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Mike Burns

About Mike

Seven Warning Signs that Something May Not Be Right in Your Nonprofit

A really effective executive can make a nonprofit successful. But, a really ineffective or even incompetent executive who, for instance, epitomizes the Peter Principle can destroy a nonprofit. And, while there is a modicum of literature about what makes a great exec, there is little literature that describes executive behaviors that should call a board to action, indicating change is necessary. Neither is there literature about what these signs might be.

This article is based on lessons from my consulting practice focused on helping nonprofit boards determine when and how to address one of the biggest institutional changes a nonprofit’s board can experience: deciding if the CEO or executive director (referred to below as ED) is the right person for the current life of the nonprofit.

Four assumptions are central. First, nonprofit board members are the legitimate owners of a nonprofit and are responsible for ensuring optimal outcomes. Second nonprofit executives are a nonprofit board’s “pinch hitters” tasked with caretaking and ensuring that the day-to-day systems, resources and work are all focused on mission. Third, a nonprofit board must act when signs indicate that “something” is not “right.” Action generally begins with suspicions or beliefs and is followed up with data collection to ensure full understanding of what is not “right” and what responsibility the exec has in the findings. And fourth, there are seven signs or indicators that provide insights into when action should begin.

The seven signs that action may be needed are:

  1. Staff turnover and/or much complaining to the board;
  2. Funders and donors questioning the use of funds or the quality of work;
  3. Board/ED relationship that is rocky (where trust is on the decline or absent);
  4. Clients expressing dissatisfaction with or not using services;
  5. Community and peer group gossip or lack of partnering;
  6. Regulator challenges; and
  7. Professional advisors advising that change must occur.

The remainder of this article describes these signs in more detail. The article concludes with some observations about what steps a board might take.

1. Staff Turnover and/or Complaining
One clear sign that problems may be present is when nonprofit board members, the volunteers, begin to hear from line staff or everyone but the top official that life at the nonprofit sucks.
Because grumbling is a natural human behavior, board members in particular have to be pretty clear about when they should listen and what they should listen to and perhaps, whether they should even be accessible to line staff. There is a widely held belief by most experts and execs that line staff talking directly to the board about inside issues is taboo. But,when conditions are perceived as "bad" and the exec is not perceived as responsive, there may only be one place to go and that's to the board.

And what are the conditions that drive staff to go straight to the board? Conditions include: bad working conditions (e.g. hours, physical challenges, not enough training); firings that don't seem warranted or occur with the least infraction; favoritism and unjustly applied rewards (like raises or bonuses) or "punishments"; inconsistent application of policy; bad or inadequate treatment of customers, to name a few. All of these conditions are enough to drive staff to unionize or quit, creating frequent shortages of staff and making big headaches for management, to say nothing of raising questions about the ability to deliver quality services.

Good working conditions are a management responsibility and, when badly managed, can ensure institutional failure at many levels.

2. Funders
Now generally, funders don’t call up board members individually and say “hey, your nonprofit’s got problems!” This has however been known to happen, particularly with a community foundation or a major donor/family foundation member.

The most common approach for a funder to let a nonprofit board know it is unsatisfied is to turn off the spigot. Yes, just not give any more money. The feds and states do this all the time. While not singularly an indicator, the failure to win grants or get them renewed certainly should be questioned, especially if every funder being approached says “no.” And, even if the reason for no is just badly written proposals, that’s a sign all is not right.

Effectively, four patterns should raise the eyebrows of the board, warning them that they might have a problem with funders:

  • Applications for funding are rarely accepted;
  • Renewals of funding rarely if ever occur;
  • Written critiques or even warnings are offered; and,
  • Conversations that move up to board members who have relationships with funders are full of negative content.

3. Board/ED Relationship
A rocky Board/ED relationship in which, at worse, there is outright contentiousness or hostility by the board to the ED and vice-versa is another indicator that all is not right.
Behaviors that should raise questions as to the nature of the relationship include:

  • The ED's financial reports and/or budgets are filled with mathematical or other errors or just plain late;
  • The ED's narrative program reports are filled with errors and/or are consistently late;
  • The ED consistently presents “problems” or challenges, internally or externally, and no solutions, and;
  • The ED is or is perceived as insubordinate by pursuing his or her own agendas.

