Herb's Blog
Wednesday, April 21st, 2010
Recent stories from Texas (http://bit.ly/bkgApV) and the New York Times (http://nyti.ms/aYiWkJ) regarding alleged corruption by nonprofit leaders of a family service agency and a regional theatre, regrettably, are not new. Perhaps, they are anomalies, isolated events, and reflective of errant behavior in difficult economic times. Indeed, readers should be cautioned not to apply a broad brush to all nonprofits because of the deviations of a few.
In any case, there is no excuse for violating the public trust.
That such violations occur at all is in part a reflection of the failure of governance or, at the least, the inadequacy of boards of directors to ensure effective oversight and stewardship.
For many years, a debate within the nonprofit sector and among attorneys general and legislators has roiled about the degree to which the nonprofit sector should be better regulated. The nonprofit sector has recoiled at the notion of regulation and its associated costs and has claimed that it can self-regulate.
Can it?
Well-established principles of nonprofit corporation law prescribe that board members meet the following standards of conduct:
Duty of Care: The level of competence that is expected of a board member to act as an ordinarily prudent person would act in a similar position and under similar circumstances. Board members have a duty to exercise reasonable care when they make a decision as stewards of the organization. •
Duty of Loyalty: A standard of faithfulness, to give undivided allegiance when making decisions affecting the organization. Board members can never use information obtained as a member for personal gain, but must act in the best interests of the organization.
Duty of Obedience: A standard of behavior, to be faithful to the organization’s mission. Board members are not permitted to act in a way that is inconsistent with the central goals of the organization; rather, they are to fulfill the public’s trust that the organization will manage donated funds to fulfill the organization’s mission.
Haas the time come for a higher level of regulation of nonprofit organizations? Can we trust the ability of nonprofits to effectively self-regulate and enforce their duties of care, loyaltty, and obedience?
What do you think?
Monday, April 5th, 2010
In an open source and wiki world, where everyone now has access to the knowledge and the processes that were the unique purview of a relative few, what does it mean to be an expert? What authority does the consultant have? What purpose does the consultant serve?
Who needs the third eye of the intermediary to establish a direct connection with wisdom and enlightenment when the client has the capabilities to channel and interpret information as intelligently and insightfully? Who can say that enlightened thinking is the domain only of the aristocracy of expertise?
After all the kumbaya moments of facilitated retreats, search conferences, and roundtables are done and roadmaps for the future are drawn, what is the true net impact on substantive organizational and individual behavior change and implementation — and ultimately on organizational effectiveness? What is the ROI of interventions, planning and aligning, if they are episodic, transitory, and superficial, and if their solutions don’t stick? In the absence of a leadership structure committed to sustained implementation, there are few consultants who would deny that their good works don’t suffer from subsequent neglect or inertia.
The democratization of information surely carries its share of risks, but it undeniably also has altered the balance of power between consultant and client and challenges consultants to redefine their distinctive role, value, utility, and style.
The consultant can no longer lay claim to an authority or expertise that exceeds that to which the client has equal access. How, therefore, should the consultant adapt or altar?
With the end of sole authority and expertise must come a new definition of the end to which authority and expertise can be used.
In my own way, I have begun a reframing of my own consultative role (at http://www.upyournonprofit.com/the-way-of-consulting) given the new realities noted above. This reframing is necessarily a work in progress, but I think there is a new paradigm taking shape, and I would welcome the thoughts of others on this matter.
Thursday, March 18th, 2010
After a lot of work with a lot of organizations over a lot of years, I can say with a lot of confidence that there is a consistent set of variables that define high-performance boards of directors.
Those organizations with which I’ve worked that have a minimum of dysfunction and stress, that are steady in their pursuit of their mission and vision, and that show high yields on the investments of their resources, invariably
- have implemented a practice and discipline of governance that clearly delineates the balance of power between Board and CEO and specifically enumerates the roles and accountabilities of both, and
- possess boards of directors that commit to a transcendent level of behavior and duty of care.
Here, I submit to you, are the essential attributes that distinguish these high performance boards and offer a measure against which other boards may evaluate themselves:
- Deep understanding and internalization of the organization’s mission, values, value proposition, strategic intentions, and priorities — and the ability to compellingly articulate each
- Continuous commitment to the cultivation of the board as a learning community of stewards,
- building its collective intelligence regarding pertinent external trends
- leveraging and applying insights that derive from market and program research
- engaging in high-level dialogue in the board room on matters of strategic importance and complexity
- Fundamental commitment to breaking down the organizational barriers to innovation and effective implementation of strategy
- Fearlessness in championing the organization through fund raising and advocacy.
