This article speaks to the challenges faced by the board of directors of a non-profit, charitable, organization in the selection and management of its executive director.
It's hard to believe that it was 18 years ago (1991) that the United Way of America scandal began to unfold and its executive director, Bill Aramony, was convicted in 1995 of a number of wrongdoings including embezzlement and spending funds unwisely. United Way was probably the most recognizable public charity in the country and it remains so today.
The governance of the United Way was placed, appropriately, in the hands of its board of directors. The board was comprised of CEOs of large, well-known companies in corporate America. Unfortunately, its executive director was allowed to conduct the affairs of the organization with very little accountability. Hence, it was only a matter of time before problems were bound to emerge. It seems easy to overlook the fact that non-profits are business entities, quite a few of them are very large organizations, and many have large incomes.
Curiously, it has become common over the past decade to replace the title of 'executive director' with 'president.' This is technically incorrect; an executive director is the chief employee of the charitable organization and reports to its board; the 'president' is, by statute, the head (and often known as the chair) of the board of directors, supposedly elected by the membership of the organization or its board, depending upon the process outlined in the Bylaws. While also technically incorrect, using the title of 'president' in lieu of 'executive director' may even add to confusion among unaware board members, causing them to rely more heavily on the 'president/executive director' than is prudent. (However, this is no excuse for the board member not knowing precisely the duties of his/her board position.)
It may be useful to contrast the issues of accountability for executive directors in very large non-profits to those in small non-profits. Albeit purely anecdotal, it appears that large non-profits operate very similarly to large for-profits. CEO accountability and board oversight can be low while CEO control is demonstratively excessive. The Aramony scandal of 1995 has similarities to the Kenneth Lay (Enron) scandal of 2001 in that too much power and authority was vested in the top officers of the organization and too little accountability was required by its board of directors.
Beyond the scope of this article - but an issue worthy of its own discussion in the future - is the cronyism too often seen in the board room. CEOs tend to invite friends and colleagues to serve on the board - as do board selection committees - and the practice is common in both for-profit and non-profit organizations alike.
Systems failures, such as the United Way and Enron examples, clearly paved the way for the Sarbanes-Oxley (SOX) legislation that is intended to provide stronger oversight of for-profit organizations. The subject of previous articles, and the focus of the Center for Ethics, Governance, and Accountability (CEGA), acknowledges that Congress has moved swiftly to empower the IRS to step up its oversight of non-profit entities.
In a previous CEGA article, "Non-Profit Accountability: A Board Gone Awry," the rude and irresponsible behaviour of current board members towards a former board member (with considerably more experience) was illustrated. There was also a promise that a future article would speak to the issues involving the executive director.
This is that article.
In this example - which could well become a full-blown case study - a tenured executive director retired after nearly 40 years of service. He was well known in his area of expertise and widely regarded as a man of great integrity and concern for those around him. His ego was virtually non-existent, he relied on his staff to do their jobs, and was supportive of creativity. He was highly focused on the mission of the organization. Replacement of such an individual is difficult for even the most ardent boards. In this case, a specialized search firm was engaged, candidates were identified, and finalists were interviewed by the board. A selection was made by a 5-4 vote of the board. (This is not a good sign when joining a new organization.)
Then the problems began...
Unfortunately, the selected individual did not have the requisite experience for the position of executive director. This was discussed with the board in the final interview and was highlighted by the search firm. While the candidate pledged to gain those skills on the job, once hired, he immediately reneged on his promise. Immediately upon arrival to the non-profit organization, the new executive director began to terminate employees, eliminate positions, dismantle programs and change the focus of the organization in a dramatic fashion.
The former executive director and the board of directors had worked well together for several years to define a very specific mission for the non-profit. It was immediately clear that the new executive director had ignored the direction provided by the board. There was clearly a personal agenda by the new executive director and, even worse, it was intentionally made public. When confronted by the chair and vice chair of the board, the executive director turned the board against itself and worked his 5-4 selection vote to full advantage. But such gross insubordination is not sustainable. In only 10 months, the entire organization was destroyed, the best board members had resigned in frustration, the executive director left town under a cloud of suspicion and was subsequently sued by the organization for misuse of funds.
Today, this charitable organization is being led by a new board with no experience, little perspective, and even less institutional knowledge. Adding to the challenge was the selection of a new executive director using a process further described below: tapping the number two person in the organization, who has even less experience than the now-departed predecessor. The future does not look bright; but, pressure to make it appear bright can easily lead to worsening conditions.
What can be learned from this example?
First and foremost, it is extremely difficult to be a board member. It is not a job that should be taken lightly. Governance, ethics, and accountability are critical and boards must expect and uphold the highest standards for the non-profit organization. Additionally, boards must move swiftly and firmly to deal with rogue executive directors that blatantly disregard board policy and mission. The most important lesson from this example is the severity and immediateness of the negative consequences to a non-profit organization - even one with a strong board, a known mission, and dedication to succeed. This example also illustrates the challenges, time commitment, and responsibility of a board member; particularly, when the board member is a volunteer of a non-profit organization.
One of the key jobs of the executive director is to implement the policies and vision of the board of directors. While there is often a natural tension between the non-profit board (at least if the board is truly engaged in the charitable mission) and its executive director, both need to work well together to successfully further the mission of the organization. And, the executive director is most often the 'public face' of the organization, so issues of credibility and ethical behavior are paramount to the perception of the organization in the community and constituency it serves.
With regard to the selection of executive directors in small and medium-sized non-profits, at least two methods are easy to characterize: (1) the use of a search firm to identify several top candidates for ultimate selection by the board of directors; and (2) the promotion of the 'number two' person among the non-profit staff for, supposedly, all the right reasons: he/she has been there a long time, knows the organization, time is critical, budgets cannot support the use of search firms (or the salary of the former executive director), etc. With the current economic crisis, arguably, funders are looking for the most worthy of causes and best-run charities before they make their contributions. Proper executive director selection is critically important. In addition, prompt discipline of executive directors is equally important.
If a disaster of this magnitude can occur with a strong board of directors in a charitable organization with a solid past and a promising future, it is clear what can (and does) happen to non-profits with weak boards and imprudent executive directors. There has never been a more important time for non-profit governance to be fully addressed, given the increased IRS scrutiny, economic pressures, and funding shortages.
As is usually the case, only the best will survive and thrive.
ไม่มีความคิดเห็น:
แสดงความคิดเห็น