On balance management will always have more information about the organization than volunteer board members. As a result, directors must be proactive in seeking information from management and a variety of other sources, even if they must involve employees other than senior management. Following are three field examples showing what has happened when boards failed to be proactive
The CEO has done a good job for a long period of time. However, the organization has moved sideways for years in an environment that calls for service growth with modest risk. A series of weak board chairs have had responsibility for CEO evaluations. The CEO assumes many board responsibilities by skillfully fostering board consensus based on his modest accomplishments. Inconsequential items populate agendas, and a fast rotating executive committee is enamored with the CEO. A review of the minutes revealed that there hasn't been a dissenting "no" vote cast for decades.
The CEO, who had attended a major university's nonprofit seminar, is regarded by the board as the sole information source on changing governance and management styles. But she/h has allowed the CFO to continually postpone the submission of an accounts receivable report for nine months. When finally submitted, it became clear that the CFO has been carrying many non-collectable accounts as assets. As a result, the nonprofit had to restate financial statements, requiring the assistance of high paid forensic accountants. Stakeholders became concerned about the viability of the organization.
The Board Chair evidently brought some client related problems to the attention of the board. The board was inattentive to the problems. Only two, of seventeen, directors wanted to demand that management take corrective actions and to follow-up on the board's demand. Results: Client care declined and some clients were harmed. Fifteen of the directors have been saddled with a total personal liability fine of about $2.2 million.
What Can Be Done To Prevent Management From Overriding the Board?
• Develop an understood difference between the policy/strategy development and managing organizational operations - While the division is not always clear in for-profit or nonprofit governance, a reasonable on going practice can help define one over time. If it is understood that both board members and the CEO will occasionally overstep the boundary line, each incident can be a developmental opportunity. (http://amzn.to/eu7nQl)
But if a constant struggle persists between the two groups, the organization will evolve to one in which the board abdicates its policy-strategy responsibilities to management and/or the board will want to micromanage operations as a way of consolidating power. Neither is a healthy way to operate in the 21st century.
• Governance Focus -- Nonprofit directors need to be selected on the bases of their behavioral characteristics: critical thinking abilities, strategic understandings, leadership abilities, etc. as well as well as their fields of expertise. They are drawn from a much wider pool of candidates than for-profit directors. Director knowledge of and interests in the governance function are often modest. In addition, rigorous debate can lead to personal conflicts, an anathema in the nonprofit board environment. Not having a financial risk related to the organization, many can feel it best "to timidly go along to get along."
• Collaboration & Communications -- Nonprofit directors need to collaborate to be effective. They also need to be in a position to seek information beyond that which management has provided. But meeting agendas are frequently over subscribed, leaving little time for building directors' interpersonal connections and developing information. What may be needed are directors who:
1. are willing to develop off-line communications channels with others on the board, especially when important issues are being discussed.
2. can articulate complex issues clearly to their peers.
3. are willing to attend social and staff events to become better acquainted with peers and staff. In most nonprofits, the board is only several organizational levels away from the staff.
4. are curious and willing to gather information from other sources than management. They feel they are in a position of strength and are willing to call for the board to engage its own legal counsel if a dire situation arises.
5. have their egos in place and can quickly realize what they don't know and move quickly to fill the gap.
Nonprofit directors will never have the breadth or depth of information possessed by management. To be effective in the 21st century, they will need to trust but verify in their governing overview responsibility and to proactively seek information from atypical sources, such as employees below the management level.