Boards with these attributes do a superior job in envisioning and shaping the organization’s future direction and priorities, monitoring progress to these ends, and positioning the organization for sustainability.
When you think about these attributes, I’d ask you to consider what implications thay have for board development and term limits. I’ll speak to this in a subsequent post.
As always, please comment, and pass the post on to colleagues and friends for their consideration.
That’s all for now.
Thursday, March 4th, 2010
The balance of board and executive power in nonprofit organizations is a critical and essential ingredient of organizational viability. Organizational stability requires that boards and executives negotiate, sustain, and honor the balance of power – and define the contours of mutual accountability. Easier said than done!
(For context, please reference Herb’s Third Law of Nonprofit Physics in my February 18th post.)
The reality is that achieving and honoring the balance of power in nonprofit organizations is complicated, if not impeded, by the prevailing nonprofit business model that accords unchecked authority to boards of directors. (Here’s where we really get irreverent!)
In corporate America, boards are ultimately and directly accountable to their shareholders. A range of regulatory mechanisms and metrics enables shareholder and public monitoring of performance. The market and whistleblowers provide additional incentives for good behavior. Notwithstanding the periodic excesses and abuses that make the news, corporations manage the balance of power with their own institutional set of checks and balances.
There are no parallel incentives for board discipline and accountability in the nonprofit sector, not even the superficial compliance requirements of funding sources. (And maybe there should be.)
The question must be asked:
To whom is the board of directors (ultimately) accountable?
I like John Carver’s answer: the notion that boards are trustees for the true owners of the organization. But the question remains, pray tell, how do these true owners command accountability for the board’s stewardship of the public trust? What tools have they to determine outcomes, impact, and relevance? What authority can they exercise? What recourse?
In the absence of an ultimate practical and functional authority to whom organizational governers are accountable, the potential exists for dysfunction, mischief, nonperformance, carelessness, inattention to finances and other critical details of organizational performance, and rogue behavior.
Yes, there are great boards. But, there is nothing inherent in the nonprofit organizational architecture that precludes boards going from great to good to not so good. As well developed as they may be at a point in time, succession plans and board development strategies can pass with the tide of board turnover.
So, let’s return to the matter of balance of power and how this governance dilemma pertains.
As much as proponents of effective governance (and I believe Carver to be at the top of the heap) talk of strong board/strong executive models with clearly defined roles and mutual accountabilities, the balance of power between board and executive can never be equal and realize its potential as long as the board can act with impunity, has no ultimate authority to which it is accountable, and can, without consequences, ignore the policies it, or its predecessors) so diligently formulated.
Place the executive in this scenario, and see how vulnerable (s)he is to whim, to moving goalposts of performance expectations, and to personalities.
We all know of great executives who have been the casualties of wayward boards and of the subsequent disruption to the work of the organization. We all know how reticent boards are to conduct regular performance evaluations, let alone establish clearly defined measures on which to evaluate executive performance.
We need a better framework for accountability within which nonprofit organizations operate that is standard among all nonprofits – and in which a reasonable balance of power is maintained, good executives are protected, boards are called to a higher duty of care, and the discipline of board/executive mutual accountability is strengthened.
If, short of establishing an external regulatory structure for nonprofits, we can’t answer the question to whom the board is ultimately accountable, then let me suggest that we promote an alternate means to accomplish the above objectives.
Specifically, let us advocate that boards become accountable to the terms of a legal contract with their executive director. Let us advocate that every CEO should have a contract that specifically outlines the terms of his/her employment and identifies the reasonable objectives against which performance and remuneration will be evaluated.
And, let’s go a step further, perhaps. To be a true contract, let the quid pro quo be an articulation of the Board’s corresponding accountability.
As attractive as at will provisions are to board employers, at will provisions put good executives at risk and open the door to caprice and subjectivity.
Boards may be loath to have contracts, but that’s tough; executives, for their own sanity and integrity, ought to insist on them.
What do you think? What’s your alternative?
Join the conversation. Forward this post to your colleagues, and invite them to join in.
Thanks.
Tuesday, March 2nd, 2010
It’s 33 days away from Opening Day of the 2010 baseball season. Hurrah!
Around this time, every year, I get nostalgic for what, in every sense, with the oncoming of every Spring season of my life, feels like a spiritual awakening.
Why? Because in those first days of the new season, everything is possible. The slate of the last season’s outings is erased, and every player on every team, with their rooting (and sometimes mercilessly critical) fans in the stands, know the essence of possibility. When they take to the field that first day, the inner champion is waiting to be sprung.
But, by the end of the season, you’ve learned something about life.
