The Center for Ethics, Governance, & Accountability

I love charitable organizations and what I like to call the non-profit sector. Of course, there is also the public sector and the private sector. For a number of years I have spoken and written on the important role (a potentially unique role) that the non-profit sector can play in solving challenging issues in our communities.

But I am also a capitalist. I expect a lot from non-profits organizations (NPOs) and I have not been shy about expressing my opinion, whether it be in the role of a volunteer board member, a consultant, or in conversations with civic leaders. For me, matters of ethics, governance, and accountability are foremost; and, as my organization, The Center for Ethics, Governance, and Accountability (CEGA) espouses, we believe excellence in these three key areas will further the success of the NPO in fundraising, community popularity, and support.

I must admit I am frosted – I am in the middle of reading a really well-researched and well-written article, “Why Isn’t Wall Street in Jail?” in the March 3, 2011 edition of the Rolling Stone, authored by Matt Taibbi. The article points out – in considerable detail – the shenanigans that have been permitted on Wall Street between the private sector and the public sector. His question is a good one: why aren’t these folks in jail? Albeit a capitalist, it is indeed fair for me to be disgusted at the lack of ethics, governance, and accountability that has been paraded on Wall Street, in DC, and across America for far too long.

So, I got to thinking. If I believe the NPOs have so much to offer, why can’t they lead the way in terms of performance, accomplishment, and plain old just doing what’s right?

The truth is, they can.

As a nation (I will leave globalization out of this article), we are very much in need of leaders in organizations that can get the job done and show others how to do it appropriately.

Sure, the NPOs have had their share of noteworthy failures and embarrassments over the years, but could the non-profit sector hold a candle to the public and private sectors in the scandal arena? I think not. Look at what is still taking place on Wall Street. Look at what is still taking place in DC. And look at the myriad of smaller examples in communities all across the country. We desperately need improved and enlightened leadership.

There is an instructive (hopefully) point to this article.

Organizations do not make things happen – it’s the people who do. One of my strict rules is that I do not like to see non-profit employees serving on other non-profit boards. And, as many of you know from my previous articles, I expect a lot out of volunteer boards and the individuals that sit around that board table. In order to be consistent with my ‘no non-profit employee on a non-profit board’ rule, that means that the boards of our NPOs will be comprised, almost entirely, by members from the private sector. (Generally, as a rule, I also don’t like to see a public-sector employee serving on boards either.)

So, now we are focused on the individual: private-sector, volunteer, business-oriented, with a specific skill (or skills) that landed them on the NPO board (hopefully). What can they accomplish in the non-profit sector that they may not be able to accomplish in the private sector? Well, how many of the $100 million Wall Street types do you think are serving on boards of NPOs? (Doubtful more than a scant few.) So, who are the NPO board members? I would submit they are the ‘average’ citizen volunteers who hold jobs in the private sector. I would also guess, by and large, they are the up-and-coming leaders in their private sector firms. By virtue of the fact that they are serving on an NPO board – to do ‘good works’ for the community – and do not likely have anybody in a superior role telling them how to behave on the board – they are free to combine all the skills and talents they possess and apply them, with passion and fervor, to improve the mission of the NPO. Maybe the NPO does have as much purpose for establishing the character of an individual as that individual does for the NPO? Think about it; this is quite an opportunity.

The IRS reported 1.36 million tax-exempt organization in 2000 (this figure includes religious groups, although few even file with the IRS and fewer still submit Form 990s – because they are not required – separation of church and state – to do so). If you include the number of organizations that do not register, the IRS estimated in 2000 that 1.6 million were NPOs. (Still only about 6% of the total organizations in the U.S.) We will soon see the 2010 census updates that will give us a better feel for how the number of NPOs grew over the past decade, but the ‘charitable non-profit organization’ (501(c)3) numbered 819,000 in 2000. (Source: The Nonprofit Sector: A Research Handbook by Walter W. Powell and Richard Steinberg, copyright 2006.)

For purposes of illustration, let’s assume that the 2010 figure will be 1 million NPOs. And let’s assume the average NPO (charitable) board has 15 members. When you do the math, we have 15 million individuals (note: focus on individuals) that have the ability to do what’s right and teach others around them by example. In a best-case scenario, each board member would be able to weigh the issues facing the non-profit, make good decisions, see the positive outcomes and then compare his or her behavior in the workplace (presumably a for-profit). A board member could also learn a lot from fellow board members who come from different backgrounds and philosophies – whereas people in the private sector tend to surround themselves with like-minded people.

