This is especially pertinent when applied to assessing nonprofit qualitative outcomes, e.g., community impacts. Using imperfect metrics – that are anecdotal, subjective, interpretative — outcomes or impacts can be roughly assessed. Also imperfect metrics can rely on small samples, uncontrolled situational factors and cannot be precisely replicated. Over time they can be highly useful in tracking progress and driving change. (See:http://bit.ly/OvF4ri)

2. Deep Collaborations (Soul): Even when a leader has unwavering commitment to his or her personal values; he or she cannot operate as an island…. Trust among collaborators from a variety of perspectives forms the foundations for deep and ongoing collaboration, which is essential for leading (organizational) change.

Nonprofit directors are part-time volunteers with very little opportunity to have contact with the staff. This lack of interaction can encourage mistrust on both sides. Some informal board/staff social events or board/staff working task forces can go a long way towards promoting a spirit of cooperation.

Although there exists a vast literature on the necessity to build a trusting relationship between volunteer chair and CEO, there is only modest mention of the trust required between nonprofit boards and staff. Many nonprofits are “flat” organizations, meaning there may only be one or two management layers between staff and board. Consequently, this relationship needs to work reasonably well to have operational success; few CEOs or boards can survive a staff “revolt.” Nonprofit CEOs and boards walk a difficult trail in maintaining a deep and trusting collaboration.

3. Empathetic Innovators (Heart): Passion is a key innovator, but to create social (and organizational) change empathy must plan a central role. Innovation must be rooted in deep empathy – a real understanding and sensitivity to the experience of another person –to be most appropriate and effective.

Nominating committees are often seduced by a display of passion for the mission in a board recruit. Passionate directors are driven but not always responsive to other governance interests and perspectives. But candidates who have low or moderate interest can make some surprising contributions because they can take their governance responsibilities seriously or lead in other areas. True board innovation is based on empathy with fellow board members and management. It is also a collegial effort towards fulfilling the mission.

Nonprofit innovators may become frustrated when they want to improve the performance of an established organization and find some of the staff, especially those in management positions, are unable or unwilling to change. In some cases, the answer may be well-planned terminations, showing an appreciation for what the person has contributed or moving the person to an individual contributor position, allowing him or her to be measured for a fulfilling a familiar operating service.

4. World Visionaries (Nerve): Social (and organization) innovators …must be skilled at integrative thinking — the ability to hold two opposing ideas in their minds at once and then reach a synthesis that improves each one. They must…. be comfortable navigating ambiguity and seeing possibilities in the fragmented, complex nature of our social reality as they envision a better future.

The word “nerve” usually conjures up aggression, risk taking or chutzpah! Klaus Schwab brings to it a more nuanced interpretation. My nonprofit “take “on it is a director’s ability to think critically, to weigh the risk of a proposed action with the possible outcome in thoughtful consideration of what is in the best interest of the organization. It is a standard to which nonprofit organizations must aspire if they are to survive and meet the needs of their community and professional clients in the 21st century.

It’s time to banish the old paradox in which productive staffs can compensate for incompetent volunteer boards or managements. Klaus Schwab expands the criteria for leadership in governance. In doing so, he raises the bar for the entire organization.

*For an example see: Ann Eigeman (2013) “Targeted Editorial Stands Out for Separating a Nonprofit’s Poor Management From Its Value,” NPQ Newswire, November 4th.

**Klaus Schwab (2013) “4 Leadership Traits to Drive Social Innovation,” Stanford Business Center for Social Innovation, October 31st.

Viewers Insights: Nonprofit Boardroom Elephants and the “Nice Guy” Syndrome: A Complex Problem

Viewers Insights: Nonprofit Boardroom
Elephants and the “Nice Guy” Syndrome: A Complex Problem

By Eugene Fram

This blog-post has gone viral and has received nearly 1000 views, and still counting, in the last two weeks, plus about two-dozen comments. Although most were simply descriptive, following are abstracts that have significantly added to the discussion. (more…)

The Possibility Of Fraud – A nonprofit Board Alert

The Possibility Of Fraud – A nonprofit Board Alert

By: Eugene Fram

“According to a Washington Post analysis of the filings from 2008-2012 … of more than 1,000 nonprofit organizations, … there was a ‘significant diversion’ of nonprofit assets, disclosing losses attributed to theft, investment frauds, embezzlement and other unauthorized uses of funds.” The top 20 organizations in the Post’s analysis had a combined potential total loss of more than a half-billion dollars. *

One estimate, by Harvard University’s Houser Center for Nonprofit Organizations, suggests that fraud losses among U.S. nonprofits are approximately $40 billion a year. **

Vigilant nonprofit boards might prevent many of these losses. Here’s how:

• Have an audit committee charged with reviewing the overall results of a yearly independent audit conducted by an outside auditor.
• Carefully oversee executive compensations, pension benefits and other finance activities.
• Conduct a yearly review of conflict-of –interest policies. And be certain that employees sign a conflict-of-interest statement.
• Assure new hires are well vetted for honesty by searching background.
• Meet with external auditors at specified times, including an executive session without management present.
• Ask the auditors:
1. Have they perceived any fraud problems?
2. Are internal controls adequate, e.g., those handling financial matters must take at least two weeks vacation per year so their duties can be temporarily assigned to others?
3. Are financial records accurate? To what extent were material mistakes located or was there an increase in non-material mistakes?
4. Do the proper managers or officers properly authorize activities and expenditures?
5. Do all assets reported actually exist?
6. Is the organization performing any activities that might endanger its tax-exempt status? For example, provide misinformation on the IRS Form 990.
7. Is the organization paying its payroll taxes, sales taxes and license fees on time? ***

Trust But Verify

Some directors argue boards can do little to prevent fraud. I argue that every director should know enough about finances to raise issues about questionable activities. At the least, everyone in the organization should be alerted to the fact that board members are paying attention to the possibility of fraud. That knowledge, in itself may deter some people from trying to steal.

