Five Lessons for Creating an Effective (and Accountable) Nonprofit Board

Article Highlights:

• From Abstraction to Realities
• Reality 1: Most boards live by the rule of thirds.
• Reality 2: It’s all work and no pay.
• Reality 3: The board is not a reward.

In my four decades as a senior fundraising executive, part-time consultant, and nonprofit CEO, I have worked with (or served on) 20 nonprofit boards. Having been the only one in my business school class who chose a career in the nonprofit sector, I was able to use my MBA training to lead change and turnarounds. In the process, I was exposed to a number of organizations whose boards struggled with a variety of issues.

Most people who join nonprofit boards do so with the best of intentions and are generous in giving their time and talent, yet most of the boards with whom I have worked have experienced some level of dysfunction (see sidebar “The Table of Board Dysfunction” ). As you will be able to tell from the table, this dysfunction is not always the result of their bad behavior. In fact, one of my two biggest challenges as nonprofit CEO involved convincing boards that their service demanded accountability.¹

Throughout my time working with nonprofit boards, I’ve found that dysfunction often starts with lack of accountability in terms of recruiting and onboarding of new members. Such processes, if they even exist, are often too informal and lack clear expectations of what it means to be accountable for a nonprofit organization’s success. What many nonprofit boards need, then, is to redefine board accountability for their organization and make it a priority.

From Abstraction to Realities

Admittedly, this is a pretty tall order—after all, board accountability is at once both a pretty nebulous and seemingly infinitely malleable topic. So, before we get bogged down by abstraction, let’s start with some tangibles, including some admittedly frustrating realities concerning nonprofit boards.

Reality 1: Most boards live by the rule of thirds.

On most nonprofit boards that I’ve witnessed, about one-third of board members will do everything the organization needs them to do (and often more). This invaluable third focuses not on what they as individuals want to do but instead asks: “What can I do to help?”

In contrast is the middle third, who are typically helpful and service-minded—but with a caveat. That is, this third will do what is needed if you engage with and remind them. Most of the time, this third needs a little prodding to get things done.

The final third might be the bane of a productive, accountable board: they simply won’t do much at all, except (hopefully) donate funds.

Reality 2: It’s all work and no pay.

Board service is actually the opposite of pay. By definition, board members should be counted on to make sacrificial gifts or at least to consider the organization a high priority for their philanthropy. Although not bad behavior per se, it’s at least gauche to ask others to financially support a cause that you don’t—and part of being a board member means generating funds through networking. It’s to be expected, then, that board members also put their money where their mouths are, so to speak. Even those of modest means can make personally meaningful annual donations.

Reality 3: The board is not a reward.

Too often being elected to an organization’s board becomes a sort of gift to friends or dedicated volunteers. But the reality is that these people won’t necessarily be effective in a governance role. And this kind of nepotism frequently backfires because board members ideally should possess three of the four Ws: wealth, work, wisdom, and wallop (the ability to influence others). Without these, the board falls flat and is unable to act in service to the organization.

So in light of these (admittedly somewhat harrowing) tangible realities of board service, I want to take a look at a particular case study to see how we might redefine board accountability away from abstraction and towards tangible goals for what an effective board can look like. To do this, I need to trace both the history of the organization as well as the transformational changes it underwent in order to illustrate the lessons I learned throughout this process. It is my hope that you will be able to implement these lessons to increase the efficacy of your own board, furthering its ability to serve your organization as well as your communities.

Growing Pains

Founded in 1926, AbilityFirst (formerly known as the Crippled Children’s Society of Southern California or CCS) was created to help children with polio and other physical disabilities, and I was hired in 1998 to turn around this disability service organization. For the previous 25 years, the CEO, a social worker by training, had built a large board that, over time, had become unwieldy. Simply put, the board failed to keep up with a growing organization and provide it with the leadership and vision it needed. And without the benefit of board training, the organization lived in a time warp (with an outdated mission and name), floundering in its insular bubble.

By the mid-1990s, the situation had grown dire. For years, the board had ignored the fact that the organization’s finances were hemorrhaging. In the year before my arrival, the organization suffered a $3 million operating deficit on a $10 million budget, which was saved only by receiving a surprise $23 million bequest (imagine having to rely on an angel donor—or really whale—to stay afloat!).

At that point, the board leadership realized three things: that it had to (1) become accountable, (2) proactively steward the endowment created by the bequest, and (3) replace the CEO. If it failed to do these, it would risk being held liable for negligence. Simply put, I was brought on to help save a dying organization

The Transformational Change Process—Getting Rid of Dysfunction

With the help of our General Counsel, an organizational development consultant, and board leadership, our executive team downsized the board over the following two years. We trimmed those who only wanted to engage in feel-good philanthropy (Dysfunction #2) while also (successfully) encouraging the resignations of a dozen or so disruptive members (Dysfunction #9) who were especially close to the prior CEO. For those board members with more parochial viewpoints (Dysfunction #5), we relocated them to serve on more focused positions: 10 shifted to serving on one of the seven community center advisory boards² that better fit their niche interests (and with whom they’d had a long relationship), seven with an aptitude for fundraising became charter members of the newly created foundation board (which would serve as the main fundraising body), and four with real estate experience joined a restructured housing board.³ Ultimately, we were left with 20 people who collectively served as a functioning board of directors.

