Trustees

Establishing Effective Nonprofit Board Committees – What to Do.

Establishing Effective Nonprofit Board Committees – What to Do.

By Eugene Fram                      Free Digital Image

Following are ways that many nonprofit boards have established effective board committees using my governance model as described in the third edition of Policy vs. Paper Clips.

https://goo.gl/j4EK5P

• In the planning effort, focus board personnel and financial resources only on those topics that are germane to the organization at a particular time. For example, financial planning, long-range planning or short-range planning. However the board needs to be open to generative planning if new opportunities present themselves or are developed via board leadership. (more…)

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The Enron Debacle, 17 years Ago—2018 Lessons for Nonprofit Boards?

The Enron Debacle, 17 years Ago—2018 Lessons for Nonprofit Boards?

By: Eugene Fram                Free Digital Image

In 2001 Enron Energy collapsed due to financial manipulations and a moribund board. It was the seventh-largest company in the United States. Andrew Fastow, the former CFO and architect of the manipulations served more than five years in prison for securities fraud. He offered the following comments to business board members that, in my opinion, are currently relevant to nonprofit boards. (http://bit.ly/1JFGQ6T) Quotations from the article are italicized.

One explanation of his downfall was he didn’t stop to ask whether the decisions he was making were ethical (moral).

Nonprofits directors and managers can find themselves in similar situations. One obvious parallel is when a conflict of interest occurs.  In smaller and medium sized communities, it is wise to seek competitive bids, especially when th purchase may be awarded to a current or former board member or volunteer.

Board members and managers themselves can be at personal financial peril, via the Intermediate Sanctions Act, if they wittingly or unwittingly provide an excess salary benefit to an employee or an excess benefit to a volunteer or donor. Examples: The board allows an above market salary to offer to the CEO. Also the board allows a parcel of property to be sold to a volunteer or donor at below market values.  See: https://www.irs.gov/charities-non-profits/charitable-organizations/intermediate-sanctions

One subtle area of decision-making morality centers on whether a board’s decision is immoral by commission or omission. Examples: In its normal course of client duties, the board allows managers to travel by first class air travel. Obviously, resources that are needed by clients are being wasted and morally indefensible. On the other hand the moral issue can come in to play, if the nonprofit is husbanding resources well beyond what is needed for an emergency reserve. The organization, in a sense, is not being all it can be in terms of client services or in seeking additional resources. Overly conservative financial planning, not unusual in nonprofit environments, can result in this latter subtle omission “moral” dilemma. Overtly, universities with billions of dollars on their balance sheets have been highlighted as having the issue, but I have occasionally noted smaller nonprofits in the same category.

He (Fastow) said he ultimately rationalized that he was following the rules, even if he was operating in the grey zones (area).

There can be grey zones for nonprofits. Example: IRS rules require that the nonprofit board be involved in the development of the annual Form 990 report. But what does this involvement mean—a brisk overview when the report is finished, a serious discussion of the answers to the 38 questions related to corporate governance, a record in the board minutes covering questions raised and changes suggested, etc.? A nonprofit boards needs to make a determination on which course is appropriate.

Boards implementing government-sponsored contracts can get into grey areas. Example: Some contracts require the nonprofits to follow government guidelines for travel expenses. I wonder how many nonprofit audit committees are aware of their responsibilities to make certain these guidelines are followed?

According to Fastow, a for-profit director can ask the wrong question—“Is this allowed?” A nonprofit director can make the same mistake. Instead, in my opinion, the better question for a nonprofit should be “Will this decision help the organization to prosper long after my director’s term limit?”

As Fastow did, human service boards can invite trouble if they falsely rationalize an action as being taken for client welfare, and then conclude they are following the rules.

Mr. Fastow said one way to start changing an entrenched culture is to have either a director on the board, or a hired adviser to the board, whose role is to question and challenge decisions.

Nonprofit directors are often recruited from friends, family members and business colleagues, etc. This process creates an entrenched board.

