One of the first activities to be deferred by many nonprofit CEOs over the past six months is strategic planning. It is very understandable that they have had to forget about long range goals to focus on immediate concerns around the health and safety of clients and employees. Hiring a consultant to direct a strategic planning process is probably one of the last things on the minds of most CEO’s and boards.
However, now more than ever nonprofit organizations should be investing in effective strategy development and long-range strategic planning. The fact that many organizations have scrapped their current strategic plans as irrelevant is more likely because the approach to planning was flawed, did not prepare the organization to be nimble and responsive to unforeseen changes in the environment, and lacked decision-making criteria and processes that would have supported innovative and adaptive strategies.
What have we learned?
One lesson learned is that standard models of strategic planning don’t necessarily work when the whole world gets turned upside down. Familiar approaches to planning which don’t address capacity, support real-time strategy development, provide conceptual frameworks for nimble decision-making, or include risk management have demonstrated their limitations.
What seems apparent during this crisis is that nonprofit organizations can be resilient if leaders keep their heads, work together, and strive to find solutions to significant problems while positioning their organizations for sustainability over the long haul. Those nonprofits that are surviving and thriving have developed strategies using technology to connect people, access resources, build collaborative partnerships, and deliver services. Using the experience gained through the pandemic to build planning models which support strategy development in the context of long-range goals is an imperative and one that is achievable for most nonprofit organizations.
How have nonprofits changed?
One of the most obvious ways nonprofits have adapted is in how they do work. Listening carefully to the science and incorporating the latest knowledge into service delivery models have saved lives. Priorities have been realigned to make sure that organizational resources are applied to the most critical areas of need. Strategies have been implemented, modified, and reapplied as organizations learn from their mistakes as well as from their successes. All of these lessons point out the need for a “strategy mindset,” that is, a disposition to plan, execute, learn, adapt and plan again. Those who succeed in this environment will have developed such a mindset.
What can we carry forward into an uncertain future?
First, strategic planning is still needed! Not the traditional models which develop lofty sounding goals that can’t be action-ized or measured, which force organizations to conduct academic or contrived exercises such as SWOT analyses instead of fluid environment scanning, which fail to monitor performance metrics to support business decision-making, or which fail to monitor capacity and risk. Rather, we need strategic scaffolds which provide the organization with a long view, but which also support continuous strategy development, testing, and adaptation.
Second, nimbleness in decision-making doesn’t happen by accident. Intellectual processes that support strategy development, execution, and learning should become embedded in daily operations. Such mental disciplines can and should be learned, starting with the CEO, but also including senior staff and the board.
Finally, even though the future is uncertain, now is the time to engage in a strategic planning process so that a coherent, future oriented framework can be built which also has the capacity to support continuous strategic learning and decision-making, adaptation and innovation, and which anticipates risk and builds sustainability.
Can one ever adequately plan to anticipate crises such as the current COVID pandemic? Perhaps not specifically to any one incident or event. But organizations certainly can build planning models which support real-time analysis and decision making within the context of the organization’s long-range vision. This requires a new mindset and a new set of skills. What better time than now to invest in developing these for the sake of long term sustainability?
The emphasis in my ten-part series of articles written under the theme “Who’s the Boss?” has been around the actions nonprofit chief executive officers can and should take with their boards of directors to support effective governance. A sampling of such possible actions is offered below. The list was developed as a handout to accompany a webinar I recently conducted on this subject. I suggest these as a starting point for revisioning the CEO’s role in governance, following the assumption that the CEO has a legitimate executive role to play with the governing board. In my mind, this wraps up the series from that perspective.
I wrote the original articles as one who served as both a chief executive officer and as a board member and board chair. My experience, covering more than four decades, convinced me as someone with an executive “disposition,” to view the CEO/Board relationship with a more active, rather than passive, mindset. I believed then, and still believe, that I had an appropriate leadership role to perform with the board to help it perform its duties more effectively and efficiently.
There is one big “HOWEVER” that I wish to establish before I complete this conclusion. In the “Who’s the Boss?” articles, I tried to address the various aspects of CEO/board relationship through the lenses of ten questions which all implied that the CEO had an executive role to play in their answers. In the fifteen months it took me to complete the series, I had a lot of opportunity to broaden my horizons through reading, research and additional professional experience. As a result, my thinking about the CEO’s and nonprofit board’s roles has undergone a significant transformation. Some of this insight was gained from trying to learn more about (of all things!) quantum physics and the ramifications of its discoveries to the fields of cosmology, psychology, biology, philosophy and even theology, not to mention business organization, development and leadership.
You might wonder, “What in the world can quantum physics say about nonprofit governance?” Maybe not much directly, but from the perspective of complex relationships it says an awful lot. For example, one of the underlying principles of quantum physics, entanglement, (actually presaged by Gestalt psychology) is that the whole is greater than the sum of its parts. What this implies at the subatomic level is that everything in the universe is related in some way to everything else and that actions involving any one part, or holon, have some kind of influence on other holons, regardless of the distance between them. We may be more familiar with the word “holistic” to express this totality of a thing, but the root is the same.
The implications of this to organizational leadership goes beyond just understanding that the action of a CEO, for example, has an impact on the activities of a board chair and vice versa. This would still be operating in the limited dynamics of a dualistic universe. Rather, the actions of the CEO influence the actions of the board chair and are influenced in turn by not only the board chair but also by senior leaders, other board members, clients, stakeholders, service practitioners, professionals in the field and many others, who in turn also influence the CEO whether they are known to him or her or not. The sum of all these actions and influences exceeds the defined totality of the CEO and board relationship and comprises, instead, the entirety of what we might call “organizational leadership,” or what I will refer to in the future as “quantum governance.”
All this is to say that, because of this and other quantum principles, I have significantly revised my viewpoint on the matter of governance and organizational leadership to such an extent that I will be launching a new set of articles which reframe the original ten questions posed in the “Who’s the Boss?” series to reflect the realities of nonprofit governance in a quantum universe. From the research I have done, it seems that this is a subject that has yet to be fully explored. Where this will take me is uncertain to say the least. All I can say is, “Stay tuned!”
For now, as a finale to the original series, I offer to you the list of possible executive actions CEOs might consider as they work with their nonprofit boards to strengthen and enhance effective governance. For greater understanding of the rationale for these actions, I would refer you back to the respective articles in the series.
The Nonprofit CEO’s Executive Role in Governance:A Checklist of Possibilities
The CEO’s role in building value into the board’s purpose and role:
Arrange board training around the legal requirements of NFP boards.
Promote accountability for the CEO’s executive leadership through systems of self-reporting.
Identify and recruit talent and intellectual capital to the board; maintain a talent matrix.
Clarify and support relationships and connections between the board and staff.
Inventory and manage board member’s connections and access to resources.
Enhance the value of the board by using technology to support inter-board relationships.
Executive actions the CEO can employ to help the board fulfill its duties:
Encourage the board to periodically review and amend mission and vision statements.
Lead the development of a CEO succession plan.
Propose means and methods for conducting the CEO performance evaluation.
Propose a process, timeline, and resources to support strategic planning.
Develop a process for proposing, approving and monitoring programs.
Ensure organizational sustainability and report metrics which monitor the same.
Assess the capacity of the organization to manage resources and develop report systems.
Engage board members in public relations activities to enhance credibility.
Arrange for in-service training for the board regarding ethical practices.
Develop and manage systems by which the board can evaluate its own performance.
Help the board understand how to carry out its duties in a post-pandemic era.
Executive actions the CEO can take to build an effective board using best practice models:
Help the board identify qualifications and attributes of board members.
Work with the board to set terms of service and the number of terms.
Recruit potential board members who can function in a virtual environment.
Guide and support the election/appointment of board members.
Clarify with the board the CEO’s role in recruitment and development in a post-pandemic world.
Executive actions the CEO can take which aid in organizational development:
Promote periodic evaluation of board size and organization.
Develop a process for evaluating and reorganizing committees.
Educate the board around alternative governance models.
Development and proposal of board operating principles and policies.
Maintain a policy and procedure manual for ongoing reference.
Support virtual board meetings and follow-up by ensuring media technology efficiency and effectiveness.
Executive actions of the CEO that use the board to support the mission:
Engage and manage board member involvement in publicity and marketing.
Train and manage board members’ involvement in advocacy efforts.
Create and control opportunities for board/staff interactions.
Establish and maintain boundaries and procedures for Board/staff communication.
Utilize director talents, networks and connections through virtual meetings.
Create and support a board portal through the organization’s website to promote discussion of important topics and issues.
Executive actions the CEO can take to gain the board’s help in fund raising:
Meet with each board member to obtain commitment:
Give – a personal, annual gift,
Get – commitment to connect with potential donors,
Get off! – encourage service elsewhere.
Educate the board on deferred giving and legacy giving options and encourage the same.
Recommend capital campaign goals, themes and processes, and invite board members to make a personal “over and above” gift.
