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Nonprofit Strategy Revolution

The Nonprofit Strategy Revolution is upon us!

There is a design flaw in the nonprofit framework that hobbles nearly every organization, whether it’s long-established or fresh out of the box. The trouble is that the flaw is so entrenched and long-standing that nearly everyone sees it as just a necessary evil that must be tolerated. But not anymore — not in your nonprofit — because you already know or are very shortly going to know just what to do to change the game and set yourself up for radical success in serving your community. The r-word — revolution — is in the air.

Finding the Lost Glass Slipper

Let’s start by gaining an understanding of that deeply rooted flaw through the metaphor of the classic Cinderella story. Imagine Cinderella being your wonderful nonprofit and the lovely glass slipper being the way you perform miracles through your nonprofit. The luxuriant ball Cinderella so wishes to attend is the community your nonprofit serves. Only someone slips a clunky work boot on Cinderella’s foot instead of the elegant slipper.

That old, scuffed-up work boot has been strapped to the foot of every Cinderella nonprofit ever since the dawn of nonprofits, and it has turned their graceful walks into clumsy plods. It was an honest mistake, done with the best of intentions, and yet it is the legacy we inherit. As you shall see — and perhaps already know — it is a legacy that is taking a revolution to replace the heavy, cloddy work boots with light and lively glass dancing slippers.

Let’s now bring the metaphor home to the nonprofit world. Nonprofit organizations, whether they be charity, service, or educationally focused, differ fundamentally from for-profit organizations in both structure and goal orientation. Yet their governing boards are based on the same blueprint and attempt to function similarly. The same is true of the CEO and board-CEO relationship models.

Where there are parallel needs to be met, a shared blueprint might make some sense, but what about the broad landscape where nonprofits and for-profits diverge? The differences — and the issues that arise — are well known to those who have served on both for-profit and nonprofit boards, and to corporate CEOs who have attempted to enter the nonprofit sector, or vice versa.

The core reason we have for-profit and nonprofit organizations, along with separate and distinct legal and financial structures to support each, is to provide the best support for each to fulfill their reason for being. Yet we have not followed suit by providing separate and distinct governing board structures, and nonprofits suffer for it. In the words of investment management consultant Thomas Holland, “Effective oversight by a board…is a relatively rare and unnatural act.”

The fallout from essentially trying to fit a round peg into a square hole is common knowledge to not only board members and CEOs, but to virtually every person who has been involved with a nonprofit for any amount of time. From inefficient management and ineffective fundraising to uneven staff performance, high staff turnover, poor volunteer recruitment, and stakeholder dissatisfaction, the litany goes on. Longtime nonprofit consultant Jonathan Schick says, “So many times I’ve seen the consequences of the absence of an effective governance model, which is often joined by a pervasive misunderstanding of how the board and CEO were meant to work alongside one another. This lack of structure has repeatedly resulted in abandoned hopes, lost jobs, and atrophied dreams.”

Enter the Advance Brigade

Fortunately, there is change afoot. Here are some of the best-known and regarded voices on the cutting edge of the nonprofit management revolution:

  • Louis Fawcett, president of the National Association of Nonprofit Organizations and Executives (NANOE) and PAX Global, senior counselor for Development Systems International and is a National Development Institute faculty member.
  • Jimmy LaRose, cofounder of NANOE, has served as corporate and nonprofit CEO and worked with over 900 boards, along with individuals, governments, corporations and foundations in the U.S., Europe, Asia, and the Middle East over his thirty-two-year career.
  • National Development Institute Trainers, worked with Clemson University, Boy Scouts of America, Junior Achievement, Salvation Army, March of Dimes, American Red Cross, Habitat for Humanity, Girl Scouts, YMCA, and many other noted nonprofits.
  • Kathleen Robinson, PhD, cofounder of NANOE, has held professorships at Universities of South Carolina and Hawaii, served as a consultant for the United Nations, US Peace Corps, and numerous agencies across the globe, received numerous fellowships and awards of distinction, and has testified before the US Congress and the United Nations.
  • Jonathan Schick, University of North Texas professor, president of Goal Consulting Group, which serves nonprofits, schools, and governments, and author of The Nonprofit Secret: Six Principles of Successful Board/CEO Partnerships.

