The NonProfit Times - The Leading Business Publication For Nonprofit Management

5 Sox-Related Issues You Need To Analyze

Very little of the Sarbanes-Oxley Act of 2002 (SOX) applies to nonprofits, but it would be wise for organizations to follow many of the best practices that have emerged from the legislation.

The portions of SOX that affect nonprofits deal with policies about document retention and whistleblower protection. But the sweeping reform that aimed for greater accountability and transparency also offers best practices that can benefit any nonprofit organization.

Peggy M. Jackson and Toni E. Fogarty, in their book "Sarbanes-Oxley and Nonprofit Management," outline some of the initiatives that can improve the performance of a nonprofit board and its staff:

Board recruitment and retention. Sitting on a board is no longer a hobby. It's serious work and demands complete attention to the task. Boards shouldn't be rubber stamps for executive directors, and they can't have passive people or those who lack the requisite skills to provide appropriate governance and oversight, according to the authors.
Audit committee. Nonprofit boards need to have a separate audit committee that includes at least one board member who is a financial expert. The committee must ensure that auditors are not also engaging in additional services, such as consulting, for the nonprofit, and that either the auditing firm, or at least the lead auditor, is rotated every three to five years.
Financial literacy. A nonprofit might have to create a training program so all board members know how to read financial reports accurately.
Code of ethics for board and senior management. Boards should adopt a strict policy prohibiting personal loans to any director or officer and a human resources policy that prohibits lending money to the chief executive officer, executive director, chief financial officer or other staff.
Conflict of interest policy. Any conflict of interest between a board member and a nonprofit should be documented through a conflict of interest statement and process.

6 lessons for boards and 'the ask'

Board members obviously have an interest in your organization's financial future. But even though they might not be professional fundraisers, a vital part of their duty is to bring in dough..
Fisher Howe in his book, "The Board Member's Guide to Fund Raising: What Every Trustee Needs to Know About Raising Money," offers some steps to follow for board members who might just be learning how to "make the ask."

Step 1: Open with pleasantries. Whatever you do, don't talk about the weather. Make it something to do with the prospect, but keep it brief.
Step 2: Get to the subject. "Thanks for seeing me" is a good way to open, then tailor the conversation to your prospect's interests, but again, don't take too long.
Step 3: Get to the asking. Ask the prospect to consider a specific amount. Failing to mention an amount could yield a much smaller contribution than you had hoped for. Don't think of it as what the prospect should give, but as asking the prospect that your suggestion be considered.
Step 4: Be ready for any number of negative responses. Deal with the negative responses as best you can. A flat-out refusal could lead to thanking the prospect and leaving. But many other responses could mean it's not out of the question, leaving you open to other avenues of pursuit.
Step 5: Leave on a positive note. Rarely do you a get a commitment on the spot, so be sure to end the discussion by offering to send a summarizing letter.
Step 6: Follow-up. Promptly follow up with a note of appreciation, for their time, but also as a reminder that the request is still out there.

Beware the 5 board types

Many people in both the nonprofit and for-profit worlds see a board as simply a group of people, with all boards being the same.

In their book Building Better Boards, however, David A. Nadler, Beverly A. Behan and Mark B. Nadler maintain that there are five types of boards, ranging from the least to the most engaged. Each offers a hint at what boards can be.

Passive. The traditional model. The board’s activity and participation are limited and at the CEO’s discretion. The board has limited accountability, and its main job is to ratify management decisions.
Certifying. This type places a heavy emphasis on the importance of outside directors and certifies to stakeholders that the organization is being managed properly and that the CEO is doing what the board requires.
Engaged. This one partners with the CEO, providing insight, advice and support on key decisions and implementation. It recognizes its ultimate responsibility for overseeing CEO and organization performance.
Intervening. The most common mode during crises. The board holds frequent and intense meetings, and becomes deeply involved in key decisions.
Operating. The deepest level of ongoing involvement. The board makes key decisions, and management implements them. This model is frequently found in the early stages of startups.

