Nonprofit Board Crisis

Nonprofit Board Diversity Goals #Nonprofit

Values and optics are perhaps two variables strongly influence "commitments to diversity.  That said, check-out how even intentions may (are) not enough to succeed with the change of hearts that motivate a desire for a diverse board. 

Here's the link with the lead question:  Having Trouble Diversifying Your Board? The Culprit May Be Your Discriminatory Database and Application Forms

https://www.philanthropy.com/article/having-trouble-diversifying-your-board-the-culprit-may-be-your-discriminatory-database-and-application-forms

Inequity and Nonprofits #NonprofitBoards

As I have said multiple times before, doing no harm should in my opinion be the low bar of a value owned and practiced by all nonprofits.  I know of course this is singularly my belief as there are indeed nonprofits whose missions in and of themselves result in doing harm.  

Boards are the owners of these values and the practices that ensue based on these values.  So it is or perhaps should not be surprising that inequitable practices that effectively do harm are alive and well throughout nonprofits.  A recent Chronicle of Philanthropy article highlights the level of inequitable practices around gender and women specifically.  The recent Candid salary report that was the subject of the Chronicle article "highlighted that Women CEOs at nonprofits earn 75 percent of what men do. For fundraisers, the difference is about 10 percent. In Alaska, women who work at nonprofits earn about 79 percent of what men earn. In New Jersey, women chief financial officers make 38 percent less than their male counterparts."

The Chronicle article went on to note "But lower pay is just one of the many ways that women are treated inequitably at nonprofits. About 70 percent of nonprofit employees are women, yet they do not rise to leadership in the same proportion as men do. Women make up about 60 percent of the leaders of small nonprofits. They account for only a quarter of the leaders of the largest groups. And at least one study shows that women of color face even greater pay gaps and more obstacles to career advancement than white women."  And one last point: Some studies show pay disparities between women and men across nearly all groups and positions.

So, do no harm - nonprofits?  NOT!  Back to the 3-legged stool paradigm: the nonprofit fills the void between the public sector and the for-profit sector.  Doing no harm - NOT BEING INEQUITABLE - that's part of the void!  The sector via its boards must in my opinion revisit its values and commit to change - yes, even in a pandemic.

 

Nonprofit Boards Receive Letters From Employees #NonprofitBoards

In 1979 United Way was my first employer when I started my career as a nonprofit organizational development consultant.  The exec had some money and wanted to find a way to provide services to non-United Way nonprofits beyond grants.  It was a great job in terms of learning the consulting ropes and eventually spinning-off into an independent management support organization that in-turn launched me into a private firm. I do continue to have a bit of affinity for the concept of the United Way and certainly what brought it into the world (workplace giving) and for its role as a practice leader - teaching through action nonprofit management effectiveness and efficiency.

However, at least according to recent media stories, all is not going well and certainly not representative of even adequate practice leadership.  Many women have come forward and now to the governing bodies of United Way International, to share their stories of gender harassment and inequality.  Their evidence is profound but few, and particularly management (apparently the source) are paying much attention.  So making the case to the board and subsequently the public really is the only practical recourse.  The board has hired a law firm to investigate and as noted in this article from the Huffington Post, a telling way for the board to go to attempt, if that's the goal, to address the situation.  As a non-legal consultant that has assisted a variety of boards with internal issues related to their execs, my approach to understanding the nature, veracity and source of the situation is not with a legal lens but a human and process lens - one that includes understanding both the formal and informal policies and practices and also includes ensuring that all voices are heard.  This is what I believe the approach necessary for both truth telling and resolve.

Perhaps some change will come from all this.  Perhaps the board will step-up and not just back it's long-term CEO but its employees.  And perhaps this is Possible?