These rations — along with many of you readers as well — are making a difference. In my consulting work, when I present some of the ideas originating with the people listed above, you can sometimes hear a pin drop. Then after a minute, those who are ready for change break into broad smiles when they come to realize that transforming the status quo truly is possible. That, dear reader, is my greatest reward for the work I do.

The groundbreaking changes our nonprofit visionaries are catalyzing can be summed up in four words: relationship, resilience, resolution, and release. Here is how they translate:

  1. Relationship: The synergy that makes miracles happen is based entirely on smooth-flowing interactions with your associates.
  2. Resilience The sustainability needed to keep those miracles coming requires the ability to bounce back and stay the course.
  3. Resolution. To keep the inevitable bumps in the road from becoming roadblocks requires effective and appropriate conflict resolution techniques.
  4. Release. There needs to be responsible sharing of control in order for the wings of creativity to spread.

Those Four Rs are all you need to get off the ground with a bang, or to revamp and revitalize your faltering organization. Oh, and there is that other r-word we started with: revolution. Orchestrating the Four Rs into a statement nonprofit takes leadership that is both enlightened and daring. Along with that, a board is needed that desists from attempting to micromanage the CEO and daily operations, and instead focuses on its true calling: being Keeper of the Fire — the Vision.

“Easier said than done,” I can hear some of you saying, and you are right. I encourage you to reach out for help, and that’s what NANOE is all about — there you’ll find the sage guidance and practical how-to information you need. And you may wish to team up with a consultant to stand beside you in the trenches and point the way to victory. After all, a revolution could ruffle a few feathers, which makes it challenging to stay centered enough to be both effective and respectful.

 The Key to Success Is Creating Board-CEO Synergy

There is trouble in paradise. If you are part of a long-standing nonprofit, you may be in the middle of it right now. Or it may be simmering under the surface. Then again, you may be fresh to the nonprofit world, and you are working on launching a new nonprofit. Internal tension is the last thing on your mind, as you are filled with visions of all the good you are going to do for your community. And that is as it should be. Yet prevention is everything, so it is good for you to now know that there is an inherent glitch in the way nonprofits are structured and expected to function.

Whether you are new to nonprofits or a seasoned professional, the solution is the same: It’s all about getting your board-CEO relationship right. I suggest you focus first on understanding the issue, then on laying down the format for a board that any CEO would die for — and a CEO that any board would die for. If you are going to achieve your dream — or get back on track with your dream — your board and CEO have to work together like it’s a match made in heaven. Don’t settle for anything less.

Old Money, Old Model

The twentieth century concept of the nonprofit board of directors was based on the nineteenth century industrial model. Directors then either owned shares of the corporation, or they were elected to represent shareowners. Having personal vested interests in the corporations they served, they made management decisions and hired and fired top management.

That model was carried over to the nonprofit sector, as many industrialists were also philanthropists. They needed a governing structure for their benevolent work, so they applied the management model they were accustomed to. Thus, the industrial board of directors’ template became the modus operandi for twentieth century charitable, educational, and nonprofit organizations.

This occurred one hundred-plus years ago in the Northeast with socially conscious industrialists in Boston, Philadelphia, New York, and other major metropolitan areas. They were doing a good work, yet they didn’t necessarily have the education, background, or acumen for it, which is why they took the corporate board model and began applying it to nonprofits.

Now, in the twenty-first century, a movement is afoot to replace the industrial board model with one that is designed to serve the nonprofit sector. It is based on trusteeship of the organization’s mission, rather than directorship of its operations. The fundamental difference between the two types of boards is explained here by management analyst Toni Hoy: “A board of trustees primarily operates in an advisory capacity, leaving decision-making to the senior leadership, whereas a board of directors is responsible for decision-making…A board of trustees advises senior leadership…yet their primary role is upholding the mission.”

