Nonprofit Board Crisis

Nonprofit CEO & Board Chair #NonprofitBoards

While there is always some type of board in a nonprofit, I would pose that frequently governance feels like it comes down to what goes on between the board chair and the exec.  The chair is after all the intermediary between the full board and the CEO.  The chair is most often also the person who instructs, guides, manages the board that is when the exec doesn't insert that role.  While I believe there are many who prescribe but very little documented about nonprofit board chairs and particularly the relationship between the board chair and exec, there are quite a lot, including mine, opinions about what "should or could be".  You can even turn to my own work (as part of the Alliance for Nonprofit Management Governance Affinity Group research team that conducted a good sized survey of board chairs (voices of board chairs) to at least gain an idea of what board chairs themselves say.

That said there are reasonably smart and experienced folks who have something to say about the chair and exec relationship.  One of them is Dr. Eugene Fram who offers the following.  And no, I don't fully agree but take a look to see what pearls you can glean.

 

A Special Relationship: Nurturing the CEO-Board Chair Bond

By Eugene Fram              Free Digital Photo

Viewer Favorite – Updated & Revised

Here are tips to assure the best possible partnership between the board chair and CEO.

Keeping boards focused on strategic issues is a major challenge for nonprofit leaders.  This leadership crisis is intensified by the fact that board chairs tend to have short terms (according to BoardSource, 83% stay in office only one or two years). Thus, nonprofit CEOs  and board chairs need to bond quickly. For the good of the organization, they must come together swiftly and create a partnership that works. Here are golden rules for the CEO and board chair to follow:

1. Be sure the CEO and board chair share strategic issues with each other—negative as well as positive ones. A failure by either the chair or CEO to share information, such as a potential cash flow issue, can be disastrous for the nonprofit. This of course may lean to the sharing by the CEO - I am always surprised but pleased when a chair has strategic (long range, fully informed, results focused) insights to offer.

2. It’s critical for the CEO to conduct orientation sessions with a new chair, explaining the challenges facing the nonprofit, and reviewing the fundamentals of the mission. The CEO can help the chair keep the board focused on strategic issues, whether they’re programmatic or financial.  With many nonprofits electing a new president each year, the CEO needs to prioritize these tasks.  This may be a behind-the-scenes exercise I just don't see very often but I like the concept.

3. Make sure staff know who has the final say. Some employees mistakenly view the board chair as the ultimate authority, even when the organizational table lists the CEO as holding that position. As a result, they may try an end run around the CEO, asking the board to overturn the CEO’s decision about salaries, promotions, or programs, for example. Both the CEO and board chair must emphasize the fact that the CEO is the final authority. If they make this message clear enough, they can probably keep staff from attempting any end runs. If an end run still occurs, the board chair must refer the issue to the CEO for resolution, except if the CEO is being charged with malfeasance.  YES BUT.  The board has only one employee, the CEO.  But, when the CEO's employees are grossly unhappy, who else must they turn to - the public? the board? the law?  Consider what processes could be in place to ensure staff's voice is heard by the board.

4. The CEO should arrange for individual board members to meet with management staff on occasion so that the board can gather information about how the organization is operated and obtain an understanding of the promotional abilities of managers. The Sarbanes-Oxley act (a federal statute relating to public corporation boards) recommends this process for for-profit boards, and it’s also a good one for nonprofit board members. And, this is one purpose committees can serve.

5. Give staff members opportunities to participate in strategic planning and to support board committees. The board chair and CEO should work together to arrange such board-staff interactions, including joint celebrations of organizational success.

6. The CEO and board chair need to agree on the use of ad hoc board committees or task forces and their relationship to standing committees. For example, should the HR/personnel committee be a standing one or only an ad hoc one to address major personnel policies? In the 21st century, a board should only have maximum of five standing committees, many can only have three.  If task forces are used to provide provide options for occasional policy issues, for example pension plan changes, there may be little need for a standing board HR/personnel committee.  While I very much agree with this concept and seriously question the purpose of the majority of standing committees, I am not perfectly clear why this is a chair/CEO conversation.  For sure it is a Chair/Board conversation but CEO?

