Since when did the title of Executive Director (ED) become undesirable by the person holding that position in a Non-Profit Organization (NPO)?

In my regular activities at The Center for Ethics, Governance, and Accountability (CEGA), I research non-profit organizations of all types. A disturbing trend is emerging: more and more EDs are receiving titles such as President – and, even CEO. From a corporate governance standpoint, I believe this is a mistake that needs to be rectified as soon as possible. And, quite frankly, without exception. This article will explain why.

Look at three technical issues that make the President or CEO title designation problematic:

1. Non-profit entities, while approved by the IRS, derive their governance structure from the states in which the corporation was established. Most states require only two officers: President (not Chairman or CEO) and Secretary.
2. Non-profits are also governed internally by their Bylaws and Articles of Incorporation. Within the bylaws of the non-profit organization, the required officers are designated.
3. The non-profit status from the IRS clearly designates the title of ED and draws distinctions between board members and staff (which includes the ED).

Also of growing concern is board service by EDs on peer boards of other community NPOs. This practice tends to make it look like there are not enough professionals willing to serve as volunteer board members in a given community. But, mostly, I believe the ED seeks more recognition, perhaps due to issues of competition with peer organizations in the community, whereupon the ‘need for importance’ begins to emerge. Almost always, these ‘needs’ are driven by fear, along with feelings of inadequacy (which are almost always unfounded). Never-the-less, to the extent these feelings lead to ‘title creep’ by the ED, we need to pay attention to the reality of the power structure within the community.

I see two technical issues that should give a non-profit board pause: (1) converting the title of President of the board to Chair of the board does not confer the required accountability of the title of President; and, (2) most NPOs will find their bylaws do not speak to the issue of delegating presidential powers to the ED.

Importantly, the Board should NOT cede executive responsibility and oversight to the executive director. To do so undermines (i.e., gives away) the authority and accountability intended for the board of directors. The importance of the role (i.e. responsibility and accountability) of the board in every NPO is ‘on the radar’ of the U.S. Senate Finance Committee, the Treasury Department, and the IRS from a regulatory standpoint. Even if the bylaws are innocently misconstrued by the board to permit naming the ED as president, I believe it is a bad practice, for the reasons outlined below.

Having served on many NPO boards of directors, I cannot remember exactly when this ‘title trend’ began to gather momentum. Anecdotally, I suspect it was back in the pre-Enron days (before Sarbanes-Oxley) when private-sector businesses were flying high, record profits were routine, and executive perquisites were sprinkled all around. In the ‘search for significance’ within the community leadership ranks, I suspect the EDs of the NPOs thought the President and/or CEO title would elevate their stature in the eyes of their ‘peers’ in the community. And, as is apparently happening too frequently, many boards have acquiesced – probably with little or no thought as to the Governance issues (i.e., the dreaded liability concerns).

I alluded to the U.S. Senate Finance Committee above. The committee has already acted upon its investigation into NPO governance issues and practices. Seven key issues were identified and Treasury and the IRS were instructed to act on them administratively. I believe were it not for the economic woes that are consuming most of the energy in Congress, that these seven issues would be well-known to the NPO community by now. I also believe that it would be wise to be proactive in the compliance with these key issues. This is the foundation of the mission of The Center for Governance, Ethics, and Accountability (CEGA).

While the ‘title trend’ problem concerns me from a Governance and Accountability standpoint, I think three issues are driving the proliferation of what we might call ‘title creep’ (i.e., dissatisfaction by the ED with his/her title and seeking the CEO/President title from the Board):

1. NPOs are becoming more and more important in the communities they serve. I believe this is a good thing, as espoused by the mission of our organization (CEGA), and highlighted at every opportunity I have to write and speak. I firmly believe that NPOs are positioned to address issues within the community that neither the private sector nor the government sector can solve. This opinion is proved correct as economic conditions grow worse and neither the local government sector nor the local private sector has the resources to assist in the manner it displayed in the past.
2. EDs, especially if they are serving on other community boards populated by private-sector business leaders, mistakenly begin to regard the private-sector board members (CEOs, Presidents, Vice Presidents, etc.) as their ‘peers’ on those boards. I would argue the private-sector leaders are not peers of the non-profit sector leaders. This is not to say that the NPOs are not important (perhaps, even more important to the local needs of the community) but it is meant to convey that the position of ED in a community NPO is extremely important, challenging, and requires full-time attention to detail; EDs should not have time to serve on other NPO boards – their value resides within the executive leadership of their own NPO.
3. There is a reason why we are seeing a proliferation of NPO leaders (e.g., EDs) on our community boards: the private-sector leadership is declining as companies consolidate in these challenging economic times and as globalization continues to reduce the corporate sector in the U.S. This does not mean NPOs should (or must) settle for ‘second-rate’ board members; quite the contrary – board recruitment is more important now than ever. I strongly suspect that difficulty in recruitment (or, even worse, lack of trying) is creating a void that EDs seek to fill by serving on each other’s boards. Scarcity of board members is a bona-fide concern, but remedying it with EDs serving on other NPO boards is a mistake.

The Non-Profit Sector is poised to solve the challenges of our communities in ways that the Private Sector and Government Sector cannot. Accordingly, I am no less of a fan of NPOs than I have always been; I simply believe that it is time to get the titles right (i.e., restore the respect of the ED position) and keep the organizational liability and accountability vested at the board level. To do any less is to misunderstand the manner in which a best-in-class NPO must function to be highly successful. Today’s ED is more important to the success of the NPO than ever before – and a full-time, properly titled leader is required for the day-to-day activities that enable success.

While it may seem that raising the issue of titles may appear petty and unwarranted, I suggest that an ED with a title of President or CEO is an indicator of deeper problems within the organization. Take a look. Let me know what you see.