This article is designed to provoke a dialogue about the effectiveness of nonprofit boards. If you would like to contribute to the dialogue, please email us. We also invite you to add to our research by taking the survey:

Click here to take survey

A version of this article originally appeared in Hand to Hand (Volume 18, Number 3, Fall 2004), a quarterly publication of the Association of Children's Museums (ACM). www.childrensmuseums.org

Hardly a month goes by without the news of an executive director resigning, or being asked to leave, because of conflict or disagreement with the governing board of the organization. In several cases in the past year, museum directors who have had more than a decade of success leading an organization have found themselves at irreparable odds with their boards. These are not cases of bad matches, where a new director does not fit into the organization’s established culture. Rather, such incidents point to serious challenges and flaws in the way nonprofits are governed.

The current structure of nonprofit governance is imbedded in laws and customs that date to the nineteenth century. It is unlikely to change anytime soon. Our purpose here is to raise questions and provoke discussion, to help executive directors and trustees understand better the challenges they face.

Structural and Procedural Problems with Governing Boards

When it comes to leading a nonprofit organization, trustees are part-time amateurs with authority over full-time professionals. The disparity in the nonprofit arena is much greater than that which exists in the corporate world, where board members often have real experience running similar organizations.

The average nonprofit board spends less than 24 hours a years making decisions as a body. Meetings often are not well run, with time wasted on relatively unimportant matters.

The board has authority as a body, yet many trustees act as individuals.

The board is legally responsible, but in practice trustees are virtually unaccountable.

Board members often are more risk averse than the institution requires. Most executive directors are more comfortable with risk and innovation than their boards. Entrepreneurs are very rare on nonprofit boards.

The business experience of some board members is ten to forty years out of date with current best practices.

Decisions are typically made by vote, which often leaves significant differences unresolved and unspoken. These differences and lost votes too often inappropriately color other decisions.

Trustees do not know how to manage conflict or build true consensus.

Trustees often have little skill in reading and interpreting the implications of financial reports.

Too many boards are prevented from good decision making by dysfunctional politeness in their meetings and disruptive gossip in the parking lot.

Few boards provide useful performance reviews of their directors.

Are Boards Necessary?

Legal requirements aside, does the nonprofit board play a necessary role? Consider these roles and functions often ascribed to boards? Do boards measure up? Is there a better way?

Boards represent the community and hold the institution in trust for the community.

A nice thought, but in most cases untrue. Simply obtain the following statistics on your community from the US Census Bureau or your local city planning board. Then compare the data with the composition of your board. If they match within 10% to 20%, your board may well be representative of the community. More likely your board represents a group of people who knew each other before they joined the board, who are older, wealthier, whiter and better educated than the community they represent.

Let us assume that your board falls into the 20% match and does represent the community demographics. Now for a second test: what mechanisms does the board use to determine what the community wants and needs from the institution? How frequently is this data updated? How is it confirmed? Next, how are these community needs integrated into the institution’s mission and programs? Finally, how does the board confirm that the community’s needs are truly met? Does the board annually report to the community on the institution’s performance?

Boards are needed to raise money for the institution.

Eighty percent of some fifty museum directors Qm2 surveyed in 1997, reported that the two greatest short falls of their boards were inadequate advocacy and insufficient fund raising. Plus we have examples of non-governing boards raising significant funds for university and city owned museums, such as the University of Wyoming Art Museum, The Oakland Museum and the Arizona Museum for Youth in Mesa. Advisory councils in other nonprofit industries, such as universities and hospitals, raise significant sums without having governing authority. Yes, we need committed people to raise money, but do they need to be on a governing board?

Nonprofit boards may not be perfect, but nonprofits are necessary to provide service to the public.

Numerous signs point to the blurred line of distinction between non-profit and for-profit service to the public. Some hospitals are non-profit, some are for-profit. For-profit corporations own twenty percent of aquariums. Some museums, such as the Spy Museum in Washington, DC are for-profit enterprises. Many science museums earn - not raise - significant percentages of their operating income. In fact all nonprofits have learned about earned income over the last decade. Few have driven their earned income businesses as well as if small business entrepreneurs ran them.