When elected to the board, a process begins to acculturate the new person to the status quo of the board, instead making best use of the person’s talents. Example: An accountant with financial planning experience will be asked to work with the CFO on routine accounting issues, far below her/h professional level. One answer is to accept Fastow’s suggestion and to appoint a modified lead director or adviser to a nonprofit board. (For details: see: http://bit.ly/13Dsd3v)

An old Chinese proverb states, “A wise man learns by his own experiences, the wiser man learns from the experiences of others. Nonprofit can learn a something from Andrew Fastow’s post conviction recollections to hopefully help avoid signifcnat debacles.

 

The Devil’s Advocate on a Nonprofit Board: Asset or Liability?

 

 

The Devil’s Advocate on a Nonprofit Board: Asset or Liability?

By: Eugene Fram              Free Digiatl Image

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An unwritten rule for nonprofit board membership is that it is best to “go along to get along.” But sometimes a nonprofit director’s “no” vote to an action that has had inadequate discussion can allow him/h to avoid tax penalties that have been levied on other board members for lack of due care.

Stanford University research results indicate that groups with a lone minority dissenter outperform other groups where all members agree. In addition, these groups…”are more successful than (groups) in which all members disagree and fall prey to escalated emotional, difficult-to resolve (group) brawls “ *

The key to success, according to these data, is to,” … have a devil’s advocate (DA) on the nonprofit board. … This is a person or a small board minority that “has the sensitivity to see the differences, perceives them as conflict, and then communicates about the differences in non-confrontational ways.” **

(more…)

Different Strokes For Nonprofit Board Folks

Different Strokes For Nonprofit Board Folks

By: Eugene Fram     Free Digital Photo

Over decades of service on nonprofit boards, I have interfaced with board colleagues who possess a variety of performance styles and behaviors. Certain of these types seem to be common to all boards. My comments below are based on adaptations of a director classification system suggested by David Frankel, Partner of Founder Collection. *

The Eager Beaver  

This board member (30s to early 40s) has probably been successful as an entrepreneur or is, perhaps, rapidly rising through middle management in a larger organization. He/she wants to “get things done”. His/her impatience with the typically slow nonprofit rate of progress can be channeled and directed by the CEO or Board Chair. Discouraged by lack of action, this director may quietly exit the board on the pretext that work pressures have increase. On the other hand, if properly nurtured, this category can offer substantial leadership contributions.  

The Checked-Out Check Writer 

Serving on a nonprofit board has likely become a family or company tradition for some directors. (Some local nonprofits are now about 100 years old or older.) Regardless of the person’s dedication to the mission, nonprofit board service becomes part of this director’s DNA. Often they develop into respected leaders and can be conduits to modest or substantial donations. In addition, they have access to interpersonal networks that are useful in recruiting other able board members. This cohort should be valued and their contributions, acknowledged.

The Vanilla Director 

This is a director who attends meetings regularly, occasionally makes an interesting comment. He/she is dedicated to the mission of the organization and can make substantial financial or other contributions. One such director I observed, volunteered to assist the staff with a difficult field problem.   According to Frankel, these directors are “less critical and offer encouragement…. ” However, like many other nonprofit board members, across behavioral types, avoid rigorous discussions at board meetings. If substantial conflict appears between factions of the board on a major issue, they may resign instead of taking an unpopular stand.

The Nonprofit Entrepreneur

This is a director who has a substantial understanding of the nonprofit sector. He/s has served on other nonprofit boards and is dedicated to the nonprofit’s mission. He/s has a desire to help move the nonprofit to its next level of service to clients. He/s often brings bold or different perspectives to the board and management. She/h knows that to achieve growth and improve client services, it is necessary to “sell” ideas to other board members, as well as the CEO. It’s important that the nonprofit entrepreneur and CEO are on the same page in terms of the organization’s future and potential to serve clients. If not, the CEO, unfortunately, may view the entrepreneur with his/h “fast track” style as a disrupter.

An overview of nonprofit boards tends to focus on the unique set of skills and work experience they bring to the table (doctors, professors, accountants, full-time homemakers etc.) A closer look at the board suggests another layer of classification i.e. individual styles, motivation and behaviors. Herein is challenge and opportunity to develop meaningful board experiences for each individual who has said “yes” to the call to service.