7. The board chair and CEO should be the active leaders in fundraising efforts, with the CEO as administrative leader. The board chair and other board members must provide the CEO entrée to funding sources. They often need to accompany the CEO on fundraising visits. The CEO should keep the board chair informed of all entrepreneurial development activities being explored.  I am uneasy with the "musts'" here.  This is for discussion between the board and the Chair - not an assumption - certainly consequences if not carried out this way but must be discussed in terms of fundraising.  I don't know why this is combined with the entrepreneurial work but...

8. The board has only one major employment decision to make – to recruit and hire the CEO. It’s usually a long and exhausting process. But once it’s completed, the employment of all other staff personnel is the responsibility of the CEO and the CEO’s management team. For senior positions, most CEOs ask their chairs and/or other board members to meet with candidates, but the ultimate responsibility remains with the CEO.  The board also has a responsibility to overview staffing to make certain that adequate bench-strength in in place for succession placements,  at the CEO and the senior management   This is a sticky argument - maybe if the board agrees but an absolute, no, don't think so.

9. When hiring a CEO, or soon after employment, the board chair and CEO must face a stark reality—the need for emergency leadership should the CEO become temporarily incapacitated. These plans can either be established informally by the chair-CEO partnership or more formally via board resolution. The following are possible interim CEOs: a senior manager in the organization, a semi-retired experienced CEO living near headquarters, a consultant living in a neighboring city. CEO succession planning is an important issue for the partnership should the CEO decides to leave or retire.  Strikes me this is a full board discussion, not just the chair.

10. The CEO can be helpful to the board chair in recruiting new board members by suggesting possible volunteer candidates or other contacts who have demonstrated an interest in the organization’s mission, vision, and values. Board candidates will want to meet with the CEO as part of the interview process. As a result, the two partners must agree on how to present the organization to board candidates.  Isn't this a task for the governance committee?

11. The chair and CEO need to lead in establishing meeting agendas. The two partners must work together to assure there’s sufficient meeting time to discuss and resolve strategic issue While many nonprofits call their top executive the “executive director,” the term CEO or president/CEO is a more leader-focused.

12. For the current environment, board members should be ready and willing to be ready to involved in a heightened level of board activity.   If not, the board chair and board member should determine what constraints the member needs to be in place for his/h activity.  Not sure I get this point.

Fiduciary Duty of Loyalty #NonprofitBoards

There's a debate going on in Mississippi (you know: the state that has four eyes and can't see and which ranks 48th nationally) as to whether Charter Schools should be bound by the State Ethics Laws, one of which is conflicts of interest.  It appears that some board members of some schools have obtained contracts from their schools.

I believe this is a silly question.  Have these schools, all of which are nonprofits, not heard of the fiduciary duties, particularly duty of loyalty (conflict of interest) which bind board member's behavior?  Maybe not or perhaps there would be no debate.  But take a look at the debate from the PineBelt News - most enlightening.  The bottom line: we don't need no "stinking" state ethics laws to state that conflicts of interest by nonprofit board members is illegal.

 

CHARTER SCHOOLS RECEIVE TAXPAYER DOLLARS. SHOULD THEIR BOARD MEMBERS FOLLOW STATE ETHICS LAWS?

By Kate Royals - Mississippi Today , READ MORE > 342 Reads
On Wed, 01/20/2021 - 05:49 PM

The Mississippi Ethics Commission says charter school board members are subject to state ethics laws, which prohibit conflicts of interest that could lead to the misspending of public dollars.

But several operators and advocates of Mississippi charter schools, which receive taxpayer funding, say they should be exempt from those laws.

The conflict was brought to light by Ethics Commission opinions filed in 2020 after two charter schools were discovered to be spending their public funding with board members’ employers.

The revelations highlight long-standing tension between charter school and traditional public school advocates, who say charter schools need to be held to the same standards as other public governing bodies.

“The state ethics laws are not overly burdensome; they simply say that members of state agency governing boards cannot profit off of state funds by directing contracts to their own businesses or employer,” said Nancy Loome, executive director of the public education advocacy group The Parents’ Campaign. “All public school board members must abide by those rules, and charter school board members should, as well.”

 

Charter schools are, by law, public schools funded by local and state tax dollars. They do not charge students tuition and are held to the same academic and accountability standards as traditional public schools. These schools are often the subject of scrutiny because they are allowed more flexibility than public schools in how they operate. 

