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A significant number of nonprofit directors admit their boards are ineffective, according to a Stanford study which also makes nine recommendations for success.
The study by the Stanford Graduate School of Business surveyed 924 nonprofit directors on board governance in 2015.
Many respondents admitted they’re unfamiliar with their nonprofit’s mission and strategy, they’re not able to appraise their performance, and they aren’t confident in their peers.
“Our research finds that too often board members lack the skill set, depth of knowledge, and engagement required to help their organizations succeed,” says Stanford accounting Professor David F. Larcker, the lead researcher.
Dr. Larcker was partnered with management lecturer William F. Meehan III, corporate governance lecturer Nicholas Donatiello, and researcher Brian Tayan.
Key findings:
— 27 percent of board members don’t think their colleagues have a strong understanding of the mission and strategy
— 65 percent don’t think their board is very experienced, and about half don’t think their colleagues are very engaged in their work
— 46 percent have little or no confidence that the performance data they review accurately measures the success of their organizations
— 32 percent don’t think their board can evaluate their organization’s performance
— 42 percent don’t have an audit committee, and many rely on monthly bank statements to monitor financial performance
— 57 percent don’t benchmark their performance against peer groups
— 39 percent don’t establish performance targets for executive directors
Succession planning is also problematic. Two-thirds don’t have a succession plan in place, and 78 percent couldn’t immediately name a successor if the current executive were to leave suddenly.
Strangely, nearly 90 percent have confidence in the executive director.
“It’s human nature,” says Professor Meehan. “We don’t like to hold ourselves accountable, and we don’t want to stand out to say we don’t understand something.”
“Our research finds that too often board members lack the skill set, depth of knowledge, and engagement required to help their organizations succeed.”
Traits of successful boards:
“What great nonprofit boards have is a handful of serious, committed board members who ask the right questions, spend the time, raise the money, and are intellectually engaged,” says the professor. “You only need a handful, and you never get more than a handful. But it’s essential.”
Dr. Larcker also says more nonprofit board need to develop effective goal-setting and measurement processes.
The study’s authors offer nine recommendations:
1. Ensure the mission is focused, and its skills and resources are well-aligned
Too often, a nonprofit’s mission is too broad and/or unachievable, like ending world hunger. Narrow your mission’s focus to the skills and resources you actually have or might have.
2. Ensure the mission is understood by the board, management, and key stakeholder
3. Establish explicit goals and strategies tied to achieving that mission
One of the executive director’s primary tasks is to develop goals and strategies that will make meaningful progress toward achieving the organization’s mission. The board must ensure that the theory of change and the logic/business model to do so are sound.
4. Develop rigorous performance metrics that reflect those goals
Professor Meehan quotes Albert Einstein, who wrote, “Not everything that counts can be counted; and not everything that can be counted counts.” Develop performance measures that are pragmatic and useful. The emerging standard of performance measurement is randomized controlled trials.
5, Hold the executive director accountable for meeting the performance metrics, and evaluate his or her performance with an objective process
Some nonprofit boards are reluctant to establish an annual evaluation process for the executive director, particularly when he/she is also the founder. A rigorous process is necessary in and of itself but also as a basis for thoughtful succession planning.
6. Compose your board with individuals with skills, resources, diversity, and dedication to address the needs of the nonprofit
Many nonprofits lack the core of a few members who are willing to devote the time, energy, and skills to ensure the board takes on its full responsibilities.
Excellent board composition is not a conceptual challenge – it is about the hard work of finding and adding one more strong board member (and then another).
7. Define explicitly the roles and responsibility of board members
Board members need to know what expectations are in terms of the basics like attendance and engagement. Most critically, they need to understand what their financial commitments will be, personally as well as in reaching out to others.
8. Establish well-defined board, committee, and ad hoc processes that reflect the nonprofit’s needs and ensure optimal handling of key decisions
Many nonprofit boards overly worry about structure and process issues. All boards need governance, development, finance, and audit committees. Some may need other committees like programs/operations, marketing, etc.
Temporary task forces for strategic planning or capital campaigns can also be very useful. For boards larger than about 20, an executive committee is likely required.
9. Regularly review and assess each board member and the board’s overall performance
Strong boards use their governance committee to ensure regular evaluations of individual board members to ensure sustained commitment from each member.
The governance committee must be vigilant to ensure that nonperforming members are not renewed, and that expectations are communicated to each renewing member. Don’t let term limits substitute for rigorous board member evaluation.
From the Coach’s Corner, here are more tips for nonprofits:
Embezzlement – 21 Tips to Protect Your Nonprofit or Company Assets — Embezzlement is a widespread nightmare in business and the public sector. If you surf the Internet using the key word, embezzlement, you’ll find seemingly countless headlines.
How Nonprofit Boards Can Insure CEO Effectiveness — In a sense, nonprofits are big business. “Few people are aware the nonprofit sector is by far America’s largest employer,” wrote Peter Drucker, Ph.D. It was a quote in a chapter, “What The Nonprofits Are Teaching Business,” from a compilation of his writings, “The Essential Drucker.”
Social Media: Tips for Nonprofits to Capture Fundraising Dollars — Social media has leveled the playing field for small nonprofits competing with large nonprofits in looking for dollars. Formerly, big charities had the advantage because of their efficiency, reputation and size.
“Few is the number of those who think with their own mind and feel with their own heart.”
– Albert Einstein
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