The brilliantly manicured fields, graced by bases, running paths, and foul lines, impose limits. Your power has to be directed. If the good of the team requires sacrifice rather than the long ball that you’re sure you can hit, well then, you sacrifice.
We’ve seen a lot of franchises with huge payrolls and superstars who don’t get the pennant, and many times it’s because, while they’ve got great individual performers, they haven’t coalesced into and created the magic of a team.
The game can be remarkably explosive, but to a lot of observers it seems deadly boring. Yet, I see in those interludes between the rallies the quiet excitement and tension of calculated patience. (As well as convenient opportunities to get my Polish with mustard, relish, onions, and a hefty topping of sauerkraut! And, of course, a brew!)
Again, it’s the reality of life (personal and organizational) mirrored in the game of baseball.
If you watch the game carefully, you realize how dynamic it is. Every pitch is a new opportunity. Strategy changes on each call. The team repositions itself in the field, depending on the circumstances, the per cents, and gut instinct.
Everybody’s responsibilities and accountabilities are clearly defined. Clear communications are the norm. The players are empowered to exercise their mastery on the field.
Has the soul of the game been corrupted by the intrusion of commercial and marketing interests and performance enhancement drugs? Yes.
But will that prevent me from loving the sport and relishing the sounds and smells and images of the game? No.
Baseball is my metaphor for life — and, as a consultant and strategist, it is my metaphor for organizational development, planning, and execution.
In life, in enterprise, in love, you need to know that success doesn’t always rely on home runs. Rather, it’s about how you move the bases, one step (and a periodic steal) at a time — with character and determination.
Bottom line: Play ball!
Wednesday, February 24th, 2010
As the recession impacts the operations of nonprofit and other public benefit enterprises, let me offer seven steps for navigating through hard times:*
- Honestly diagnose your organizational condition.
- Realistically project revenues and expenses, erring tenaciously on the side of conservatism.
- Focus on your core lines of business/service – and jettison the extraneous, i.e., that which does not fit your purpose.
- Exhaust all options for stemming any financial bleeding.
- Keep your eye on cash flow.
- Maintain active intelligence on relevant external trends.
- Given the organization’s circumstances, depth of leadership, and financial capabilities, explore appropriate opportunities for (if you’re strong) acquisition) or (if you’re limited) absorption – and proceed cautiously, but for the right reasons.
*At the request of a number of readers who feel strongly about this topic — managing organizations at-risk or experiencing transition — and want to highlight “the seven steps,” I have extracted the above sectionfrom my prior blog.
Please share with your networks and associates.
Thanks.
Herb
Tuesday, February 23rd, 2010
In every recession, there is an orchestrated if not coincidental or kneejerk call from the world of philanthropy for mergers and collaboration among nonprofit organizations that are experiencing increased demand and reduced resources. Reporters from Bangor to Bakersfield tell the story of struggling organizations that are doing their level best in tough times to feed the hungry or fill the theatre seats. The research arms of nonprofit trade associations assemble data to reveal a world of hurt. The pain is indeed real. The needs are indeed great.
However, it’s the wrong response for the wrong problems.
Collaboration and mergers make sense when the right reasons prevail for one organization to subordinate its identity to another and when the will exists among the leaders of these organizations to subordinate their egos in deference to the common good.
They don’t make sense when the assumption is that economies of scale or enhancements in service delivery or customer service will result. They don’t make sense if their rationale derives from a donor-driven interest in rationing philanthropic dollars. And I can assure you that when the driving force is desperation, the results are counterproductive.
(In the scores of mergers and strategic partnerships that I’ve facilitated, I’ve observed the factors that make for great synergy, and I promise to make this the focus of a future article.)
As painful as recessions are, they are truth-telling opportunities to identify the strengths and deficiencies of organizations, systems, and processes – and then to leverage the strengths and eliminate the deficiencies.
The real problems that need to be addressed are these:
The ease of entry into nonprofit status
Yes, it is the American way that every individual or group has the privilege of establishing and incorporating a nonprofit organization, ostensibly to provide a public benefit or fulfill a personal vision of how the world should be. What is astonishing is the ease with which incorporation and tax exemption are granted.
However, notwithstanding the depth and passion of their intentions and the ease of their entry, these organizations are not entitled to exist. Or, more to the point, not every nonprofit organization deserves to exist.
The accountability imperative
They are obliged to address the pressures and demands of the marketplace for value, performance, and accountability, and to demonstrate convincingly that the transfer of public wealth to their coffers is outweighed by the public benefits that they create. They are obliged to demonstrate that their programmatic intentions could not otherwise be embraced within already established and viable enterprises.
It is not enough to sanctify the sector. It is vital to ask, for each investment that we are called upon to make in a nonprofit organization, “To what end? To what measurable end? And, is there a better way?”
