At coffee, 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.
In specific, the board failed to take any action to remove a board member who wasn’t attending meetings, but he refused to resign. His three-year term had another 18 months to go, and the board had a bylaws obligation to summarily remove him from the board. However, a majority of directors decided such action would hurt the board member’s feelings. They were unwittingly accepting the “nice-guy” approach in place of taking professional action.
In another instance, the board refused to sue a local contractor who did not perform as agreed. The “elephant” was that the board didn’t think that legally challenging a local person was appropriate, an issue raised by an influential director. However, nobody informed the group that in being “nice guys,” they could become legally liable if somebody became injured as a result of their inaction.
Over the years, I have observed many boards with elephants around that have caused significant problems to a nonprofit organization. Some include:
- Selecting a board chair on the basis of personal appearance and personality instead of managerial and organizational competence. Be certain to vet the experience and potential of candidates carefully. Besides working background (accounting, marketing, human resources, etc.), seek harder to define characteristics such as leadership, critical thinking ability, and position flexibility.
- Failure to delegate sufficient managerial responsibility to the CEO because the board has enjoyed micromanagement activities for decades. To make a change, make certain new directors recognize the problem, and they eventually are willing to take action to alleviate the problem. Example: One board refused to share its latest strategic plan with its newly appointed ED.
- Engaging a weak local CEO because the board wanted to avoid moving expenses. Be certain that local candidates are vetted as carefully as others and that costs of relocation are not the prime reason for their selection.
- Be certain that the board is not “rubber-stamping” proposals of a strong director or CEO. Where major failures occur, be certain that the board or outside counsel determines the causes by conducting a postmortem analysis.
- Retaining an Executive Director who is only focusing on the status quo and “minding the store.” The internal accounting systems, human resources, and results are all more than adequate. But they are far below what can be done for clients if current and/or potential resources were creatively employed.
- A substantial portion of the board is not reasonably familiar with fund accounting or able to recognize financial “red flags.” Example: One CFO kept delaying the submission of an accounting accounts aging report for over a year. He was carrying a substantial number of noncollectable accounts as an asset. It required the nonprofit to hire high-priced forensic accountants to straighten out the mess. The CEO & CFO were fired, but the board was also to be blamed for being “nice guys,” and it remained in place. If the organization has gone bankrupt, I would guess that the secretary-of-state would have summarily removed part or all of the board, a reputation loss for all. The board has an obligation to assure stakeholders that the CFO’s knowledge is up to date and to make certain the CEO takes action on obvious “red flags”.
- Inadequate vetting processes that take directors’ time, especially in relation to family and friends of current directors. Example: Accepting a single reference check, such as comments from the candidate’s spouse. This actually happened, and the nominations committee made light of the action.
What can be done about the elephant in the boardroom?
Unfortunately, there is no silver bullet to use, no pun intended! These types of circumstances seem to be in the DNA of volunteers who traditionally avoid any form of conflict, which will impinge upon their personal time or cause conflict with other directors. A cultural change is required to recruit board members who understand director responsibilities or are willing to learn about them on the job. This an important interview question to pose to candidates because it highlights the importance of good governance as a contribution. I have seen a wide variety of directors, such as ministers and medical personnel, successfully meet the challenges related to this type of board learning. Most importantly, never underestimate the power of culture when major changes are being considered.
In the meantime, don’t be afraid to ask a naive question that forces all to question assumptions, as in Why are we doing the particular thing? Have we really thought it through and considered other possibilities?
Directors need to have passion for the organization’s mission. However, they also need to have the prudence to help the nonprofit board perform with professionalism.