pinit fg en rect gray 20 What causes nonprofit Boards to fail?

I wrote this article in response to several nonprofits that have been in the news lately, including one in my area.  I believe that training can solve (or prevent) a multitude of Board problems.  However, this works on the assumption that once people know better, they’ll do better.

 

Nonprofit organizations are formed to meet a need in the community and to do it so that no one benefits financially (no dividends to investors). The Board of Directors of a nonprofit organization has the ultimate authority and responsibility for the organization.  The Board is accountable to the organization’s constituents (donors, clients, and the community) to ensure that the organization’s mission is being carried out in the most appropriate way.  It’s a huge responsibility and it’s not to be taken lightly.

Many nonprofits have been in the news lately with a variety of issues.  From Penn State on a national level to the Knoxville Tourism and Sports Corporation (KTSC) here locally, we’re seeing a variety of problems that could have been prevented by a Board doing its job.

It’s never a good thing when a nonprofit is in the news for something that went wrong. It destroys public trust in the organization which can lead to the deterioration of funding from public and private sources.  It can lead to the inability to recruit skilled, committed Board members, and in some cases, can deter people seeking help from the nonprofit.

At KTSC, there were likely many problems that led to the current situation. Here are the common Board problems that I would guess plagued the KTSC Board. By looking at some of these problems and corresponding solutions, other nonprofits can hopefully avoid ending up in the news in a negative light.

Problem #1. Board members who don’t understand what it means to be a nonprofit Board member.  Many Board members are recruited to help out and they quickly agree because they care about the cause. Unfortunately, there are legal and financial responsibilities that people say “yes” to without knowing what they’re really getting into. This leads to them not taking their job seriously enough and staying on top of things later on.  A little education can go a long way toward helping Board members to understand the severity of their job.

Problem #2. Not asking questions.  Every Board member is responsible for asking questions in the Board meeting about anything they don’t understand.  Sometimes, the Board has a culture of not rocking the boat and questions are frowned upon.  Other times, Board members are intimidated by the veteran members of the Board and don’t ask questions for fear of looking stupid.  At other times, members don’t ask questions because they don’t want to prolong the meeting.  They’d rather just end the meeting quickly and go home. Either way, it’s a problem.  When Board members don’t ask questions, they don’t have a clear understanding of what’s going on.

Problem #3. Too much trust in the Board Chair.  When the Board is chaired by someone perceived as a trustworthy, knowledgeable leader, the rest of the Board can tend to become lax and stop asking questions.  They assume the Chair is doing the right thing and for the right reasons, especially when things are going well. And they don’t question anything.  In fact, when the leader is trusted, it seems silly to question him/her. There’s a balance of trust that must exist between the Board Chair and the rest of the Board in order for the organization to function well.

Problem #4. Not enough communication between the Board Chair and the rest of the Board.  The Board Chair is privy to a lot of information about the inner workings of the organization and should share important information with the rest of the Board. When things aren’t communicated, it leaves the Board as a whole in the dark. Sometimes, the Board Chair simply doesn’t know what to share and what not to share. In the interest of transparency, the Board Chair should be open and willing to share everything.

Problem #5. Board not adequately reviewing financial information.  One of the basic responsibilities of the nonprofit Board is to ensure financial stability.  The Board should be regularly reviewing financial statements to make sure the organization isn’t over committing itself, but is in a financially appropriate condition to carry out its mission.

Often, small nonprofit Boards are comprised of individual Board members who lack the skills to review and understand financial reports.  They mentally ‘check out’ by describing themselves as “not a numbers person” and let themselves off the hook.  Unfortunately, this does not excuse them from making sure the organization is financially healthy.

Problem #6. Lack of clear and appropriate organizational policies.  The nonprofit Board is responsible for providing guidance and direction to the organization, including creating (and following) appropriate policies.  Often, policies are created in response to situations where a clear-cut answer isn’t obvious.

Problem #7. Lack of focus on stewardship.  A nonprofit organization wouldn’t exist without its donors and supporters.  One of the basic principles of running a nonprofit is to be a good steward of the resources donated by others.  A lack of stewardship results in arrogance and misuse of funds.

When an organization is focused on stewardship, its leaders are always asking themselves if money is being used wisely.  They evaluate their purchases, routine expenses, and staff salaries to make sure they’re fair and reasonable.

Many of these Board problems can be averted by training. A half-day of basic Board education with a knowledgeable trainer can head off many potentially disastrous issues and give individual Board members a level of confidence and understanding.

All Boards need adequate procedures for recruiting Board members with adequate skills and experience and providing them with a good orientation to the Board and organization.  By setting people up for success from the beginning, nonprofits will avoid untold problems down the road. 

Finally, all Boards need an annual self-assessment to make sure they’re doing the best job they can.  There is no “Board police” who will evaluate a Board to see if it’s doing a good job or not.  A coach or consultant can help evaluate the job the Board is doing and make recommendations or provide training, but it must start with the Board itself realizing it needs help.

The silver lining in this situation with KTSC is that more people will learn more about the roles and responsibilities of a nonprofit Board.  When Boards are stronger, nonprofit organizations will be stronger.  And when more nonprofits are stronger, the community will be stronger.

So, what do you think?  I’d love for you to share your comments. And if you’d like to read the comments on the Knoxville News-Sentinel’s site in response to this article, you’ll find them at http://www.knoxnews.com/news/2012/mar/18/sandy-rees-problems-in-nonprofits-can-be-traced/

Comments

comments

  1. As I read your post, I thought about a client whose Board Chairperson is disengaged. It’s really made it difficult for the Executive Director. Being a Board member is a big job, Sandy, as you have well emphasized.

  2. Thanks for outlining these issues. As you say in point one, so often board members just don’t seem to understand the important role that they play – and the responsibilities involved. Perhaps it’s partly to do with the large numbers of nonprofits in need of board members – and not having enough qualified people to fill those roles…

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