The Center for Ethics, Governance, & Accountability

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.

While it’s hard to believe, 2010 is about ready to come to a close. I have been reviewing a number of articles in various publications and it prompted me to write this article for the benefit of all executive directors of non-profit organizations (NPOs).

Having just looked at some financial statistics for non-profits, it would be hard to imagine any executive director or board member feels good about the overall stability of their organization at this time. While, indeed, it is a sign of the unprecedented economic challenges in the world of non-profits, as we continue to point out at The Center for Ethics, Governance, and Accountability (CEGA), executive directors can position their organizations to stand out as shining stars among their peer groups. If your credibility stands out, we firmly believe you will have a competitive advantage in your fundraising efforts.

As I pondered what actions executive directors should take in the final three weeks of the year, the following is my top ten list:

1.    Be sure to communicate with your donors. Thank them for supporting you during these challenging economic times. Be specific about this.

2.    Take the opportunity to also communicate with all of your stakeholders. Speak directly as to how your organization has worked to improve its overall operations and your views on ethics, governance, and accountability. Also, of course, discuss your programming plans.

3.    Begin preparations for your first board meeting of the New Year. Update your ethics and/or conflict of interest policy and make sure it is an agenda item for the board meeting.

4.    Spend a few minutes, preferably one-on-one, with every staff member and speak directly about the future of the organization. Let them know you appreciate them. Realize that it is normal for staffers to be concerned about their future, especially in the current climate for non-profit organizations (NPOs).

5.    Review your grant applications for 2010. Select three grants that you did NOT receive. Call the executive director of the grantor organization, wish them a happy holiday season, and speak directly about the plans you have for the New Year. This will pave the way for a new grant application in 2011. There is no better time than the holiday season to reach out to those big grantors.

6.    Be mindful of your accountability as the executive director. Take your board chair to lunch and have a frank discussion about the outlook for the New Year. The holiday season is a good time to connect and executive directors should be very proactive in seeking some quality time with board members to just visit about the future.

7.    The governance of the organization, namely the board, needs to be reviewed. While the officers of the board should oversee the governance issues to make sure the board is in compliance, the executive director should conduct his or her own review and be prepared to guide and lead. Are there any vacancies? Are terms expiring? Is there an active recruitment effort to fill positions on the board? Have potential conflicts of interest been reviewed?

8.    Also, associated with your accountability as executive director, make sure that all required filings are up to date and that you have marked the due dates on your calendar for the New Year. Now is a good time to take a look at your calendar for the next twelve months and outline your plans for key events BEFORE the year gets started.

9.    Make a specific effort to get out and around your community during the holiday season. Demonstrate through your actions (a smile, a handshake, a conversation, and simply the manner in which you dress and carry yourself) that you feel positive and upbeat about the New Year. Remember that people everywhere are looking for hope and good news. Share yours!

10. Finally, spend some quiet time in your office and review the past year. How have YOU performed? Do you have measurable goals? If so, review them and see if you have made progress. What are your key goals for the New Year (not resolutions!) and how do you plan to perform them? Be honest with yourself about your performance and use the holiday season to recharge and prepare for a strong start in 2011.

I continue to challenge you, as an executive director, to focus on issues of ethics, governance, and accountability. There have been plenty of examples where non-profits veered off course during 2010 and you need to acknowledge that fact, but reaffirm your dedication to being the top among your peer group when it comes to the things that really matter in your overall organizational operations.

Prepare for a better 2011. Hit the ground running!

I recently read a thought-provoking article by a senior fellow in a DC-area ‘think tank’ and it prompted me to think, reflect, and to write this article. In summary, his article pointed out the governance problems with non-profits and called for Congressional action to put in place regulations to better govern the non-profits and to provide more IRS staffing to better police the non-profits.
 
I do not disagree. In fact, in my previous articles on issues of non-profit ethics, governance, and accountability, I have been (and remain) a strong advocate of responsible non-profit behavior and adherence to good business practices and all applicable IRS regs.

I do, however, differ with the author’s notion that non-profits cannot be self-regulating.
 
As with any good article on non-profit compliance, the one I read points out the important role of the board of directors and the oversight responsibility it has in making sure the non-profit operates properly. Amen! My organization, The Center for Ethics, Governance, and Accountability (CEGA) believes that non-profit status is a privilege and that adherence to all requirements can be used as a competitive advantage in grant-seeking and fund-raising. Implicit in this premise is the notion that non-profits certainly can be self-governing.

I recently had lunch with a retired CEO who is an experienced for-profit and non-profit board member. He remarked candidly that he was disappointed in the lack of governance of most non-profits with which he was familiar. Amen! We engaged in a friendly debate as to whether or not the typical board member was truly qualified to serve or whether they just did not want to assert themselves at board meetings. From my viewpoint, I believe most board members are qualified, but most do not want to rock the boat during board meetings, thereby becoming complacent – and ineffective – by default. This does not have to be the case. I am a proponent of proactive boards.
 
During our lunch discussion, we cited several examples of non-profit organizations where we knew the board members and we knew they had the requisite skills and experience for effective board service. Yet, for reasons that eluded us, those board members had been negligent in their duties and the non-profits they were supposed to be serving were suffering. The reasons why are numerous, but the outcome is the same: a poorly performing non-profit. We concluded our discussion by agreeing that board members needed to take their roles more seriously – and be proactive!

The article from the ‘think tank’ was full of good information, figures, and factoids: the regulations are not tough enough, the IRS does not have adequate staffing to police the non-profits, the states are in the same predicament, Congress is reluctant to act, and citizens are afraid to speak out about problems with specific non-profit organizations.

I would argue that Congress is not likely to address non-profit regulations any time in the near future; our nation is faced with economic and foreign policy issues that take precedent over the non-profits. However, this does not mean that non-profits cannot get serious about improving their performance and raising their board governance to a higher level. Again, this places me in the position of believing that self-regulation is, in fact, doable – an organization just has to want to do it.

So, absent the ‘stick’ (i.e. tougher regulations and penalties and audits), why would a non-profit choose to improve its self-regulation? If there is no ‘stick’ then where is the ‘carrot’ that would encourage a non-profit to be proactive? Not only because it is the right thing to do, but because it can demonstrate to the community that the organization outperforms its peers. This should be a powerful incentive!

It seems to me that foundations and grant-makers (whose funds are generated from the private sector) would want to know that the recipient non-profit is solid, self-regulating, and fully compliant. This would indicate that the private sector foundations could put into place criteria that would help promote self-regulation. This argument fails, admittedly, where governmental grant funds are involved. (I do believe citizens should be aware and concerned with the amount of tax-payer funds that are ‘automatically’ doled out to myriad organizations that make no effort to track meaningful performance or outcomes; this subject comes up frequently in my discussions regarding non-profits, particularly social service organizations.)
 
There is no doubt in my mind that the tougher regulations and enforcement called for by the author of the ‘think tank’ article will, indeed, be forthcoming. But, in my opinion, it will not be in the near future. In the meantime, there is every reason for the non-profit sector to work hard to improve its governance and accountability for both competitive and ethical reasons. It’s simply good business.