 

Nonprofit Board Ignorance is not Excusable #NonprofitBoards

Dr. Fram shared his thoughts on what I would call "flags" that may be useful for a board to consider.  The theme is the sometimes delicate balance of authority held by the two parties: board and ceo.  I must admit that my biases in favor of boards and their "ignorance" or lack of sophistication had developed over the years such that I am more likely to question ceos first but this does not mean that I believe boards are anyway off-the-hook.  Ignorance is not bliss and much of what Dr. Fram describes could suggest some sort of inherent ignorance but be not fooled.  This is not acceptable and while the standard for assessing board behavior is all about prudence - doing what reasonable people in similar situations might do - ignorance then becomes totally unacceptable as much as negative intent.

ERRORS THAT CAN CLOUD NONPROFIT BOARD’S DECISION MAKING–TREAD WITH CARE

By Eugene Fram            Free Digital Image

In this age of information overload, nonprofits need to continually scrutinize the quality and source of the material received in preparation for major decisions. Since directors often come without broad enough experience in the nonprofit’s mission arena, they may not be prepared to properly assess its progress in moving forward–and not equipped to make relevant comparisons with similar nonprofits.  In addition, naive or unscrupulous CEOs and highly influential directors may inundate their boards with information and data as a  distraction tactic to keep them busy in the “weeds,” reviewing what has been presented.  Board members need to avoid donning “rose-colored glasses” when assessing proposals from these sources.

I once encountered a nonprofit whose board was about to acquire a for-profit organization, headed by its founder.  Pushing for the “deal” were the nonprofit’s CEO and an influential board member who were not, it turned out, capable of the due diligence needed for a project of this complexity. But the board approved the acquisition without sufficient review.  When the acquisition was consummated, the founding CEO of the subsidiary refused to take directions from the CEO of the nonprofit. In addition, the normal financial settlement of the project requires that a portion of the price be withheld, in escrow, pending adequate performance.  In this instance, the nonprofit paid cash for the acquisition.  Based on  a lack of performance, the operation was finally closed with a substantial loss.

Other errors occur when board members “make the mistake of holding their beliefs … without sufficiently considering whether the available information justified their depth of that conviction. Nonprofit directors in the 21^st century need a significant self-awareness of their primary knowledge, (experienced first-hand) and what academics call “meta-knowledge.” This involves information limitations, biases or outright non-truths. * As a result, they need to be alert to all evidence that challenges the nonprofit’s status quo norms relating to the mission.

Nonprofit boards continually need to be alert to potentials from three types of organizational crises, and problem-finding systems that give advanced warnings. **

Collapse of Competence: This occurs when boards take on tasks that they can’t competently overview and/motivate management to implement. For example;

• A strategic plan that is long in detail but can’t be implemented with the human resources that are available to management.
• A capital campaign among a group of stakeholders with modest financial resources.
• A CEO who can address current needs of the organization but ignores the need for expansive growth.

Shortcomings in Self-governance: Acting against the rational interests of the organizations… “They include (board members or CEOs) narcissism, hubris, denial, defensiveness, bounded rationality, risk biases, stress, exhaustion, and the fact that persisting without help feeds the need for power and achievements.”**

Inadequate Corporate Governance: Any or all of the following:

• Negative information does not flow from the CEO to the board.
• The CEO, with a “rubber stamp” agreement of the board chair, assumes all responsibility for meeting agendas.
• The board lacks abilities to interpret financial and other reports.
• The board really doesn’t understand the nonprofit’s business plan.
• The board provides unrealistic deference to the CEO, Board Chair, CFO or powerful board members.

Solution: Practices That Facilitate Developing Problem-Finding Governance **

• Develop a solid agreement between management and the board as to what constitutes board decisions and CEO decisions for operations.
• Embed a problem-finding system for all board efforts.
• Support some “risky” ventures but keep and “eagle eye’ on them as they progress.
• Many problem-finding opportunities will emanate from staff below management. Establish a system for individual board members to meet with these staff members, keeping CEO informed of outcomes of these meetings.
• Be wary of CEOs who insist that ALL information flows to staff be routed through his/her office. Remember that staffs in many nonprofits are only one or two organizational levels from the board.
• Keep questioning the norms of the organization.

