Reflections from Ned
Does the IRS care about Governance? They don’t have authority, but they do have interest!
As stated in the instructions for the form 990, “Even though the information on policies and procedures requested in Section B generally isn’t required under the code, the IRS considers such policies and procedures to generally improve tax compliance. The absence of appropriate policies and procedures can lead to opportunities for excess benefit transactions, inurement, operation for non-exempt purposes, or other activities inconsistent with exempt status.”
In other words: the IRS is asking these questions to determine if the board is truly “in charge” by exercising its governance duties of care, loyalty and obedience, which are the best protections against bad stuff happening – like improper ways board members or staff might be receiving compensation or using the assets of the organization (in IRS terms, inurement), or making money outside the mission you received tax exemption to work on (“operations for non-exempt purposes” in IRS speak).
If you are missing too many key policies and practices – for example, you don’t keep minutes, lack a conflict of interest policy, and have paid people who also have a vote on the board – it can raise yellow or red flags that may lead to further inquiry.
Page 6, Part VI deals with governance, management and disclosure
Section A seeks to determine if there are any relationships with other entities that might diminish the independence of people involved, like family ties or business relationships. Has the board given control to members to elect the board? Is there another organization that could make governance decisions normally handled by a board? (“Parent” organizations such as hospital or higher education entities might face this challenge.) Is there documentation of board decisions in question 8 – did you track what the board decided, usually through corporate minutes?
Section B delves into important policies that reflect governance is happening.
- If chapters or branches of the organization exist, do they operate under policies set by the board?
- Did the board see the 990 before it was submitted, and what process was used to review and discuss it (Live discussion at a meeting? Email discussion?)
- Is there a policy and process to identify and deal with conflicts of interest? How are individual conflicts (potential or actual) made known to the board?
- Do you have policies dealing with whistleblowers calling out illegal or unethical behaviors?
- Is your document retention policy in place, in case the state or IRS come knocking?
- Before setting compensation for the Executive Director and other key staff, what research did you do to ensure you aren’t out of line with comparable organizations?
- Were you part of an arrangement with a for-profit business (rare, but it happens), such as in a joint venture?
Section C reflects the requirement to make your 990 form available to the public, and other ways you can be transparent to donors and community members. Because the 990 is a public document, it’s important to be aware of the story that it tells about you. Foundations and other donors use this valuable source of information to make decisions – so be sure it’s accurate and compelling (to the extent that a tax form can be compelling!).
For other ways to use the 990 as a governance improvement document, see this helpful post: https://www.blumshapiro.com/insights/using-form-990-for-organizational-improvements/
Why does strategic planning matter in a successful organization?
In this post, I try to de-mystify the parts of a strategic plan — each element reflecting an important set of questions that come from both governance and management perspectives.
Let’s start with a working definition of strategy: An organized set of actions toward defined results. That assumes you have defined the results you want to achieve – a rare opportunity in the month-to-month drumbeat of board meetings and staff work. So, strategic planning is a set of exercises and activities that result in deliverables (meaning, usually, a written plan) capturing and guiding your work…with the longer term vision in mind.
Fundamental Questions of Existence
- Why are we here? (Organizational Mission)
- Where do we want to go? (Vision)
- How will we get there? (Strategies)
- Who and When? (Implementation)
A Strategic Plan is About:
- Assessing where you are now
- Imagining choices the organization can make
- Stating Intention and Hope about the future
- Rare opportunity to step back
- What strategies (implicit or explicit) are being employed now? Why did we choose those strategies?
- What alternative choices are available?
- What decisions do we need and want to make?
Common Parts of Strategic Planning Processes
- Development or review of organizational building blocks (Mission, Vision for the “world”, Core Values/Beliefs)
- Assessment of the current situation (Strengths/Weaknesses/Opportunities/Threats)
- Surveys, interviews, or other information gathering
- Description of desired future for the organization (Organizational Vision – what it will look like)
- Sorting/selecting strategies/Strategic Directions
- Stating desired results (Goals, Objectives)
- Implementation: Planning action steps
- Evaluation: Measurement and tracking
- Revisiting the plan, planning for the next year
- Updating of the longer-term vision, assessment of new strategies and desired results
Dance in the Boardroom at the Montana Nonprofit Conference – October 2-4 in Helena
I hope to see you at the Montana Nonprofit Conference! I’ll be presenting a workshop about board/staff relationships on Thursday morning at 8:30 a.m. To see more of the great workshops and keynotes, and to register, visit MNA’s newly-redesigned website here.