Consistency and compliance are two benchmarks nonprofit board members often use to gauge how life in their nonprofit is going. Inconsistency and lack of compliance are clear indicators that all is not right. Good nonprofit boards can trust because their ED demonstrates he or she is pursuing mission and carrying out policies likely developed with the board.

Scorecards, dashboards, a strong executive committee to provide oversight, an annual performance review and regularly scheduled executive sessions following board meetings are all tools that can help with the Board/ED relationship. And certainly there is plenty of nonprofit literature that can help avoid disaster.

4. Clients Express Dissatisfaction
Another sign of a nonprofit's pending disaster is when a nonprofit's customers or clients start regularly complaining to the board and staff about service quality or availability.

I believe that one consumer complaint is illustrative or at least introduces the possibility that something is wrong within the nonprofit. Multiple and rising frequency of complaints indicates a real problem lays somewhere within the nonprofit. And of course, given that the exec is the final arbiter of all operations within a nonprofit, if something is wrong as suggested by complaints, the exec should be questioned - no, challenged - and investigation should be pursued with action not far behind.
At the very minimum, consumers must be provided the means to express their feelings about a service or product; regular evaluations must be core to daily operation; and, the staff must be required to log and report all consumer complaints.

5. Partners
In a nonprofit’s 2011 world, collaboration, including partnerships, are a necessity for efficiency, effectiveness and attracting funders. But what if no one wants to play with your organization? What if everyone says: “Ew! They don’t play nice and always want to call the shots and always take all the money and sometimes, don’t even provide good service?”

A board can and/or should know when the organization is perceived as not playing well with others. This is one more sign when all is not well and in particular, when the ED must be called to account.

6. Regulators
Who are the “regulators”? The regulators generally include local, state and national governments in addition to national and state certifying bodies. In addition, some state and national associations have been establishing standards that while perhaps not official or formally enforceable, can through group pressure and public embarrassment; become the equivalent of providing warning signs that an organization’s behavior is not acceptable.

When these folks say something is not right, they can often impose consequences. It’s up to the board to ensure that policies and oversight practices are in place to reduce the risk of failing to meet both the formal and informal obligations that come from the regulatory sources. And, when the regulatory folk show up saying all is not right, it’s the board that must determine where there was a failing and act to prevent a future failure.

7. Professional Advisors

Professional advisors, including accountants, attorneys, governance specialists and development consultants among others are hired by a nonprofit as a resource to meet needs that are not otherwise available but needed by the nonprofit. Because of their “inside” knowledge and vast array of external experience professional advisors can provide more objective information to guide the board about its relationship and expectations with its ED.

Boards should indeed make the space available to listen to their consultants when “warnings” are issued. Warnings may be formal or informal but can be central to identifying issues which highlight the executive in a less than favorable light. Do note though that warnings from accountants (the audit) and attorneys will likely stimulate attention. Information from other advisors may need a board champion to be taken more seriously. At any rate, when the professional advisor says, “pay attention,” paying attention can often pay off for the nonprofit board.

Conclusion
The nonprofit exec has many responsibilities and much is expected in how these responsibilities will be executed. However, not all execs are “right” for the life stage or needs of the nonprofit. There are at least seven indicators that can provide the exec’s “boss” – the board – with a call to at least look and see if action is required.

These signs include: Staff turnover and/or much complaining to the board; funders and donors questioning the use of funds or the quality of work; a rocky relationship between the board and ED (where trust is on the decline or absent); clients expressing dissatisfaction with or not using services; community and peer group gossip or lack of partnering; regulator challenges; and, professional advisors advising that there are “issues.”

Remember, these are warning signs disaster may be pending. Retiring the exec is certainly not the only option nor may it be the right solution for the problem. More importantly, to fulfill its duty of care, the board must first have standards and expectations (a strategic plan?); have information that is reliable and complete (score card, dashboard?); a structure that effectively monitors; and, when patterns do arise, be ready to act quickly and responsively.

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