Venture Philanthropy Partners: Investing in Social Change.

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Nonprofit Boards: Critical Component to Successful Scale Efforts

July 2011

Carol Thompson ColeVPP had its board meeting last month. Many of our board members have been with us for quite a few years, and we have added new members along the way as our organizational needs evolved. As we have been thinking through our goals for the next few years and shifting our model for change, our board members are asking all the right questions. This past board meeting included much engaged dialogue and constructive questioning, and it reminded me how critical a role nonprofit board members play, particularly when organizations are at a time of transition and change.

At VPP, we have always placed a significant emphasis on the role of the board for high performing organizations looking to scale. We assess the strength of the board and board leadership when we are considering making an investment in a nonprofit. We evaluate the working relationship between executive leadership and board leadership and look to see if aspirations for the organization are in alignment. We invest in board development and help our nonprofit partners, when requested, source the board members they need to take their organizations to the next level. In our second fund, we have worked even harder to engage the boards of our investment partners and fully explain our approach, our investment, and the strategic assistance we make available to our investment partners.

We work with our investment partners to identify the kinds of needs they have on their boards and work to find someone from our broad network to serve on their board as the “VPP representative”. The VPP representative’s primary duty and responsibility is to the nonprofit itself, but he or she is completely briefed on the goals of the investment partnership and is able to help keep the investment on track, for both VPP and the nonprofit. The representative functions as a liaison between the investment partner’s board and VPP. Many of these representatives have gone on to leadership positions on the investment partners’ boards and have been asked to stay on after the VPP investment is complete.

Through this deep work with boards, we have learned a number of lessons that are particularly relevant for organizations considering or undertaking growth efforts. For this column, I had conversations with a number of board members from our investment partners to enrich my own perspective and those of our investment practice team and have included thoughts from many of them.

For leaders of organizations:

Seek board members who can chart the way.
As an organization moves into new geographic areas, it must have board representatives with deep knowledge of and connections in those neighborhoods and communities. Duke University produced a report on “Scaling Social Entrepreneurial Impact,” (pdf) which looked at the qualities of successfully-scaled organizations. One such quality was a nonprofit’s ability to form “alliances” with partners and individuals. For many, these alliances will come through an organization’s board.

Many VPP investment partners ended up scaling from the District of Columbia into suburban Maryland. VPP was privileged to travel with these organizations on their journeys, providing financial support and strategic guidance as they navigated new regulations and potential partners, including government officials and agencies, community leaders, and funders. The boards of these organizations (as well as individuals on VPP’s own board) were able to help form the “alliances” in these new jurisdictions necessary for successful program execution.

For the Latin American Youth Center (LAYC), a VPP investment partner, scaling into Maryland meant adding community leaders from Maryland to their board. With the input of these individuals, the organization was better able to manage growth into the new jurisdiction and have the on the ground community knowledge that was critical to its success.

Nonprofits considering growth should also have board members familiar with issues of scale or make sure boards have the resources they need to adequately consider all the opportunities and challenges of expansion.

Make sure you have the right people in the right seats.
Having board members that are a good fit in the roles they fill is key to creating a board that can support and drive an organization forward toward bold aspirations to scale. Tony Marquez, Senior Vice President of Commercial Real Estate at HSBC Bank, Chairman of the LAYC’s Board, and VPP’s former representative on that board, said that it would be better to have fewer members on a board than to have some members that are not the best fit for the roles they fill.

It’s important that the board be diverse and understand the type of diversity needed to achieve scaling. A diverse board has the ability to provide access and influence needed to navigate new communities.

Joanne Williams, Principal Associate at Barrington Associates and former Board Chair at VPP investment partner CentroNía, shared her experience on the need to take time to shape board membership:

"Identifying, interviewing, selecting and then using the talents of individuals asked to serve on boards requires extraordinary effort and tact….Our arduous board selection process positively transformed the group and yielded members comfortable with, and able to deal with organizational evolution, which then positioned us to grasp the VPP investment opportunity."

Build structures for your board:
Putting structures in place for the board to follow is also essential for an organization that is scaling. As Marquez shared, “Inevitably, you will hit bumps along the way, and it is important to have all policies and procedures up to date. Something as simple as an orientation handbook can make a big difference.” It is also important that board committees are well staffed and high functioning. In a time of growth or scale, new committees may need to be formed that reflect new areas of capacity under development, such as communications, planning, or financial sustainability. Job descriptions for board members should be very clear and transparent as to expectations for fundraising.

Consider the need to “grow” future board members.
Even if an organization has the board it needs for today, often it does not have a pipeline of potential members for tomorrow. The LAYC has created a “junior board” made up of individuals at early stages of their careers. The junior board allows the organization to form relationships with potential future board members and creates a pipeline of talented, committed, and well-connected people.

Joanne Williams describes it this way:

"I’ve learned that board selection should be made based, not on where an organization is at the moment, but strategically, upon where it is going. Change, or even the possibility, rattles even the strongest organizations. But board members’ experience with quantum growth and scale ameliorates the problems implicit with increased size and far more complicated budgetary considerations."

For board members of organizations considering or undergoing scale efforts:

Do not check your business hat at the door.
We have heard time and time again that often board members with private-sector backgrounds “check their business hats at the door” when joining a nonprofit board. Board members need to bring all their expertise to bear on behalf of the nonprofit and that includes taking a hard business look at growth plans, particularly financial models.