Mississippi’s charter school law, adopted by lawmakers in 2013, is the only one in the nation that does not have a specific conflict of interest provision in it, according to the National Alliance for Public Charter Schools.

Charters are required by state law to operate as nonprofit organizations and must adhere to IRS regulations that require conflict of interest disclosures. However, those nonprofit regulations are much less strict than several key ethics laws that public schools are subject to, including the banning all business between the organizations and board members’ companies.

Traditional public schools, meanwhile, are subject to the more stringent state ethics laws, including that school boards cannot do business with individual board members’ companies.

“All we’re saying is members of public charter school boards have to live by the same rules as members of every other type of school board,” Tom Hood, the executive director of the Ethics Commission, told Mississippi Today. “They’re not getting treated any worse or any better.”

 

The ethics questions arose after Ambition Prep, a K-8 charter school in Jackson, used federal funding in 2018 to contract with an insurance company owned by one of the school’s board members. Ambition Prep officials told Mississippi Today they followed their own conflict of interest laws and were not aware they had to adhere to the state ethics laws.

“Nobody knew or stated (at that time) that charter schools had to follow the ethics laws,” said DeArchie Scott, the school’s founder and executive director.

A separate charter school also attempted to enter into a contract with a board member’s professional development company but stopped at the request of the Mississippi Charter Authorizer Board, the board that oversees charter schools in the state.

The Ethics Commission responded in a 2020 ruling that all of the state’s charter school governing board members are subject to all the restrictions of the state ethics law, just as traditional public school board members, lawmakers and other public officials are.

The commission reasoned that because charter schools receive public dollars and their boards are subject to other laws such as those that require open meetings and the Public Records Act, “members of charter school governing boards are ‘public servants’ as defined (in the law), and are subject to all the applicable provisions of the Ethics in Government Law.” 

 

Several charter school operators disagreed with both Ethics Commission rulings. 

On Dec. 14, 2020, a lawyer for Ambition Prep wrote a letter to the commission, asking it to reconsider whether charter school board members are subject to state ethics laws. The commission declined.

Members of the charter school community argue the Ethics Commission’s take on their role goes against the intention of the charter school law that was passed in 2013, and that the law does not explicitly state board members are subject to ethics laws. 

Some also say there may be unintended consequences as a result of the opinions. 

Rachel Canter, executive director of the nonprofit education group Mississippi First, was involved in the creation of the charter school law prior to its passage in 2013. 

“It’s a big legal shift from the understanding that everybody had about charter schools for the seven years prior to (the Ethics Commission opinions), which was that charter schools are overseen and held accountable, according to the charter school law, in their contract by the authorizer board and not by any other government agency or entity,” Canter said.

She said charter schools have already operated under nonprofit rules — the looser IRS regulations — that aim to prevent conflicts of interest.

“We in the nonprofit world have something called arm’s length negotiation, which says if you’re a board member and something comes before the board in which you have a financial interest, you have to recuse yourself and leave the room,” Canter said. “But if it’s in the best interest of the organization, the decision can still be made (to approve the arrangement).” 

 

Canter also noted that charter schools’ finances are audited annually by the Charter School Authorizer Board. She said the effect of the opinions is essentially stating to charter schools that they now must operate under a different set of rules. 

“Charter schools are saying you’re trying to make us governmental organizations and we are not government organizations,” she said.

Jon Rybka, the CEO of RePublic Schools, a Nashville-based charter operator with three schools in Jackson, said charter schools are unique and face different challenges than other governmental entities. Rybka pointed out that in Mississippi, charter schools are “both governmental entities and nonprofits” and believes that they should be governed by regulations that are tailored to their unique situations. 

“If I had to guess, every mission-driven school, church or nonprofit has board members that are involved because they care about the mission, so they’re probably involved in the mission in other areas as well,” Rybka said. “I just don’t want to see this ruling getting in the way of good people bringing their resources to the mission.”

Amanda Johnson, executive director of Clarksdale Collegiate Public Charter School in Clarksdale, said she is concerned about the opinions’ impact on charter schools’ flexibility and autonomy.

