Obstacles Turned Opportunities in the Nonprofit Infrastructure

Written by Paul Jan Zdunek, MBA on November 28, 2017

The infrastructure of a nonprofit is deceptively complex and vulnerable to conflict or even crisis if not diligently self-monitored by the board and executive leadership. This is a topic we’ve covered many times before, (see Laurie De Armond’s article, “Building a Resilient Organization – A Toolkit for Nonprofit Boards to Manage Transformational Change”) but one that seems to be a constant trial in the nonprofit world. Below are two real-life examples of organizations that found themselves at challenging crossroads. This article explores the choices they made, the results that followed and the best-practice options available to all nonprofits.

Case Study A: CEO Chaos

An extremely competent and experienced chief executive officer (CEO) manages a nonprofit institution with a difficult board chair who is the foremost business leader in the region. While this board chair is deeply passionate about the organization’s mission and has close personal and professional relationships with many of the board members, he also believes he knows how to operate this particular nonprofit and continually bullies his fellow board members with a data-deficient point-of-view. When she arrived on the job, the CEO spent her first two years reversing a long-standing structural deficit and has since been operating in the black. From the time this challenging board member became chair 18 months ago, the organization has been faltering and is now facing its first deficit in years due to his lack of fiduciary focus and derogatory treatment of board and staff. As just one example, he unilaterally increased compensation and renewed the employment contract for the chief creative officer without the knowledge of the board or CEO until after the fact. There have been no real consequences to his actions by the rest of the board, despite the CEO’s pleas for help.

Case Study B: Acquisition Angst

A failing 85-year-old nonprofit thought it could boost its financial strength by acquiring another failing nonprofit. The acquisition happened to occur just prior to the economic crash of 2008, which proved to be incredibly challenging. The CEO came up through the ranks of the organization as a staff practitioner and was completely overwhelmed by scenarios that required conflict-resolution techniques and data-driven business acumen. He simply ignored those tough situations or totally gave into the unreasonable requests of his employees and vendors. His failed leadership and mismanagement of the acquisition caused this almost century-old nonprofit to temporarily shutter its operations while it searched for a sustainable solution.

Obstacles

Both of these stories are based on real-life situations and are good examples of issues commonly faced by nonprofits, including:

  •  A volunteer board of directors without the expertise required to effectively operate the nonprofit, yet feel obligated to manage vs. govern;
  •  Board members who are influential leaders in their own respective companies, industries and/or communities who also have personal and/or professional relationships with one another, resulting in just a few degrees of separation between them, as well as their collective networks; and
  •  An organization solely driven by passionate, mission-based decision-making processes.

Additionally, in Case Study B, the nonprofit was led by an executive who was a former practitioner within the nonprofit with no formal training or experience in managing the business of a nonprofit. It is no surprise that if these obstacles are not addressed thoughtfully and strategically, a nonprofit can find itself at a crossroads, in conflict or even in the midst of a full-blown crisis. Often when an organization is experiencing a complete crisis or just simply stuck, the root causes stem from at least one, if not a mixture, of the above obstacles.

Opportunities

Despite these common challenges, every issue nonprofits face provides an opportunity for the organization to look inward and to change its practices to better support its mission and grow sustainably. Below, we outline some best practices nonprofits should consider when at an organizational crossroads.

View Board Members and Executive Leadership as Partners

The success of any nonprofit starts with the quality and engagement of each board member, who primarily brings his or her fiduciary responsibilities and philanthropic gifts to the table. Additional qualities, such as an expert in an area where the organization could use advice, are welcomed but not necessarily required. These governance oversights and fundraising responsibilities become complementary to the executive leadership’s primary responsibilities of exceptional financial and programmatic management of the nonprofit. While the board is technically “in charge”, the executive leadership team members are the front-line experts and should be given the full responsibility and authority their positions deserve. Unless they consistently fall short of goals, prompting prescribed correction by the board, executive leadership team members should not be micro-managed. While there is a legal employer-employee structure, board members and executive leadership should work as partners, marrying their relevant skills and experiences. Unfortunately, many board members across the vast nonprofit landscape tend to micromanage the executive leadership. Board members should channel their passion for the organization into ensuring that the executive leadership has all the resources available to fully operate an exemplary organization. Board members, when it comes to your relationship with the CEO, hire carefully, support thoroughly and terminate swiftly, if necessary.