Venture philanthropists or social entrepreneurs have “invested” funds in nonprofits, taking an active role in decisions about how the funds will be used, and expecting a social return on investment. This began as a trend in the heyday of the 1990s, and is now becoming a norm. Most donors want a say.

At the same time, government funds are being paid to many for-profit businesses to provide social services, operate schools and offer job training.

As nonprofits enter the earned income game they will come under increasing pressure from for-profit businesses and their Washington lobbyists with the claim of unfair competition. This has already reached a significant level in the health club efforts to limit the YMCA building fitness facilities in upscale neighborhoods.

What do these developments say about the role of the nonprofit board?

The board is needed to hire and fire the director.

Yes, someone must do this. The average tenure of a nonprofit executive director is about three years, so there is lots of hiring to be done. However, most boards do a very poor job of this. Few nonprofit boards do any real succession planning. Instead they wait until the director leaves, and then form a search committee, which has given little forethought and has little experience in making this important decision.

At any one time too many institution have lame duck interim leaders or complete gaps in leadership. Others go through a series of short-term postings before the institution gets back on track with a solid leader. Thus the institution loses momentum, which takes years to regain.

Then there are instances where two or three trustees work to get an executive director fired, regardless of how successful the organization has been under the director’s leadership. Such trustees may act for a number of reasons – disagreement with the director over vision and direction, interpersonal conflicts, personal ambitions, or serious questions regarding the director’s judgment. Whatever the stated reason, the board acquiesces to the position of the few, rather than call for an open dialogue with the director to resolve the issues. It is easier to make a decision behind closed doors to fire the director, than to have an honest discussion that might point out failures in leadership. So, yes, nonprofit boards hire and fire the executive director. On average they do this every three years. Is there a better way to find executive directors to lead nonprofit organizations?

A board insures better performance and ethics.

The scandals of over 200 nonprofits, from the United Way to the Red Cross, plus those in the corporate world as symbolized by Enron, Tyco and countless others, demonstrate the fallacy of this. The federal government’s response with the Sarbanes-Oxley Act only demonstrates the futility of legislating organizational behavior through rules and standards. Not one private sector CEO, business advisor, or responsible business journal believes that Sarbanes-Oxley will have any beneficial impact except on the income of auditors and software designers who will help manage the Act’s reporting requirements.

From our consulting experience in 34 industries, including nonprofits, governments, universities, seminaries, large public companies and privately held businesses, the most responsible and ethical leaders appear over and over again in the closely held companies. That is, those who have the greatest personal commitment and the most at stake provide the best leadership. How many nonprofit trustees or executive directors would mortgage their house to raise cash for the organization, rather than see it founder?

Whether a nonprofit succeeds or fails has little impact on the wellbeing of its trustees. Do they have sufficient motivation to act courageously when needed?

The implications of Sarbanes-Oxley for nonprofits may make the recruitment of strong board members more difficult in the future, as board service becomes more accountable. Already many organizations go to ‘second tier’ professionals as they seek to build diversity and become more representative of their communities.

The Problem is that the “Problem” is not the Real Problem

As boards grapple with these challenges and seek to improve, they often misdiagnose the problem. Often problems are rooted in the culture and norms of the board, that is, in the way people interact and behave. Such problems are extremely difficult to address. Here are some common approaches that never solve the real problem.

• Attendance is poor at board meetings, so the board establishes attendance requirements rather than confronting the fact that meetings are poorly run and boring.
  
  
• When members do not pull their weight, the board enforces term limits and waits for the deadwood to leave rather than discuss individual performance.
  
  
• When an issue divides the board, the factions work behind the scene to strengthen their positions, rather than seeking to understand the other point of view through open discussion. Sometimes meetings are scheduled when it is known a certain individual will be out of town.
  
  
• When facing a deficit the board simply looks to the director to make cuts and find quick fixes, rather than assess its own ability to generate sufficient financial resources or examine what might be deep structural inadequacies in the enterprise model.
  
  
• When facing a crisis, the board is more likely to blame and perhaps fire the executive director, than to examine its own role in creating the predicament.

At the root of all of these situations is the inability of the board to have honest, constructive dialogue about itself and the organization.

