Chairman’s Corner: April 2005

Ensuring Strong Management: A Board Responsibility

by Mario Morino, Co-founder of VPP

All too often, the boards of nonprofit organizations do not recognize that their governance, stewardship, and strategic responsibilities insist that they ensure the organization has the strong management it needs to serve the organization’s mission. It is important to note that this phenomenon is most common in organizations that 1) have grown to a certain size (e.g., annual budgets of $1-2 million or more), 2) require new leadership skills that are different from the skill set possessed by the founding leader, 3) are transitioning from a founder/leader-dominated organization to one where the board more rigorously addresses its governance responsibility, or 4) are evolving to the next stage of organizational growth.

Just as people change as they learn, grow, and advance through various life stages, so do organizations—and this progression requires essential changes in an organization’s management. A board must ensure that the organization it serves is taking the necessary steps to develop its executive director and, in turn, ensure that the executive director is developing the senior management reporting into the executive director, required to serve the organization’s current and future needs. Boards must be careful to avoid “fighting the last battle” and instead focus on the challenges that lie ahead and the management required to successfully meet those challenges. In other words, the board needs to think beyond the management’s success in handling past challenges and instead address its “readiness and willingness” to face the organization’s near- and long-term future. Often, the “looking back” and the “looking forward” assessments give very different perspectives on management’s strength.

The “hard look” suggested above is not easily addressed by boards, whether they are nonprofit or for-profit boards (however, there are market conditions at play in industry that force for-profit boards to do this more naturally). In carrying out this responsibility, the board must strike a difficult balance between ensuring that the organization has the strong management it needs and, at the same time, allowing the executive director the appropriate level of freedom and control over his or her domain. Boards must avoid the temptation to “micromanage” and instead stay focused on their strategic role with regard to governance and stewardship, recognizing that ensuring strong management is vital to both. Indeed, this balance is not easily achievable and requires a high level of engagement and trust, among board members and between the board and the executive director.

How many times have we seen a nonprofit organization make a commitment to grow or change, e.g., launch a major capital campaign, build or purchase a building or facility, or expand by opening a new center in a different geographical area, with little or no attention to the new and different management skills that growth requires. Is ensuring strong management a responsibility of the board? Yes. Is this delicate territory? You bet!

What can a board do to ensure that the organization is strengthening and aligning management—the executive director and his or her senior management—for what the organization needs?

• Recognize that ensuring strong management relative to the organization’s current needs and future plans IS a board responsibility. As apparent as this statement may be, it falls into the category of “eminently obvious, once stated.” Many nonprofit boards (especially those with leader-dominated organizations that are not yet functioning as governing boards) tend to see this as the responsibility of the executive director. Often, board members don’t realize that this is new territory for their executive director, and that he or she may not yet understand the need or know how to address it. One of the classic ways this dilemma manifests itself is in the need for financial oversight, integrity, and accountability. Oftentimes the executive director does not recognize when the organization has reached a stage where the financial requirements demand the experience and more sophisticated skill set of the Chief Financial Officer role, which is very different in scope from the skill sets typically offered by the more tactical role of a controller, finance manager, or business manager (all of which are easier for the executive director to deal with, which makes the transition even more difficult).
• Actively manage board composition so there are several members with executive experience (in both leading and building organizations). Having several members on the board with demonstrated senior management experience will allow the board—formally and informally—to add value as counselors and advisors to the executive director. But be careful that their experience fits the organization’s management need and stage. One of the great growth experiences I enjoyed in my business career was the insight and counsel of board members who brought diverse executive experience and, more importantly, the experience that “fit” relative to where we were taking the business—as we went through yet another organizational life cycle stage. I can’t begin to tell you how many times I realized how much I didn’t know and how thankful I was to have the invaluable advice that helped me and the firm navigate through difficult times and in areas where we had no previous experience. Sometimes the contributions were basic, like creating compensation policies that made sense for a larger organization. Sometimes they were pragmatic, for instance, giving me a valuable perspective in thinking through the types of experienced executives the organization’s planned growth would require. And sometimes they were challenging and well beyond the scope of my experience, for example, opening up our first operation in the Far East.
• Encourage those on the board who bring executive business experience not to “check their brains at the door.” Too often, directors, especially those from business, don’t fully appreciate the importance of their skills and experience and how much value they bring to the successful management of the nonprofit. A highly engaged board, with the right experience for the organization’s life cycle stage, allows the executive director to greatly improve and grow the management effectiveness of the organization.
• Provide for the continued growth and development of the executive director to ensure that his or her skills and experience are in line with the demands of the organization and its mission relative to the organization’s stage of growth. One of the most difficult realizations for CEOs in business and executive directors in nonprofits is that you’re never “there.” The CEO or executive director must continue to learn, grow, and develop as the management needs of the organization change and the expectations of its leadership changes. Specifically, a board can:

Recognize and place a focus on executive development, and hold the executive director and itself (the board) accountable.