Work with the board to set a fundraising goal for the board and report progress.
Invite directors to accompany the CEO and development staff on donor calls.
Educate and engage the board in virtual fund raising strategies and invite participation.
Executive actions to support and direct strategic planning:
Educate the board on best practices regarding models and methods of strategic planning.
Provide resources and consultants to facilitate the process.
Assign staff as appropriate to support planning efforts such as conducting an environment scan, sustainability analysis and capacity assessment.
Make sure that annual operations plans and budgets are tied to strategic planning goals.
Develop a calendar of milestones with the board that support annual updates to the strategic plan.
Recommend for use by the board decision-making tools which promote ongoing strategic thinking to address unanticipated changes and challenges.
Regularly report key performance indicators to the board which measure progress toward achieving strategic goals.
Keep the board’s focus on strategy and the strategic plan by creating meeting agendas which are organized around the strategic goals.
Executive actions the CEO can take that support the board in effectively and appropriately evaluating the CEO:
Conduct an assessment of Board culture, team comradery, and interpersonal relationships between CEO and the board to build trust and conflict tolerance.
Tie the CEO’s performance goals and expectations to the strategic plan.
Ensure accurate, relevant and timely reporting of performance data related to key objectives identified in the strategic plan.
Recommend evaluation processes that appropriately reflect the professional needs of both the CEO and the board and which provide sufficient input from board and staff around CEO performance.
In order to uphold trust and openness, discourage executive sessions of the board in the absence of the CEO other than to set compensation.
Executive actions the CEO can take that support the board in evaluating its own effectiveness:
Recommend methods and models for the board to conduct an annual board performance assessment.
Develop and recommend a process for evaluating incumbent board members seeking a subsequent term.
Recommend a process by which individual board members can evaluate themselves according to established expectations.
Facilitate informal evaluation discussions about meeting effectiveness (e.g., plus/delta).
Recommend generative questions to evaluate board effectiveness around one issue (e.g., sustainability, capacity, risk, strategic thinking, program performance, resource investment).
Develop methods for evaluating virtual meetings and decision-making processes and evaluate the board’s effectiveness using media technology.
Executive actions the CEO can take that make sure the board remains focused on the organization’s sustainability:
Develop and report data relating to program quality, execution, and profitability.
Periodically engage the board and leadership in a comprehensive capacity assessment.
Engage outside auditors to evaluate financial integrity.
Obtain third party assessment of investment philosophy, policy and performance.
Actively participate in executive successions, except when the board is setting CEO compensation.
Develop and manage a system of risk management and mitigation and report assessments of the same at board meetings.
This checklist is far from exhaustive. My aim was to provide a representative set of possible executive actions which are consistent with the overall aim described in each of the associated articles. Through it all, the underlying belief is that “Who’s the Boss?” matters very little when viewed in the larger context of organizational mission, mutual trust, collaboration and shared responsibility for governance.
How Can the CEO Help the Board Stay Focused on Sustainability?
One of the most neglected areas of concern for nonprofit boards is the issue of whether or not the organization they have been called to govern has the capacity to sustain itself under current conditions and whether the organization is positioned to deal with future changes in the operating environment. It is sometimes assumed that if the board is attending to the commonly accepted duties and responsibilities for nonprofit boards, sustainability will be the natural byproduct of effective and efficient board functioning. In one sense that might true, so far as the board is capably monitoring the finances, conducting strategic planning, and overseeing the work of the CEO. On the other hand, these functions, though essential, do not necessarily require the board or the CEO to think strategically about mission sustainability.
At the outset, I should note here that by sustainability I am not talking about environmental sustainability. For many businesses, this has come to mean the implementation of green strategies in order to become more environmentally neutral. While I am a strong advocate of using renewable energy and finding ways to reduce a company’s carbon footprint, I am focusing this article on the financial and missional sustainability of a nonprofit organization. That isn’t to say there aren’t possible points of intersection between these two understandings of sustainability, but my immediate concern here is in making sure that an organization can continue to survive and thrive in executing its mission.
With this qualification in mind, sustainability, as I have come to use the term, is the ability of an organization to fulfill its mission in an impactful way and in such a manner that financial and human resources are sufficient to continue its work. This definition entails much more than profitability, the term most often associated with sustainability. And it is much more than the delivery of high quality and impactful services. Obviously, if an organization can’t produce a positive bottom line, it will go out of business no matter how noble the cause or critical the need. The old saw: “No money, no mission!” is a commonly accepted truism. From a fund-raising perspective the opposite is also true: “No mission, no money!” In the nonprofit world, therefore, sustainability requires both sufficient resources and an impactful mission to succeed.
Let me give you an example at the program level to show you what I mean. Working with a recent church client, we examined several social ministry programs which were supported by the contributions of members, one of which was a homeless shelter and meal program. Because of declining congregation membership and commensurate declines in contributions, the cash reserves of the homeless program were being steadily depleted. Moreover, there existed several comparable programs within a mile radius of the church which operated larger and more effective programs. Even though there was strong leadership and some support in the congregation for maintaining the homeless program, it was clear that if the program was going to continue, it would need to find new sources of revenue. It would also need to implement a number of changes in order to distinguish itself among similar organizations. Failing to do so would diminish its ability to raise funds. You can see from this example how a diminishing source of money, combined with perceived lack of mission impact and mediocre quality could contribute to a downward spiral and eventually lead to closure of the program.
This is such an important distinction for the CEOs and boards of nonprofit charitable organizations to understand. The large majority of such organizations were founded to meet human needs and to address underlying social problems. Around the world, this altruism found expression in the form of hospitals, nursing homes and social ministry organizations that served the poor, disabled, homeless, hungry, imprisoned, marginalized, abused, traumatized, addicted, and mentally ill. They were very often launched by religious organizations and churches and required volunteers and contributions to make them work. In the United States, over time, government financial support in the form of Medicaid, Supplemental Security Income, government and foundation grants, Medicare and other forms of financial support replaced individual donors, providing stability on the one hand but also imposing restrictions and regulations on the other. Today, many nonprofit organizations, having replaced fund raising with grant writing, are vulnerable to the vagaries of government largesse. In the organization of which I was the CEO, 85% of our revenues came from Medicaid.
One could argue that sustainability is the overarching responsibility of organizational leadership and that all other duties and responsibilities are necessary to support the board’s efforts in this regard. In the context of this series of articles entitled “Who’s the Boss?,” the role of the CEO is critical in both helping his or her board see and accept this ultimate duty and in providing executive leadership with the board to make sure they exercise their responsibilities to this end.
To advance the argument that sustainability is ultimately the primary duty of both CEO and board, I propose in this article to describe three aspects of sustainability and demonstrate how the CEO’s executive function is essential for the board to fulfill its duty in this regard. I will consider how sustainability can be defined, measured and reported and how such information must feed into strategic plans and discussions leading toward the organization’s preferred future. I will also discuss the importance of capacity assessment and how it can evaluate the organization’s internal structure and ability to support sustainability processes and initiatives. Finally, I will talk about risk management in the context of organizational sustainability, especially as potential threats to the organization might damage its ability to continue its mission of service.
Some authors include a number of other factors that help support organizational sustainability. These include resource development (i.e., fundraising), succession planning, collaboration, and other strategic decision-making processes. Others focus on marketing, the use of social media, public relations, and visual communication. A few mention the importance of creating an understandable value proposition in order to persuade supporters that they are receiving a return on investment. A few of these are listed among the references that follow this article. These other factors are certainly worthy of discussion as they relate to sustainability but, because I have addressed them in depth in other articles in this series, I have chosen not to include them here. In my experience, the three components I have described can stand by themselves as the principal indicators of sustainability.
Impact and Profitability
In order to examine the role of the CEO in helping the board focus on sustainability, it is first important to provide a workable definition which can focus efforts in this regard. For purposes of this article, I prefer to think about nonprofit organizational sustainability in the terms used by Zimmerman and Bell (2015). They argue that sustainability should be thought of in terms of both mission impact and profitability and they provide a methodology for calculating the same. I have used their model in strategic planning work in order to answer the question, “How well are we doing?” For those interested in their methodology, I highly recommend their book, Sustainability Mindset. However, there are other ways in which the broad categories of mission impact and profitability can be computed and analyzed to arrive at a measure of sustainability. I will speak in general terms about these variables and how they can be used by CEOs and their boards.
Beginning with “mission impact” it is important to set aside the question of “Are we fulfilling our mission?” This question, most often asked at the beginning of vision-setting or strategic planning workshops is superficial at best and misleading at its worst. The large majority of nonprofit organizations I have encountered have noble missions which are carried out faithfully by staff through programs that serve the populations I described above. For the most part, such a question is a “drive-by” question that very few could not check. The brief conversation would go along the lines of the following:
Board: “Do we have a good mission statement?”
CEO: “You bet!”
Board: “Are we serving the people we want?
CEO: “Yes, we are.”
Board: “Are they pleased with the services we provide?”