I’m still frosted! What is happening (and being rewarded) in our financial institutions and our government entities is unacceptable. I feel I can do little to change the direction of either one; but, however, I do feel that I (and many others – 15 million?) can participate in guiding the non-profit sector to lead the way and change future behaviors by providing positive examples in our communities where people can see them and learn from them. I certainly hope it can be so.

Recently, I received an email from an executive director who shared with me that her board was pretty badly divided. As a result, I wrote an article about the issue that was troubling her. I have continued to ponder the issue of non-profit boards and the importance of individuals working together on the board. The purpose of this article is to share some experiences with problem board members and how they were solved in various real-life situations in an abbreviated case study method.

But, first, let me briefly explain why I am so passionate about this issue. I believe that the non-profit organizations (NPOs) – the entire non-profit sector – have tremendous potential in solving the varying challenges facing the communities for which they were chartered to serve. Anything that distracts from an NPO achieving its mission is unacceptable in my opinion. (Remember: it is a privilege to receive a tax exempt status from the IRS and important expectations come with that charitable status.)

Clearly, one of the major assets of any NPO is its board of directors. The board is responsible for overseeing the non-profit; simply stated, in the end, the buck stops with the board. Some people – even active board members – do not seem to understand that their job as a board member is to oversee the operations of the NPO. Not just some of them – not just the easy, non-confrontational issues, but ALL of them. Some people refer to this as ‘fiduciary responsibility’ but I prefer to consider it part of the job description of every board member.

So, when a board is divided, there is no way for it to maximize its potential and achieve the mission of the organization. Simply no way! Allow me to share some strategies that can alleviate board member problems and clear the way for the entire board to function in a collaborative manner. I am going to share several actual examples (anonymously, of course) that I have personally observed and/or taken part in – often in the role of chair of the board.

1. Board member selection should be a serious and challenging exercise. The organization needs and deserves to have the most qualified board members available. And, in order to be effective, board members must get involved. In order to be involved, the board member must attend meetings, read reports, and do whatever homework is necessary to get up to speed on the current and emerging issues facing the NPO. So, if a board member is consistently absent, arrives late, leaves early, etc. then it is time to take action. It’s not a pleasant thing to do, but the board chair (NOT the executive director) should talk to the absentee member and come to an understanding and agreement on board performance expectations. One of the most effective approaches I have ever seen is for the chair to call the board member, tell them they have missed however many meetings, and ask them if their schedule and/or interest level is truly going to permit them to serve. More times than not, board members are well aware of their poor performance and elect to resign. And, such board members are often quite appreciative of the clarification of the expectations of a board member.

Suggestion 1a – Have the Nominating Committee draft a job description for the position of board member.

Suggestion 1b – Make sure the Bylaws of the NPO have a specific attendance requirement AND a known outcome if a certain number of meetings are missed.

Suggestion 1c – Do not allow prospective board members to be casually invited to serve. How many times have you heard, “oh, it won’t take much time at all!”? The proper approach is to be very frank: outline some of the strategic objectives of the organization, explain why the nominating committee has selected the candidate for board membership, and outline the expectations (including the time commitment).

2. As a very young professional, I found myself on the board of a divided organization. There were three factions; no faction had a clear majority and the meetings were a fiasco. This NPO was in the category of ‘arts and cultural’ so the differences of opinion were predictable. Fortunately, for the most part, the differences truly were philosophic and well-intended (as opposed to personality conflicts, which we will address shortly). When such factions become entrenched, it is only a matter of time before a blow-up occurs. I believe taking action sooner is better than waiting until later. And, in what is a recurring theme from me, I believe the board chair must step up and take the leadership role. That actually happened in this case. The board chair ‘called out’ the admitted leader of one of the rabble-rouser factions and he was voted off the board (in accordance with the provisions of the bylaws). It was a messy meeting. Just plain awful. But, what needed to be done was done. Interestingly, after more than a decade of separation, circumstances allowed the groups to become compatible. While still separate, there appears to be real mutual respect and a solid working relationship.

Suggestion 2a – Make sure your Bylaws have a provision for removing an unruly board member.

Suggestion 2b – It is incumbent upon the board members to protect the executive director from turmoil on the board; per usual, I recommend the Chair serve as arbiter when needed. Actually, no, even BEFORE needed.