Set clear direction and goals, including his or her executive development for the executive director and conduct a formal assessment of the executive director’s annual performance, with a major focus on how well the executive director is developing and how well he/she is developing a strong management team (see below).

As mentioned earlier, ensure that several members of the board bring strong, demonstrated executive leadership and organizational management skills to provide moral support, advice, and serve as a sounding board for the executive director. If the executive director hasn’t identified hi/her own confidante(s), the board should make certain there are members willing to take on this role, encouraging the executive director to engage these “informal advisors.” However, in order to ensure that the relationship is effective, the process cannot be imposed and must happen organically in order to build trust between the executive director and his or her confidante(s).

• Place a high priority on the executive director to build strong second-tier management. This must be established by the board as a key priority for the executive director so that he/she brings into the organization the skills and experience required to meet current and future organizational demands. At the same time, the board must help the executive director maintain a balance between bringing in the needed experience from outside the organization and developing strong candidates internally to help preserve the institutional knowledge and organizational culture (assuming that culture change is not a desired outcome). Nurture a culture of “hiring up” where the executive director is encouraged and supported to hire and develop a management team by recruiting individuals that have the proven management experience the roles require, relevant skills, complementary experience, when possible, and an ability to constructively “push” the executive director to help develop and expand his or her management horizons.

Support the executive director in this recruitment and development by first recognizing that he/she may not be in position to do this alone, and acknowledging that “hiring up” can be uncomfortable. Have several members of the board—ideally the confidantes mentioned earlier—assist in the recruitment and help define development plans. In my career, I have found this to be of great benefit.

Finally, recognize that this may mean increasing compensation levels (along with the required increase in salary budgets to support those increases) to attract the most qualified candidates for positions like CFO, COO, and the head of fund development.

• Give thought to succession planning and ensure there is a second-in-command. Succession is not a comfortable topic for most people to address, but it is extremely important to have a plan in place before an organization really needs it. This is an area where it is good to “expect the best, but prepare for the worst.” I suggest considering this at two levels.

Strategically: What would the board do if the executive director resigned, was terminated, or was incapacitated for a long-term period? Would a board member assume control while a search is launched? Would a strong second-in-command be named as an interim executive director during the search? Would a board member and second-in-command partner to fill the role? Would an outsider be brought in to hold things together during the search process? To this end, it is important the board be prepared. And, it is not impractical for the board, from time to time, to develop a short-list of ideal candidates, which is a great asset during an emergency.

Operationally: At the very least, the board and the executive director should have a member of senior management assigned as the “person in charge” if and when the executive director is away. And, this designation should be known by the board and senior management. Having a designated person with the ability (and authority) to keep the organization running with reasonable continuity is important.

• Recognize when it may be time for a change in leadership. One of the most difficult tasks nonprofit boards face is recognizing when a leadership change should be considered. There is a time in the life cycle of most nonprofits when the fierce activism, advocacy skills, or strong programmatic skills–typically hallmarks of a founding executive director–may not be the skills needed for the organization’s current and future challenges, e.g., expanding services to new centers in different communities. Similarly, an executive director’s strong educational, clinical, or child development experience, which provided the expertise and energy necessary to develop the organization’s services, may not transfer well to fill the managerial, administration, fund development, and stakeholder relationship management roles that an executive director of a changing organization may need to assume.

Realize, however, that there is no clear or obvious “right” answer. It may be that the aspirations an organization has for itself can only succeed with a leadership change. It may mean that the board will need to better align its aspirations to fit with what the executive director can and wants to do. It may mean that the executive director take on a new role more consistent with his or her interest and competency. For example, in technology firms, some founders relinquish management to a CEO or president who is better equipped to provide the managerial rigor and necessary experience, while the founder assumes a leadership role like Chief Technology Officer, to set technology policy and direction, while continuing to interface with the board and management.

As nonprofits seek to do more for those they serve and/or take on new challenges, their ability to plan for the future, make decisions within a different context, execute effectively, manage relationships, and communicate what they do are the staples of good management. And, as nonprofits change, great community leadership must be augmented and supported with strong management and with a board that takes an active role to ensure and support this change.

In closing, I would hope that we not lose sight of, and that our actions continue to be motivated by the real purpose—the children and families being served. Good boards, strong management, executive development, and organizational effectiveness are all means to an end, and not the end in and of themselves. It is all about improving the lives of children and families, and collectively building stronger, better communities.