Evaluating the CEO, or any senior manager

One of the functions of a nonprofit board is evaluation of the chief executive officer. In their book Building Better Boards, David A. Nadler, Beverly A. Behan and Mark B. Nadler maintain that assessing the CEO or any senior manager of an organization is one of the most critical, and yet one of the most difficult, board functions. Nevertheless, it is a necessary process, and it is one that can be done. The authors outline the essential steps every board should take as it designs its own CEO evaluation process:

Creating a shared understanding of the purpose of CEO appraisal.
Designing a sequenced process for identifying goals, monitoring progress and assessing year-end performance, and then agreeing on who should play which roles.
Identifying the appropriate areas on which to rate the CEO’s performance.
Deciding the best way to gather data on the difficult-to-measure nonfinancial performance dimensions.
Communicating effectively with the CEO on performance-related issues.

Further, this process can be complicated by a variety of human factors. For example, a more senior executive may have had an enormous effect on an organization, and a rigorous and objective evaluation may be difficult to implement.

Also, in an organization with no history of evaluations, the sudden imposition of one may cause difficulties throughout the system.

Procedures for expense reimbursement

As with all members of organizations, the directors of boards have the right to reimbursement for expenses that have been incurred on behalf of the organization. Reimbursed expenses can include travel, lodging, telephone and postage.

Recouping out-of-pocket expenses can be a smooth transaction if handled in the proper manner, according to Calvin K. Clemons, author of the book The Perfect Board.

The board should have a published statement explaining its reimbursement policy. The policy should be specific and detail exactly what expenses are covered. For example, airfare may be restricted to coach fare with advance purchase or there may be a set rate for mileage reimbursement. Some organizations replicate the rate set by the Internal Revenue Service while others set their own rate.

Directors should sign a statement acknowledging that they have reviewed and understand the policy.

The policy should provide instructions on how and when reimbursements are distributed. Receipts should be required for all expenses. Copies of vouchers, bills and statements should be avoided.

Depending on the size of the organization, it is good to obtain an approval from some other person that is not on the board. It can include an assistant treasurer, staff accountant or controller.

Have a standard organizational form that is easy to complete. Forms are available at most office supply stores and numerous Internet sources.

Getting the members' best attributes

The board is the backbone of every nonprofit and its makeup can go a long way in determining the success. Simone P. Joyaux of Joyaux Associates, speaking at an international conference on fundraising, offered a sample policy for developing the optimum board of directors.

Joyaux mentioned certain attributes or qualities that an organization looks for in each board member. Board members are expected to affirm and demonstrate the following:

Dedication to the values, mission and vision of the organization.
Courtesy, honesty and integrity.
Candid dialogue.
Behaving as a team player and participating in the group that is the board.
Expressing individual opinions and perspective balanced with supporting group decisions.
Asking difficult questions without being overzealous.
Being comfortable with diversity and agreeing to disagree.
Accepting that disagreement and conflict are part of doing the organization’s business well and working with colleagues to resolve differences.
Bringing issues to the boardroom and discouraging behind-the-scenes conversation that creates divisiveness.

What are the typical skills needed within a board? The following are helpful:

Financial expertise
Investment experience
Fundraising experience
Legal expertise
Property and facility management and construction
Marketing
Small business experience
Personnel experience
Not-for-profit management and governance

In addition, Joyaux urged avoidance of functional silos on the board – that is, isolating an individual in one skill area serves neither the organization nor the board well.

Setting the agenda for administration

As a new manager, you wouldn’t ask your administrative assistant what categories of work have been successful in the clerical position. But that’s just what organization boards do when they take their cues from their administration, according to John Carver, author of Boards That Make a Difference: A New Design for Leadership in Nonprofit and Public Organizations.

“Conventional governance is subtly managed by management, a far cry from management governed by governance,” he says.

Carver said it’s necessary to “create categories to guide a board’s debate and pronouncements, groupings not derived from administration but from the nature of governance.”

Board policies fall into four categories, as construed by the Policy Governance model.

Ends: The organization’s swap with the world. What human needs are to be met, for whom, and at what cost or relative worth. It’s important that no means be included in this category.
Executive Limitations: Boundaries that limit the choice of staff means, normally for reasons of prudence and ethics. While means includes practices, activities, circumstances and methods, the most comprehensive definition for means is simply “non-ends.”
Board-Management Delegation: The manner in which authority is passed to the executive or staff component of the organization and the way in which performance using that authority is reported and assessed.
Governance Process: The manner in which the board represents the ownership, disciplines its own activities, and carries out its own work of leadership.