The governance crisis
Given the magnitude of the transfer of public and voluntarily (but tax-incentivized) dollars to the nonprofit sector, for the special dispensations that they receive in exchange for their good intentions, and in the absence of solid and reliable systems for their regulation and accountability, the public has a right to expect the highest level of stewardship. If only we could rely on boards of directors to serve as vigilant and tenacious stewards of the public trust. However, we cannot. As varied as the motivations for service on boards of directors may be and as plentiful as the efforts are to ingrain within the members the profound duty of care that they must exercise, there is neither an authority to whom are they ultimately accountable or an incentive to behave with the appropriate duty of care. (Thank heavens, there are exceptions to the norm; they give me hope. Perhaps, one day, I shall note those organizations that, in my experience, exemplify high-level performance.)
As I’ve indicated in earlier articles, the operating model of the nonprofit organization breeds its own dysfunction, made most manifest in two dimensions: the imbalance of (and struggle for) power between boards and executives; and complacency in the exercise of oversight. Organizational well-being and stability are all too often a crap shoot.
In the face of these pervasive issues, it’s ridiculous to suggest that collaboration and mergers are the needed corrective antidotes for organizations feeling the crush of recession.
Rather, the answers lie in a fundamental rethinking of how we organize to develop the good and caring society; a fundamental redesign of the nonprofit business model and the methodology of governance; and, the establishment of appropriate public regulatory and accountability mechanisms that will protect consumers, clients, and donors alike.
In the meanwhile, let me offer seven steps for navigating through hard times:
- Honestly diagnose your organizational condition
- Realistically project revenues and expenses, erring tenaciously on the side of conservatism
- Focus on your core lines of business/service – and jettison the extraneous, i.e., that which does not fit your purpose
- Exhaust all options for stemming any financial bleeding
- Keep your eye on cash flow
- Maintain active intelligence on relevant external trends
- Given the organization’s circumstances, depth of leadership, and financial capabilities, explore appropriate opportunities for (if you’re strong) acquisition) or (if you’re limited) absorption – and proceed cautiously, but for the right reasons.
Your comments on the above post are welcome. Please forward to colleagues and associates.
Thank you for your consideration.
Thursday, February 18th, 2010
I was talking yesterday with my best friend Dave about one of my clients and the disconnect between board and executive expectations, between board and executive accountability. This organization, despite its glorious mission, is at risk. The dysfunction is palpable. There was nothing, we acknowledged, really unusual about this case; we’ve seen the dynamic, the dance, repeated many times.
For over three decades of practice, he and I, in our respective domains of consultation, have witnessed the ever-present dysfunction and struggle for power and influence in too many caring organizations — notwithstanding the noble motivations that may have originally brought the players to the table. It is strange that, in those places where one might or should expect the highest standards of behavior — politics, churches, academia, human services, etc. – one witnesses instead the pathologies of power, the play of the zero-sum game.
The dysfunction and disconnect are, in part, attributable to the failure to adopt, understand, and apply practices of governance that clearly delineate the roles, responsibilities, boundaries, and mutual accountabilities of the board and the executive director.
It is, in part, as well, because of the organization’s failure to get, in the words of Jim Collins, the right people on the board bus.
The challenge too lies in then a.) establishing and maintaining alignment of purpose and priority among individuals whose values, personalities, and attitudes about power vary greatly, and b.) sustaining the momentum of implementation.
Moreover, the temperament and disposition of trustees and executors are decidedly different, the former more inclined to be risk averse and the latter more enterprising. On the one hand, the organization may benefit from the checks and balances that mediate and moderate the two temperaments and help to ensure responsible decision-making. On the other hand, unless the balances of power and accountability are reasonably negotiated, the organization may be impeded from new discoveries and from realizing its full potential in serving the common good.
It is one thing to encourage nonprofits to be more innovative and entrepreneurial. It is another thing to realize that the traditional nonprofit business model severely limits the entrepreneurial and innovative reach. Herb’s First Law of Nonprofit Physics addresses this dillema.
Thus, Herb’s Third Law of Nonprofit Physics: For every executive action, there is a disproportionate board action — and vice versa, unless the parties are committed to
- negotiating and sustaining a reasonable and productive balance of power;
- compromising on matters of importance and complexity;
- adhering to shared measures of success;
- understanding that the introduction of any organizational change requires time and buy-in to gain the required traction; and
- removing the impediments to innovation, flexibility, and entrepreneurialism.