Nonprofit Board Emojis? #NonprofitBoards

I'm not 100% certain what to make of the following article that attributes emojis to nonprofit board members - kind of "type-casting" members.  Type-casting board members is in itself an interesting exercise.  I actually am not fond of that effort as it is pretty much assumptive and presumptive about the what we expect about board members.  As I generally believe we have reason to have very clear expectations about boards, the same is not specific about individual board members.  Each meet unique needs and expectations at given times in a board's stage of development.  Just the same, there are some behaviors that tend to be more universal than desired and so do take a glance and try not to judge - it's too easy while there are too many factors.

From the Tallahassee Democrat:

Revisiting how we emoji our board members | Notes on Nonprofits

Robin Johnston

Notes on Nonprofits

 

At the start of a session I gave for Leadership Tallahassee's Building Better Boards summit, I showed Facebook's new emojis. Instead of their intended meanings, however, I had labeled each with a caption describing the range of emotions that nonprofit executive directors have for their board members. Each emoji evoked laughter and "I can relate!" looks from executive directors and board members alike.

This was all done tongue in cheek, of course. Facebook didn't intend the emojis to apply to board members. But like any humor, it's funny because it holds a sliver of truth. Every board has that one board member who makes nonprofit life just a little more interesting.

In my consulting work I often find that boards have a "20/60/20" composition. That is, 20% of board members are superstars. They are proactive people who will often initiate activity without prompting, and then effectively see things through. The 60% in the middle are often "living dead or walking wounded."

These are generally good board members, all things considered, but not every board member can be relied upon to complete every responsibility. As an executive director working with these folks, you take what you can get.

The 20% at the other end are usually either on the wrong board or else they once were strong but their better days are now behind them. This is the group for which board member term limits were mercifully invented.

Here are the six emojis and their meaning as applied to nonprofit board members.

 

I Like This Board Member. The first emoji represents the most common type of board member by far. They are the bread and butter of board membership. While they are typically Living Dead or Walking Wounded, they can sometimes be found among the superstars or the bottom 20%.

 

I Love This Board Member. Like that one great golf shot that keeps you going back, these are the board members we live for. Almost always among the superstars, they give wings to the dream that is nonprofit excellence.

 

 I Laugh With This Board Member. Usually paired with a "Like" or a "Love", some board members can be counted upon to bring levity to any situation. Whether they are the "Class Clown" that lightens up a board meeting or the "Trusted Confidant" who helps a besieged executive director cope, every board needs a few members worthy of earning this emoji.

 

Oh No. Not This Board Member! This emoji reminds us that volunteer management can be full of surprises. Frequently used by executive directors thrust into the first of Kubler-Ross's Seven Stages of Grief, this "Shock and Denial" emoji represents board members who may previously have been considered a "Love", and who were never expected to take the position they did, or to do or not do whatever they did or did not do.

 

Why This Board Member? Depression often sets in after the shock has worn off. That's when this emoji is most appropriate. It represents the deep sadness of having hoped that this board member - This. One. - would be the answer to an executive director's prayers. By the time this emoji is ascribed to a board member, all hope has been abandoned.

 

Never Again with This Board Member. When acceptance finally sets in, executive directors often tuck the experience away in their "lessons learned" file and resolve not to let themselves get into this position with a board member again. Fortunately, these experiences are few and far between. But when they happen, they hurt.

As noted previously, this set of emojis is presented with tongue firmly planted in cheek. There is a lesson here, however, and that is this: Board members are people too, and a nonprofit organization's success depends upon the quality of the relationships between the executive director and his or her board members, and between the board members themselves. In this great nonprofit partnership, we live together and we laugh together.

But most importantly we love together. We love the mission we signed up to serve, and we love the people for whom that mission means so very much. Relationships are more often than not the key to our success.

Grumpy Nonprofit Exec Complaints About Board #NonprofitBoards

I am confident that the feelings and experiences cited in the following American Theater.com article are anything but unique to nonprofit Execs.  I am fairly certain that many of the recommendations have been proposed.  That said it is worthy of your time to consider the legitimacy of both experiences and recommendations.  Some have merit in my opinion.  Some are just statements of grumpiness.  I have inserted my own thoughts as well particularly where I believe this exec has lost track of recognizing that a nonprofit is not owned by the exec and that the board is the proxy for the public.  Recognizing these two points can be helpful and are essential in understanding what steps can be taken to change the game.