“When I think about why I do this work and why I believe in charters, part of it is because they are set up to be different and be provided with some additional flexibility, appropriate flexibility, that allows the schools to operate in a different way than a traditional district,” Johnson said. “It’s not that we are above ethics laws or behaving ethically, but we should not be under the same rules and regulations that a governmental agency would be under.”

Johnson, along with others, also says that restrictions like these are part of the reason charter schools have not expanded in Mississippi as they have in other areas. Since 2013, when the charter school law was passed, only eight charter schools have opened in the state, six of which are in Jackson.

“There are charter schools, CMOs (charter management organizations), that operate in other states that the Authorizer Board has tried to attract, legislators have tried to attract (to Mississippi) and haven’t been able to,” said Johnson. “Making this work more restrictive is going against what charter schools were designed to be. It makes it less attractive (to CMOs) and more difficult (for schools) to recruit board members as well.” 

 

But others disagree with the sentiments of the state’s charter operators and say it’s important for charter schools to be held to the same standards as traditional public schools.

“There have been many unfortunate stories from other states of charter school laws leading to scandals involving misuse of taxpayer funds,” Loome, with The Parents’ Campaign, said. “Thankfully, Mississippi law protects children and taxpayers from that sort of unscrupulous activity.”

-- Article credit to Kate Royals of Mississippi Today --

Board Fail Doesn't Justify Bankruptcy #NonprofitBoards

Prosecutors in New York have asked a court not to allow the National Rifle Association's recent bankruptcy filing to derail a state fraud case against it. State Attorney General Letitia James is seeking to dissolve the organization amid claims that it misappropriated millions of dollars to fund lavish lifestyles and various perks for its executives, board members, and others close to it. Lawyers for her office argued this week that the NRA's bankruptcy filing and planned move to Texas were efforts to circumvent the New York case, but NRA lawyers said the group was trying to escape not the litigation but rather the “corrupt political and regulatory environment in New York.” An NRA lawyer said the group sought bankruptcy protection, despite its claims that it is in sound fiscal shape, from various overlapping state lawsuits. Normally, bankruptcy proceedings would halt other litigation, but the New York attorney general's office says its lawsuit is exempt because it is a regulatory matter. (Associated Press)

Bankruptcy (like for Catholic Schools) is not in my opinion an acceptable way for an organization to fulfill its obligations.  Harm was done - bankruptcy is not a get-out-of jail card for the survivals.  Bankruptcy is another failure by the board.  

EEOC: Nonprofit Board Fiduciary Duty #NonprofitBoards

Risk prevention is one of the ways, primarily through policy development and oversight, a nonprofit board ensures its nonprofit is legally in compliance with the laws that affect the way a nonprofit conducts its business.  EEOC (equal employment (opportunity commission) rules are an important domain boards should at least annually be updated on in turns of changes and the organization's approach and status on compliance.  Yes, it's the law and while the CEO/Exec will be responsible for the day to day, an annual accounting and of course attentiveness to any matters that arise throughout the year must be one "box" the board checks-off.  I would add that if we have learned one thing over the past four years and before that, not all nonprofits do what's best for the employees or prospective employees.  "Doing good" is not an inherent definition of nonprofits.  EEOC, even in its momentarily weakened state, remains the law.

Law firm Seyfarth recently issued its annual EEOC Litigation Report. The report provides detailed analysis of the major case filings, policy directives, and all federal court rulings involving the Equal Employment Opportunity Commission in 2020. More details here: https://www.seyfarth.com/news-insights/seyfarth-releases-annual-2020-eeoc-litigation-report.html

FY 2020 saw a flurry of activity at the EEOC. Notably, the agency made strides to update its conciliation and mediation procedures, voluntarily scaled back some of its own litigation authority, and sought opportunities to collaborate with its fellow federal agencies. On top of these developments, the EEOC also saw substantial change in its leadership, with three new Commissioners (two Republicans and one Democrat) being sworn in. This activity and change in leadership translated to a significant decline in the number of cases filed by the EEOC against employers in FY 2020, with only 101 total cases filed (as compared to 149 in FY 2019 and 217 in FY 2018).