CEO: “Yes, for the most part.”
Board: “So then, are we fulfilling our mission?
CEO: “Absolutely!”
The problem with such thinking, however, is that it does not look beneath the hood of the organization to determine the extent to which the fulfillment of the mission is having the desired impact on the population it serves. Sure, it can honestly say it is fulfilling its mission, doing what it says it exists to do, but it does not begin to get at how well the organization is carrying out its mission and the extent to which it is really serving its clients. To answer that question, much deeper analysis is required. Questions should be asked which reflect the complexity of the impact construct. For example:
How does each program contribute to overall mission impact?
How well (i.e., level of excellence) is each program executed?
Which factors contribute to a program’s impact on the population it serves? Area? Size? Staff? Funding?
How deep and profound is the change in people’s lives that comes about as a result of the program?
How broadly does the program serve; how many people does it touch?
Does the program address a significant unmet need in the community or is there a lot of competition?
Does the program leverage its impact to build support and collaboration from others?
Does the program help or hinder the overall reputation of the organization?
Does the program attract volunteers and donors?
There are numerous ways in which answers to these questions can be obtained. CEOs and their boards should think deeply about how best to measure mission impact. Several organizations I have worked with used online surveys to compile an overall measure of impact. Zimmerman and Bell have offered free tools which can assist in this effort. However, smaller organizations with more limited resources might wish to conduct interviews with key stakeholders or develop their own rating scales for the most applicable questions. Regardless of how mission impact is measured, some type of rating or ranking system for determining program impact should be used. The reason for this will become apparent later. Such an impact rating system should describe each program in relation to the others provided by the organization.
A brief word should be inserted here about how one should define a “program.” A program, as I have operationalized the term, is any unit of discrete activities aimed at providing mission-related services to the population identified in the mission statement. Some of these should be obvious. A senior services agency would have programs such as assisted living, memory care, skilled nursing, chaplaincy, and the like. However, also included in the definition should be activities such as fund-raising, including major giving, planned giving, fundraising events, grant writing, and others which, although not offering direct client support, communicate the organization’s mission to contributors and others who make the mission-related programs financially possible. Therefore, a program is any set of activities that serve people or which enable such services to be provided.
In determining which approach to measuring mission impact is used, how data is to be gathered, and which constituents and stakeholders are going to be involved, the CEO plays a key leadership role with the board. First of all, the whole endeavor of calculating and reporting sustainability should not be relegated to the pile of “administrative duties” performed solely by the CEO. Because the questions posed have to do with the extent to which the organization is fulfilling its mission, the board, which “owns” the mission must be integrally involved in measuring its impact. Of course, the CEO is in the best position to recommend methods and processes for calculating sustainability and for proposing strategic responses that might result from the analysis, but the idea I have advanced for “reciprocal governance” begs for the collaborative and mutually supportive roles of both the CEO and the board. Regardless of the methodology for calculating impact, there must be consensus between the CEO and his or her board about is meant and how it is going to be measured to make sure that both have confidence in the process and the results.
The second aspect of sustainability is financial profitability. At first glance, one might be tempted to think that this is very simple to measure. All that is required is comparing program revenues to program expenses to see if it makes money or loses money. The challenge comes from trying to identify the true costs of a program. Every program has direct expenses such as the costs of transportation, meals for clients, supplies for group homes, salaries for nursing staff, etc. However, everything a program does in carrying out its mission has other costs associated with it. Each program also has shared expenses that are used by multiple programs. These can include expenses such as utilities, technology, insurance, salaries of administrative functions such as the full-time equivalent time spent on programs by the CEO, HR, finance and other offices. These expenses are most often assigned to programs on an allocation basis and are usually based on the size of the direct expense budget of each program. There are also administrative costs which are allocated across all program areas which include things like external accountants, board expense, legal costs, etc. Careful thought should be given to the allocation method used to make sure that shared and administrative costs are accurately represented.
One of the most difficult aspects of calculating true cost is the allocation of staff salaries. Of course, some staff are assigned exclusively to a single program, such as direct support professional or nurse assigned exclusively to a specific program. Other positions are more challenging. How full-time equivalent (FTE) positions are assigned across all programs takes some discussion and thoughtfulness. For example, executives responsible for cross-organizational functions like finance, HR, IT, marketing, and operations provide time and service to all programs. How the time of executives and their staffs are allocated must reflect the actual average amount of time they spend supporting each program.
Eventually, the organization must come up with a reasonable number which reflects the true cost of operating the program. The sum of all these true program costs should add up to the organization’s total operating budget. Profitability, therefore, is defined as the revenues raised or allocated for the program (either internally or externally), minus the true costs of operating the program. Both the total amount of the true cost (direct, shared and administrative costs) and the net profitability (revenues minus true cost) should be recorded. The reason for this should be obvious and can be illustrated by several scenarios. A program may be net neutral but may consume a large percentage of the organization’s resources. Another program my lose money (is not profitable) but is a very small expense to the organization. It may be core to the mission or is a loss leader for other services.
When combined in a matrix or bubble chart or some other visual presentation, the mission-impact analysis over against the profitability data will give the organization a clear picture of sustainability. Four possible scenarios present themselves within which gradations can be made:
The best possible scenario is when a program is both profitable and has a high impact on mission fulfillment. It is very rare in the nonprofit world to find such programs, but they are out there. A summer camp may show a net profit and be perceived as providing the highest quality experience to its campers. An adult-education provider might charge enough tuition to be profitable and offer an outstanding learning experience. However, most charitable organizations which are involved in human services are not so fortunate, especially if they are dependent upon government funding or gift revenues to meet minimum service requirements.
The second scenario is one in which the large majority of nonprofit charities find their programs, namely, they have high mission impact but they cannot cover their total true costs. They can be thought of as the heart of the organization, but they lose money. To ensure financial viability, therefore, they must offset the loss from operations with non-operating revenue such as that which comes from fundraising efforts.
The third scenario usually applies only to fund raising activities that are not directly mission-related, but which are necessary to cover operating losses. These activities can be thought of as the money tree or cash cow and should be supported to keep “heart of the organization” programs functioning. Attention should be paid, however, to how much its costs the organizations to support these efforts. In other words, monitoring the “cost to raise a dollar” is very important to overall organizational sustainability.
The final scenario is one in which a program is neither profitable nor provides the quality or impact expected by clients. From a strategic point of view, such programs represent a threat to long term sustainability and should be evaluated for either elimination or, if not feasible, then investment to improve both profitability and impact.
From this description of how sustainability can be measured, the CEO, working collaboratively with his or her board, can address key strategic questions. Of the high-impact, profitable programs, which can we expand or replicate? Of the high-impact, unprofitable programs, which can we make more profitable, either by raising additional gifts or fees or by cutting expenses? Of the low impact, unprofitable programs, which can we eliminate? Which can we work with to improve quality? Which can we make profitable? And finally, of the low-impact and high profitability programs, which can we add or grow to generate even more revenue? Of these programs, are there those with high “costs-to-raise-a-dollar” that could be improved or replaced with more efficient and effective programs?
In exercising his or her executive responsibilities vis-à-vis the board of directors in regards to sustainability, the CEO will want to have command of the data for the profitability of all programs, the missional impact of those programs, the relationship between these two variables, and an understanding of the possible strategic moves that can either increase impact or improve profitability. Thinking of sustainability in these terms requires the CEO to demonstrate leadership with his or her board in order to ensure their understanding of how well the organization can continue to carry out its mission and the actions that might be necessary to enhance its sustainability.
Capacity
The second aspect of sustainability is the overall capability of the organization to continue its programs and services. This is a different issue than profitability and mission impact because it is related to the leadership and management functions and processes that undergird and support all mission-related activities. In my experience working with nonprofit agencies of different types, capacity assessment is one of the most neglected activities by CEOs and their boards and is also one of the most important analytic functions they should perform. I will briefly discuss a number of different functions which are critically important to mission effectiveness and profitability and without which most nonprofits will struggle.
Before discussing the other various aspects of organizational capacity, I’d like to first examine the importance of leadership and in this context, the leadership provided by the chief executive officer. Throughout this series, I have argued that the CEO has an executive duty to the board in order to support a culture of reciprocity in leadership and governance. When it comes to organizational capacity, however, I will state unequivocally that the success of any organization always comes down to the leadership effectiveness of its chief executive. If organizations succeed and thrive, it is because of effective leadership. If they decline and fail, it is because of poor leadership. Leadership is everything. The best board in the world can’t function effectively with an inept chief executive. On the other hand, an outstanding executive will always find ways to work, even with an incompetent board of directors. Therefore, it is imperative for the board of directors to have in place processes which evaluate the leadership effectiveness of their one employee, the CEO. I have discussed this in a previous article, but with respect to organizational capacity, this issue must lead the discussion.