The Fallout

Let’s get a better grasp of where the industrial board model came from and what came of it when it partnered with nonprofits. The movers and shakers were the industrialists-turned-philanthropists who created dynasties that have come to be known as Old Money. The Cambridge Dictionary defines Old Money as rich people whose families have been rich for a long time. Much of big business is still controlled by Old Money, and related philanthropic involvements are still funded by Old Money.

It all began back in the mid-1800s, with prominent Baltimore businessman Moses Sheppard establishing a hospital endowment in 1853. Soon after, financier George Peabody established the Peabody Institute, Donation, and Education Funds. In 1873, railroad investor Johns Hopkins established a bequest for the founding of a hospital, library, and school. Oil magnate John D Rockefeller established the Rockefeller Foundation in 1913, followed by automobile pioneer Henry Ford’s son Edsel establishing the Ford Foundation in 1936.

That may all sound fine and good, considering the many, many lives that were positively touched by the benevolence of those cornerstones of early American enterprise. Yet the inner workings of the foundations, charities, hospitals, and schools they established, and the majority of the nonprofits that sprang up in their wake, tell another story. Following is a representative sampling of comments on the topic from several of today’s nonprofit consultants, researchers, and academics that I have come across in my research:

  • “Boards have been largely irrelevant throughout most of the twentieth century.” – James Gillies
  • “Traditional board models must end now. It hasn’t ever worked, and never will. It’s not the fault of the individual volunteer (most of the time), it’s simply a flawed business model that never had a chance to succeed. [Boards are] made up of volunteers who have a limited knowledge of nonprofit enterprises. End boards as we know them and reconfigure them in a way that works.”–Jimmy LaRose
  • “Ninety-five percent (of boards) are not doing what they are legally, morally, and ethically supposed to do.” – Harold Geneen
  • “Board members are usually intelligent and experienced persons as individuals. Yet boards, as groups, are mediocre. Boards tend to be, in fact, incompetent groups of competent individuals.”John Carver
  • “By and large, the vast majority of volunteer board members do not have the time, experience, or skills necessary to manage a good CEO.” – Mark Rodriguez

It’s Nobody’s Fault

Above all, let’s be careful about succumbing to the blame-shame game. The standard board-CEO structure, unfitting as it is, was nobody’s choice — it’s something we unwittingly inherited. So when we get frustrated with it, let’s resist the temptation to find somebody to pin it on. Nonprofit consultant Jonathan Schick sums the situation up well when he says, “Nonprofit boards are often riddled with political and functional challenges that creep into the running of the organization, conflicting with operations and inhibiting effectiveness, despite everyone’s devotion to the same set of goals.”

After spending twenty-seven years in nonprofit management and having worked with hundreds and hundreds of boards, consultant and NANOE cofounder Jimmy LaRose has this to say about the future of the board-CEO relationship: “Abandon the failed system, give our communities the gift of a strong CEO, give our strong CEO the gift of a board that actually works.”

Bringing Your Board Up to Date

Fortunately for us today, the old board of directors’ model for nonprofits began to change in the mid-twentieth century. The Ford Foundation was a pioneer in the transition, and they are a prime example, as they referred to their board as a “board of trustees” rather than the old, industrial “board of directors” carryover. From the mid-1940s to 1976, Henry Ford II, son of Ford Foundation founder Edsel Ford and grandson of Ford Motor Company founder Henry Ford, served as the Foundation’s president, and as a board member. Yet even with his distinctive heritage and numerous exalted titles, he was still seen as a trustee, along with his fellow trustees comprising the board.

From Directors to Trustees

The distinction between director and trustee lies at the heart of the transformation from the old corporate board model to the contemporary nonprofit model. The Business Dictionary defines a director as a person who leads or supervises a particular area of a company. A trustee, on the other hand, focuses on the larger issues and broader decisions that affect the organization, explains Michelle Kaminsky, J.D., a New York district attorney. She states that the issues to be addressed include the primary responsibility to uphold and protect the organization’s mission, which is known as a fiduciary duty.