Jack Davies, Founder, AOL International, Minority Owner Washington Capitals, Wizards, Verizon Center sits on our board as Chair of the Development Committee, and serves on the boards of many nonprofits, including VPP investment partner the See Forever Foundation. He understands well the need for board members to probe and test financial plans.

“Based on my experience with organizations executing ambitious growth plans, the most important issue a board member needs to focus on is financial sustainability,” he said. “Fundraising is difficult in the best of times and there needs to be a clear vision from management and the board about how the ongoing organization is going to be able to cover its increased expenses. Often if an organization doubles in size, the fundraising need more than doubles.”

Terry McCallister is the Chairman and Chief Executive Officer, WGL Holdings and Washington Gas and serves on the boards of many local nonprofits, including VPP investment partner the Boys and Girls Clubs of Greater Washington, as well as the Greater Washington Board of Trade, the Virginia Chamber of Commerce, the National Symphony Orchestra, and the INOVA Health System Foundation. He shares words of caution for board members of organizations that are considering mergers and/or acquisitions:

"In the case of mergers, do a very thorough due diligence. In this economy, the need for mergers is generally driven by a financial shortfall. This consolidation of services can actually be useful and beneficial for those able to weather the storm as more efficient delivery of services will occur in the community. However, it’s imperative that you take the brightest of your staff and of the Board to do the diligence. Often you’ll find the organization in worse shape (financially, employee morale, staffing, etc…) than initially portrayed. You can’t take on additional passengers if they take the whole boat down."

Joanne Williams suggests the following questions for individuals considering joining the board of an organization:

  • Why do you think that I’m a good candidate for your board?
  • What are the time commitments?
  • What are the expectations of board service?
  • What are the financial commitments, if any?
  • What are the organization’s plans?
  • How successful has the organization been in meeting its goals up to this point?
  • Are there major changes expected?
  • What’s the funding outlook for the next several years?
  • Do you have board liability insurance?
  • What is the organization’s budget and is it carrying debt?
  • Can you tell me a little bit about other board members currently serving and how long have they been active?
  • How diverse is the board’s membership? (Gender, race, ethnicity, geographic, profession or industry expertise)

Make sure the organization matches programmatic aspirations with ability to raise capital.
Even the most comprehensive business plans do not always anticipate all costs. Growth can have many one-time costs—recruiting new staff, new buildings, equipment for program expansion—and the board needs to help executives stay realistic about the capacity of the organization to raise capital. As Tony Marquez put it, "Sometimes the intent to do good overshadows the financial capacity to execute on that intent.”

Help the organization maintain strategic focus.
At a time of rapid growth, many opportunities arise that may distract even the most seasoned executive team. It is the role of the board to help an executive leader examine each opportunity as it relates to the ultimate mission and plan to achieve that mission. A good board member helps the organization maintain focus and discipline. As McCallister says, “Just because something is worthwhile and needs doing doesn’t mean it’s within your mission and capability to do it. There are literally thousands of people and entities in need of help but you can’t take on all of them. Stay within your capabilities.”

As you consider scaling its important that the board have a formal process in place (e.g. stakeholder committee) to obtain feedback from all stakeholders, including families served, without filter by the staff. It’s the board’s role to ensure that the results from the stakeholder feedback are used to inform the strategy for scaling and resource allocation.

Thoroughly evaluate organizational capacity for scale.
Board members need to make an honest assessment of capacity and strength when guiding the organization through decisions about growth. Some areas of capacity are essential to have in place before committing to ambitious growth plans, others can be built up as part of an expansion strategy. McCallister recommends board members with organizations considering scale take a particularly close look at the capacity of their executive leadership:

"Carefully consider your leadership capabilities. Are your current leaders the right ones to take you to the next stage? Do they have the capabilities to manage a larger, more diverse organization? Can they manage a distributed organization? What kind of leadership style does he/she have, e.g. command and control, collaborative, etc.. and will that be useful or a hindrance to a larger organization? What leadership capabilities come from the new organization? As a Board, unless you’ve answered these questions, you can’t move forward. You may ultimately choose to move forward with growth, but with a search for a new leader or you may have a visionary leader but will now need a second Chief Operating Officer-type to actually run the day-to-day activities that make things happen. You may need a more powerful Development officer. This issue of leadership capabilities should guide your decisions whether or not to move forward. It is the most important ingredient for success.

Be realistic about your commitment.
Growth is a time of change and transition. Board members must be committed and have the time to put in to help organizations plan and to help them raise capital. Jack Davies advises:

"Increased development resources, greater board funding, and board development are some of the things that are essential if growth is to be financially sustainable. As a Board Member, each person has to be willing to do their fair share to help support the financial needs of the organization, including personal financial support, providing access to one's network of contacts, and participating directly in fundraising activities."

Organizations undergoing scale truly need all hands on deck.

Make sure you have a clear understanding of where you will add value.
Just as leaders should have a clear sense of the skills and abilities each board member brings to the table, board members themselves should know exactly how they will best serve the organization.

The Edna McConnell Clark Foundation commissioned the Bridgespan group to produce a report on the growth of youth-serving organizations. The report outlined seven different observations about the organizations they researched, one of which was that “growth almost always required redefining the role of the board and its members.”

Transformational change and scale are not easy, but they are almost impossible to achieve without a board who is fully committed and up to the task.

—Carol Thompson Cole