Nonprofit Leadership and Governance
The Vermont Nonprofit sector is a major contributor to Vermont’s economy and to the well-being of Vermonters. Its 6000 organizations represent about 20% of Vermont’s overall economy and employ about 14% of its workforce.
Nonprofit are led by presidents or, more typically, executive director(ED)s and overseen by voluntary boards of trustees who are not paid for their service but may be reimbursed for expenses.
Nonprofit missions range from the dominant healthcare and education sectors to arts and culture, the environment, journalism, housing, hunger/food systems, equity, poverty and more.
As such, nonprofits are a vital force in the quality of life for many Vermonters. The traditional role of government in assuring the well-being of its citizens is sometimes subcontracted to the nonprofit sector, especially in areas like alleviating hunger, homelessness, or poverty. Examples are Champlain Housing Trust, Community College of Vermont, Sustainable Jobs Fund and others.
But a worrying vulnerability in the nonprofit sector is frequent misunderstanding of basic governance – the differing responsibilities of a board of trustees and of an organization’s leader.
When an organization founders, blame usually falls on the leader, but leaders are chosen, overseen, and remunerated by the board. So when a non-profit fails, look to the board for an explanation. It is they who are accountable.
Nonprofit governance is remarkably elegant in its simplicity, but the depth of misunderstanding that surrounds it is endemic and needlessly threatens the whole.
First off, governance and management are two different things – often confused, to an organization’s detriment.
A fundamental board responsibility is to search for, hire, remunerate, annually review performance of (and fire if need be) the ED, and engage in pre-emptive succession planning.
Management accountability is articulated in the ED’s job description and signed off on by both parties. An accurate job description is the key document to which the ED is held accountable. Its existence reduces chances of a “wrongful discharge” claim.
Trustees don’t manage, nor do they interfere in management decisions, nor do they accept direct feedback from the ED’s subordinates. This becomes critically important in journalistic and media non-profits where the traditional editorial firewall protects the editor/ED from trustee efforts to influence content.
The most important relationship is between the chair and the ED. Each must understand the other’s responsibilities, boundaries, and discuss them openly. Trust, candor, and transparency form the basics of a fruitful relationship. Real leaders want and welcome all critical feedback.
But there’s a built-in enigma in trustee / ED relations. Trustees are also the CEO’s resources for good decision-making, available when asked to support, encourage, challenge, stimulate, and help the ED, but only when invited to do so.
In general, highly-compensated employees do not serve on the boards that oversee their operations. Two common exceptions are hospitals and universities where the knowledge and experience of doctors, researchers, and professors may be needed to better inform institutional decision-making. These individuals, like the ED if they serve on the board, must be subject to rigorous conflict oversight, especially as it relates to authority and compensation.
Strategic and operating plans should derive from the staff and be presented to board for discussion, amendment, and approval. The plans then become the basis for the ED’s accountability and performance review.
Common plans are:
- Strategic plan (3-yrs max.),
- current year operating plan,
- current year budget, balance sheet, and cash flow analysis,
- current year enterprise risk management(ERM) analysis and contingency plan.
Boards must also formulate review and publish a clear statement of board policies with regard to board makeup, constituencies, rotation or tenure (term limits), trustee self-evaluations, expectations, periodic internal and external by-law review, trustee obligation-of-loyalty, conflict-of-interest etc.
Here is a guideline for effective board makeup:
- Additive Skills(mission-related experience, educational, legal, marketing, financial, media experience, technology & data analysis etc.)
- Capacity and Connection:family giving capacity and engagement in institutional advancement as well as connections to relevant networks.
- Gender / Sexuality (LGBQT)/ Differently-abled / Ethnicity (racial and economic diversity. Foundations and philanthropists review more carefully whether the governing boards of their applicants accurately reflect the diversity of their service areas and the culture of their missions.
- Geography / Age:Organizations must also commit to onboarding the younger generation and bring them along to perpetuate mission and realize future vision.
Also important is a clear committee architecture that conforms with by-laws. Each committee must have a clear concise mission.
Standing committees are usually:
- Finance, audit, enterprise risk management
- Nominating and Governance – self-perpetuating (ED may suggest candidates but should not choose trustees), oversee, and amend by-laws as needed
- Development Committee – help raise operating funds and endowment
- Community Relations and Outreach
There may be other ad hoc committees but none should impinge on management’s role and all should be defined in the by-laws.
In sum, the heart of a board’s responsibility is to oversee and ensure:
- Delivery on mission: by ensuring that strategic and current year operating plans are fulfilled.
- Ethical and legal integrity: review and approve published employee guidelines especially with regard to equal opportunity and workplace harassment issues.
- Financial integrity: monitor balance sheet trends and strength, approve annual budget, and periodic review reports of performance against budget.
- Annual 360-performance review of ED that includes anonymous feedback from staff, trustees, stakeholders, and community. This is measured against an annual performance self-assessment submitted by the ED.
Most nonprofit failures are traceable to bad governance. In my experience, the most common board failure results from not having conducted a thorough and honest performance evaluation of their ED.
The vitality of our nonprofits is intrinsic to all our well-being. And it’s imperative to their health that we have a commonly-shared understanding of accountability and governance. Common Good Vermont has been a champion of the well-being of the nonprofit community and a vital educator about its function and value to Vermonters.
It’s imperative that we get this right together to harvest the immense good will of Vermonters working together in non-profits to make us a stronger community.