The second area to consider in this regard is the mission of the organization. A good mission statement is more than just a slogan. It is a statement of the organization’s raison d’etre and should be translatable into everything the organization does, including the supporting functions and processes that support missional programs. Do all staff in the organization know what the mission is? Is the mission statement referred to frequently when discussing programs and services? Is the mission statement a guide for strategic decisions? Does the mission statement permeate all activities, plans, procedures and policies? If an organization is ambiguous about why it is in business and about whom it serves, uncertainty about direction and diffusion of focus are likely to occur. CEOs and their boards should regularly evaluate the mission statement to make sure it reflects the best current and most relevant thinking about what it chooses to do. Having a powerful and relevant mission statement is the platform upon which the other areas of capacity are built.
A third aspect of capacity is the organization’s culture. Every group of people organized to perform some function or service has a culture, that is, they have their own norms, rules, language, tools, beliefs and attitudes that contribute to the group ethos. Nonprofit organizations, regardless of size, also have a corporate culture. Understanding the culture and how it effects the ability of the organization to function effectively is critically important for the CEO and the board. Regardless of how it is measured or how it is evaluated, organizational culture is a strong determinate of success and mission fulfillment.
As an example, in the organization of which I was the CEO, we determined that the prevailing culture among employees was seriously at odds with our philosophy of client services. While we used “people first” language in the person-centered planning we used for the persons with disabilities we supported, long-standing HR policies and draconian practices with employees led to the treatment of staff as commodities to be used and expended and not as human beings with worth and dignity. Over several years, we worked to bring the culture of employment into alignment with the culture of client services. Any organization that has acquired or merged with another company has also had to deal with differences in organizational culture. The point I’m trying to make is that organizational culture can either work toward or work against mission attainment and should be assessed periodically to make sure it is in alignment with organizational values.
The fourth aspect of capacity has to do with governance. It isn’t necessary to examine this aspect of capacity in any depth since I have treated the roles, responsibilities and relationships of the board in previous articles and have suggested ways in which the organization’s governance can be assessed. Suffice it to say, it is a critical dimension of what we call capacity. Strong and supportive boards can promote mission advancement, while poorly equipped or dysfunctional boards can impede progress. To support long term sustainability, the capacity of the board should be assessed.
The fifth aspect of capacity I would like to examine is that of planning. Most often, organizations think of planning as that long-range, comprehensive strategic planning effort that is undertaken every three to five years. While I have argued that long-range, strategic planning has value as a scaffold for overall organizational action, the recent COVID-19 pandemic and associated quarantine and restrictions on public gatherings underscore the importance of having strategic decision-making processes in place that support nimbleness and responsiveness to rapidly changing environmental conditions. I address the importance of such capacity for strategy development in my book, Your Preferred Future. Achieved. (pp. 71-82) and have examined the role of the CEO in leading his or her board in the planning effort in a previous article.
The sixth area consists of all those activities that comprise the resource development or fund-raising capability of the organization. I know of very few nonprofit agencies that can fund all their expenses with operating revenues and which don’t need some sort of charitable support to maintain their operations. This aspect of capacity assessment should inquire about the efficiency of fund-raising, usually by analyzing the cost to raise a dollar. Size of staff, the nature, type and effectiveness of fund-raising activity (e.g., direct mail, events, auctions, golf outings, major gift and/or capital campaigns) should be evaluated. A strong fund-raising function can help offset ups and downs in operating revenues and can help build endowment or other reserves. These are critically important to long range sustainability.
Although not usually considered as part of overall organizational capacity, the systems, processes and controls utilized by the organization to regulate behaviors are very important and can either support or damage sustainability. This seventh area of consideration is of paramount importance for any nonprofit. An organization which has highly developed and clearly delineated systems and procedures in place for handling and processing revenues and expenses is much less susceptible to abuse or misuse of funds. How expenses are handled, how invoices are processed, which banking and payroll systems are used, and how staff processing of receivables and payables relate to each other, are all significant contributors to sustainability. First, such processes help the CEO and board accurately report the financial condition of the organization, but second, they can alert the leadership to trends in financial performance that might diminish sustainability. Such systems promote a culture of stewardship and financial responsibility. Other systems such as protocols for decision-making and approvals ensure consistency and rationality.
The eighth area of capacity consists of all the policies and procedures that govern how employees and directors work in relation to their duties and to each other. Besides the financial controls previously mentioned, policies and procedures around employment, operations, fund-raising, marketing and communication, should be crafted to ensure consistency and integrity in all operations. When ambiguity exists in how policies are executed, people will conclude that those executing policies are arbitrary. To ensure coherence and consistency, policies and procedures should be periodically reviewed, perhaps even to the point of scenario testing with panels of representative staff and other constituents. However it is done, the CEO should make sure that the organization’s policies and procedures reflect the mission and values of the organization and are fair to all concerned.
The ninth aspect of capacity has to do with employees, how they are hired, retained, compensated, promoted – in short, all the human resources services and practices that are aimed at obtaining and maintaining a qualified and motivated staff. Mission sustainability in the human services is largely dependent upon the people providing the services. Therefore, a significant component of organizational capacity has to do with making sure the right people are hired to do the right thing in the right position. Keeping such people motivated and supported should be the primary goal of any human resources function.
The tenth aspect of capacity covers the entire area of physical assets and consists of properties, buildings, furnishings, infrastructure, information technology, equipment, vehicles and all other capital property that is used to support the programs and services of the organization. You can imagine the challenge a nonprofit charitable organization might face, no matter how noble its mission and how essential its services, if facilities are shabby and in disrepair, vehicles are broken down and rusty, computers are unreliable, roofs leak – well, the list could go on and on. Facilities which are attractive, well-maintained and highly functional support a positive public image and attract clients. Equipment which is up to date and regularly serviced ensures consistency of program support. Information systems and equipment that are regularly updated and maintained are vital to smooth operations. Vehicles that are on a rotation system for replacement ensure safety and positive image. Properties that have high curb appeal with well-groomed yards, paint and siding that are fresh, and lighting that enhances both security and aesthetics – all these represent investments that promote sustainability and should be considered part of the organization’s capacity.
An eleventh area of capacity follows and supports the foregoing. Marketing and public relations functions are critically important to develop support for sustainability in a number of areas. When working collaboratively with the fund-raising function, marketing and public relations should enhance development activities by producing attractive and effective supporting literature and media materials. When working with operations, these functions can support client recruitment and retention. They can also enhance employee morale by presenting materials to staff that communicate quality and the importance of staff roles to the success of the organization.
Finally, a twelfth dimension of sustainability, advocacy, is utilized by some nonprofit agencies to obtain support for clients, seek changes in public policies that affect clients or staff, or which seek to gain additional rights for the people supported by the agency. Capacity in this regard is measured by the human and financial resources the organization has committed directly to support this endeavor. In the human services area, organizations whose mission is to provide services and support for marginalized or under-served populations have an ethical responsibility to serve as the voices of those who can’t speak for themselves. Overall organizational capacity is affected by the amount of support that can be gained through advocacy efforts.
How can capacity be measured? There are numerous scales, inventories, rating systems and other tools available for CEOs to measure capacity. At one time, McKinsey supported an outstanding online assessment tool (Organizational Capacity Assessment Tool) that evaluated every one of the items I described above. Unfortunately, they no long support the OCAT and no other organization has picked up its rights. However, there are many other sources of good tools and inventories to assess organizational capacity. There are both online and paper/pencil tools to choose from. I described some of these in my book, Your Preferred Future. Achieved. (pp.57-62), in which I advocated conducting capacity assessment as an important aspect of strategic planning. Whichever tool CEOs and their boards decide to use, and I am not recommending any one over another, it is critically important to have a clear understanding of the organization’s ability in these areas to support the mission and programs of the organization.
Most usually, the CEO and the board together determine who should participate in such an assessment. From my experience, as many individuals as possible who have a sufficient working knowledge of these twelve areas should be asked to respond or participate. If an inventory or survey is conducted, a sufficient number should be sought to ensure data reliability and generalizability. If interviews or paper and pencil surveys are conducted, concern for staff time and skill in processing and interpreting the results should be considered.
Besides the impact and profitability of programs and services, organizational capacity is the biggest contributor to long term sustainability and should be regularly assessed.
Risk Management
The third dimension of sustainability I would like to explore in this article has to do with those things that can pose a threat to sustainability. If threats can be managed and mitigated, then sustainability can be supported. In this section I will describe what I mean by risk, how risks can be identified and operationally defined, and suggest a process for assessing and managing risk factors to the organization.
Early in my career as a CEO, an incident occurred which impressed upon me and my board the importance of risk planning. One of our area directors had been remiss in reporting the results of negative site evaluations. When we received notice that our license to operate in a particular state was in jeopardy of being pulled, we had to scramble significant resources to correct the deficiencies, appeal our case, deal with management shortcomings, and make sure our programs were back on a solid footing. To satisfy state officials, we actually had to contract with an independent management firm to reorganize the area’s operations. In short, we came within a hair’s breadth of losing our programs in that state.