With a sophisticated board now fully supportive and engaged, the organization began to reduce the deficit. We succeeded in eliminating about $600,000 per year without cutting any programs through aggressive fundraising and re-negotiating service rates with the state. After five years, we finally balanced the budget.

In 2002, AbilityFirst was recognized as a visionary organization through a 30-minute documentary. This proved to be a wonderful way to share nationally AbilityFirst’s empowerment philosophy.

Lessons amid the Dysfunction

As previously indicated, the board successfully grew out of its dysfunction, reorganized, and continued to evolve at each stage of the turnaround. However, along the way we learned several lessons that proved integral to maintaining an effective—and accountable—board. Here are five of our greatest takeaways:

Takeaway 1: The succession of the chair is crucial to a successful board.

During my tenure, each chair was carefully chosen to bring the leadership skills and personal qualities needed at the time. The chair who played the heaviest hitter in the transitioning out of the prior CEO was a litigating attorney who was up to the challenge. His successor, another attorney, was the perfect choice to help the organization to heal and reinforce the changes, as he was a strong relationship builder. By the third year, we were ready for a chair skilled in finance, and this chair played an important role in further reducing the deficit. Finally, our fourth-year chair was the parent of one of AbilityFirst’s clients, bringing a critical personal perspective to the board.

Takeaway 2: The CEO must earn the board’s trust and confidence.

A second lesson was the importance of earning the board’s trust and confidence through the executive staff’s actions in growing the programs while simultaneously reducing the deficit. As CEO, I practiced servant leadership, which enabled me to build an empowered management team. We also let go of several ineffective/resistant staff members and replaced them with those who embraced our new philosophy as well as the changes we were making. For example, the job descriptions of our community center and camp directors now included accountability of fundraising and balancing their program budgets.

Takeaway 3: The board needs training.

A third lesson was that the board needed training. Our general counsel conducted several governance workshops,⁴ and the board became well-versed in their roles as well as our bylaws, revising them as needed. We also created a risk management committee to address legal and other issues before they became problems.

Takeaway 4: Board retention requires meaningful involvement

Through the process of the board rightsizing itself, we not only ended up with the right people on the bus but also in the right seats, taking advantage of their particular interests and talents. For example, several members played a major role in the $2 million sale of our HQ building in Hollywood and relocation of the corporate offices to smaller, affordable rented space in Pasadena. And of course, everyone was very engaged in the process of changing our name to AbilityFirst.

Takeaway 5: The board must police itself.

Finally, the board began doing a good job of policing itself. This included identifying dysfunctional behaviors and addressing them, something that never could have happened with 60+ members who didn’t know what their jobs were to begin with. This was a key aspect of shared accountability.

The Bottom Line

The CEO should always ask the question: Do the board and its members add value or just get in the way? Does the board take its fiduciary and legal accountability seriously. If it does, you’re halfway to having a board that adds value. The other half is how well the board partners with the CEO in moving your organization’s mission forward.

Regardless of how strong your board is, the CEO needs to share the lead in rightsizing it. The CEO should carefully recruit and onboard new members, clarifying expectations up front and addressing dysfunction before it becomes destructive. The CEO also needs to engage the board in meaningful and rewarding work—hopefully in partnership with the board’s chair. Finally, the CEO needs to drive the organization and go until the board says, “stop!”

The CEO needs to be the leader the board hired them to be. If the CEO does this, they will have the board’s support and will minimize the likelihood of bad board behavior.

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Footnotes:

1. The other was convincing program staff that meeting mission and financial bottom lines were interdependent and not mutually exclusive—perhaps the subject of a later article. ↩︎
2. Also see: What Is An Advisory Board And Should We Have One? ↩︎
3. The governance structure of our housing program required that each of our 12 Section 811 HUD properties had to be corporations and have their own boards. This was cumbersome and meant that each board was populated by parents of the residents and others without either governance or real estate experience. Our solution was to create mirrored boards, such that the same members served on each of the 12 boards, and 12 meetings could take place on the same day, efficiently, one after the other. This enabled us to shift 4 prior AbilityFirst directors to lead a newly accountable Housing Board. ↩︎
4. Here’s a unique model of nonprofit board governance based in consensus. ↩︎

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
• A Cautionary Tale: Overcoming Governance Nightmares in Nonprofit Organizations
• How to Persuade a New Generation to Join Your Nonprofit’s Board

 

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