Where Nonprofit Boards Fall Short

Missed opportunity concept and too late symbol as slow and delayed businesspeople stuck on a bridge because an eraser erased the path with other quick employees continuing the race over the cliff as a business metaphor.

A few months ago, Harvard Business Review published a great piece by Dominic Barton and Mark Wiseman titled Where Boards Fall Short.  In the piece, the authors examined the ways in which boards of directors are failing their organizations and discussed areas in which we should begin to make changes regarding how we approach board service.  Although the article specifically addressed boards of for-profit entities, many of the points and lessons are equally applicable to nonprofit boards.

For starters, the authors cited a few rather shocking statistics:

A mere 34% of the 772 directors surveyed by McKinsey in 2013 agreed that the boards on which they served fully comprehended their companies’ strategies.  Only 22% said their boards were completely aware of how their firms created value, and just 16% claimed that their boards had a strong understanding of the dynamics of their firms’ industries.

Unfortunately, some of these statements may also ring true for nonprofit boards.  How well does your board fully understand your organization’s strategy?  If the board doesn’t have a strong understanding of the organization’s long and short-term strategies, isn’t aware of the value the organization creates in the communities in which it is active, and/or doesn’t understand the environment in which the organization is operating, what can be done to change that?

It may mean increased communication between the organization’s staff and the board, holding additional board meetings to increase board engagement, or perhaps recruiting new or different individuals to serve on the board.  Directors can and should be powerful advocates on behalf of the organizations they serve and lack of such knowledge can negatively impact their ability to serve in this role.

The authors pointed to another recent survey in which 604 C-suite executives and directors around the world were asked to identify which source of pressure was causing their organizations to overemphasize short-term financial results and underemphasize long-term value creation.  According to the authors, the “most frequent response, cited by 47% of those surveyed, was the company’s board.”

Are nonprofit boards similarly focusing on short-term financial results to the detriment of their organizations’ long-term creation of value?  While boards of tax-exempt nonprofits have a duty to prudently manage and invest the organization’s funds and assets, boards should also be thinking of how the organization is using its assets to create value, both in the short-term and long-term.

So, what can organizations do to strengthen their board involvement?  The authors of the article suggest that a good first step is to make sure that everyone understands what a director’s fiduciary duties to the organization are.  Directors of nonprofits typically owe to the organization on whose board they sit the duties of care, which requires the director to act with such care as an ordinarily prudent person would in a like position and under like circumstances, and loyalty, which requires the director to act in the best interests of the organization.

The authors state “[i]f directors can keep their fiduciary dut[ies] in mind, big changes in the boardroom should follow.”  The same can be said of nonprofits—if directors are aware of, and consistently keep in mind, their fiduciary duties to serve the organization and its mission, it should have a strong positive impact on organizational success.

The article next discusses the importance of selecting the right people for the board.  This is certainly applicable to nonprofits.  The board is entrusted with the responsibility of overseeing the affairs of the nonprofit on behalf of the public; it steers the organization and has ultimate oversight responsibility for its performance.  Having the right individuals on the board makes all the difference and nonprofits should place appropriate emphasis on board recruitment and development.

Another statistic from the article states:

Only 14% of 692 directors and C-suite executives surveyed by McKinsey in September 2014 picked ‘a reputation for independent thinking’ as one of the main criteria that public company boards consider when appointing new directors.

Does your organization actively seek independent thinkers who will bring a fresh perspective to its board?  Are there other qualities that you emphasize in selecting new board members, or that you don’t emphasize, but maybe should?  Do your directors bring appropriate functional knowledge and diversity of expertise to the table, or are there gaps that you should be looking to fill?

The authors also point to the practice of developing an advisory board of external experts to complement the expertise of the board.  Recruiting non-directors to serve on an advisory board or committee can dramatically enhance the resources and knowledge available to a nonprofit.  Moreover, you may find that individuals who are not willing or able to commit to board service may be more than willing to serve in a less demanding capacity as an advisory board or committee member.

The article emphasizes the importance of providing opportunities for the board to engage in quality and in-depth strategic conversations.  With the many things that must be discussed and addressed at nonprofit board meetings, setting aside sufficient time for such in-depth conversations often falls by the wayside.  However, setting the strategic agenda for a nonprofit is one of the board’s most important tasks and creating time for this to be done properly is essential.

Perhaps this is done at an extra board meeting scheduled solely for this purpose, at a board retreat where directors are asked to think big and shift their focus away from the more administrative aspects of governance, or at a special board outing that exposes the board to the organization’s programmatic activities and the impact they have on the communities the organization serves.  Whatever format is chosen for such conversations, the important thing is that they happen and that the board is provided the opportunity to think about the big picture.

The authors next argue that boards “need to do more to develop and communicate nonfinancial metrics that will help guide strategy, especially when income statements don’t capture the emerging story.”  Measuring impact and developing appropriate metrics are matters that nonprofit leaders are often all too familiar with.  However, the importance of finding non-financial metrics and compelling narratives that reflect the fully story of the nonprofit’s successes, and figuring out how to appropriately convey these to supporters and funders, cannot be overemphasized.

Finally, the authors discuss the importance of using the directors to facilitate dialogue with long-term supporters and contributors to the organization.  As mentioned above, directors can and should be fierce advocates on behalf of the organization and, when properly engaged and informed, can serve as a tremendous asset to a nonprofit with respect to donor relations.  Nonprofits should consider the ways in which they can utilize their directors to reach out to, and be available to, current and prospective supporters of the organization and the public at large.

Although nonprofits and exempt organizations are subject to a variety of rules and regulations that do not apply to their for-profit counterparts, many of the considerations regarding board stewardship and utilization apply to organizations in both the nonprofit and for-profit sectors and much can be gained by nonprofits from looking at best practices for for-profit boards.

 

One thought on “Where Nonprofit Boards Fall Short

  1. Beautiful exploration of what is needed for better Boards.

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