When all this was reported to our board, including what had happened, the steps we were taking to correct the problem, and what it was going to cost the organization in the long run, a question was asked that greatly influenced my thinking around risk and sustainability. One board member stated it this way: “How will you make sure this never happens again?”
Threats to an organization can come from just about anywhere. Having the capacity to react to negative events is one thing. Anticipating and preparing for possible threats is entirely another. What our board member wanted to know was, have you anticipated that this type of thing could occur and what are you doing proactively to minimize the likelihood of it occurring again?
Some organizations rely upon their insurance carriers to provide risk management strategies. This is particularly true in the area of workers compensation coverage. Insurance companies, of course, have a vested interest in reducing claims due to workplace injury or work-related illness. Trainings from companies focused on these types of incident are good, but do not typically address the wide range of potential threats I am discussing here.
Risks, threats and challenges can come from any or all of the areas listed above under the category of capacity. They may reflect adverse changes or events in leadership or governance. They may be the result of employee misconduct. They may come from physical property and its damage or loss, from erosion of funding, loss of program licensure, system and procedure failures, adverse publicity, or even lawsuits due to discriminatory practices. To be prepared for negative or adverse events is the essence of risk management. To have strategies in place for reducing possible threats comprises risk mitigation. Being prepared and equipped to deal with myriad threats and challenges is a very important functional aspect of organizational sustainability and the CEO has a duty to lead his or her board of directors in comprehending and supporting risk management efforts.
How can all the possible risks be identified? A starting point might be to go back through the twelve components of capacity and ask “In this area, what could possibly go wrong?” Leadership teams representing different levels and roles in the organization could be assembled to brainstorm possible areas of risk under each category. The CEO could engage the board through its Audit Committee to review the list and offer suggestions. Eventually, the organization should have a well thought out list of the most realistic and likely incidents or conditions that pose the greatest threats to the organization.
To give you an idea of possible risks and how they can be stated, I have listed a number of possible scenarios or conditions under each capacity.
Leadership
Loss of the CEO
High executive turnover
Whistleblower complaints
Mission
Ambiguous or misunderstood mission
Program inconsistency
Culture
Misalignment of values
Negative subcultures
Inconsistent leadership
Governance
High board turnover
Board/CEO conflict
Dysfunctional board meetings
Planning
Lack of strategic plan
Lack of decision-making process
No operational plans
Resource Development
Decrease in gift revenue
High cost to raise a dollar
Shrinkage of endowment
Systems, Processes and Controls
Embezzlement of funds
Unauthorized spending
Mismanagement of debt
Policies and Procedures
Role conflicts among staff
Discrimination lawsuit
Rogue manager
Employees
High staff turnover
Unionizing effort
Employee misconduct
Physical assets
Property loss
Vandalism
IT system crash/data loss
Marketing and Public Relations
Bad press
Poor public image
Client abuse
Advocacy
Loss of government funding
Adverse public policy decisions
Once agreement is achieved around the specific real risks to the organization, the list should be further refined by adding two qualifiers to each risk: first, what is the probability of the risk event actually happening and second, if the risk event should occur, what is the potential harm or negative impact the event would have. Obviously, the intent of this exercise is to identify those risks which are of highest likelihood and which have the greatest potential for damage to the organization. A commonly utilized visual model of risk is in the form of a chart in which each possible risk is shown with the probability of occurrence as low, medium or high, and the potential damage or harm shown as low, medium or high. Those risks identified as having the highest probability of occurrence with the highest potential for harm should be the targets of serious analysis and strategizing in order to either reduce the probability or minimize the harm. An example of such a matrix is shown below.
Identifying risks is only the first step in managing risk. It is one thing to have a nice, color-coded chart which shows the organization’s risks. It is another to develop plans to both minimize the likelihood of adverse events occurring and which detail response actions to minimize the negative impact of an adverse event when it happens. In my organization, we developed a detailed chart of plans which identified the staff member with primary responsibility for the risk, the status of both mitigation and management plans, and timelines for completion of activities aimed at reducing both probability of occurrence and negative impact.
Managing risk factors is a critically important function which falls under the leadership of the CEO and his or her executive team. Making sure that the Board understands the risks and, more importantly, supports the management and mitigation efforts of the staff, is a key executive responsibility of the CEO. How this is accomplished varies according to the size and complexity of the organization. In my own case, our board had a powerful audit committee that had oversight of finances, ethical practice, whistleblower complaints, human resources management and risk management. I and my team provided quarterly detailed reports which updated risk factors and our progress toward positioning the organization to deal effectively with those challenges.
Conclusion
Organizational sustainability is a complex issue involving numerous elements and factors. Sustainability requires ensuring the highest quality and greatest impact on the people supported by the organization’s programs and services and making sure that programs are financially profitable in the sense that operating, gift and investment revenues are sufficient to support them. It requires the organization’s investment in capacity to make sure that people, systems, assets, policies and practices are obtained and organized to optimally support the mission. Finally, sustainability requires an awareness of the risks faced by the organization and an up to date plan for managing and mitigating those threats.
Because of the complexities involved in ensuring organizational sustainability, the CEO must carry the majority of responsibility for leading this effort with his or her board of directors. In my experience, boards can be great resources for developing and supporting sustainability, but they cannot and should not be involved in the actual work of ensuring sustainability. In this regard, the CEO must exercise executive leadership in reporting data around the various facets of sustainability (i.e., quality, profitability, capacity measures and risk), providing analysis and assessments for the board, offering proposals and recommendations to further support sustainability in every respect, and in general, to make sure the board understands and is conversant with the various facets of sustainability and their ultimate duty in this regard. Such reciprocal governance is the optimal merger between management and governance, between leadership and oversight, and between executive and legislative functions.
References
Alexander, Geoff. The Nonprofit Survival Guide: A Strategy for Sustainability. (2015). McFarland and Company, Inc. Jefferson, NC.
Bowman, Woods. Finance Fundamentals for Nonprofits: Building Capacity and Sustainability. (2011) John Wiley and Sons, Hoboken, NJ.
Emmanuel, Jean-Francois. Financial Sustainability for Nonprofit Organizations. (2015). Springer Publishing Co., LLC. New York, NY.
McMillan, Dennis T. Focus on Sustainability: A Nonprofit’s Journey. (2013)
Rasler, Tom. ROI for Nonprofits: The New Key to Sustainability. (2007). John Wiley and Sons. Hoboken, NJ.
Yarbrough, Jennifer. The Journey from Nonprofit Startup to Sustainability: Principles and Best Practices to Leaving a Legacy of Community Impact. (2019). Rhonda’s Writing and Publishing Firm.
Zimmerman, Steve and Bell, Jean. The Sustainability Mindset: Using the Matrix Map to Make Strategic Decisions. (2015). Jossey-Bass, San Francisco, CA.
It might seem that the nonprofit board of directors should be solely in control of how it evaluates its own effectiveness as a board. If one subscribes to the idea that the board is ultimately the highest level of authority in the organization and is, using the terminology I have chosen for this series of articles, the “boss,” then it would make sense that the CEO should have nothing to do with this process. As was the case in previous articles, however, and consistent with the overall theme of this series, this aspect of governance should also involve the CEO, not just as someone who can provide some input into individual and group evaluation but as someone who can help direct and coordinate the process itself on behalf of the board. This kind of “reciprocal governance” is to be expected in an organization which considers every participant in the organization a stakeholder and a critical factor in the ability of the organization to achieve its mission.
Assuming that the CEO is not a voting member of the board, a subject I have weighed in on previously, the role the CEO plays in this regard must be carefully delineated. I am suggesting that the CEO should do more than just provide clerical or technical support for a process which is conducted by the board. I am not, however, proposing a role for the CEO which supersedes his or her authority by directing the board in self-assessment efforts. I am especially not suggesting that the CEO conduct board evaluations as if the CEO had some level of authority in this regard over the board. In the spirit of mutuality and in every case seeking the greatest good for the whole organization, the CEO and the board have a shared interest in making sure the board is functioning effectively, is aware of areas of its work that are not optimal, and is taking steps to improve its performance as part of an ongoing process.
This may all seem rather obvious. However, I can tell you from my own experience that it is the exception and not the rule that nonprofit boards attend to their performance through some kind of evaluation process. Many nonprofit boards never take time to either formally or informally consider how they are doing as a board and if there are areas in which they could improve. The usual results of such neglect are deeply entrenched ways of doing things, patterns and systems of behavior that over time become very difficult to change, and a culture of arrogance that suggests the board is above being evaluated. More often, however, I have seen boards that just aren’t aware of the need for evaluation, which lack the knowledge and resources to conduct such an evaluation, lack the leadership and commitment to improvement, or have not been educated and led by their CEO into a greater understanding of their role and how it can be strengthened.
I have also observed in some cases that when boards are not functioning effectively, they tend to reduce the problem to the attributes of its members. I have been called by potential clients, usually frustrated CEOs, complaining about the composition and performance of their boards. These CEOs will say things like:
If only my board members were more engaged;
If only we could recruit more business leaders to the board;
If only we could get so and so off the board;
If only we had a more effective chairperson.