Suggestion 2c – Prior to a vote to remove a board member, a couple of members of the board or executive committee (NOT the executive director) should meet with the unruly board member, explain what is going to happen, and offer the opportunity to resign. Note that while open communication is definitely the right thing to do, it also opens the situation up for campaigning to ‘save’ the board member. So the time between the discussion with the board member and the board meeting needs to be minimized.

3. Then there are the many examples of the ‘experienced’ board members that have long ago worn out their welcome; and, either do not realize it or refuse to accept it. This is truly a shame and a situation that requires strong leadership and patience to remedy. Quite often, I see this characteristic in former board chairs that remain on the board for years after their term as chair has expired. Sometimes this board member can even be the founder of the organization! The leadership skills required to deal with this situation are critical for success; I suggest that a peer (another long-time, experienced individual) accompany the board chair for a frank, but respectful, discussion. Under no circumstances should the executive director get tangled up in the politics of removing a long-time board member. The short-term and long-term implications of alienating a former board chair are almost always huge. This is where personality conflicts can emerge and relationships can deteriorate rapidly.

Suggestion 3a – Make sure your Bylaws have a provision for board member term limits. If not, amend the bylaws accordingly. It has become common in the private sector to have two or three ‘classes’ (groups) of directors – spaced one year apart – so that the board is not faced with a mass exodus when the groups ‘graduate’ (term expires). I think this is a good practice for NPOs as well. When amending the Bylaws, take the extra step of adding the year each group of directors’ terms expire. And, don’t forget to assign all of the board members to one of the groups (I recommend a random assignment).

Suggestion 3b – As discussed, the leadership role of the chair is critical. Determine whether or not the chair has a strong enough relationship with the long-time board member in question. If not, finding somebody that the long-time board member will listen to is very important. Often long-time board members and past chairs think they know more about the organization than the current board and the current chair (and the executive director). While their input can be very helpful (institutional knowledge), care should be taken not to allow them to dictate the direction of the board.

Suggestion 3c – Consider forming a “Past Chairs Committee” which would allow a meaningful structure to gather information from past experience and inform the current board of directors. You can even ask the problematic board member to resign from the board and chair the first Past Chairs Committee! I have done this in the past and it works well. And, it is a very sincere appointment; think about it: past chairs certainly cared about the organization (via serving as chair) and, presumably, knew more than the average person (via their devotion to the NPO). It’s a HUGELY underutilized asset – AND – the committee can be formulated to assist in calming any degree of upset on the current board of directors. I believe this is a powerful idea that has ‘win-win’ all over it.

In summary, it is critical for the boards of non-profit organizations to function well. A fully collaborative and appropriately involved board is all too rare in my opinion. The characterization (generalization) of three board member ‘types’ (profiles) are real. Astute board members should recognize the problems within the board and speak up so the problems can be resolved. There is just no substitute for leadership!

I leave you with two additional suggestions: (1) the best-case scenario is to ‘rehabilitate’ a problem board member, so don’t rule that out (but don’t wait too long, ‘good’ board members will inevitably quit while the ‘bad’ board members reign on); and (2) if the executive director is running the board (essentially selecting board members and running the board meetings) then you know you have a major problem. Address it! The mission of the NPO is too important to the community to put up with non-collaborative people.

An email was received a couple of weeks ago that I just cannot get off my mind. It was a plea from an executive director whose board chair would not even speak to her. The board is fractured at this point; in fact, some board members (including the chair) did not even attend a facilitated planning retreat.

This is the type of situation the non-profit sector can ill afford.

Although I attempted to follow up, I have heard nothing more following the initial email. Sure, there are two sides to every story and the truth usually lies somewhere in between. In other words, I do not have the luxury of further details upon which to formulate a suggestion. Whose fault is it? Who did what to whom? Is the executive director performing her duties adequately? Why is there such division on the board?

I will take a short detour here and speak to a secondary issue: what should be done about the board chair? From the standpoint of the philosophy we espouse at The Center for Ethics, Governance, and Accountability (CEGA), there is nothing – absolutely nothing – that could justify a board chair not attending a board planning session and not talking to an executive director. No matter what other issues are (or are not) present in this case, this board chair is behaving in an unacceptable manner. Typically, I would suggest looking at the organization’s bylaws to find the remedy; but, again, I do not know the particulars. What I do know is that board chairs have an extremely important leadership role to play in a non-profit organization. I have written a number of articles on the issue of leadership in the non-profit sector and I am very passionate about the role of the board, particularly its chair, in the proper governance of the organization.

