While the fundraisers are busy with the end-of-the-year campaign, we’d like to chat with the CEOs and Executive Directors who are busy planning for the coming year.
We work with a lot of executive directors and boards of directors. Not just in our search practice; our campaign management, fundraising effectiveness, strategic planning and governance work injects us into the board-ED relationship. And, frequently, we observe an unhealthy behavior: ED’s inviting boards into the management lane.
I’m not referring to the board trying to interfere with the organization’s management. That is all too frequently a problem, and enough for a whole new book. Instead, I’m talking about an executive director who actually asks the board to interfere.
This is not only bad governance, it is also a bad idea. Let’s first start with some important definitions.
Governance is the act of governing. It relates to decisions that define expectations, grant power, and verify performance.
Management is the administration of an organization, whether it is a business, a nonprofit organization, or government body.
The role of the board is to govern, not to manage. The role of the executive director is to manage, not to govern.
This is not opinion on our part. This is codified in both law and in business practice. Management includes the activities of setting the strategy of an organization and coordinating the efforts of its employees (or of volunteers) to accomplish its objectives through the application of available resources, such as financial, natural, technological, and human resources.
Governance entails a posture and set of tasks that are profoundly different from management. In 1990, John Carver, Ph.D., wrote “Boards that Make A Difference” and proposed a system for governing called Policy Governance®, a logical, consistent, integrated system of governance. It is in use in corporate, public, and nonprofit boards all around the world.
Much like the American system of government, it delineates clear separation of power, behavior, and expectations between the executive director and the board of directors. We often find ourselves training boards on this and helping management to gently push the board back into the governance lane.
On the other hand, sometimes the executive director invites the board into their lane. This behavior can look like any of the following:
- Giving the board “veto” power over who the executive director hires. The board has one employee; the ED. All other employment decisions reside with management. We are not referring to inviting the board to interview or provide feedback on a candidate. We are referring, instead to an ED letting the board override their hiring decision.
- Involving board members in employee performance appraisals. Not only is this inappropriate, it can be legally dangerous. (More on this below.) The ED should welcome and listen to board feedback, but not involve them in the performance reviews.
- Providing board members with individual employee salaries. Organizations must have set compensation guidelines that are reviewed with and approved by the board, but that is where their authority stops. The board has no place in any individual compensation decision other than the ED’s compensation.
- Giving the board signature or decision-making authority that goes beyond what is defined in the company bylaws.
That last one is the big one, and is where we should start. The organization’s bylaws document is a formal, chartering, document whereby the board grants authority to the executive director, or reserves authority to itself. A general, legal interpretation in the United States is that any power that the board has not reserved to itself is thereby delegated to the executive director. With delegation of authority also comes delegation of accountability. If the bylaws directly or indirectly grant authority to you as the executive director, they also grant accountability and, thereby, liability. Said simply, if you are the accountable party, you are the one named in a lawsuit.
Inviting the board out of the governance lane is problematic from a legal aspect. When someone sues a nonprofit, they typically name the board of directors individually and collectively in the lawsuit. Officer and director insurance may not be enough to protect the directors, especially if they have pierced the corporate veil by acting in the management lane.
“Piercing the corporate veil” refers to a situation in which courts put aside liability limitations. In for-profit, this can mean a court holding a corporation’s shareholders or directors personally liable for the corporation’s actions or debts. In nonprofits, we don’t have shareholders because no one “owns” a nonprofit. Instead, nonprofits are owned by society at large and held in trust by their boards of directors on behalf of society. As such, the board of a 501(c)(3) nonprofit has a public responsibility. In exchange for certain tax benefits (e.g., exemption from taxation, granting tax-deductibility for donations received, etc.), both state and federal government expect boards to ensure that the organization produces some public good or benefit in exchange for the resources expended, in compliance with all appropriate laws. This means boards have a legal, fiduciary responsibility, and can be held legally accountable for their actions. If board members stray (or are invited) into the management lane, and the organization commits some form of impropriety, the board members can be held legally liable, even if the bylaws are intended to shield them, if it can be demonstrated that they were acting as managers of the organization.
Beyond the legal liability, it’s also just bad business to invite members of the board into the management lane.
I admit that, in healthy, functioning nonprofits, the board of directors is (or should be) the ED’s most valuable tool. But let’s not mince words, there are more weak boards and directors than strong ones. Further, most boards don’t understand the value of a board seat and do not recruit board members effectively. Bluntly, board seats are more valuable left empty than filled with poor performing directors.
EDs who invite board members into the management lane are granting authority to people who are typically less qualified. Further, the ED is accountable to the board for their actions. In practice, most boards are far less likely to hold their members accountable for their individual behaviors than the executive director.
So why do executive directors do this? Many will say it is because a certain employee “needs to be able to work with the board,” or the board “has strong feelings about the mission.”
Let’s be clear; boards can and should be asked for advice, especially if they have requisite knowledge and experience. But if an executive director delegates their duties and responsibilities up to the board, it is a dereliction of duty, usually done in the name of conflict avoidance.
When we work with boards on campaigns, governance, or effectiveness, most good board members are already busy enough, and will decline to do anything more than offer advice. But, there is always the board member who thinks they are there to “manage” the executive director. And when that board member gets into the management lane, they intend to stay there. That creates unworkable situations for both the board leadership and management.
Working with boards is hard enough. Don’t make it more difficult but asking them to interfere in your job.