Strive for Cross-pollination Instead of Cannibalization

In addition to bringing their fiduciary and philanthropic responsibilities to a nonprofit, it is vital that board members bring their networks as well. Ideally, each board member should have a unique network to add to the collective. Often, boards are made up of friends and colleagues who tend to have overlapping relationships, thus producing just one or two networks for a 20-member board. The ideal is to strive for a board where each member brings a unique network upon which to draw. The execution of this simple concept can transform a nonprofit in crisis. Recruiting committees should be sure to search for and add only new networks that will enhance the current board networks in place, no matter how wonderful, wealthy or influential a potential board member might be. This not only produces more and diverse resources for the nonprofit, but also results in board members who are not personally or professionally connected to one another, allowing for tough decisions to be addressed efficiently and effectively.

Mission vs. Business

Nonprofits often ask themselves if they should be driven by mission-based or business-based reasoning. The answer is both. Decisions should be made with a full mixture of passion and data. One without the other is a recipe for disaster. The mission must be a part of every decision–that is why the nonprofit exists. However, business acumen must also play a role. Without data, consequences of decisions could be catastrophic. At a large, nationally-recognized nonprofit, a single mission-based, data-deficient decision almost resulted in bankruptcy. It took more than five years to finally overcome the enormous deficit that this decision had created for the nonprofit. It is vital to the success of any nonprofit that its executive leadership be fully trained and equipped to direct the various aspects of finance, human resources, marketing, sales, fundraising, operations and stakeholder relationships, especially given a nonprofit’s board-staff organizational structure and its potential obstacles outlined above.

Case Study Updates: Two Approaches to Turmoil

Case Study A: CEO Chaos

The CEO has a new board chair, but the previous chair remains on the board and continues to be disruptive. The governance committee has been extremely sympathetic to the CEO’s plight and has even privately grumbled about the challenging board member to her. However, in the end, they suggest it is her job to address the difficult board member because they are too close personally and professionally to him, and any interference on their part might mar their own relationships with him. The CEO has quietly begun her job search. Micromanagement of this skilled CEO, as well as the board’s unwillingness to address their close colleague’s behavior, will, unfortunately, continue to plague this otherwise healthy organization until it finds itself in crisis, which is looming closer each day.

Case Study B: Acquisition Angst

Faced with crisis, the organization hired a consultant to step into the role of chief restructuring officer, who then carefully and deftly designed a strategic roadmap that allowed the nonprofit to reverse its course and head in a direction of stabilization. Today, the nonprofit is flourishing with an engaged board that has virtually no overlapping networks and executive leadership that makes every decision with a full mixture of passionate mission-based and data-rich processes. This organization, fortunately, had a board chair who terminated the ineffective CEO after a swift, but thorough, corrective process. She was also aware of her own limitations and made the decision to hire an experienced crisis consultant with a proven track record. Additionally, the cornerstone of this organization’s success was diversifying the board’s collective networks, resulting in a cross-pollination of resources that continues to drive this nonprofit’s success.

Conclusion

Every obstacle presents an opportunity. The challenge is to identify the root cause of the problem and take appropriate corrective actions to focus on solutions that allow the nonprofit to survive and thrive. For more information, contact Paul Jan Zdunek, managing director, Nonprofit & Education Advisory Services, at pzdunek@bdo.com.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Fall 2017). Copyright © 2017 BDO USA, LLP. All rights reserved. www.bdo.com

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