3 reasons for leaders to panic

Instability can be bad for any organization. Operations may be adversely affected, and morale can suffer badly, in a snowballing way.

In their book Leadership in Nonprofit Organizations, Barry Dym and Harry Hutson argue that, as troublesome as instability may be, it can present an opportunity for momentum and creative ideas because feelings of confusion and anxiety make people receptive to new ideas and unfamiliar concepts.

Dym and Hutson identify three states of instability, and they offer what they call the preferred intervention style in each case:

Confusion and disorientation. Leaders and staff become more confused and disoriented than they let on. They may lose confidence in themselves and each other. Preferred intervention: Instead of putting on a brave face, name and affirm the confusion. The organization may then push toward a new and coherent way to operate.
Anxiety. This combines confusion with worry. Organizational problems become personalized, and staff take them home. Preferred intervention: leaders must name, not ignore or deny, the cause of anxiety. A leader should draw out both individual and collective elements of anxiety. This is a time to provide structure, maybe a new strategic plan.
Panic and crisis. People become fearful and grow irrational. This become contagious, and leaders look on helplessly. Preferred intervention: Remain calm, and share thoughts that can become the seeds of creative solutions. An organization can become transformed because the disorganization caused by panic loosens patterns and opens the door to radical new patterns of experience.

6 important ideas for board fundraising

Involving board members in planned giving can pay off handsomely, but such involvement is not an easy thing, nor does it always guarantee great results.

So said Barbara R. Diehl of the American Red Cross to attendees at the 2006 National Conference on Planned Giving.

Diehl said that bitter experience has given her some insight into the ways by which board involvement can help planned fundraising and ways by which it can fail. Some of her findings:

Committees don't work. Members will talk enthusiastically at the first meeting, but after that their commitment dissipates, as they neglect to perform assigned duties, fail to attend follow-up meetings or use meetings to impress fellow board members.
Training sessions have produced no difference in the level of participation or willingness to be involved in the program.
Training is best accomplished on the job. Take a board member or members to a donor's home, telling them on the way what to look for in determining whether the prospect is a good one. Also talk about listening skills.
During the visit, speak to what fits the donor's situation. If you don't know the specifics, steer the discussion toward what fits the interests or needs of the accompanying board member.
Start with board members who seem most responsive to suggestions.
Direct efforts toward stewardship and cultivation not as much to structure a plan as to structure an opportunity.

10 mistakes in measuring executive performance

When he was mayor of New York City, Ed Koch would rhetorically ask, “How’m I doin’?”

Executives and board members at nonprofits should be asking that question regularly, or at least when annual performance reviews are coming up.

In “Evaluating Your Executive: New Approaches, New Purposes,” published by The Academy of Leadership & Governance in Columbus, Ohio, Donn F. Vickers and Kelly Stevelt Kaser warn of 10 mistakes that can easily undermine the good intentions and hard work of evaluations:

1. The board communicates that evaluation is not important by failing to initiate the process or take it seriously.
2. Expectations are not clear and/or agreed upon.
3. Too little time is allocated to do the process thoughtfully.
4. The wrong people get involved, either those who have an axe to grind or who are not representative of the majority point of view of the board.
5. The evaluation committee plays boss and reinforces a power-focused, hierarchical way of thinking.
6. Contextual issues are not taken into consideration, such as life stage of the organization or significant forces in the environment.
7. The ratio between talking and listening is skewed greatly toward talking.
8. The ratio between asking good questions and making opinion-heavy statements is skewed greatly toward the latter.
9. There is a lack of discipline about sticking to the agreed-upon evaluation process.
10. The follow-up discussion and tracking were weak or nonexistent.

Boards must commit to fundraising

The leaders of nonprofit boards should all be committed to fundraising and for this reason, nonprofits should rethink their nominating process, said Linda Lysakowski, in her book, Nonprofit Essentials – Recruiting and Training Fundraising Volunteers. Instead of a Nominating Committee, organizations should construct a Governance, or Board Resource, Committee.