That having been said, let me turn to the point of this article.

Were I in a position to make a suggestion to this non-profit organization, I would probably recommend a coach for the executive director.

One of the top executive perquisites these days is a coach for the CEO of for-profit (private sector) companies. Leaving aside the issues of CEO compensation in the private sector among publicly traded companies, let’s face it: it’s lonely at the top and a CEO, quite frankly, is desperately in need of somebody in which to confide on a routine basis. The CEO shies away from talking to subordinates (albeit fellow senior executives within the same company) or to members of the board of directors (many of which are often peers) for fear of being perceived as weak. While this is not logical, it occurs every day. Hence, boards are increasingly understanding the need for CEO coaches in a proactive way (a perk) and not a punitive way (remedial training).

Let’s be clear about this: if a CEO (or an executive director) is not performing, I do not advocate hiring a coach. If the CEO is not up to the job, then the board must replace the CEO with someone who can get things done. In my opinion, we should not be in the business of rehabilitating CEOs or training CEOs; they need to bring to the position certain requisite skills that are worthy of the position (and the pay).

Why should we expect any less of non-profit CEOs (executive directors)? Why should we not provide executive directors with the same perks (like a coach, for example) as the private sector CEOs?

Obviously, in the example I have shared here, there is plenty of information missing for us to make credible suggestions. However, the idea for extending the coach perk into the non-profit sector really hit me as an important issue to discuss. Having served on numerous non-profit boards and consulted with many more, I have no recollection of a coach being offered to an executive director.

Serving as an executive director is a tough job; always has been. Now, with the added financial burden from the economic recession across the entire non-profit sector, top executive directors are hard to attract and even harder to retain. (How long do you think the executive director in this example will stay?) Providing an ear to bounce ideas around, review options, or even just to yell and shout is something every good executive director should be afforded. That is the role of a coach.

Please write and let me know your thoughts on this issue. At CEGA, we believe the non-profit sector is uniquely positioned to address a number of the issues that are challenging our communities. It strikes me that we should consider doing more to assist our executive directors. What do you think?

In previous articles, I have suggested various proactive steps that non-profit organizations (NPOs) can take to reinvigorate the performance of their missions. Examples have included merging, changing board membership, and a checklist of items for the executive director to tackle.

We are nearly two months into the New Year. One of the interesting things about NPOs is that their fiscal year is rarely the calendar year. The most common fiscal year for NPOs seems to be July 1 to June 30; others are October 1 to September 30. Why? Because most state and local government fiscal years are July 1 and the federal fiscal year is October 1. To the extent that NPOs rely on funding from governmental entities (and most do in one form or another), then their fiscal years typically coincide with that of their predominant funding partners.

Why does this matter?

Technically, it doesn’t; practically, it should. It seems to me that the ‘New Year’ offers folks a feeling of a fresh start, a clean slate, a new beginning. But with most NPOs, the holiday season brings a slow-down in activity and then the new calendar year begins without any fanfare or excitement.

I believe executive directors should work to change this phenomenon.

There does not have to be anything particularly difficult to help jump-start the ‘new year’ in January or even February. Here are a few suggestions:

• Hold a planning retreat with the executive committee, full board, or the staff
• Deliver a small token of appreciation to your largest donors and update them on your plans for the new year (the majority of private sector firms operate on a calendar year fiscal year, so they are definitely thinking about the ‘new’ year)
• Conduct a special event for your stakeholders (members, public, donors) to get people together, announce a new program, or showcase a new exhibit.

None of these ideas is hard to implement, you just have to make time, plan them, and get them done. Some people get really down in the winter months, so I would urge executive directors to use this special time to create energy and recommitment to the mission of the NPO. You will be glad you did.

A while back, I wrote an article on the subject of non-profit mergers (and whether the time was right for some non-profits to disband). Since I wrote the article, funding sources for community non-profits continue to dwindle and there does not appear to be an end in sight in the near term.

The beginning of the year offers an excellent opportunity for non-profit boards and executive directors to take a fresh look at their operations. The purpose of this article is to outline a number of issues to keep in mind when considering a merger.

I believe the best merger candidates are organizations with similar service missions. However, there is a tendency for much competition among peer non-profits, so very careful planning is highly recommended. It may start out with the board chairs meeting for a ‘what if’ chat, and may include the executive directors. There are major issues from the very beginning:

• The executive directors will fear losing their jobs.
• Will there be an ‘acquiring’ non-profit or truly a merger?
• Under what name will the merged entity operate?
• Are the missions in the IRS Form 1023 sufficiently similar to allow a merger?