As a preview, here are some practical tips that you might be able to use:
- Use “Staff Recommended Motion” following a position paper that outlines the key facts and considerations the Board must have in order to make a sound decision. This would be a starting point for the Board’s consideration of their action on an item.
- Consider using a consent agenda that takes care of routine business (approving minutes and financials, committee and staff reports), with the ability to pull an item from the agenda for review. This can help the Board stay focused on the “big issues”.
- The ED and Board chair/president should meet regularly outside the normal meeting cycle for lunch or coffee, to discuss the functioning of the Board/staff relationship, and deal with strategic or sensitive issues. As the next chair is identified and is 6 months or so from taking the reins, the outgoing and incoming chair should meet together with the ED.
- The Executive Director is justified asking for a clear direction—in the form of an adopted motion—to move forward on a particular business item.
- Executive Directors can ask for authorization, when appropriate, to develop a draft policy for Board consideration.
- Consider using a “Dashboard” approach to tracking finances, programs, fundraising, and other key metrics “at a glance”.
- Consider explicitly setting “Executive Limitations” to define the Board’s collective expectation of what the ED cannot do (besides illegal actions, of course).
- Begin the discussion about emergency/contingency transition, using this workshop as a “report back” from the conference.
Questions for the Executive Director Search/Interview Process: the last of 3 parts of my list of questions for a board going through an executive search (see my questions about designing and conducting the process, below)
- How will we handle differences of opinion among the search participants – for example, if there is a split vote between 2 top candidates?
- What input will current staff and other stakeholders beyond the board have into the process? Will they meet the final candidate(s) before a selection is made?
- How will the board make a final decision? Will they meet a single candidate and ratify the decision, or meet more than one candidate and make the final decision between alternate candidates?
- What process will be followed to make an offer to the selected candidate? Who will handle the negotiations about compensation, benefits, start date, and other details?
- Will a contract be offered to the selected candidate? Has the contract been reviewed by legal counsel?
- How will the new hire become familiar with their duties and responsibilities? Will there be overlap time between the new hire and the departing personnel?
- How will the new director build relationship with the board of directors, individually and collectively? Who will support them in that process? How will early disagreements or differences of style be handled?
- How will the new leader be introduced to internal stakeholders (staff, volunteers) and external stakeholders (donors, community partners, the community as a whole)? How will we handle media opportunities?
- How will the outgoing staff leadership (especially founding leaders) be honored?
Questions for the Executive Director Search/Interview Process: part 2 of my list of questions for a board going through an executive search (see my questions about designing the process, below).
- Who will manage the posting of the job opportunity?
- Where will the listing be posted, and for how long?
- Will we include specific salary ranges and benefits in the listing, or on the job description, or both?
- Who will handle inquiries about the position(s)?
- Where will resumes and other information be sent?
- Who will do the initial screening of the candidates?
- How will we maintain confidentiality about the applicants (e.g. if a current staff person is applying? Or a prominent person in the community who may not want their current employer to know they are applying)?
- How will candidates from out of the area/state/region be handled? Will phone interviews be allowed? Will travel expenses be reimbursed?
- Who will conduct the interviews? A committee? The full board of directors? Will non-board members be invited to participate?
- How many interviews will be conducted? How many candidates will advance beyond the first round of interviews? What inside information will be shared with the candidates, and when (challenges/issues, financials, organizational plans, etc.)?
- What is the role of the current staff in the process?
- What questions will be asked during each round of interviews?
- Do the interviewers clearly understand the legality of interviews (and which are illegal questions)?
- Who will conduct reference checks? Will we conduct any kind of background checks? Credit checks? Other information gathering?
- What happens if no suitable candidates are identified in the first round?
Questions for Executive Transition – Designing the Process
Over the course of my consulting practice, I’ve had the privilege to help a few organizations through the process of selecting a new executive director. When the time comes, this is the most important role a board of directors can play. Often the task requires the board to think and act differently than they are used to. Here are some questions to think about — preferably well before you need to.
- What are our hopes and concerns for the transition to a new staff?
- How do we as a board envision the future of our organization? Do we have a clear strategic plan and direction? If not, should we set one before embarking on this search, or wait until new leadership is found?
- What is the overall timeframe for the search and transition?