* Joe Stephens & Mary Pat Flaherty (2013) “Inside the hidden world of thefts, scams and phantom purchases at the nation’s nonprofits,” Washington Post, October 23rd.

**Janet Greenlee, Mary Fischer, Teresa Gordon & Elizabeth King, “An investigation of the fraud in nonprofit organizations: occurrence & deterrents, “ Working Paper#35 hauser-center@harvard.edu.

***More actionable details can be found: Eugene Fram & Bruce Oliver (2010) “Want to avoid fraud? Look to your board,” Nonprofit World, September-October.
Eugene Fram (2013) “Preventing and managing leadership crises in nonprofit organizations, “ in Handbook of Research on Crisis Leadership in Organizations, Andrew J. DuBrin, editor, London, Edward Elgar International Publishing.

Chairing Nonprofit Boards or Committees? Beware of Accolades!

Chairing Nonprofit Boards or Committees? Beware of Accolades!

By Eugene Fram

“Great Meeting!” That’s the pro forma exit line often delivered by nonprofit volunteers to the chair when the meeting is over. The meeting may or may not have been productive; the leader may or may not have been stellar. But it’s in the volunteer’s DNA to toss a parting compliment to the chair, also a volunteer. Here are my suggestions for conducting a meeting that will have at least a chance of earning the accolades. (more…)

The Balancing Act – A Must For Nonprofit Boards

The Balancing Act – A Must For Nonprofit Boards

By: Eugene Fram

The success of the board depends on making sound judgments in numerous situations that involve balancing different interests.*

Like for-profit boards, nonprofit boards must juggle a variety of interests and objectives when making strategic decisions. But board meetings are often constrained to 1-2 hours, making it almost impossible to give thoughtful consideration to a disparity of perspectives. How does your board weigh in on the following conflicting issues? Following are areas in which thoughtful balancing needs to take place. (more…)

Nonprofit Directors and the Future of Technology: A Modest Proposal

Nonprofit Directors and the Future of Technology: A Modest Proposal

By Eugene Fram

Both for-profit and nonprofit boards are trying to find ways to become better informed about technology issues when they encounter them in developing policies or strategic directions. Some organizations have tried to add technological experts to their boards. However, the type of people with this expertise who also can contribute to broader discussions on finance, marketing, human relations, etc. are in short supply. Another approach has been to consider younger directors who understand the world of technology better. But this leaves only one director, or at most two, on the board qualified to intelligently review the issues involved.

Nonprofit directors need to prepare themselves to become more technologically literate. (more…)

Nonprofit Boardroom Elephants and the “Nice Guy” Syndrome: A Complex Problem

Nonprofit Boardroom Elephants and the “Nice Guy” Syndrome: A Complex Problem

By: Eugene Fram

At coffee recently a friend serving on a nonprofit board reported plans to resign from the board shortly. His complaints centered on the board’s unwillingness to take critical actions necessary to help the organization grow. (more…)

Building The Autonomous Nonprofit Board

Building The Autonomous Nonprofit Board

By Eugene Fram

I recently came upon a current article about building an autonomous business board. * Some of the suggestions in the article, I think, can be applied to NFP boards. The overall viewpoint in the article is summarized as follows, but it is modified to be useful for NFP boards:

Simply adopting the right policies and complying with the rules can no longer achieve good nonprofit governance. As increased scrutiny of the board’s mission imperatives (for example, via IRS 990 Forms) intensifies, both directors and management must be willing to respect the boundaries that define their exclusive roles while working together to ensure that their actions support the goals of the nonprofit and its various stakeholders. (more…)

Why Are Dysfuctional Nonprofit Boards Interesting? Revised/Updated

Why Are Dysfunctional Nonprofit Boards Interesting?

By: Eugene H. Fram

My blog (http://bit.ly/yfRZpz) has been drawing an unusual number of views related to dysfunctional nonprofit boards.  Is it because:

  • Nonprofit evaluations have become a prime media interest?
  • Dodd-Frank passage has alerted a greater number of nonprofits to really review their charters?  
  • More boards have found board problems arising as a result of reviewing the expanded 990-form section on governance?
  • More audit committees are being given expanded responsibilities?  

Can a nonprofit organization focus on its mission vision and values if it has a dysfunctional nonprofit board?  I have seen this accomplished in situations where the CEO is managerially oriented and can live with the board’s problems or foibles.  For example, one nonprofit I encountered had an eleven person board, four of which never attended meetings and several others were sometimes absent for personal reasons.  Meeting minutes clearly showed a focus on operational detail. However a strong CEO was able to focus well, and the organization prospered. On the other hand,the CEO openly complained that she was overworked, needed board assistance and could become a “dictator” for the nonprofit!!

In another situation I encountered, the board chair and ED were very strong, but the board governmentally weak. Work and family pressures constrained the time directors could devote to their governance responsibilities. While the organization performed reasonably well, performance problems and board liability issues might arise, if either the chair or ED retired or resigned.
 

If you have any other insights as to why I am getting so many views related to dysfunctional nonprofits, I and other viewers would be delighted to have your comments.

 

 

 

 

Nonprofit CEO: Board Peer – Not A Powerhouse

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.