The report’s authors can discuss 2020’s Top 5 Most Intriguing Developments in EEOC-Initiated Litigation:

1. A Definitive Ruling by the U.S. Supreme Court On LGBTQ Employment Rights
2. In Religious Discrimination Law: Accommodations In The COVID-19 Era
3. Reasonable Accommodations Under The ADA: Increased Scrutiny Of “Direct Threat” Defense
4. Continued Focus On Complex Employment Relationships And Structures
5..Additional Insight Into Interaction Between Title VII And The Equal Pay Act

 

The report’s authors can discuss 2020’s Top 5 Most Intriguing Developments in EEOC-Initiated Litigation:

1. A Definitive Ruling by the U.S. Supreme Court On LGBTQ Employment Rights
2. In Religious Discrimination Law: Accommodations In The COVID-19 Era
3. Reasonable Accommodations Under The ADA: Increased Scrutiny Of “Direct Threat” Defense
4. Continued Focus On Complex Employment Relationships And Structures
5..Additional Insight Into Interaction Between Title VII And The Equal Pay Act

When Leadership Fails! #NonprofitBoards

Today, a new leader began their job   An unabashed "yay".  The so-called leader who scurried-off ahead of protocol AND grace, was not an example of what nonprofit boards would ever want to use as they attempt to retain or hire a new leader to further their organization's mission.  

Brash, rude, uncivil, and unapologetic today's ex-leader got lucky having at least some of his bosses (aka senate and congress) give him permission to behave the way he did until even they witnessed that their own priorities were no longer being respected and equally important, that they were on the list to be disposed of by the person their responsibilities expected if not demanded oversight.  

Have we then learned what it means to lead or even partner with the leader.  Maybe is my hopeful refrain.  But our one gain, a textbook on how the collective needs to manage its manager.

Oh, and before going, check-out this article on apologizing.  Yes, I know, even in his last few moments, this was not even a concept.  But perhaps it's one more thing we need to expect from leaders.  

Governing Boards Failed #NonprofitBoards

The situation may actually be worse than it appears. First, higher education was in a significantly weakened state before the Covid-19 crisis. Second, despite nine consecutive years of enrollment decline and large numbers of mergers and closures, the leadership of most colleges has failed to enact necessary foundational change. Third, and perhaps most important, institutional boards are ill-equipped structurally, behaviorally, and culturally to effectively exercise their governance responsibilities during a period of volatility.

Looking closely, in fact, it is clear that the failures of the past 10 years are in large part leadership failures of boards of trustees. If an institution is in decline over a period of time, it is the board of trustees that is ultimately to blame, because the board has final accountability for an institution’s finances and viability. Our research found that critical issues such as declining enrollments and revenue, liquidity problems, deficit spending, and deferred maintenance were repeatedly discussed in board meetings without the boards asserting their governance obligations, often until it was too late.

From the Chronicle of Higher Education the role of college governing boards and college declines is reviewed in this Chronicle of Higher Education article.  This easy to read comprehensive article on the failure of college governing boards to do their jobs goes a long way toward providing an analysis of why colleges will likely be even more worse off post the pandemic.  But the challenges are not singularly unique to colleges.  Boards "do" this type of stuff with nonprofits big and small.  In this case, colleges will of course suffer the consequences and in-turn, students, but do not doubt that the boards failed their duties and their colleges.  But nonprofit boards too, perhaps not as in dire circumstances for all but for many will be wakening, if they have not already (really?).  It's time to face the music/results of their inaction and failure to fulfill their fiduciary duties.

Nonprofit Boards and Cultural Intelligence #NonprofitBoards

In this week's missive by Dr. Fram, cultural intelligence is his focus.  As he notes: "There are many ways to assess the balance of capabilities on nonprofit board board members. EDs and board chairs are generally familiar with the implications of terms like IQ (cognitive ability) and EQ (emotional intelligence). New research has added a third characteristic— cultural intelligence or CQ. * Obviously, CQ comes into focus when boards are dealing with global or international issues. But its usefulness is still germane to community-based and/or domestically focused professional/trade associations. Making a change in board strategy is at best a challenging process. But when that plan collides with cultural differences, board culture will trump change. To paraphrase Peter Drucker’s well-known pronouncement—“Culture Eats Strategy for Breakfast Daily.”"

As we consider the legacy of Dr. King, and a society and country that has lost its way, considering cultural intelligence is an appropriate framing for thinking about how to work with folks, who for all kinds of reasons, are different than us.

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?