- What kind of person is our “ideal” candidate?
- Are the job descriptions and staffing pattern the “right” approach for where we want to go as an organization? Are revisions to job descriptions and/or staffing pattern needed? If so, how and when will that occur?
- Is compensation adequate to attract qualified candidates? What range of salary will be offered? What benefits will be offered? Will there be any support for moving expenses for out-of-area candidates?
- How will we manage communications with internal (staff, volunteer) and external (donors, clients/patrons)?
Stop Saying “My Board!!”
How do you refer to the board of directors which governs the nonprofit you serve? Many Executive Directors have fallen into the habit of calling it “My Board”. If this is you, I challenge you to change the thinking that would lead to that phrase. Three reasons why:
- The nonprofit you and the board both serve is not “owned” by anyone in the same sense as a small business. A healthy nonprofit sees itself as a community asset, “owned” and supported and carried by the donors, grantmakers, sponsors, members (in some cases) and clients. Claiming the board as “mine” works against that notion.
- Boards are not a support group for the executive director, and shouldn’t see themselves that way. The board should focus on the mission, resources and best interests of the organization and the people it serves. As the governing body, the board oversees the executive and holds them accountable to the mission, goals and needs of the organization. Sometimes that can take the form of “support” when the board coaches, evaluates, and provides professional development for the executive. But any support is toward the larger interest of serving the mission.
- Saying “my board” reinforces the “psychological centrality” of the executive, which is the conflation of the executive with the organization in the mind of staff, board and community (think Bill Gates and Microsoft, or Steve Jobs of Apple). People start to think that the organization is centered around, and relies singularly on the presence of that key leader. As Jim Collins observed in Good to Great, high functioning leaders build the leadership and sense of shared “ownership” of the entire organization. They encourage commitment to shared values and clear goals. They don’t want a cult of personality built around them, because they know the organization must be about more than them. Saying “my board” reinforces the idea that it’s all about the Executive.
Instead, try talking about “OUR board”, as in, the organization the board, staff and volunteers all serve together.
Forming the Question for the Board: One of the key roles for the person planning the board agenda is to form the question. I was reminded about this recently in speaking to a new Executive Director about a big, urgent issue that had come up. They were unable to get a quorum and wondered about voting by email (a subject for another day!). As a new ED working with a board for the first time, the idea of a motion was new, and the path to action was not clear…so I got to the bottom line by asking, “What question are you trying to get the board to answer? Is there some authority or resources you don’t have now, that you would need in order to move forward with this issue?”
If a direction on an issue is not clear, where a simple yes/no is not evident yet, It may be helpful for the Executive and Chair/President to think about the options for that issue, and perhaps have some possible motions in mind.
Sometimes the board needs to green light moving forward through “approval in concept” before a group could even come to a clear yes/no question (for example, exploring a new partnership with another organization, or looking into a potential earned revenue opportunity). In this case the Executive or delegated board member needs a nod from the board to continue a conversation or develop an idea before a commitment is made. This helps avoid surprises in the board room when that same issue comes back with a clear yes/no choice.
Other times, the board needs to wade into a discussion before the options crystallize into view. When multiple options are available, list each option on a separate flip chart, identify pros and cons of each option, and the possible feelings or reactions key stakeholders might have.
What challenges and tools have you found in forming the question for the board you serve? I would love to hear from you!
Steps in Board Recruitment: Before you get to the orientation, you have to identify and recruit the new board member. Here are my suggested steps — there are a lot, but each step has a purpose:
□ Identify skills/expertise needed using board profile grid
□ Discuss and reach consensus about approaching potential candidates at board meeting or by email
□ Approach potential candidate to gauge interest
□ Provide application form, commitment form, and job description if interested- ask to return within a specific time frame
□ Contact candidate informally to review and confirm commitment
□ Distribute completed application form, resume, and references to board (or committee)
□ Check references
□ Discuss candidate’s application at the next board meeting
□ Invite the applicant to a board meeting to meet the board and see how the board functions (excuse them before the vote occurs)
□ Optional: Contact candidate to answer any questions and to reconfirm commitment to joining
□ Vote to approve or reject candidate application
□ Contact applicant with results
□ Provide orientation materials by mail or email
□ Conduct initial orientation session, answer any questions
□ Announce new board members to your stakeholders, including membership, staff, program volunteers, and donors.