In a study of corporate boards Jeffrey A. Sonnenfeld (“What Makes Great Boards Great?” Harvard Business Review, September 2002) asserts that it is not rules and regulations that make a board effective, it is the way people on the board work together. Attendance at meetings, the skills of individual members, board member ages, board size and committee structure – none of these seem to make a difference in whether a company is successful or not. The boards of Enron and WorldCom were no different, from a structural point of view, than GE and Wal-Mart.

What does make a difference according to Sonnenfeld is that “the highest-performing companies have extremely contentious boards that regard dissent as an obligation and that treat no subject as undiscussable.” Such open dissent is conducted in a climate of trust, candor and accountability. It is the ability to have honest, constructive dialogue that separates really effective boards from those that are merely good.

Many nonprofit executives will regard the notion of a contentious board with no undiscussable subjects as dangerous and something to be avoided. They would prefer to have a board that they can engage on their own terms, one that simply responds to their proposals, for which they have lined up support in advance. They can point to years of success in keeping their board under control. This may even be done under the guise of full board participation, but everyone knows it is the director who calls the shots. This approach may indeed work will…until there is a crisis of confidence in the director. At such a point the board, with no experience in true dialogue, can find no answer other than to fire the director.

What is Dialogue?

The only way we know to create a board that is able to engage regularly in honest, constructive dissent is to introduce the practice of dialogue. Very few nonprofit executives and trustees really understand what dialogue is. To quote from the Qm2 Management Briefing, “The Definition of Dialogue”

Dialogue is the interaction between people with different view points, intent on learning from one another. The purpose of this learning is to lay the foundation for creating new solutions.

Note that the purpose of dialogue is to learn from one another in order to create something new. This is contrary to most board interaction, which takes the form of a proposal or recommendation made by the director or one of the board leaders, followed by discussion for clarification and alternative ideas, and then a vote. The purpose is not to find a new solution, but to get the board to support, perhaps with some revisions, a preconceived course of action.

In dialogue the intent is to have the group find the best possible solution, based on their collective understanding of the situation. The director presents not a proposed solution, but the issue itself, described in enough detail so that everyone understands it. She then states that although she can think of two or three ways to solve the problem, she feels that the board should take time to hear the points of view of all the members. Every member then has the opportunity to speak; stating how they see the problem and what they think might be a good solution. The objective is to listen and learn, so that the board as a body achieves a better understanding of the issue, and collectively discovers the best course of action.

It is not easy to master the practice of dialogue:

• Dialogue takes time, so it is impractical to use it for every item to come before the board. It should be used for issues that are strategically important, complex, and potentially divisive.
  
  
• Dialogue takes practice. There is always a tendency to push for a solution before everyone is heard and understood. This is true especially when there are strongly held differences of opinion. You need to use it at every meeting, with everyone committed to getting better at it.
  
  
• Dialogue requires humility. You cannot learn if you believe you have the right answer. You cannot learn if you believe that the other person is ignorant and if you do not perceive your own ignorance.
  
  
• Dialogue depends upon mutual respect. From a practical point of view this means that when you hear the other person say something that is not in agreement with your experience or view, you accept their viewpoint as valid.
  
  
• Dialogue entails critical thinking. This means that participants must challenge one another’s assumptions, recognizing that the reality of any situation is complex and continually changing, and that solutions are rarely simple or certain.

By introducing the concept of dialogue, and by practicing it regularly, an executive director may begin to address the root cause of many of the challenges of nonprofit governance. Without dialogue the board is likely to continue to function at a superficial level, attempting to solve problems through structural changes, and failing in the end to become as effective as it should and could be.

Bibliography

Paulo Freire, The Pedagogy of the Oppressed (1970, 1984)

William Isaacs, Dialogue and the Art of Thinking Together (1999)

Jeffrey A. Sonnenfeld, “What Makes Great Boards Great,” Harvard Business Review (September, 2002)

Douglas Stone, Bruce Patton, and Sheila Heen, Difficult Conversations: How to Discuss What Matters Most (1999)

Daniel Yankelovich, The Magic of Dialogue: Transforming Conflict into Cooperation (1999)

Management Briefings on www.qm2.org