Viewpoints
Age of Accountability Requires Board Vigilance
Gerald Archibald
Originally Published In:
ROCHESTER BUSINESS JOURNAL
August 2005
Author: Gerald J. Archibald, CPA
“The price of greatness is responsibility.” – Winston Churchill
Comptroller Alan Hevesi has recently enacted governance reform proposals for the 701 public school districts in New York. Governor Pataki just appointed an Inspector General for Medicaid fraud and abuse control. These and other reform initiatives require the focus of all non-profit boards.
The bar of expectation continues to rise in this “Age of Accountability” for non-profits. Increased attention to board responsibilities and consistent governance practices will position each non-profit to effectively address these reform initiatives.
Many of these initiatives are delivered with the specific suggestion that an important component of governance is education and training of volunteer board members. In fact, Hevesi’s reforms included a requirement for six hours of training for board members related to their financial oversight responsibilities.
These reforms come at a time when many non-profits face increased competition, reduced government funding, and changing demand for program services. Tough issues. Rarely a clear answer. Effective governance is essential.
Non-profit boards have come a long way since Benjamin Franklin established the first board for Pennsylvania Hospital in 1752. Franklin recognized that, in order for the hospital to be successful, he needed a board that could provide financial support when needed. When Franklin put together the board, he looked for a group of people with one thing in common: money. The same is true today. Board and constituent financial support is the lifeblood of many non-profits.
In fact, in those early years, if the hospital incurred an operating deficit, the board members contributed against the shortfall. And so began the honorific/philanthropic model of governance that has existed for the last two centuries. Recently, in relative terms, there has been a dramatic shift in non-profit governance from the honorific/philanthropic model to the active/effective model.
Whether a non-profit board operates using a honorific/philanthropic model or an active/effective model, the board and its individual members must address the same basic responsibilities.
Fortunately, there is an organization known as Board Source which has, as its mission, to improve the effectiveness of more than 1 million U.S. non-profit organizations by strengthening their boards of directors.
1) Develop mission and vision statements
In order to effectively manage and guide any organization, it must have a clear mission that defines its purpose and objectives. Vision statements are an essential part of non-profit board governance. A vision statement looks to the future and provides the framework for where the organization is heading.
While we are on the subject of looking to the future, many observers of non-profits maintain that the typical board spends eighty percent of its time focusing on the past and twenty percent of its time looking to the future. The most successful non-profit boards do the opposite. Eighty percent of their efforts are spent anticipating future events and strategically planning the organization’s ride through the future. Twenty percent of their time is spent looking back.
If you want to know what this feels like, try driving your car while looking exclusively in the rearview mirror. It is an interesting feeling, but, if you try it, please do so safely.
2) Select a CEO
Effective leadership is a common element of success in any organization, regardless of its purpose.
3) Evaluate the CEO’s performance annually
At the same time that board members clearly understand their responsibility for selecting the CEO, performance evaluations can be the most difficult of all board responsibilities. The key to an effective performance evaluation is a clearly defined process that assigns responsibility to either the board chair, executive committee, or Compensation Committee. Input from all board members and key management-team members are essential to make the process successful and productive.
4) Pursue fundraising and development
In a way, one could say that we have come full circle since Franklin’s first board in 1752. After 50 years of expansion in government funding of non-profits, we realize that the basic foundation of success for non-profits is volunteer time and financial support. If your organization lacks strong constituent support, watch out.
5) Ensure effective organizational planning
Strategic or long-range planning presents a significant challenge for most non-profit boards. As volunteers with limited terms of service, effective board involvement in organizational planning can be difficult. However, the days of three to five year updates of strategic plans should be behind us. In today’s rapidly changing business environment, it is imperative for boards to establish an effective process that integrates the annual budget plan into a continuous evaluation of overall strategy.
6) Manage financial resources effectively
All board members have a fiduciary responsibility. In today’s environment, an annual conflict of interest declaration policy is one of the most effective means of reinforcing this responsibility to each board member and preventing problems from developing. The procedure for disclosure of conflicts is as important as the policy.
7) Enhance the organization’s public image
The board serves as a vital link between the organization’s staff and volunteers, and its members, constituents and clients. An effective public relations program is essential to a successful fundraising and development program. Positive image is the cornerstone of an organization’s success. Think about it – if you needed a heart transplant, would you prefer the Mayo Clinic or a VA hospital?
8) Determine and monitor the organization’s programs and services
Monitoring program operations is primarily a management function. Nevertheless, the board must take a leadership role in determining when it is appropriate to expand, eliminate, or modify services. (Expansion is relatively easy compared with program elimination.) Many boards are ineffective in this assessment. As such, it is a key factor in the failure of many non-profit organizations.
9) Serve as a court of appeal
From time to time, there may be situations where the board will be called upon to help the CEO resolve disputes, including personnel related issues. Again, this is primarily a management function, and the board should make every effort to avoid regular or direct involvement in internal disputes. It should, however, be supportive of the CEO in these situations. A good example of this responsibility is the different styles of school board management that exist at private schools vs. public schools.
10) Assess your own performance
Last, but certainly not least, is the need for self-evaluation and assessment. The most common means of satisfying this responsibility is to have each board member be constantly aware of it when carrying out all other board requirements. Many boards have periodic retreats to evaluate their performance. One of the best approaches I have seen in this area is a candid and anonymous written survey of board member perceptions prior to a retreat session.
Addressing the elements of governance described in this column will provide a strong and effective foundation for successful board leadership.
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