Lysakowski said that this committee:

Should meet year-round;
Needs to be chaired by the strongest person on the Board
one who is committed to fundraising;
Should involve duties including conducting an assessment of the boards performance, both as a whole and as individual members;
Is responsible for developing or refining Board position descriptions;
Evaluates the need of the board and constructs a profile of the types of people that are needed to fill vacancies;
Works with the board to help find the best people to fill Board positions;
Ensures board diversity;
Helps to implement Board orientation;
Responsible for continued education of the board.

Succeeding in evaluating your managers

How do you determine the success of the executive evaluation process of a nonprofit board?

There are important factors to the evaluation on both sides, for the board and for the executive, according to Donn F. Vickers and Kelly Stevelt Kaser in “Evaluating Your Executive: New Approaches, New Purposes,” from The Academy for Leadership & Governance in Columbus, Ohio.

“Success will be the board coming away from the experience feeling that they better understand the executive, that their attention and encouragement will result in (their) growth and development and that their partnership with the executive has been strengthened for the betterment of the organization.”

On the executive’s side, he or she will “come away from the experience feeling better known and understood, supported and encouraged in (their) own professional development, more confident that the partnership with the board is healthy and productive, and reassured that all parties are well able to exercise their own leadership in the organization.”

The authors also suggest that board members can compile their own list of indicators, perhaps including measures that are more quantifiable, but it’s critical that any such measurements and criteria be agreed upon well in advance. “It is our belief, however, that regardless of what other measures you choose to utilize, if the conditions described above for the board and the executive are not achieved, few other measures are worth the discussion.”

Preventing conflicts of interest

There are plenty of resources available for nonprofits and other organizations to develop their internal conflicts of interest policies. The Sarbanes-Oxley Act of 2002 has brought light such topics in recent years, particularly in the nonprofit sector, where self-regulation has become a rallying cry.

Your organization may have developed a conflict of interest policy, but what do you do a conflict of interest has been discovered?

Just as with developing a policy to avoid conflicts of interest, nonprofits should create a standard procedure on addressing conflicts that have arisen, according to Managing Conflicts of Interest: A Primer for Nonprofit Boards, by Daniel L. Kurtz and Sarah E. Paul.

There are a number of issues to think about when developing a “post-conflict” policy:

Establishing procedure before programs occur will ensure everyone on the board has a common understanding of what should happen in these difficult circumstances.
To encourage disclosure of conflicts, carefully select who will serve as a compliance officer or members of a conflicts committee, to ensure the individuals are highly respected and approachable.
Appointing an alternate compliance officer would be wise in case the person reporting the conflict is not comfortable with the designated officer, or if the officer wants to report the conflict.
The best first step in addressing the conflict is a discussion between the conflicted board member and the individual or group monitoring conflicts, with the goal to be objective and evaluating the conflict fairly.
If there’s agreement on the nature of the conflict and the actions to be taken, a proposed resolution should go before the board for approval. If, however, the individual in question does not recognize the conflict after discussions, the matter should go to the full board.

Thinking through the strategic planning process

Even though it is accepted that planning is necessary for any successful operation, what is not so well known is that even planning takes planning.

In the essay “A Guide to Strategic Planning” that appears in the book “The Art of Governance,” author Ronnie Brooks offers nine steps as a model in a strategic planning process.

The steps that should be involved in an organization’s thinking are:

Planning to plan: designing the planning process. It is important to think through the process and decide who should be involved, how time will be spent, how much the project will cost and if outside help should be involved.
Articulating our purpose. A mission statement provides a motivating sense of purpose and direction and provides guidance in times of difficult choices.
Understanding the context in which you are operating. It is important to understand the environment that can affect the organization’s abilities.
Recognizing your assets. An analysis can identify strengths or assets that can help with the plan.
Identifying the critical questions the plan must address. An organization must articulate and prioritize the key strategic issues the plan must address.
Setting goals. The group must say what it considers success.
Developing and selecting a strategy. Creativity is important; brainstorming is effective.
Making a plan. Start with the highest-priority goal and the best strategy to achieve it.
Monitoring and evaluation. Have key points along the way to measure success.