Episode 223: Who Actually "Owns" a Non-profit and Why is that Really Important?
Welcome to another edition of Around with Randall, your weekly podcast for making your nonprofit more effective for your community. And here is your host, the CEO and founder of Hallett Philanthropy, Randall Hallett.
It's a wonderful day for this edition of around with Randall. I want to ask a question to start this particular conversation. Who actually owns the nonprofit? Who owns the charity? You might not be able to come up with an answer, because from a legal perspective, the answer is most likely no one does. But I don't believe anything in life is without ownership, whether it's responsibility or your own life in terms of what you do.
Absolutely. When you look at the for profit world, who owns them, either a private owner or family or stakeholders. There's an answer for this one as well. Why is this coming up? Well, let me start with a bigger picture, as we normally do, and then hone it down into what we're dealing with, and then some of the obstacles and challenges that we need to overcome through the tactical solutions.
In this 20 minute edition of around with Randall, Russell James, the really amazing faculty member at Texas Tech, writes incredibly well. If you don't follow him, you should on. He writes on the nonprofit world. There's immense research, really probably an under discussed person when it comes to where philanthropy is going, where the nonprofit world is going. He wrote a article many years ago that I actually commented on.
I can't imagine or years ago at least, about the changing position of board view, self view of what their role is with the CEO and what he found. What, through some of his research, was that there has been a movement over maybe a generation or so of boards viewing themselves as being more supportive of the CEO, rather than what I would classify as ownership.
Why is this research in the question and a tied together? Because the owner of a nonprofit, at the end of the day, is actually the community, and you can define community in many different ways geographically, you can define it by the kind of the services or services they provide and to whom they are given. You can define it much more largesse.
You look at something like the United Way. When you talk about that, the entire United States. And if you go beyond Salvation Army, it's worldwide. Somebody has to own this. And it's my belief that the owner is the board, and they're really only the representatives of the community, and that when things go wrong, it's usually because the ownership hasn't taken ownership of their responsibilities.
This is actually coming to fruition in a number of situations that I've run into recently. Not even really clients, more friends who've kind of walked into scenarios. So why is this important? Well, we need to figure out why it happens and really what it it's happening because there's been a lessening of governance impact or importance. How do we function as a board?
What is it that we do? It. It means that there's less accountability, meaning people just show up to meetings. They don't actually own the responsibility that they should carry when they're on the board. The fiduciary responsibility that comes with the organizing, being on the board of an organization. And lastly, it eventually is going to hurt effectiveness, meaning what the nonprofit does.
We have to understand that nonprofit governance is critical. Several other podcasts. In fact, I did one based upon an article that I found fascinating about having an actual governance officer, and I talked about my time when I was on the board at the Omaha Ronald McDonald House. I was the governance chair. I was the governance guy making sure we did the right governance things to make sure the organization move forward.
The traditional role of boards, as we all know or things about it, the idea of fiduciary responsibility, of the oversight of the ability to set strategic vision to hire and fire a CEO, executive director, whoever the the top employee is, to set budget things of that nature, that it's strategic. The staff's role through the CEO is operational execution of the mission, and that there's a balance between the two.
You can't have one without the other and do it well. But what I'm seeing and feeling is, is that there seem to be a lot of nonprofits that have more power designated to the CEO in particular, but maybe to the executive suite than really where it belongs. And that ownership piece represents the board of directors, board of trustees, whatever the governance title of the board is.
So what does this look like and feel like? And I think that really kind of gets us into the heart level discussions of what we're dealing with is when the executives or executive have too much engagement, too much leadership, too much quote unquote, ownership. They have things like a dominance in meetings that board meetings aren't discussions. They're more about rubber stamping things that come out from the organization.
A lot of reports, a lot of things being reported, but there's not a lot of discussion. And that the executive or staff or leaders, non board members control the agenda. They control the discussion, they control the items on the agenda. They seem to have an ability to say, no, we're not going to talk about that. If I'm a fiduciary on a board I want to determine what I talk about.