* https://hackernoon.com/eight-people-youll-meet-on-your-board-of-directors-8963863d4a03  

 

 

 

 

 

 

 

Do Nonprofit Directors Face Cyber Security Risk?

Do Nonprofit Directors Face Cyber Security Risk?

By: Eugene Fram      Free Digital Image

The cyber security (CS) debacles faced by Elections, Target and others may seem far afield from the concerns of nonprofit directors, except for the giants in the area, like AARP. However, think about this hypothetical scenario.

A group of high school students hacked into the computer system of a local nonprofit offering mental health services and gain access to records of clients, perhaps even placing some of the records of other teenagers on the internet. (more…)

Is An Agile Approach Appropriate for Nonprofits?

Is An Agile Approach Appropriate for Nonprofits?

By: Eugene Fram             Free Digital Image

Many nonprofit organizations are going to have to transform themselves. They are required to adapt to shrinking donor funding sources related to the new tax law, shrinking state and local revenue sources and increased costs, often to serve larger groups of clients. One new potential approach to meet these challenges can be adapted from Agile Project Delivery Approaches. * Nonprofits may find they are venues for making faster decisions to seizing opportunities and reducing costs. Agile Project Delivery (APD) helps address these challenges by disciplined proven practices and through continuous stakeholder feedback.

Agile projects are based on four basic concepts: * (more…)

Enlarging the Nonprofit Recruitment Matrix: The art of selecting new board members—Part II

Enlarging the Nonprofit Recruitment Matrix: The art of selecting new board members—Part II

By: Eugene Fram        Free Digital Image

There’s never enough to say about the selection of nonprofit board members. Following my last post on board behaviors and cultures I ran across a guide fo desirable skills/abilities for “for-profit” directors. From this list, I suggest the following additions to the recruitment matrices of 21st century nonprofit board candidates to improve board productivity. * Those included will have:

Executive and Non-Executive Experiences: These include planners with broad perspectives needed to have visionary outlooks, a well as persons with unusually strong dedication to the organization’s mission. It may include a senior executive from a business organization and a person who has had extensive client level experience. Examples for an association for the blind could be the human resources VP for a Fortune 500 corporation and/or a visually impaired professor at a local university.

Industry Experience or Knowledge: An active or retired executive who has or is working in the same or allied field. However, those who can be competitive with the nonprofit for fund development could then present a significant conflict of interest.

Leadership: Several directors should be selected on the bases of their leadership skills/abilities in business or other nonprofit organizations. Having too many with these qualifications may lead to internal board conflict, especially if they have strong personalities.

Governance: Every board member should have a detailed understanding of the role of governance, their overview, financial/due diligence responsibilities and the potential personal liabilities if they fail to exercise due care. In practice, nonprofits draw from such a wide range of board backgrounds, one can only expect about one-quarter of most boards to have the requisite knowledge. But there are many nonprofit boards that I have encountered that even lack one person with the optimal board/management governance knowledge. Some become so involved with mission activities that they do what the leadership tells them when governance issues are raised. Example: One nonprofit the author encountered, with responsibilities for millions of dollars of assets, operated for 17 years without D&O insurance coverage because the board leadership considered it too costly.

Strategic Thinking & Other Desirable Behavioral Competencies: Not every board member can be capable of or interested in strategic thinking. Their job experiences and educations require them to excel in operations, not envisioning the future. Consequently, every board needs several persons who have visionary experiences and high Emotional
Quotients (EQs.) Those with high EQs can be good team players because they are able to empathize with the emotion of others in the group. Finding board candidates with these abilities takes detailed interpersonal vetting because they do not appear on a resume.

Subject Matter Expertise: Nonprofit Boards have had decades of experience in selecting board candidates by professional affiliations like businessperson, marketing expert, accountant, etc.

Other Factors Relevant to the Particular Nonprofit: Examples: A nonprofit dedicated to improve the lives of children needs to seek a child psychology candidate. One focusing on seniors should seek a geriatric specialist.

* http://eganassociates.com.au/disclosing-the-board-skills-matrix/