In addressing the implications of this Second Law, we may find some guidance in the Confucian concept of Yin and Yang. The concept is rooted in the idea of polarity and balance – that no one force can or should prevail over another; that life is made up of cycles of give and take; that, ultimately, conquest is not the end game. Rather, the end is the merging of opposites toward a middle ground. In a milieu, where organizational advocates see the world in black and white, it would be well to realign around an alternative understanding of reality: as a cyclical continuum from light to dark with gradients and nuances in between, subject to high-level dialogue and negotiation — with a shared definition of the common good as the benchmark for decision-making.
In future blogs, we’ll talk more about the standards for effective governance, board development, and strategies for breakthrough in nonprofit performance — all so that we can more impactfully be about the business of creating the good society.
In the meanwhile, I invite you to join this discussion, share your thoughts, and forward this blog to associates and friends.
Wednesday, February 17th, 2010
Herb’s Second Law of Nonprofit Physics:
The energy that is devoted to the caring side of nonprofit business must be matched, if not exceeded, by a tenacious commitment to the business side of caring.
This should be a fundamental principle for the operation of nonprofit organizations, particularly during tough recessionary times. The reality is that all too often this principle is ignored. Flush economic times tend to obscure organizational excesses and deficiencies that during an economic downturn or a critical shortfall in resources become revealed and cannot be tolerated.
When seemingly stable nonprofit organizations go awry, stakeholders want to know why. Was the crisis not foreseen? Were there not warning signs? Invariably, the true answer is yes: The crisis could have been and should have been foreseen. Forgive the mixed adages, but organizational distress is the consequence of a leadership failure to read the handwriting on the wall (i.e., to comprehend the balance sheets and trend lines) and inevitably a matter of the chickens coming home to roost.
More to the point, here’s the triple whammy that places organizations at risk:
- Bad management – Either one or both of the following circumstances exists:
- Autocratic control – When a single individual dominates the organization, pursues a single-minded strategy, and controls information and the communications flow, the organization is denied critically needed checks and balances.
- Lack of management depth in finances – Visionary leadership is no substitute for strong financial management, adherence to generally accepted accounting practices, and solid financial controls.
- Weak stewardship – Either boards are asleep at the wheel or, because of bad management, aren’t attuned to what they need to know.
- Overexpansion and indebtedness – The seduction of program growth or capital expansion leads to overreaching beyond the organization’s capabilities and resources. Overexpansion leads to overleveraging and managing a burdensome debt load.
Ultimately, we’re talking about a failure of governance. In future blogs, we’ll talk more about this failure of governance and strategies to turnaround and reform nonprofit business.
Check out the recent Wall Street Journal at http://bit.ly/9l4CZN for the standard recession-time commentary on nonprofit troubles.
Please join the conversation, share your thoughts, and invite others to comment.
Friday, February 12th, 2010
Lincoln’s Birthday has always been for me a day of reflection. Chalk it up to my upbringing, my love of history, my romantic nature. I have always revered the man’s character and courage and cherished his words of wisdom. And, today, I’m thinking about what Lincoln’s words have to say about the social contract and our collective responsibility to cultivate the good society.
On March 4th, 1865, Abraham Lincoln concluded his second inaugural address with the following prayer for national reconciliation:
“With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.”
Lincoln’s exhortation that the nation should act “with malice toward none, with charity for all,” is, in a larger sense, a 19th Century branding or articulation of an inherent and distinctive attribute of the American social contract. Indeed, his words have bearing and relevance for our time of national discordance.
Before “charity” came to signify the framework for tax-deductible transfers of wealth or disposable income to address a host of social interests, the word reflected an act of egoless giving, the essence of which, as I have suggested in an earlier blog, feeds (or should I say, “should feed”) the foundation of civil society. In its original and authentic context – as acts of loving and caring for our neighbors, as a divinely prescribed obligation of social responsibility, as a mandate to repair and perfect the world – charity defines the fundamental ethic of democracy. It proclaims the inherent value of each member of the body politic. It enriches the spirit, intent, and act of giving.
Lincoln’s formulation is rooted in an interconnected secular and theological ethic. It weds the principles of the social contract as they are embodied in the nation’s charter documents; in the Judaic imperative for social responsibility — tikkun olam, i.e., repairing and perfecting the world); and in the Christian invocation of agape or unconditional love.
Consider what it would mean if we reverted to and redefined charity in its authentic form as the standard for measuring public benefit, civic dialogue, and progress toward the good society; as the framework for how we organize our communal acts of caring and love. We might be inclined to rethink and reinvent the way we do our national business of health, education, and welfare. We might reassess the manner in which we allocate our national resources and organize agencies of caring. We might move in the direction of radical charity.
More to come on radical charity.
Please share with others, and contribute to this conversation.