Now, if you get way out of bounds, we're trying to stay in the norm here. Obviously you can't have crazy, but that's not what we're talking about. If the executive controls things like the meetings, the agenda, the conversation points, the reports, all of a sudden that board meeting becomes more of a report out and everybody walks in, thinks things are going to be done, walks away thinking, well, I kind of did my job, but I'm not sure what I did.
There's also the board has a passive view of governance, which we talked about a minute ago, that the thought of really owning job responsibilities and committee assignments, and certainly the new board members say that a board should always be looking for and their onboarding process is kind of defunct or just kind of handed off to the executive team and kind of let them happen whether they drive that option or opportunity.
There's also a lack of independence from the board that their role is ambiguous, meaning that they don't quite know what they're should be doing. They don't know where the limitations are. That ambiguity leads to a lack of oversight of what's going on. These things are what we when we see them. They're like smoke signals of, hey, there's a problem, and here's why this is such a big deal.
CEOs come and CEOs go. You can say that this person is the greatest person in the world. They've been there for years. They have given their life to this nonprofit. I'm not going to take away from there their contribution, but I don't care how long or what contribution they've made. No CEOs and owner of a nonprofit community is because what happens is CEOs come and go.
And when you allow the CEO to have too much control, when they go, the board goes, what are we doing now? I don't know what we should know. We never did those things. We never set direction. We never set governance. We don't know what to look for. A strong role CEO can be an a powerful thing in emergency situations.
I think about Covid, where CEOs had to be more authoritative, like, we got to move the organization and pivot now because this is just what we got to do to keep the doors open. Those things happen. A crisis moment requires a strong leader, but as things normalize, the board has to take ownership in that conversation.
The worst thing that can happen is, is that a CEO has too much control of the ownership pieces of the organization, and they leave. And the literally there's chaos. Nobody knows where anything that so why is this occurring? And maybe the question is. What are this? The places it's occurring most often is the best way, maybe to put that this is happening more often in large or more complicated nonprofits.
I'll take health care and education universities as two good examples. The days of for a lot of large universities, if you're a student university, it's probably somewhat similar to the way it was years ago. But if you're a , person university and there you're $ billion organization, it's really complicated. Health care probably at the top with the mergers of our hospital systems.
We've got ten, , , , $ billion organizations that are highly complex, with immense regulations and board members don't understand it. And what I have to remind boards all the time is, well, it's not your job to run the place. It's your job to direct the place. Where's it going? What are the big issues to be dealing with?
So a lot of times it's larger, more complicated organizations. It can also be what I call the kind of the founders issue is. You have a founder of a nonprofit who hangs on too long. And in some ways, they kind of morph between the role of CEO and chair of the board, that they become the driving force for almost every decision, even though they may not be technically the CEO, they control everything.
It's really the same issue. That means there's not a widespread fiduciary responsibility of the roles that the board needs to take on. It also can be happen in smaller organizations and smaller nonprofits when it's really ill defined or non not welldefined at all when it comes to the board's responsibilities, this is when you have incredibly weak onboarding and nobody quite understands oh wait, I own this.
Yeah, you represent the community. You are part of the ownership group. The last thing is, is that in this onboarding process, there's not a regular training, and evaluation of not only the CEO but of the board, internally, the board of themselves, the board member of themself. When you don't have a strong governance structure. And that's one of the things I was most proud of in serving on the board at the Ronald McDonald House is we instituted a rigorous evaluation process, not just for the CEO.
That was fine, but of ourselves. We forced ourselves into conversations about, do we like what we do? Do we actually own this? These places because of complexity or size? Or there's a founder who's still involved or there's really no, board engagement. Or really or maybe I'll throw out this. There's a long term CEO. Usually that's just a prerequisite.
Somebody who's been there years, they've just gained power. I would also say there's one place where there's no board, that this can be a challenge at times, and that's in religious settings not to pick one over another. Priest. Rabbi. Imam, does it make a difference? Minister. All too often, because, the hierarchy of religion, sometimes the religious head gets too much power, stays too long, and all of a sudden the church isn't quite as much the congregations as it is that religious leaders.