Boards Are Broken, So Let’s Break and Remake Them

Nonprofit theatre boards are unrepresentative, out of touch, and more often oppressive than supportive. We can and must do this better.

BY MICHAEL J. BOBBITT

This is the second of two “What Is to Be Done” columns by Bobbitt; the first is here.

Soooo…I probably spend 10 hours a week on board “stuff”: planning and scheduling meetings, pulling and creating reports, answering emails, resending documents, researching and providing education, taking phone calls, etc., etc., etc. That’s 40 hours a month, which is one whole week a month, which is 12 whole weeks a year, which is three whole months every fiscal year. What?! Oh, what I could accomplish if I could reclaim three months of time! But this is still your job that you took on when becoming exec.  Not every aspect of every job is peaches and cream.

Is all this work for the benefit of the organization or for the benefit of the board? Am I spending time away from doing the mission-based work and advancing the strategies of the organization so I can alleviate the concerns and anxieties of the board? Is the board managing the leader, or is the leader managing the board? And if it’s the latter, doesn’t this become a sort of second staff to manage? Does the staff leader need the board to help make decisions when they already have a staff and/or a network filled with industry professionals?  Maybe not but that you haven't identified how to best gain from the board is on you.

Ugh. In our current structure, boards of directors for nonprofits don’t work. I’m sure there are outliers with highly functioning boards, but this is not the norm. How do we fix this? Is it a matter of isolated dysfunction, or a systemic disorder created by the board model? Should we medicate the symptoms or heal the underlying illness of this model?

A small, not entirely complete list of the problems with boards:

• Boards are filled with people who have little or no expertise in the mission or the product of the organization.
• Boards gather only a handful of hours a quarter and usually don’t have enough time to do the things they say they will do.
• Boards give themselves ultimate decision-making power to determine the organization’s finances, policies, and future.
• Boards demand that we engage them, creating essentially another “program” for the staff to manage.
• Most boards do not reflect the communities we are trying to serve.
• Boards have no one to be accountable to.
• Boards decide who gets to be in their clubs.

Ok and so.....

It is very strange to me that the oversight of the entire nonprofit regional theatre sector is in the hands of volunteers who have little to no expertise about the craft or the business, and that there is relatively little transparency about their decisions, let alone responsibility to carry out those decisions. Ya’ll, this model is broken.

I also have to wonder how much of the white supremacy that exists in our industry could be traced back to boards, where most of the policies are made. And I wonder what other problems in our industry—finances, relevance, advocacy—can be traced back to boards.  An important question to be answered but it's not just about the boards given that it's all the execs, particularly founder execs, who have been doing the leading.

This leads me to a series of questions: Was the board model set up incorrectly from the start, or was a good idea corrupted over a period of time? Are there any “best practices” that could reform the model? Are boards actually doing what they are legally or morally supposed to do? Are boards actually equipped with the skills and time to manage or oversee leadership? Should the board be governing, or should this work be done primarily by those carrying out the mission?  Best practices are those that have been identified and tested and found to be effective/ evidenced-based.  There are many promising practices but that's all they are.  More important, there are many common sense practices and that's were we can begin.

And should the board be creating the vision? It seems odd to hire an artist or arts professional, then take away ownership of possibly their main assets—creativity, vision, imagination. Uh, partnership?

How do we address this? First, we all have to acknowledge the problem and put our collective and creative brains together to redesign it. This means that we have to consider that nothing in the American theatre industry practices to this point should be considered sacred, beyond question, or unchangeable.

