The Year of Three Executive Directors: Important Lessons for Board Management
One board member’s personal trials and triumphs of serving on a board, including invaluable lessons that every board member can benefit from.
Article Highlights:
Trials and triumphs spotlighting invaluable lessons that every board member can benefit from.
Being a board member of a nonprofit can be a tough and demanding job. You generally don’t get paid, and the added responsibilities definitely cut into your free time.
However, the job is all the more nerve-racking when the organization’s executive director is not the right person for the job. The pressure becomes even more overwhelming when you replace the first ED and the second one doesn’t work out either. How did this happen?
Well, there are some lessons here for all board members. And hopefully, you can learn from our mistakes.
First, Some Background
I was recruited to be the board chair of a nonprofit funded by both the federal and state governments. When I agreed to accept the position, I had no idea that the board was composed of generally well-meaning individuals who had no previous experience running such an organization. In fact, I was replacing the only professional on the panel, who was stepping down from his position as board chair due to job relocation.
The nonprofit was also experiencing a decline in funding, and regulators were putting pressure on the ED to find board members who could put financial controls into place. With my experience as chief financial officer of several public companies as well as a nonprofit, I was more than willing to help out this organization that definitely seemed like it needed some assistance.
First Alarm: Conflicting Appointments
But my alarm bells started ringing as soon as I realized that the ED had promised the board chairmanship to someone else. We both showed up, and a very confusing board meeting transpired, with, thankfully, only a minor amount of acrimony. The other candidate for the spot gracefully withdrew, and I was elected.
With this not particularly stellar start to my tenure, I worried that this indication of the ED’s organizational skills meant we were going to be in for a bumpy ride. In retrospect, I would have gladly accepted a bumpy ride. What we ended up with was a roller coaster where it often seemed like we weren’t wearing seat belts.
Second Alarm: Financial Management Chaos
As I started to dig in, I realized the financial management of the organization was in shambles.
Here was the situation in a nutshell: the ED kept the financial records and paid all the bills. There was no segregation of duties and no internal control. The independent auditors had even resigned from the account, claiming “they didn’t have time” to do the audit.
Being a CPA myself, I recognized three problems pretty quickly:
- When the financial function of an organization is in shambles, there is often a reason why (the reason is usually not a good one).
- The regulators were right to be concerned about the lack of internal controls, which should be designed (even for small organizations).
- When your auditor resigns, there is usually not just fire under that smoke, but an inferno.
Uncovering the Inferno
Unfortunately, I quickly found out my suspicions about financial mismanagement were correct. Essentially, the ED was running the organization to finance her lifestyle, despite declining revenues and membership. For example, she flew across the country (first class, of course) ostensibly for a conference—a suspect but not necessarily fireable offense. But then we discovered she was paying herself a second salary for the bookkeeping function, and I knew it was time to form a governance committee to take a deeper dive into the organization’s finances.
However, the last straw came from an unexpected place: a small fundraiser our nonprofit organized. Without anyone watching her, our ED drew her ticket as the raffle winner and her best friend’s as the runner-up prize. She then threw out the remaining tickets so we couldn’t verify the results.
This was too much, so I polled the board, and we decided to ask for the ED’s resignation. In this tense situation, the ED pulled what she alleged was an employment contract out of her desk drawer and asked for two years’ pay. However, when I asked her to identify where in the board minutes the contract was approved, we found that there was no board approval for the document. We then agreed on a much more modest severance package, and thus began a new era for the organization.
Or So We Thought
Of course, the speed with which the previous ED departed put the board in a tough situation: we had no management to speak of and no succession plan. Given the dire straits the organization was in, we believed we had to find a new ED immediately. One of the new board members (an attorney) was interested in the job. This seemed like a godsend, and we offered her the job. We all went home that evening thinking we had saved the organization. We were badly mistaken.