All of this is to say, is that there are consequences when this happens, when we don't have a good governance structure where boards are the owners or the board members own on behalf of the community, the organization. Some of those things include an erosion of accountability over time. People just get accustomed to, well, I just have to show up and have lunch and listen to the reports and leave.
Everything seems fine. There's also a diminishment of effectiveness of the board, certainly, and possibly of the organization. Potential governance failures start to abound. Then all of a sudden onboarding and who we selected and we start passing resolutions that say, you know, we do have a six year limitation to three year terms, but Bob's a really good guy. Let's just vote to waive that bylaw.
We don't need new blood or well, you know, they can take a year off and come back on. And it's the same group. People. And all of a sudden the average age of the board gets to a point where you're like, everybody in this room, years old, and they've been here forever, including the CEO who now runs the place every day.
Governance strategy and operation. Also another consequence is, is that when you get in these situation, CEOs, good people doing great work, but you really invest in them. A personalized kind of short term gain for that particular year over long term strategy. They're looking at their evaluation, which may not be all that robust anymore. They're looking at their their compensation, their bonus all of a sudden, particularly if they get a little bit older
They're looking at how do I maintain what I have, which may not be in the best interests of the organization long term. All of these consequences are hugely impactful to an organization that's trying to make a difference in the community. So this brings us to how do we stop this? Maybe, you know, an organization that has this issue, maybe you're part of an organization has this issue, maybe you're a board member who's who early on in this discussion, we have each week my st century classroom about one subject every week, trying to figure out how to solve it
And you think back to what are these signs? And you're like, executive dominance. I don't even we don't even know what goes on the agenda until we get it from the CEO. And and we don't even do anything. And I, we didn't have an orientation. You're like, wait a minute, I'm on the board. I'm part of the problem.
How do you solve it? So here are some recommendations to rebalance your boards and the structure governance that they need to be the owners or at least representatives of the ownership that is the community at all. So number one, onboarding is critical. When you bring on new board members, there should be a designated process. And if you go back and listen to former podcasts here of around with Randall, I've done this work for you.
I've told you all the things that should be part of an onboarding process. Go back and listen to that podcast, because if you don't do that, new board members usually come in a little bit reserved and think, well, this is the way it's always done. So I'm just going to get in line. And if you don't both have a high level of engagement of information, but also a really strong conversation about what our role is as a board, what we should do, what is best practice.
So the board members, not only on the onboarding side, but maybe even before that in the kind of job description as well as in the selection process. If you don't have those things and people don't know what's expected of them, and most people move to the norm, meaning they move to whatever's normal or normalized in process, when somebody should be standing up saying, this ain't right.
They don't tend to do that unless there's an onboarding process that uplifts those thoughts. To say you have ownership, you got to own this and take that responsibility seriously. Number two is you should have, when it's appropriate, what I call informal informal executive sessions. Formal executive sessions were somewhat familiar with when the board throws all the employees out at a board meeting and they talk.
If you're not having those, I'm not saying every meeting, but at least every once in a while, then what conversations of the board, with the board, about the board, about the organization are occurring if they're not happening there? So every once in a while, there should be an executive session, and you should throw out the CEO and everybody else and say, hey, owners, we got a problem.
We got to talk about it. The informal is actually maybe more important. What I mean here is, is that if you're on a board or you have board membership out there, as you're the one of the executives or your nonprofit leader, a gift officer, they should be talking to each other outside of the board meetings, particularly if there's a concern.
There is nothing wrong with a board member picking up the phone and calling another board member and saying, hey, I'm sensing or seeing or feeling this. Is this normal? It doesn't seem right. Do you have any concerns? Has this ever come up? I had a client very early on in the beginning of Hallett Philanthropy, where I was having a lot of conversation with board members, and I was stunned when they would tell me, well, I know Bob and I know Cindy, but we don't talk offline about the nonprofit
I'm like, why not? Well, that's what the board meetings are for. Like, well, yeah, so I'm not denying that. But if you don't have input into what's being said, if you don't have input into the agenda, if you're not going into executive session, how do you know what Bob and Cindy think about this? And the look in their face was Covid.