Theatre artists are some of the most creative people in the entire world. Theatre incorporates all forms of art: visual, musical, dance, text, all alive and happening in the moment. We have the magical ability to see new worlds in our heads and bring those worlds and ideas to life in a relatively short time frame. We’re expert imaginators. So why haven’t we yet reimagined theatre as an equitable field, free from racism, showing the world as we imagine it? And why haven’t we imagined a new accountability structure rather than the broken board-of-directors model? Are we actually not as imaginative as we purport to be, or is this problem yet another symptom of the oppression of racism and classism?  And what precisely is the answer to these questions?  

A few ways to approach the problem of boards:

• Reconsider what you call the group. Perhaps something like “accountability advisors.” The terms “board” and “director” are marred with the implication that the board is the “boss.” I can’t imagine that Fortune 500 leaders would allow their volunteers to be seen as their “boss.”  Think again particularly when considering it's just business and about the bottom line - those leaders can indeed be replaced upon failing and is this not the definition of "boss".
• Let board members be vetted, elected, and evaluated by the diverse people who carry out the theatre’s mission: the staff and artists. OK - nothing but bylaws stopping you.
• Put artists on the board. They have the expertise. Certainly.
• Let go of the notion that the board is providing business expertise. If that were the case, would we have the problems listed above? Yes you would for a variety of different reasons as has been soundly demonstrated by many nonprofits.
• Qualifications for board membership should be created by staff and artists (those carrying out the mission).  Um....partnership - board can certainly ask but this does reintroduce thee question as to purpose of board.
• If you want to learn how to attract younger people and BIPOC folks to your organization, add them to your board and staff. Certainly! They have the answers. Listen to them and include them in decisions. For example, most of my training in theatre was in the late 20th century. What the heck do I know about what young people want or need? I know a lot about what people my age want. If I wasn’t Black, I would wonder what would make me qualified to make decisions for Black people. But I can make decisions with young people.
• Eradicate financial obligations for board membership; the “strings attached” are significant and carry an inflated sense of power. Not to mention they create the threat of losing a gift if a board member doesn’t get their way or needs to leave the board for any reason.  Yup but there are workarounds.
• Bylaws should only be tied to federal and state compliances. Most “bylaws” that exist in governance documents have no legal standing or ramifications. INCORRECT.  They have been made up over the years the same way Spanky, Alfalfa, and the gang decided “No Girlz Allowed.” And most of the time, boards disregard the rules they set up anyway. The bylaws that exist form and maintain numerous power structures, dissuade accountability, and keep the “country club” country-clubbish. They can indeed be changed.
• Eradicate Robert’s Rules of Order; they are archaic, pointless, and extremely white.  I concur - this is not hard to do.
• Investigate new forms of decision-making: emergent strategy, consensus voting, or decision-making processes as they have long been practiced non-white cultures.
• Make sure that there is enough diversity among the decision makers to affect all votes. If only a few BIPOC people are in “the room,” then the decision makers are wholly unqualified to make decisions that consider all people. There has to be enough diversity—at least more than half BIPOC—to affect an actual vote, especially on decisions that have a racial component.  Absolutely.
• All policies should center on serving the most marginalized, not the most privileged. If your policies are focused on the latter, who have the resources to get what they need by other means, you enhance oppression and widen the gap between the privileged and the marginalized. How much better and more relevant would our organizations be if we focused on serving those who need them the most?  I would have to know more but policies in general are just that - constructs that can be adjusted.
• The whole ecosystem of your organization should be part of governance decision-making. Your expertise primarily lies in the staff and artists, not the board. At most, boards should be players in a partnership, not the ones in charge.  Ok
• The hiring of executive leadership should be done by artists in partnership with the staff and board members who truly represent the community being served by the mission. Possible
• Make the decisions of the board public; there has to be accountability, or boards will continue to operate with relative obscurity.  OK
• Boards should be ambassadors, not overlords. They should support and uplift the staff and mission, connect with other boards on industry issues, advocate for funding, fight oppressive and inequitable practices, encourage risk-taking, forage for resources, and spread the word in partnership with staff and artists.  How about both - this is not exclusive.

Fellow creative folks, I honestly think we can come up with a better way to do the accountability, cheerleading, support, and advising that boards at their best should and could be doing. The way we are currently operating isn’t working. I triple dog dare us all to use our imaginative skills to redesign it.