Note: on a small board, these functions can be handled by the board as a whole; ideally, though, an organization will create a Nominating Committee or, better yet, a Board Governance/Leadership Development Committee that focuses not just on identifying and recruiting board members, but also on board training and information needs, and on developing new leaders.
Board Orientation: Why and How
How do you bring a new board member “on board”? Much of the time I hear from board members that they got a deluge of information in the form of a big notebook, or a link to an online file repository (think Google docs or other online platform) before their first meeting. Minutes, past agendas, policies, bylaws, financial statements, budgets, some program information — it is often an overload of incomprehensible, disconnected documents.
If a live conversation does take place between the time the “newby” is voted on and their first board meeting, it is often a one-on-one discussion with the executive director, with no current board members present. The new board member will learn a lot from that meeting, often about programs, facilities, and other means of mission delivery. We rightfully want the new board member to be exposed to the work of the organization so they can govern appropriately…but where do they get exposed to the concept of “governance”? How are they supposed to connect all those disconnected documents to the vibrant work of the organization? How are they brought into the culture of the board, and how are their expectations managed?
The best way, in my experience, is to have a “live” in-person meeting with board members presenting parts of the information – the parts that relate to the governing and leadership roles of the board. Have the treasurer talk about the financials and the budget, and let the secretary talk about how records are kept and what’s important in the minutes and bylaws. Help new, potentially overwhelmed board members navigate the piles of documents (hard copy or virtual) and connect to the annual cycle of the board (when do we start talking about the budget? When do we review the bylaws?).
Most importantly in my view: have someone from the board — preferably the chair/president or Governance Committee chair — talk about how the board makes decisions; handles debate and disagreements; deals with conflicts of interest; and evaluates the Executive Director among other important topics. Do you have fun at meetings, or is it more business-like? Are we in and out in an hour with little discussion, or do we have longer meetings? Do we have board planning retreats, and what happens when we do?
We would never (I hope) sit down a new employee with a big stack of policy and procedure manuals and a computer and say “good luck, we’ll talk in a month.” Why would we do that to a volunteer dedicating their time to a cause they believe in, by serving on the board?
This kind of orientation process goes a long way toward transmitting culture. Those of you who have heard me address governance before know one of my favorite sayings: The Board manages the Board.
For a free, customizable board orientation agenda, email Ned at ned (at) nedcooney.com with the subject line “Orientation Agenda”.
Tips for Executive Performance Review
Keep these tips in mind when approaching the task of evaluation of an executive director by a board of directors.
- Recognize reviewing the Executive as a key board governance responsibility, so own it
- Be aware of legal parameters of Montana – VERY employee friendly
- Have Executive do a self-evaluation that mirrors the one the board will do
- Treat it as an opportunity for growth and development
- Conduct annually and synchronize with budgeting process (if raises are possible)
- Document concerns and areas for correction (if you let that person go later, and no concerns were raised in the written evaluation, you are lacking backup)
- Tie back to attainment of key indicators, strategic goals and objectives (the parts they can control/influence)
- Focus on WHAT got accomplished, with feedback about their personal behaviors that support success (or don’t)
- Utilize the job description and planning documents as frameworks to evaluate performance
- Consider carefully the use of input processes from staff – parameters must be clear and not an opportunity for “payback”
- Use as one element in considering the compensation package
- Hear what the Executive needs from the board to be more successful
- Balance accountability with support and trust
- Get feedback from all board members and meet in executive (closed) session to discuss and reach consensus
- Manage process through a committee or sub-group (usually Executive Committee)
- Present in person a written document with a place to comment and sign
- Have two people talk through the document with the Executive (chair/president and their incoming successor is ideal)
- Make it adversarial or political
- Rely only on average scores; give qualitative feedback too
- Wait till the annual review to give important feedback – call concerns out to the chair or executive, as appropriate
- Focus on process of day-to-day management – look at results in the big picture
In my last post, I shared one of my favorite sayings about governance: “The Board is the antidote for unchecked, charismatic executive authority”. To me, that means that part of the role of the board is to help craft, and even temper, the visionary ideas of the executive director (or CEO, or other title) in the best interests of the organization. And to say no when those ideas don’t serve those interests.