So you're on zoom was like, I never thought about it. That's the informal part, formal and informal executive conversation. Third, find board members that just don't want to sit there. This is not a resume builder. I've been asked over the years to be on a lot of nonprofit boards as I go along in my career. They're getting bigger in terms of of other of the organizations and in part internet.
We're moving towards an international conversation with a nonprofit. And I've gotten to the point where I have a very long, hard conversation with the CEO and ask them in some way, shape or form this question, do you really want me? Do you really want me? Because this is me. I'm going to question everything I'm gonna do. So respectfully, I'm not going to take apart meetings, but if I see a problem and I'm a content expert in this area, you're darn right I'm going to bring it up.
I am not there for the for the rubber chicken lunch or the mission moments. They're great, but I can get those in a lot of different ways. I'm there to be an owner. Is that what you want? And a couple of times there have been conversations about, no, that's not what we want. Well, I'm not interested. I'm not saying you should look for Randall Hallett
I mean, God bless my wife. She married me. But that may be an in part because nobody else would have me. What I'm saying is you need to find people who are willing to challenge the status quo. Is this okay? Are we doing the best? Are we doing it strategically? There is a balance here. Board members shouldn't be involved with operations.
I don't want to run the organization. I don't want to be into the hiring practices of staff. Once a budget is is set, that's the CEO's job to figure out how to manage it. But when it comes to governance of the organization and strategy, that's not the CEO's job. So find board members who can understand that and say, whoa, whoa, whoa.
I don't want to be too involved, but I want to own what I'm doing. Number four create incredibly clear roles and responsibilities. Job descriptions articulate what their role is. Make sure that they understand that. Don't be afraid to put it on paper, because if you're really getting great board members, they should be asking in the kind of selection process, is there a job description?
I'd like to see it. I have some concerns. There isn't this or there's too much of that. How in the world could you know if a board member is actually going to do what you need or want them to do, if they can't look at a piece of paper and say, here's the job we need you to do, clarify those roles and responsibilities.
Enhance that board engagement formally and informally, particularly in larger board scenarios. So the board is larger and or the larger. And that may be geographically. Board members may not know each other. It's really hard do to have a challenging, difficult conversation with someone you don't know. It feels aggressive, obtuse, pushy. People are afraid to have hard conversations to begin with.
I wish that maybe another podcast at some point, but it's really impossible if you don't know people. Board engagement isn't just in the meeting. How do you get them to know each other socially and they don't have to hang out? Go play calls three times a week, but they feel comfortable with. I know that board member, I can pick up the phone and talk with them, and we can have a conversation based on a relationship now, not the relationship, a level of trust of a marriage.
But there's more than I just know his name, I know her, I've seen her. Face it a meeting or two, you need to socialize the board so that when they go into these executive sessions formally, informally, have these conversations, talk about ownership, talk about the fact the CEO has too much control, that this isn't the best we need to be doing this while the CEO wants to be doing that.
We own it. We got to go this direction. You got to be able to have know people's names and know a little bit about them and feel comfortable in those discussions. Not everybody unfortunate. Well, maybe fortunately, is Randall Hallett, where I just don't care. I'm going to I'm almost in fact, I'm just going to have the conversation like me, want me, don't like I don't care what's right is right.
I feel more of my dad in me every day. And that code of hey, you do what's right because it's right. Mom carries that code. Two regular performance evaluations are critically important. Again, not of the CEO, but internally. And it can't be the staff that synthesizes all of that material. The board, a board member, chair of the governance committee, chair of the executive committee, chair of the membership committee.
There's a lot of different terminology or descriptions has to be involved with that data to see when somebody says or a number of people say, we don't do a darn thing, we come to meetings, we have lunch, we leave. It's pretty well run. But I really don't feel like I have any ownership. And believe me, those things are said when we do those evaluations.