If only our board members contributed more.
If only so and so wouldn’t monopolize every discussion.
If only board members would quit pestering the staff.
If only…..
Blaming board ineffectiveness on individuals who you’d either like to be on or off your board ignores the real essence of the problem, namely, that the board does not hold itself accountable for meeting the duties and expectations of board membership. When board assessment is absent, there is lack of awareness of how they perform as a board, and there can be no effective plan for improvement.
And yet, in a dynamic and rapidly changing world, boards need to be more mindful than ever of how they are functioning in service to the organization and how they might do better. Unexpected downturns in the economy, leadership scandals, loss of donors, employee misconduct, pandemics, and myriad other social and environmental changes can create challenges that threaten the ability of the organization to carry out its mission. In highly uncertain times nonprofit boards must have the ability to function with a high level of integrity and professionalism in order to make difficult decisions. Building a board that can operate in such an environment can only occur when the board has an accurate understanding of its strengths and its limitations and works to become better.
Such board capability requires not only understanding of and commitment to the mission of the organization, but also the broad duties that inhere to all nonprofit boards. Responsibilities that specifically attach to the unique aspects of the organization they serve must be accompanied by accountability on the part of the board as a whole and on each of its directors. And, most important, opportunities to intentionally change should flow out of an evaluation process which examines every aspect of the board’s operation, including board structure, methods of meeting, board membership, duties of directors and officers, meeting agendas and priorities, management relationships, policy development and planning, models of governance, and interpersonal relationships with staff and among themselves.
The Maine Association of Nonprofits has perfectly summed up the critical importance of regular self-assessments for boards by saying that “A strong, vibrant board of directors is a clear indicator of a healthy organization. Yet even the best organizations need a periodic check-up to ensure that they cannot just survive but will really thrive in today’s environment. To check your board’s vital signs, or to put in place practices and strategies for a healthy and energized board, the best place to start is with a board self-assessment.”(1)
In this article, I will try to navigate the waters that lie between the CEO’s executive authority and the board’s governance responsibility in an attempt to demonstrate how mutual respect and shared commitment to the mission can be operationalized to evaluate and improve the board’s effectiveness. This aspect of reciprocal governance should be of shared interest to both the CEO and the board because both have a duty to work toward fulfillment of the organization’s mission in the most effective and efficient manner possible. In the same way that such reciprocal governance works to evaluate the performance of the CEO, it should pervade the shared desire to have the board perform as best it can in the performance of its duties. When both the CEO and the board are collaboratively engaged in helping each other improve their performance, both benefit and the organization is better served.
In order to tackle this challenge, I will consider a number of ways in which boards can and should evaluate themselves and how the CEO can lead and support these efforts to ensure consistent and effective evaluation processes. The most obvious and most common is for boards to conduct an annual performance evaluation. There are many resources available to conduct such assessments. BoardSource (2) is a common source for formalized processes of group and individual director performance evaluation. Generating an asset map of board members’ backgrounds and abilities is a must to make sure the needed skills are represented on the board. Another type of evaluation is conducted when directors are up for reelection to a subsequent term and an evaluation process is employed to evaluate their board service during their current term. Some boards provide an opportunity for every board member to conduct a self-evaluation every year and to offer feedback to the board. Those boards which take their performance seriously may also use various evaluation techniques such as a plus/delta discussion at the end of each board meeting to identify things they did well and things that could be improved.
Clarity around board member expectations must be the starting point for any kind of board evaluation. I will share my experience with respect to how such expectations can be generated and operationalized. Finally, the results of any kind of evaluation must be translated into some kind of board development plan that addresses perceived areas of weakness and builds upon its strengths. I will argue that in all of these, the CEO can and should take a collaborative leadership role in order to help the board be accountable for its effectiveness.
Board Member Expectations
The starting point for any board evaluation effort must be the duties and expectations which undergird the board’s functioning. In one respect, the articulation of these duties and expectations can be considered the board’s job description and should be formally adopted as board policy and included in the board’s operations and policy manual. If the board doesn’t have an operations and policy manual, it should develop one. In my experience, most bylaws typically provide neither sufficient detail nor adequate procedures and timelines for how such duties and expectations are developed, reviewed and evaluated. It is very difficult to ask, “How are we doing?” when there is no set of expectations that define “what we are doing.” Once such expectations are defined, a process for evaluating the board and its individual members can be developed.
Which are the common duties and expectations for nonprofit boards and their directors? Some of these are legal and fiduciary and are actually spelled out in state statutes governing nonprofit corporations. Others have been cited in professional literature as best practice. Still others may be unique to the circumstances of the organization itself. I have written about some of these in my previous article, “Why Do I Need A Board, Anyway?” For purposes of this article, however, let me distinguish between the duties and responsibilities of the board as a board, and the responsibilities and behavioral expectations of individual directors. The former include such things as hiring and evaluating the CEO, making sure the organization is financially sustainable, aligning strategic goals and capacity, building the board effectively, serving as the legal agent of the organization, promoting accountability and engagement between staff and board, and providing appropriate oversight of the organization’s mission and operations.
The expectations for individual board members include such behaviors as preparation for meetings, regular attendance and active participation, philanthropic support, observing established protocols for communication with staff and the public, keeping board matters confidential, advocating for the organization’s clients when asked and guided, participating in board training and development activities, and in general, contributing to the overall effectiveness of the board.
Board assessment, both collectively and individually, is an area in which the CEO can provide leadership. Most nonprofit boards do not have the same kind of access to best practice information that the full-time professionals led by the CEO have. In those cases in which the board does not have clearly defined responsibilities and expectations, the CEO can propose to offer board education and training on best practice, can suggest generative discussions when working with the board chair to formulate meeting agendas, and can provide documentation in the form of reports, white papers, and examples to the board’s governance or executive committees which describe best practices. In my experience, when the CEO and his or her board are equally committed to growth and improvement, there is little need to delimit boundaries of authority or build walls to protect autonomy. When the “boss” is a collaborative coalition consisting the CEO and his or her board, then executive activity on the part of the CEO which helps the board achieve its desired outcomes is expected and welcomed. This is the essence of leadership. In this context, I still love John Maxwell’s definition of leadership: “Influencing others to achieve mutually agreed upon goals.” (3)
Once duties, responsibilities and expectations have been developed and adopted by the board, additional work could be done to reinforce them and to more deeply embed them into the board’s operating culture. For example, I could envision a series of discussions by the board with the CEO around its duties and expectations and how they can be integrated with the CEO’s responsibilities. Presentations by knowledgeable professionals on nonprofit governance might be engaged to further expand on best practice in nonprofit governance. Discussions could be used to collaboratively create a description of the “ideal board,” perhaps using techniques like appreciative inquiry in which the group would entertain possibilities and creatively brainstorm what would have to occur to achieve that kind of board. Questions driving the discussion would be something like, “What kind of board do we need in order to achieve our strategic dreams for the organization?” “What would the ideal board meeting look and feel like?” “How would we know if we were actually functioning at the highest level?” “How would this board ideally work with the CEO and staff?”
Annual Board Effectiveness Assessment
The most common form of board performance evaluation is through the use of an annual formal process, usually conducted as part of a board planning retreat. This may involve senior leaders, utilize a consultant, employ the use of formal evaluation tools or other resources that provide board members with the opportunity to discuss their work together, and develop plans and goals for improvement.
There are many excellent tools to conduct such a board retreat. For one such retreat, I used a consultant from BoardSource who built a full-day workshop around the results from their board assessment tool. Built around BoardSource’s Ten Responsibilities of the Nonprofit Board, board members responded to the online assessment survey. The workshop identified those areas in which the board’s perception of its performance either met, exceeded or fell short of industry benchmarks. The key deliverable from the retreat was a set of priorities and action plans for addressing those lower performing areas.
At another weekend retreat, I engaged a consultant from the Mennonite Health Services Consulting Corps to engage both the corporate and foundation boards in an analysis of best practices to identify ways the two boards could better work together for the common good. Breakout groups comprised of directors from both boards brainstormed ideas for how to create greater consistency and compatibility between the boards. Because our two boards met quarterly on the same weekends and presentations around finances and strategic issues were made to both boards, we had built-in opportunities for collaborative board development work. In my case, in consultation with both board chairs, I took the lead to plan and develop those growth opportunities in response to the increasing unease I was sensing from both boards about the inter-board relationship. I don’t believe the respective boards would have had the capability on their own to bring them together around a shared concern. I was able to address the challenges facing our two boards – not by providing direct training or leadership, but by using an external knowledge expert to help expose the attitudes and behaviors that were behind most of the disharmony.
