My Favorite Messes

One of the reasons that many for-profit companies like their future leaders to serve on nonprofit boards is so those future leaders can learn new skills or sharpen existing ones.  They figure it is better (for the for-profit) to have that learning and any attendant mistakes happen on the nonprofit’s time and dime rather than on theirs.

This could explain why nonprofit boards don’t always work smoothly:  too many people developing and/or honing personal leadership skills all while trying to do — or figure out — the work of a nonprofit board.  But what is the excuse for nonprofit boards predominantly composed of seasoned folk, people for whom the developing and honing is in the rear view mirror, so to speak?  How come they create such messes?

There are quite a number of reasons why this seems to happen, but there appears to be a common thread throughout them:  ignorance of the truth.  Reason one:  the position of for-profits and nonprofits has historically been painted as one of opposites.  What the for-profit sector is the nonprofit sector is not and vice versa.  If we take that Hegelian approach to understanding these two economic engines, messes will continue.  The reality is that for-profits and nonprofits are more alike in many key areas, the very areas where these real messes tend to occur:  finances and human resources.

There is one chief difference in the financial worlds of these two types of organizations:  nonprofits have unrestricted and restricted dollars while for-profits do not.  Apart from that, the rest is essentially the same.  Both types of organizations must insure sufficient income in order to stay afloat.  Neither can afford to continue to create its products if there is not sufficient revenue coming in to cover the costs; and both would prefer that the amount of revenue is actually greater than the costs, thereby generating surplus income that can be used to sustain the organization and, if desired, even grow.  To continue manufacturing widgets or feeding the hungry when the revenue isn’t coming in to cover the costs of doing either is simply bad management and leadership. So, then, why do boards of seasoned individuals allow this to happen?

Both categories of organizations must insure rigorous systems of internal control to monitor and safeguard the revenue that comes into the business, regardless of its origins.  There aren’t nonprofit and for-profit systems of these controls; internal controls are internal controls and each type of organization needs equally rigorous controls.  You don’t need to understand much about internal controls to know that their whole purpose is to protect money, regardless of whether it is coming in or going out of an organization, and to insure that none of it disappears for purposes other than what is intended by the giver and the organization.  Good systems of internal controls, therefore, build in multiple sets of hands and eyes at different points in the system, touching and recording the money as it comes in and goes out.   Why then, do nonprofit board members balk at being part of that system protecting the very money so essential for the mission?  Why do they prefer to leave this task to a committee of a few or assume that staff is taking care of it?  They certainly won’t rise in the ranks at their day jobs if they shirk their responsibilities and allow others to do their job.  So why do it on a nonprofit board?  Could they possibly like those reputation tainting headlines that say something about embezzlement at the organization where they are supposed to be providing oversight?

The consequences of either of these behaviors, merely two of many possibilities, are messes.  Unserved clients.  Negative headlines.  Laid off staff.  Closed doors.  All of which could have been avoided if board members used their day job knowledge and skills at the nonprofit.  Are nonprofits playing at real work? Do nonprofits have different rules that I don’t know? Are nonprofits are somebody’s “feel good” distraction and, thus, not important?

The bigger messes are often in the HR area, where there the rules and laws are exactly the same.  So, what is the excuse there?  Most people from the for-profit world who are invited onto boards are at a point in their careers where they have experience with hiring others, be they employees, consultants or vendors.  So most know the basics, even if the fine-tuning still awaits development.  But the mistakes we see are around the basics.  Why?

For example, we all too frequently see nonprofits filling staff positions as 1099 workers.  Why?  Most often to save money by not having to pay benefits.  Albeit not perfectly clear, the IRS does lay out the conditions and terms of work for an employee versus a 1099 worker.  There are distinct differences.  I’ve yet to see an executive director job description that would qualify as a 1099 worker; nonetheless, I know of an awful lot of 1099ers holding the title of executive director.  A mess in waiting!

One of my favorite messes is when a board and a potential executive director do something really, really smart, immediately followed by something really totally stupid.  For example:  the smart thing is having an executive director contract; the stupid thing is allowing the candidate to start working before the negotiations on the contract are finalized and it gets signed!  If both parties are willing to have the future ED work without a contract, then why have the contract?  But if there is even a remote possibility that terms won’t be mutually agreed to — and there is always that chance, hence why we call them negotiations instead of demands — why would you allow someone to come into the organization, start learning the systems, having access to money, client data, and security codes, etc.?

Another favorite is a board comprised of people who are serving in part because it is in the professional development plan they wrote up with their employer as part of their performance review who never, at worst (and “periodically,”at best), do a performance review of the executive director.  How does this happen?

In part it goes back to the ignorance mentioned earlier on:  too many boards don’t understand that they are the boss of the ED, and  not the reverse.  They are supposed to be wagging the tail, not the tail wagging the dog.  Failure to comprehend this could cause the confusion about the need for regular performance reviews.

But it could also be something I’ve written about before:  the gratitude factor.  Board members are so grateful someone (else) has the title of executive director, they don’t want to look to closely at how well that job is being fulfilled for fear of needing to take corrective action, even though that would be much better than having to fire the ED.  These for-profit folk are the very ones who don’t let incompetence hold a position very long at their day jobs because they understand that incompetence and underperformance cost money and earn less profit.  They document, do what their HR departments tell them, and the person is gone.  So why don’t they do that on nonprofit boards?

The push to get folks from the for-profit world onto nonprofit boards was done intentionally, with the express goal (one of several) of gaining their insight and experience of working for bottom-line driven organizations.  They were supposed to teach nonprofits those best practices that applied and, if needed, could be adapted to the for-profit world.  If this happened as it was supposed to, the result would be stronger boards, and therefore stronger nonprofits.