In our haste, we made a poor personnel decision, selecting someone who had few people skills and was pretty manipulative. I began to doubt the information she was giving fairly quickly. Within a few months, I found she had, for example, altered an email exchange between herself and our new, independent auditor to reflect more favorably upon herself. I found myself, once again, asking for our ED’s resignation.
As I accepted her resignation, I couldn’t help but remember the old football adage: a general manager only gets to fire one head coach before the general manager also gets fired. Luckily, my position was volunteer, so I didn’t have to worry about losing my job. However, I was acutely aware I had let the organization down and determined to make things right.
A Silver Lining?
Fortunately, the board did learn something from our previous misadventure. After the first ED resigned, we had put a succession plan[1] into place, and one of the staff members filled in as acting ED until we finished our recruitment process. And this time, we were much more careful.
We ended up landing a very talented person. She has been very successful in her position, and her energetic approach has revitalized the organization.
Sources
[1] Don’t let this happen to you! Plan your executive succession now using these articles: How to Plan and Execute an Emergency Succession and None of Us is Getting Out Alive: A Guide to Executive Succession Planning.
You might also like:
- Insider Newsletters: An Easy Way to Keep Your Board in the Loop and Engaged
- Board Horror Stories: How to Reduce Board Resignations
- Rebuilding Nonprofit Boards: When a New Board Can Be a Fresh Start
- Five Lessons for Creating an Effective (and Accountable) Nonprofit Board
- A Cautionary Tale: Overcoming Governance Nightmares in Nonprofit Organizations
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About the Author
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What are your thoughts when an ED fires a long time, dedicated employee, while under scrutiny herself by others in a leadership role? It’s very disheartening when “HR” gets to say, do not re-hire anyone who was asked to resign, despite it being a person vendetta. This ORG I am speaking of is very lucky they were not slapped with a ‘wrongful termination’ lawsuit because the employee who was fired, had brought the ED’s misconduct into light. In the end, the ED was ‘asked to resign’ less than 30 days after the dedicated employee was asked to resign as well.
Does hiring a board member to replace a terminated ED ever work? I have seen it happen countless times and have never seen it successful.
I work with multiple nonprofits across the US and cannot count the number of poor hiring decisions the board has made for the ED, the bad decisions far outweigh appropriate hires. I think it stems from having board members who do not have nonprofit experience, nor have more than a general knowledge about the organization, doing the hiring. I’m wondering why a staff person didn’t fill in in the first place? Why did the board think an attorney with no nonprofit experience would be a good fit? This ties to a larger issue which is the continual dismissal of nonprofits by the for-profit world (we know better, you should run more like a for-profit, etc.). I appreciate your honesty about a difficult situation and hope you will continue your education about non-profit best practices, and board best practices. There are a wealth of resources to help you.
There is a lot more below the water line for this organization. In addition to the executive director issues, which, happily, were finally and successfully resolved, I find myself wondering whether the board has reflected on its ability to lead and govern. The initial situation(s) described didn’t develop over night. I hope this board of directors is doing the important work of building its own capacity to embrace and understand the full extent of its responsibilities.
Author responses to reader comments are below:
1) Patricia, it is important in these situations to carefully circumscribe the power of the ED to terminate an employee, especially if this is a long-service employees. At the same time you do not want to eliminate the authority of the ED to run the day by day operations of the organization. One way to do this is to require prior consultation with the board (or board committee as appropriate) before terminating an employee. This would insulate the person from wrongful or vengeful termination. In this particular situation I would suggest asking the terminated employee to return. If the the firing was in fact due to a personal vendetta and the ED is now gone, then the terminated employee might consider returning. I would definitely ask legal counsel what the consequences of doing this are before rehiring the person.
2) Darryl, in our particular situation, hiring the Board member seemed like an ideal situation. Here was someone that was highly educated and familiar with the organization. We were hasty in our judgment instead of methodically conducting a search for an ED. The Board member should have been forced to go through the recruiting process and perhaps we would have uncovered some of the issues we subsequently encountered with her. In short, I am not aware of any reason why a board member could not be a good ED but that has to be explored during the vetting and recruiting process.