Already mentioned in previous articles, Patrick Lencioni’s The Five Dysfunctions of a Team (4) provides an easy assessment tool that can diagnose a board’s ability to trust, tolerate conflict, build commitment, hold each other accountable, and stay focused on results.If have found his work to be impactful when working with leadership teams in nonprofit organizations, but can see how the results from such an assessment could provide great content for a board retreat. The biggest take away for my executive team when we took it was the importance of open, honest vulnerability as essential to building trust among ourselves. The same has been applicable to every board I have consulted with.
Board Composition and Assets
Boards that are serious about improving their effectiveness are also aware that they are only as good as those who comprise the board. Therefore, understanding the asset needs of the board is a necessary first step to building an outstanding board. This concern is the reverse side of the “If only…” issue described earlier. Instead of waiting for unhealthy conditions to arise and then blaming the limitations of board members, this proactive effort actually seeks to evaluate the gifts, abilities and backgrounds of current board members and seeks to identify areas of need in order to improve the quality of the board’s effectiveness by adding directors who have the needed skills and abilities. For example, if a board is facing imminent expansion through acquisition, it might make sense to make sure individuals with business, merger, or corporate law experience would be on the board. If the strategic vision calls for significant expansion of fundraising efforts, expertise in development work might be valuable. And of course, organizations that are serious about making a greater impact in their field of service will always be looking for individuals with political or financial influence.
I believe the CEO is uniquely positioned to lead this aspect of the board development project as an independent and objective participant. If the CEO has accumulated data about the education, professional experience, skills, abilities and giving records of each director, construction of an asset map by the CEO should be expected. Furthermore, it would seem natural for the CEO to survey current members to solicit additional information without having to involve other board members. Identification and placement of assets on a matrix to be reviewed by the board allows opportunity for group confirmation and refinement. Finally, preparing an asset map and comparing it to strategic needs will help identify the gaps in board composition that need to be filled in order to improve board functioning. In my experience, most nonprofit boards, meeting only three or four times per year, cannot manage such an annual process, nor can they counted on to identify individuals with the requisite skills to fill the gaps. Here is where the CEO can play an important and necessary executive role.
Incumbent Assessment
Another common form of assessment occurs when directors are coming to the end of a term and are eligible for reelection as an incumbent to a successive term. Most boards allow for directors to serve for two, three or four-year terms and then permit reelection to one or more additional terms. The most common term lengths seem to be three years with the possibility for election to a second three-year term. In my organization, we allowed for four consecutive three-year terms for a possible total of twelve years. This was too long, in my estimation, but the board was not willing to alter this policy. Consequently, it became much more important for the board to exercise some form of incumbent evaluation in order to prevent board members from serving past their limits of effectiveness. Managing the evaluation and interview process by the CEO on behalf of the board ensures timeliness in the election process and the development of sufficient data for the board’s nominating or governance committees to recommend or not recommend the director for reelection.
The incumbent assessment process should include input from other board members as well as the CEO and senior staff. What that assessment should look like will depend somewhat on the expectations for board members, as well as the size and complexity of the organization, but at minimum it should review the board’s list of expectations and provide a way to obtain feedback on them. If the board chooses to use a more general and objective format, there are numerous examples of such inventories that can be obtained from state and national nonprofit associations. (5) In addition to objective survey data, I also recommend that a personal interview be conducted by the nominating committee, governance committee or executive committee, depending on which committee has been tasked with the responsibility. Such an interview should review the objective data, review again the expectations, and solicit from the incumbent his or her self-assessment of their performance. If there are any identified opportunities for improvement, they should be discussed and the incumbent given the chance to respond and to share their thoughts on how they might better meet expectations. At the end of the day, the board committee making the recommendation must weigh the data and make a decision based on the needs of the board.
It could be argued that if the CEO and board did their jobs well of recruiting and electing the right people to the board in the first place, such a rigorous incumbent evaluation process would be unnecessary. It is unrealistic, however, to assume that every rock star board member will remain a rock star throughout their two, three or four terms of service. Circumstances and board needs change. Individuals and their professional and personal lives change. The skill needs of the board can be dramatically altered as the strategic vision and direction of the organization changes.
I recall a couple of rare instances on my board in which directors were asked to withdraw their request for nomination to a successive term. In one case, the director developed serious health issues and slept through most board meetings. In another case, the director’s personal philosophy of care for the individuals we served did not align with the philosophy of the organization. In another case, the director was the lone voice of dissent around how to handle a major financial issue and created disruption in meetings. Still another had the unacceptable habit of offending others over religious differences. In such cases, the CEO and his or her board chairman should tactfully and respectfully inform the incumbent that they are not going to be nominated for another term and to explain why.
Individual Director Assessment
In addition to conducting incumbent assessments, some boards provide an annual opportunity for each board member to reflect on their contributions of the past year and to develop a growth plan for improvement. This may seem a bit excessive, but I have seen examples of its effectiveness when administered as part of a larger board assessment process. For example, in one of the most widely used tools for nonprofit boards, BoardSource developed an online assessment tool that not only looks at overall board performance, but allows individual board members to evaluate their own performance. Other organizations use other methods, but the bottom line is that in true Gestalt fashion, the whole (i.e., the board) is greater than the sum of its parts (i.e., individual directors). Each board member has an effect on every other board member, and the functioning of the whole as a coalition of individuals effects each individual who is part of it. Such a dynamic understanding of the interdependence and connectedness of directors to each other and to the whole is supported by regular individual assessment. Some organizational theorists like Robert Quinn (5) even suggest that deep change in the organization is not possible without deep personal change by the participants. Therefore, opportunities for individual director performance evaluation should accompany efforts to assess overall board effectiveness.
A sound and relevant assessment practice involving individual board members should focus primarily on how well they meet the stated expectations, and not necessarily on how they perform on the commonly recognized board responsibilities. For example, preparation for board meetings is a reasonable expectation that supports effective board meetings. Strategic alignment with resources is a common board duty but isn’t something that an individual board member can directly effect. Participation in board meetings, individual philanthropic support, honoring confidentiality of information, acknowledging a conflict of interest – these are examples of individual responsibilities which should be assessed.
Besides formal, commercially available tools, there are a number of ways in which such individual assessment can be conducted. A simple chart of expectations with space to write personal reflections and growth goals might be sufficient. These might be reviewed by the board chair or the governance committee. In those instances where director performance does not meet board expectations, such an assessment could provide the basis for a candid conversation that might explore fit, ability, interest, commitment, behavior, or any other factor that is impeding the director’s full and effective participation. The ultimate outcome of such a process is for the board member to reflect, provide a self-assessment, get some feedback, and identify areas for improvement.
If an organization has chosen to use such an approach to self-assessment, the CEO is the logical person to make sure this process is executed. First, the CEO is already accountable to the board and isn’t being directly evaluated through this process. Second, the CEO should have knowledge of best practices in this area and can recommend approaches that best serve the board and its directors. Third, the CEO has access to staff and support systems that can manage this process in the administration of surveys, compilation of data, generating reports, and scheduling retreats or review sessions. Finally, the CEO can maintain confidential files on board members that contain their personal information, assessment results, donor records, and growth goals.
Informal Performance Evaluation
Besides the structured, formal process of board and individual performance evaluation, effective boards find ways to informally measure how well they are performing. If the board culture values continuous improvement in how well it functions, then there should be shared interest in finding ways to improve, not just on the big things that are covered in a formalized assessment process, but in the small things that contribute to meeting effectiveness – those things which add to a sense of accomplishment, support the belief that board members have contributed to the attainment of the organization’s mission, and that their attendance and participation matter.
There are many ways boards can conduct informal assessments to check how well they are meeting expectations. I’ll discuss several that I have used and which I have suggested for other boards to consider. One of the easiest is to hold a Plus/Delta discussion for a few minutes at the end of a meeting. On a board or slide two columns are drawn, one with a plus at the top and the other with a delta, these connoting either what went well in today’s meeting or what didn’t go well. Either the board chair or the CEO should facilitate the discussion. Specific examples should be sought. After the positive and negative factors have been identified, the board should brainstorm ways in which some of the delta items could be avoided or turned into pluses in future meetings.
Another way to help board members think about their roles and to focus their energies on organizational and board improvement is to devote time (I suggest up to a third of a meeting) to discuss a generative question. Such questions are aimed at doing two things. First, most board members belong to the board because they believe they have intellectual capital to share and desire to actively participate in discussions. It is ironic that most board agendas consist of hearing and approving reports and minutes, processing through rubber-stamp approval actions, and otherwise require only passive participation by directors. Second, well-constructed generative questions provide the opportunity to go deep into an area of mission, board function, risk, performance, or other critical issue facing the board. After I worked with our board chair to include a block of time in every board meeting agenda for this purpose, it was amazing to me to see how much more intensely board members became involved and how much follow-up discussion took place, often continuing for days following the meeting.