Anyone ready to collaborate on this?

Michael J. Bobbitt (he/him) is the artistic director of New Repertory Theatre in Watertown, Mass. He recently took the job of executive director for Mass Cultural Council, which we will begin in February 2021.

Ornaments are for holidays.... #NonprofitBoards

The title of this Reno Gazette piece is clever and the thoughts are reasonably well laid out.

 

Ornaments are for holidays, not nonprofit boards | Rachel Gattuso

Rachel Gattuso

 

This opinion column was submitted by Rachel Gattuso, APR, founder and president of the Gattuso Coalition.

There’s something beautiful and alluring about holiday decor — garlands and wreaths and trees glowing against quiet backdrops of dark evenings. And though the holidays have come and gone, many of us leave the lights up for a little bit longer, myself included. 

But the time has arrived to take the adornments down and to look into the new year with hope and resolve. In 2021 we can’t escape focusing on what needs repairing, what needs improving. One such issue that needs repairing and improvement is in the nonprofit scape.

Simply put, ornaments are for holidays, not for nonprofit boards. It is time to pack away the notion that board members need not raise money for the nonprofits they serve. 

The pandemic has been unkind to all of us, but it’s shown a particularly cold shoulder to those nonprofits who serve roles far removed from the front lines. Out of sight and out of mind (though no less important), these nonprofits have trudged through. It should alarm us all that estimates forecast the deaths of many nonprofits — the Washington Post reported one-third of nonprofits could shutter. This new landscape means funding is more competitive, donors are circumspect about giving, and nonprofits that don’t innovate will waste away. You need a microscope to find the acceptable margin of error for nonprofits moving forward. 

More:Health care, music, pet wellness: 3 Nevada nonprofits get grants through Gannett Foundation

Those nonprofits whose board members come alive have the best shot at keeping their doors open to their communities. Certainly, board members contribute to nonprofits in varied and powerful ways that don’t always track back to the ledger. But COVID-19 forced an ugly spotlight on an issue that has been a burr under the saddle blanket of many nonprofits for decades: that many treat their position on boards as a resume-builder instead of an opportunity to advance the organization. While these people are tasked with vital activities, including high-level direction, governance and whether missions expand or refocus, there is no clearer path to the health of a nonprofit than its finances. Regardless of the value a board member brings based on expertise, profession or skill, they must also be comfortable going outside comfort zones to introduce the organization to different networks and revenue paths. If the board won’t go outside of their comfort zone for the nonprofit, who else would? 

Your stories live here.

Fuel your hometown passion and plug into the stories that define it.

Create Account

This is not an additional responsibility. This expectation has been around for a while and, if you didn’t know it, your organization may have been too timid to press the topic. But I am not timid. The time for timidity is long past. 

In 2021 we must require that which is necessary. If you serve on a nonprofit board, you cannot afford to be ornamental. You must be unabashed in your pursuit of dollars, which doesn’t always mean asking for green. It does mean talking about the organization with those you think might also have an interest. It does mean reading the materials provided to you from the organization and following their activities on and offline. It does mean that you should be prepared to recite the mission statement of the organization at the drop of a hat. It does mean that you should have a few stories that make you humbled to pitch in. It does mean you should draw closer to the nonprofit daily so that, when the time comes to make the ask for $20 here or $25,000 there, you are prepared and honored to champion the request.

More:Gift of Giving: These 5 nonprofits fed, inspired, helped Reno in 2020

Society has long since asked nonprofits to be frugal. They know how to bring maximum good with minimal dollars, and after the last 12 months there are simply no more expenses to cut. If there’s fat to trim, it is from a board not willing to do what’s necessary for this moment in history. 

In my line of work I encounter many nonprofit boards. It is a true statement to say that every board member I have met has a heart for the organization. It is also true that many have had moments of complacency, or allowed the discomfort of asking for money to lull them into believing it’s OK to transfer that activity to others more comfortable with it. I get it. Asking for money can be scary, regardless of how pressing the need or how heartwarming the endeavor. But we have to view our new landscape realistically and pragmatically.