These are a few of the initial realities. Board chairs should also be aware that certain board members may have such an allegiance to the organization that there might be board opposition to a merger. Of course, it is implicitly assumed that the boards of both non-profits (or it could even be three of four organizations merging) are of the belief that a merger makes sense and/or is a necessity to survive the current economic climate which is definitely not favorable to non-profits. Still, the key point: beware of the naysayers and a history of infighting that may not even be known even to those associated with the organizations.

Assuming that there is initial interest in a merger, the next move should focus on operations of a merged entity. I strongly recommend that the focus on operations be directed toward the fulfillment of the mission, not the continuation of ‘business as usual’ operations. This will be a challenging concept for the staff to accept, but if the goal is to become stronger, more financially secure, and offer better performance/service toward the mission and for its stakeholders, reasonable people should be able to agree that a merger could make sense.

It would also be advisable to make clear that the merger is a possibility, not a done deal. This gives stakeholders an opportunity for input, which is almost always a good thing. Take care, however, to avoid the opportunity for passive-aggressive behavior that could torpedo the merger study at the eleventh hour. And, when necessary, take care to keep confidential issues guarded until the appropriate time for announcement.

I think it’s time to face the reality that there is too much duplication of effort in the non-profit sector. A lot of money has been thrown at a lot of problems and there are not sufficient outcomes to justify continuing this behavior. (How many more ‘community rooms’ do we really need to build?) Just as government (federal, state, and local) is now forced to look at cutbacks and realignments and improved efficiency – as has the private sector – so must the non-profit sector.

The mission, the power, the need, and the leadership of the non-profit sector are vital to building sustainable communities. It will be interesting to see how many partnerships can be forged or how many mergers completed during 2011 to mutual benefit of all involved. If you are in a position of leadership at a non-profit, explore the potential that merger offers your organization.

As the New Year begins, it is an appropriate time for non-profit organizations (NPOs) to take a look at their governance policies (and for all board members to sign an annual statement attesting to their understanding of the organization’s conflict of interest policy).

Several times every month, I receive questions from people in the non-profit sector that are having difficulty managing their board of directors. One of the issues most often raised is when and how to dismiss board members who have been around too long. This is a very challenging issue. It is even more challenging when the board member is the chair.

The purpose of this article is to offer several thoughts and suggestions for consideration.

The first question is simple to state, but often hard to measure: is the board member doing a good job or not? There is a big difference between a long-time board member who is very knowledgeable and a board member who is not participating. While both can be equally disruptive, for the purposes of this article, let’s assume that you know how to handle non-performing board members (you remove them from the board!).

I have struggled with the issue of tenure, or term limits, on non-profit boards for quite some time. There are cases where I believe a small board of a small non-profit can serve for many years without problem. However, in most cases, I believe non-profit board membership should be limited, preferably spelled out in the bylaws of the organization.

But let’s assume that the situation goes like this: a long-time member of the board needs to retire but does not recognize it or will not agree to do so. Even more challenging is the situation where this board member is a past chair or even the current chair. How do you go about handling this problem?

I strongly suggest that your NPO have a committee of past chairs. And, I’ll bet that yours doesn’t. The reason I like having a past chairs committee is straight-forward: presumably the past chairs once cared a lot and knew a lot about the organization. They have become a lost asset. You need to get them back in the loop (they can help you) and you need to control their input (they are, after all, past chairs – not present board members).

So, form a past chairs committee and suggest that your current chair serve as the founding chair of the committee. It will work. (I have done it.) Sure, the how and when are details that must be carefully planned and implemented, but the idea is a winner and you can figure out how to make it work within your NPO.

In closing, at a past chairs committee meeting that I attended once upon a time, we went around the room and asked each past chair to state the most challenging issue faced during their term and also the most successful. In this group, the time span was just over 30 years. Think about that! See why a past chairs committee can be so valuable? At the end of our exercise, there were many different successes over the years, but we found that there were STILL three challenging issues facing the board and the organization – for 30 years. We resolved to fix each of those three issues. And, the past chairs committee was the right group to do the fixing because each of the three issues was political in nature and could have caused the current board some difficulties in the community if they had tackled them alone.

So, when you have a challenging issue at your NPO, don’t ignore it – fix it by coming up with a bona-fide solution that everybody can agree is a good one.