Another technique for conducting an informal assessment is to regularly pause after a decision has been made. For example, following a discussion and vote to expend more than a million dollars to upgrade a day services center, we paused to take a breath and reflect on how we felt about how we handled the issue. Such a pause allowed board members to express thoughts such as “I didn’t feel like we had enough information” or “It bothers me that some of us didn’t contribute anything to the discussion” or “I felt everyone had good comments and I feel good about our decision” and “It would have been helpful to understand why some were opposed instead of just voting ‘no’.” Such pauses don’t have to take more than a few minutes, but they tap into the thoughts and emotions of the moment and can provide some valuable insight into how the board and its individual members function together.
Some boards will occasionally use a brief follow-up survey to obtain perceptions around how well the board meeting went and what improvements could be made. This process is made easier with the availability of online survey tools such as SurveyMonkey. On the other hand, such follow up surveys could be perceived as overkill if other informal techniques are already being used. It is also a challenge for some boards to gain unanimous support for such a tool and if response rates are below a reasonable threshold, the data isn’t reliable. Additionally, attempts to evaluate a specific decision days after the event may lose the passion of the moment. Nevertheless, a periodic online survey does communicate the seriousness with which the board thinks about its own performance. The CEO is the logical person to initiate such a process for reasons previously stated.
Boards that seek to function effectively should work collaboratively with their CEO to find and test a variety of assessment tools so the board can assure itself and stakeholders that it is engaged in continuous quality assessment and improvement measures.
Board Development Plan
Every nonprofit board can grow and get better in the performance of its duties. I have talked to this point about how the CEO can help the board identify those areas in which the board is underperforming and for which some type of board development work is appropriate. If board assessment is directly linked to stated board member duties and responsibilities, then education is called for. If weaknesses in understanding the organization’s programs, clients, quality standards or potential risks to the organization are detected, then greater exposure to operations and direct experience with clients might be called for. If challenges are identified in how the board operates in its meetings and committees, then a review of expectations and professional training in best practice in nonprofit governance might be called for. If it is determined that the board as a whole lacks members with needed knowledge or professional expertise, an asset matrix might suggest areas for the CEO and the board’s nominating committee to focus on for recruitment purposes.
In the first instance, a board assessment might reveal some areas of deficit in knowledge and understanding of the fundamental duties and responsibilities of a nonprofit board. These might include a lack of understanding the legal duties of care, loyalty and obedience. The board may not understand its fiduciary responsibility and what that requires of them in terms of understanding and overseeing the financial resources of the organization. Legal requirements around conflicts of interest, self-dealing, and the importance of independence may need to be explained. A periodic review of the basic responsibilities of a nonprofit board could be conducted at an annual board retreat. I tried to never take for granted that every board member understood their basic responsibilities and my experience as a consultant to nonprofit board has confirmed the need for frequently reviewing such requirements.
In addition to legal duties and requirements, every nonprofit board has common responsibilities that must be fulfilled if the board is to effectively serve its governance purpose. Although various professional associations may describe them differently, these responsibilities fall into the following broad categories:
Set the organization’s mission
Hire and oversee the work of the CEO
Conduct strategic planning
Approve programs and monitor their performance
Ensure financial sustainability through effective management practice
Promote public image
Ensure ethical integrity and accountability
Assess its own effectiveness.
Several of these (e.g., hiring and supervising the CEO, strategic planning, public image) have been treated in previous articles. If the board, in meeting its responsibility to assess its own effectiveness, determines a deficit exists in understanding or performance in any of these areas, then education and training is required – all of which can be arranged by the CEO in consultation with professional organizations and associations devoted to building nonprofit board competence.
While most of the general board responsibilities are enduring and don’t change, others undergo modification and require additional monitoring to make sure the board is knowledgeable and can act responsibly on the basis of changing data. Risk assessment and mitigation is one such area that requires board attention. In a large and complex organization this can become a fairly significant undertaking which involves input from all areas of the organization. Development of a risk matrix and management process require the board to regularly monitor the status of various types of risk, make sure that resources are sufficient to monitor and mitigate risk, and that staff are appropriately accountable for management of risk mitigation strategies.
Nonprofit charitable organizations are in the people service business. Occasionally it happens that board members are recruited for their financial or legal acumen and have very limited knowledge or exposure to the actual programs and services provided by the organization and the population of clients served through those programs. In my case, as the CEO of a national agency providing services and supports to individuals with intellectual and developmental disabilities, the large majority of board members, while sympathetic and supportive of the mission, had little direct knowledge or experience with our clients and services. Consequently, a significant part of board development was taking the board into the field to experience first-hand how services were provided. Because we had programs in 14 states, we held one of our quarterly board meetings in a region away from our central office. We toured facilities, visited homes, had dinner with residents, met with staff and clients, and heard from regional leadership teams. Because we were also invested in international partnerships and supported programs in nine foreign countries, we even held one board meeting in the Dominican Republic to provide direct exposure to how we worked with a partner agency to bring innovation and best practice to second and third world countries. Such an experience was, according to board members, a life-altering experience and renewed for them their commitment to our international partnerships.
If a board assessment indicates shortcomings or dysfunction in how the board conducts its meetings, committees and other business, then the CEO is positioned to obtain professional outside assistance to provide training in how to run meetings, how to reorganize the governance structure, how to informally measure its performance effectiveness, how to deal with conflict – in short, how to build an effective team. This is one area the CEO cannot and should not function as the knowledge expert. It is truly an example of a prophet being without honor in his own country. Regardless of the camaraderie and mutual respect that may exist between the CEO and his or her board, providing direct training in how to function better as a board places the CEO in an authoritative position over the board. Inevitably, some board member is going to feel as though they are being “schooled” or criticized by the CEO for not functioning effectively. At the same time, the CEO should have knowledge and access to reputable professionals and consultants who can provide board training and promote the use of some of the formal and informal measures I have previously described. For me, the role of the CEO is critical, however, in this regard. To get to the point at which the board accepts the need for education and training in how to be a board requires an honest and constructively critical appraisal by the CEO. After all, it isn’t just in the CEO’s best interest to have a highly effective board to support him or her. It is the interest of the entire organization and its mission that are at stake.
To summarize, then, a board development plan should be based on a regular board effectiveness assessment. It should include the following general categories to make sure that every aspect of knowledge and competence is addressed.
Understanding legal duties
Fulfilling board responsibilities
Growing best practice knowledge of the field
Supporting individual director improvement
Improving meeting effectiveness.
Addressing other diagnosed deficiencies or dysfunctions.
Once a consensus is reached around the priorities for board development, the CEO can take the lead in formalizing these into an overall board development plan. Again, because the board itself meets only periodically and lacks continuous attention to these matters, the CEO is the obvious person to translate broad board development goals into specific training programs, workshops, guest speakers, field trips, etc. and to manage the calendar of such events including speakers, consultants, timing, execution, support and follow-up. All this can be done in consultation with board leadership without exceeding the perceived limits of authority.
Conclusion
I have argued in this article that the nonprofit CEO has a legitimate executive role to play with his or her board of directors in helping them evaluate their effectiveness as a board and to improve their performance. As a critical component of what I have called “reciprocal governance,” such a collaborative effort has the potential to advance the competence and effectiveness of the board for everyone’s benefit. For the CEO, a higher functioning board is more focused on the issues that are of greatest importance to the future of the organization. For the board, assessment and improvement plans reap a greater sense of accomplishment and greater participation by its members. While the CEO is subordinate to the board in one sense, the fact is that few boards can evaluate themselves and commit to improvement without the knowledge, expertise and management resources of the CEO. Finally, partnership toward achieving mutually agreed upon goals is the very essence of effective leadership.
Notes and References
1 Maine Association of Nonprofits: https://www.nonprofitmaine.org. This organization and many state associations like it provide a plethora of tools and resources for assessing board performance.
2 BoardSource: https://boardsource.org/board-support/membership/board-support-nonprofits/. This organization has been a national leader for years in the development of tools and resources for boards and CEOs. Its original Ten Responsibilities of the Nonprofit Board was the benchmark for understanding the scope of board duties. Their online assessment tool has been further refined to focus on the board’s people, culture, work and impact. The four areas include the composition, organization and meetings of the board; the leadership culture on the board; the work including mission, vision, strategic direction, funding, public image, program oversight, financial oversight and CEO oversight; the perceptions of the board’s impact on organizational performance.
3 Maxwell, John. Numerous books and articles. John has written so many good books on leadership and provided so many keen insights into its practice, I could not locate the original source of this quote. I wrote it down after reading one of his books, so I know it originates with him, but in unscholarly fashion, I have shamelessly made the attribution without proper citation!
4 Lencioni, Patrick. (2002) The Five Dysfuntions of a Team. Jossey-Bass, San Francisco, CA.
5 National Council of Nonprofits. https://www.councilofnonprofits.org. This website can connect the reader with all the state nonprofit associations and offers many resources for boards that are interested in finding ways to improve their effectiveness. A quick perusal revealed a large number of state associations that have developed their own assessment tools for measuring board effectiveness and resources for boards to intentionally work to improve.
6 Quinn, Robert, (1996). Deep Change: Discovering the Leader Within. Jossey-Bass. San Francisco, CA.