Let’s not hold onto something simply because it was once beautiful and made us happy in its simplicity. Let’s commit ourselves to the practices and activities that move us forward together. To ensure our diverse and critical nonprofits survive, let us dispel the notion that asking for money on behalf of the causes we love is somehow scary or improper. Board members, let us be unabashed about our nonprofits’ capabilities for doing big things and unflinching in the knowledge that those efforts require finances to sustain and expand. 

Rachel Gattuso, APR, is the founder and president of the Gattuso Coalition, a public relations firm that creates client solutions that bridge for-profit and nonprofit entities to improve our communities. She is fueled by righteous indignation and uses that momentum to help organizations fight for a better world.

Fraud: Something to think about as 2021 begins #NonprofitBoards

Given the US' current political situation, it is probably appropriate to consider the subject of fraud as we begin 2021.  And, while Dr. Fram notes sources that indicate that fraud is indeed a "thing" worthy of focus, I can only say that I have had the good fortune as a consultant called upon to conduct an assessment of executive directors, that fraud is less frequent than other findings of concern.  That said though, nonprofit boards can do something to reduce the risk of fraud, both conducted by staff and board.  Here's what Dr. Fram has to propose.

THE POSSIBILITY OF FRAUD – A NONPROFIT BOARD ALERT

The Possibility Of Fraud – A Nonprofit Board Alert

By: Eugene Fram              Free Digital Image

“According to a Washington Post analysis of the filings from 2008-2012 … of more than 1,000 nonprofit organizations, … there was a ‘significant diversion’ of nonprofit assets, disclosing losses attributed to theft, investment frauds, embezzlement and other unauthorized uses of funds.” The top 20 organizations in the Post’s analysis had a combined potential total loss of more than a half-billion dollars. *

One estimate, by Harvard University’s Houser Center for Nonprofit Organizations, suggests that fraud losses among U.S. nonprofits are approximately $40 billion a year. **

Vigilant nonprofit boards might prevent many of these losses. Here’s how:

• Have an audit committee charged with reviewing the overall results of a yearly independent audit conducted by an outside auditor.
• Carefully oversee executive compensations, pension benefits and other finance activities.
• Conduct a yearly review of conflict-of–interest policies, have employees/board members sign a conflict-of-interest statement and have board members involved with development of IRS Form 990 before submission.***
• Assure new hires are well vetted for honesty by searching background.
• Meet with external auditors at specified times, including an executive session without management present.

• Ask the auditors:
1. Have they perceived any fraud problems?
2. Are internal controls adequate, e.g., those handling financial matters must take at least two weeks vacation per year so their duties can be temporarily assigned to others?
3. Are financial records accurate? To what extent were material mistakes located or was there an increase in non-material mistakes?
4. Do the proper managers or officers properly authorize activities and expenditures?
5. Do all assets reported actually exist?
6. Is the organization performing any activities that might endanger its tax-exempt status? For example, provide misinformation on the IRS Form 990.
7. Is the organization paying its payroll taxes, sales taxes and license fees on time? ****

Trust But Verify

Some board members argue boards can do little to prevent fraud. I argue that every member should know enough about finances to raise issues about questionable activities. At the least, everyone in the organization should be alerted to the fact that board members are paying attention to the possibility of fraud. That knowledge, in itself may deter some people from trying to steal.

* Joe Stephens & Mary Pat Flaherty (2013) “Inside the hidden world of thefts, scams and phantom purchases at the nation’s nonprofits,” Washington Post, October 23rd.

**Janet Greenlee, Mary Fischer, Teresa Gordon & Elizabeth King, “An investigation of the fraud in nonprofit organizations: occurrence & deterrents, “ Working Paper#35 hauser-center@harvard.edu.

