Article In Brief:
- The Problem: The article addresses the issue of how challenging it is to be a board member of a nonprofit organization when the executive director (ED) is not suitable for the job.
- The Context: A well-meaning board of directors can quickly find itself in trouble without an understanding of what to do when nonprofit management is faltering.
- The Solution: The author, a professor of accounting, presents lessons for board members to learn from mistakes he has experienced while serving on a nonprofit board, including the need to have proper financial management, internal controls, and a succession plan, and the importance of not making hasty personnel decisions when replacing an ED.
In this candid account, the author reveals their personal 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 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.
 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.
Articles on Blue Avocado do not provide legal representation or legal advice and should not be used as a substitute for advice or legal counsel. Blue Avocado provides space for the nonprofit sector to express new ideas. Views represented in Blue Avocado do not necessarily express the opinion of the publication or its publisher.