If you have to, you can do them anonymously first, then do a second one that's by name, but you got to have that involvement or that input from board members, and you can't let the staff just synthesize everything. So the board as a whole doesn't seem feel it. The last two are incredibly tactical. Be willing to disagree with the leadership.
Now we have to be careful here. And this goes back to a point. I made a moment ago. We are not there to run the organization day to day. If you're disagreeing with who they're hiring in the organization, you're too involved as a board member. And if you have board members doing that, they're too involved. You got to tell them, get the heck out of here.
The concern is the other direction where there's no input on the agenda, there's no executive sessions. Nobody quite knows exactly what the strategy is. Nobody can articulate it. It's not in writing. There's a lot of tactical things that the board's worried about in terms of annual goals for the organization as a whole, instead of long term, to , ten year strategy.
What we're trying to accomplish, it's okay to look at a leader and say, we need more, and that more isn't actually from you. That's from us. CEOs come, CEOs go. The tenure in health care is like under three and a half years in universities under four years. You let a bad CEO start managing everything. And four years later they're gone and you're left with the mess.
Whether you're on the board or maybe you're an employee, the board's got to own it. They're going to they're the they're the ones who live there in some way, shape or form. They're the ones that are connected. CEOs can retire anywhere. The last is unfortunately, if there's just a really big issue, you got to be willing to make a change.
There's all kinds of research out there that says somewhere between and years is the right tenure for a leader, that at a certain point, you need to go or take a sabbatical, let somebody else lead. But when you get into or , years, unless that leader is incredibly wise about governance and has the heart of the organization, its strategy, its long term vision.
And I don't mean just saying it, I mean actually executing it. Man, you can get yourself into a rut. It's okay to make a change. There are lots of good leaders out there and it's not personal. Steal from the Godfather. It's business. I've got too many board members who have said to me over the years, he's such a good guy, he's done such a good job
And I look at him, I said, well, how are you doing now? Well, not very well. Are you not? The on a representative of on the board. Change. It's hard number podcasts on that as well. But at the end of the day change may not be necessary. These things are the things that organizations have to do to up be owners, board members, community, that onboarding process, those executive informal, informal conversations about finding board members who are willing to push in a little bit and not be just, you know, see, monkey do monkey is just like, hey, yeah, that's what we all know.
This is we're gonna do it right. There's very clear rules in writing and the responsibilities of the board that there's personal in engagement. People know each other on the board, that there's regular evaluation annual probably of board members about their board role and the other board members that there's a board member involved with that kind of synthesizing all that data, and that you have to be willing to disagree with leadership about strategy because they aren't you.
And lastly, if necessary, make a change as inflation continues, hopefully slowing down, but continues as finances become more challenging as we have lesser people giving now below % of households making gift to any nonprofit strategy is going to become more important. Mergers may become more important, acquisitions may become more important. Those aren't decisions CEOs should be making on their own, as I'm argue their job is to advise.
It's the board’s job to decide. How do we own our nonprofits? The community owns it with board representation. If not, the nonprofit in the community will eventually lose because the board is the only one and the community is the only one who, over time, will be the long term, engaged group of people that actually own the nonprofit. Don't forget, check out the blogs two week or so how it's philanthropy.com if you'd like to reach out to me it's podcast how it's philanthropy.
I appreciate what you do. Whatever it is in the nonprofit world, there's so much that's needed to make our world a better place that whether you're a board member or a CEO, a gift officer, infrastructure volunteer, whomever, your involvement is critical because at the end of the day, philanthropy and nonprofits fill the gap between government and private enterprise, where nobody really wants to go.
Government is not efficient enough for profit in enterprise, for profit businesses can't make any money. That's where we live. Don't forget, some people make things happen. Some people watch things happen. Then there are those who wondered what happened. And you're somebody who makes things happen. For your nonprofit, challenging the status quo to make it better. Invest in yourself.
Finding others to partner to make a difference for the people and the things in your community who are wondering what happened. That's what somebody who does. Who is someone who makes things happen. I'll look forward to seeing the next time, right back here on the next edition of Around With Randall. And don't forget, make it a great day.