The importance of exploring this idea was reinforced recently when a colleague shared an advertisement for a new book about the role of boards in the nonprofit sector (I won’t dignify it with a plug here). According to this book, we need to blow up the current nonprofit board model and replace it with an executive-centric approach where the board is recruited by the executive (red flag #1) to give advice and “accountability” to support the vision of the executive, not the board (red flag #2). Further, we should adopt the corporate model of paying board members to participate in meetings – up to $1,000 a day for in-person meetings (sign me up, but hold red flag #3 for me). What would that do to most nonprofit budgets, setting aside the PR nightmares paying board members might invite? Most concerning is the idea promoted in this book that it’s the executive who is responsible for the vision and major decisions, and the board should act as trusted advisors who are in place to satisfy IRS compliance requirements (I’ve run out of flags). Just hire a “strong, visionary” staff leader and cut them loose! What could possibly go wrong?
No one person can see all the down sides and benefits of any new idea, and it’s important to consider the fit with mission, culture, relationships and risk tolerance, among other questions. An enthusiastic, forward thinking executive can grow an organization through program development, building funding relationships, or creative marketing efforts…but such new directions can put the organization at risk. We all have “blind spots” and need to be sensitized to the way others may see the risks we take.
During my time as an Executive Director, I brought program ideas and new strategic partnerships to the board. Many times, the board embraced the proposal, asked hard questions and made me do my homework, resulting in a stronger direction than if I had been the sole decision maker. Other times, my ideas were not accepted — through strong deliberation, embedded in the values of the organization and considering our place in the community, the board rejected my proposal.
The best illustration of this was a proposal I brought forward to explore a new program. Through our Alternative Sentencing Program, the organization I served helped people make restitution through community service and avoid jail time or large fines. Because of our good reputation and relationships, our partners in the Probation Department wanted us to develop a urine-testing program to help with monitoring their clients. I saw a potential new source of revenue, and the opportunity to meet the needs of a critical partner in our work (the Probation Department). After considering the proposal and the potential revenue, the board of directors voted to not go forward with the program, because it would put us in a different role than we were in — more punitive, with the possibility of sending people back to jail if they failed their test. The board “checked” my (charismatic? you decide) executive authority and said no, this was not a fit with our relationships in the community, culture, or desired role with the people we helped. Setting aside jokes about “new streams of revenue” and such, the board made a good decision.
Had I been left to make the decision myself, I might have reached the same conclusion eventually…or might have pursued this new direction that, with hindsight, would not have been good for the organization. The board did what it was supposed to do — govern, set the vision, and look out for the best interests of the organization we served together.
Is the board governing? (June 2017)
We often talk about Board Governance…I say governing should be the central focus of every board, but what does it mean to “govern” an organization? How is that different from “running” or “managing” an organization?
First, let’s dispel one common misconception — the difference between a “working board” and a “policy/governing board”. I believe this is a false, even harmful, dichotomy. EVERY BOARD MUST BE A GOVERNING BOARD! Without a volunteer body which is truly in charge, exercising the last call on every important decision (or delegating with accountability), you don’t have a truly functional nonprofit. No matter what staff or program volunteers do, the board can never relinquish ultimate responsibility for the actions of the organization – this is the essence of the duties of care, loyalty and obedience.
If the board sees itself in one of the following ways, to the exclusion or ignorance of governance, the board may not be living up to its full responsibility:
- A “working board” – this usually means people do a lot of tasks outside the board meetings, like putting on fundraising events or helping with programs. But, is the board a group of people consciously exercising governance together, or is it a team of volunteers who occasionally come together?
- A “support group” for the Executive Director – this can happen with a long-serving Executive who is perceived as respected and effective. The board sees its role as mostly providing whatever that person needs to succeed, instead of ensuring accountability on the part of that person to the larger purposes of the organization and to applicable laws and regulations.
- A “rubber stamp” board – sometimes this occurs in larger, more complex organizations where the board may not be engaged enough to know whether the staff is pointed in the best direction for the organization, so policies and motions that come from staff are passed without much dissent or even questions from the board.
- A “board in name only” – the Executive exerts so much control over big decisions and board recruitment, effectively disempowering the board from any ability to ensure accountability in the best interests of the organization and the people it serves.
My favorite platitude about governance is this: “The Board is the antidote for unchecked, charismatic executive authority”. What does that mean? How can you help the board you serve on avoid the common mistakes above? More on that from me next time — watch this space! But in the meantime, start with the Montana Nonprofit Association’s Principles and Practices section on Governance to ensure you are doing the basics to ensure effective governance here: http://www.mtnonprofit.org/Governaceandleadership/