The Bottom Line: Trust

Fiduciary, a term derived from Roman law, describes the character of a trustee, who is invested with rights and powers to be exercised for the benefit of others. A fiduciary embodies a character of trust and confidence, along with the scrupulous good faith and candor which the position requires. Forbes advisor Brett Sember, J.D. states that fiduciary relationships are all about trust. Fiduciaries “must act in the best interest of the company…with the highest degree of loyalty and care when fulfilling their duties.”

A board of trustees, then, operates primarily in an advisory and fiduciary capacity, according to management analyst Toni Hoy, and leaves decision-making to the senior leadership. The duties of the board are to represent stakeholders, serve as ambassadors for the organization, uphold the organization’s reputation, and assist in annual strategic planning.

A board of directors, on the other hand, is responsible for decision-making, says Toni. The board’s duties are to recruit, hire, and monitor the CEO, establish policies, strategize, set goals, and conduct fundraising. In performing such duties, a board of directors finds a continual need to step out of form and micro-manage, states Leadership Consortium founder Maxie Carpenter, rather than being able to provide guidance through oversight, which would be the more appropriate approach for nonprofits.

The following is Toni Hoy’s chart briefly showing the key distinctions between the two types of boards.

Board of Trustees and Board of Directors Compared

Board of Trustees Board of Directors
Type of Organization Nonprofit organization or charitable foundation Public corporation or private business
Primary Role Upholding mission or founding vision Overseeing operations and maximizing profit
Scope Operates in an advisory capacity Directly responsible for decision-making
Function May engage with interested parties Defends the interests of stakeholders and investors
Financial Interest No financial affiliation May hold stock in organization they are representing

It’s All About Relationship

At the heart of every successful nonprofit is one thing: the board-CEO partnership, says Jonathan Schick, president of Goal Consulting Group. “It was the partnership between the board and the CEO that ultimately defined whether or not the organization was healthy and successful,” Jonathan discovered. “Time and again,” he went on to say, “we’ve seen where improving the board-CEO relationship has changed the culture in their organizations, helping them establish a strong focus on ethical governance and lasting growth.”

A pervasive misunderstanding of how the board and CEO were meant to work alongside one another has repeatedly resulted in abandoned hopes, lost jobs, and atrophied dreams.

One branch can be coasting along smoothly, but if it’s not working in harmony with the other side, your organization simply isn’t going to function at its fullest potential. When the board and CEO start working in tandem, you’ll experience a burst of energy and creativity that you never imagined possible. When you get help in finding ways to use your people’s energies in positive and affirming ways, your organization will achieve unprecedented success.

The Nugget

“The perfect board is the one that understands its role vis-a-vis the CEO,” says Jonathan, who is the author of The Nonprofit Secret: Six Principles of Successful Board/CEO Partnerships. “What really you need to look at,” he goes on to say, “is one thing: the marriage between the board and the CEO. That’s it — that’s where it begins and that’s where it ends. That is the driver of success in any nonprofit.” [End insert]

NANOE cofounder Jimmy LaRose explains that the primary reason for board-CEO relationship dysfunction is that by and large, the vast majority of volunteer board members do not have the time, experience, or skills necessary to manage a good CEO. “So inevitably, instead of the members managing the CEO, the CEO is tasked with the annoying responsibility of managing the board.” The National Development Institute recommends that nonprofits make their CEOs the board chair, because in effect he/she already is anyway.

The bottom line is that good leaders aren’t managed by committees. Louis Fawcett, president of PAX Global, says that while it’s important to have board members covering a span of expert subject areas, “it’s more about a board that supports the vision of the CEO, and is supportive of the CEO. We do want the board to hold the CEO accountable for the goals that she sets…but ultimately the board understands that it is her purview to run the organization. They don’t need to be involved in the day-to-day management of the organization. They are there for advice and accountability.”

Nonprofit Strategy Revolution was first posted at NANOE

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