***https://papers.ssrn.com/sol3/papers.cfm?abstract id=2604372

****More actionable details can be found: Eugene Fram & Bruce Oliver (2010) “Want to avoid fraud? Look to your board,” Nonprofit World, September-October.
Eugene Fram (2013) “Preventing and managing leadership crises in nonprofit organizations, “ in Handbook of Research on Crisis Leadership in Organizations, Andrew J. DuBrin, editor, London, Edward Elgar International Publishing.

 

Related

The Possibility Of Fraud – A Nonprofit Board AlertIn "Audit Commitee"

Business Governance Principles Make Sense For Nonprofits?In "Associations"

Nonprofit Boardroom Elephants and the 'Nice Guy' Syndrome: An Evergreen Board Problem?In "Associations"

Posted in associations, audit, audit comitttees, Board Learning Opportunities, Board Recuitment, Buidling personal relationships, Building Trust, Charity, Corporate Governance, Employee compensation nonprofits, Ethics & Compliance, foundation boards, Fund accounting, Good governance, Long-term Sustainability, nonprofit fraud, Nonprofit impacts, Nonprofit mangement, team building, Trustees on January 3, 2021. 

 

 

 

Task Force Establishes 2 Boards: Really? #NonprofitBoards

The San Diego-area Regional Taskforce on the Homeless is splitting up it's group of advisors/partners to create a nonprofit that will have a governing body to address fiduciary duties and another body that will, advise.  If just paying attention to language, it's important to remember that there is really only one fiduciary body for a nonprofit and that body is typically referred to as a board.  There can only be one with the fiduciary duties.  That this groups is expected to "attract more funding" for me is a maybe - the other group could likely serve the same purpose.  But the duties of care, loyalty and obedience will serve mission perfectly.

Here's the San Diego Times article.

Homeless Task Force Now Has New Board Structure

POSTED BY DEBBIE L. SKLAR ON DECEMBER 29, 2020 IN POLITICS | 109 VIEWS

A homeless person in Coronado. Photo by Chris StoneThe San Diego-area Regional Taskforce on the Homeless will now have two boards to guide its decision-making and attract more funding to the region, the organization announced Tuesday.

The RTFH’s board of directors was separated into an advisory board that will guide policy matters, and a nonprofit board that will focus on finances, according to the organization.

The advisory board will continue to meet with elected officials, service providers and civic leaders. Along with fiscal oversight and attracting more funding sources, the nonprofit board will focus on putting money where it’s most needed, according to the RTFH.

Tamera Kohler, the task force CEO, said the decision to shift to two boards was “based in good governance.”

The RTFH is considered the authority and lead coordinator to prevent, alleviate and ultimately end homelessness in the San Diego region. The RTFH also oversees distribution of funding throughout the San Diego region from numerous sources, including the state’s Homeless Housing, Assistance and Prevention Grant Program.

 

Historically, the RTFH board of directors has included 31 members, with an elected official as chair. It also has included other elected officials, business and civic leaders, homeless service providers and those with homeless experience. That board, also known as the Continuum of Care, will remain intact and offer advice on various initiatives and service coordination throughout the region.

–City News Service

Changing Board Behavior requires Leadership and a commitment to culture shift #NonprofitBoards

I fully agree with Dr. Fram's descriptions of "boardroom elephants" in the following submission.  The actions and "be sures" may require cultural shifts within the board and there lays the answer to many of the "be sures" offered by Dr. Fram.  Yes, these are sound advice and yes these practices would have positive outcomes BUT each board needs a leader to recognize the challenges and a commitment to changing the culture and sometimes policies/practices the board has adopted over the years.  And that action requires commitment and patience.  A good 2021 resolution - yes?

 

 

NONPROFIT BOARDROOM ELEPHANTS AND THE ‘NICE GUY’ SYNDROME: AN EVERGREEN BOARD PROBLEM?

Nonprofit Boardroom Elephants and the ‘Nice Guy’ Syndrome: An Evergreen Board Problem?

By: Eugene Fram    Free Digital Image

Reposting a Viewer Favorite–Best Holiday Wishes to All My Subscribers

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. Beside 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 it 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 ED 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 as 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 that 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 the 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 naive question which 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.