Following up on my introduction of this series of posts, here is the first of two agencies that I want to share with you.
This organization has a $7 million annual budget. The board is mostly composed of long time board members, some have been on the board for over 20 years, and over half are retired. All are dedicated to the work of their organization. In fact, several directors who are over age 70 have not been active in the community at large for over 20 years, and their only nonprofit involvement is with this agency.
The agency is officially governed by a membership association, in a long running attempt to have as many people as possible feel a deep understanding of the organization’s value. Everyone who contributes a minimum amount for any purpose is automatically made a member of the association for that year, whether they know it or not, and whether they want it or not. No one actually asks them, they’re simply enrolled as members on the books of the agency. Once a year a membership meeting is held in which new directors are elected and proposed changes to the bylaws are voted on, along with any other relevant business. However, since the “members” aren’t often aware of their membership duties, fewer than 5% of them actually bother to attend the annual meeting of the association, and most of those are already board members.
The organization’s bylaws require that at least 51% of the board must have relatives with special needs, to ensure that only the most dedicated and aware individuals can control board decision making. Unfortunately, finding willing and qualified candidates among special needs families has been a long-standing problem for the organization. As a result, this often prevents qualified community leaders who want to serve from taking a board seat because it would throw the mandated balance off. In order to reverse “the 51% rule,” a 2/3 vote of that same association membership is required. This has made it virtually impossible to change this particular item in the bylaws, despite at least two attempts, because most “members” don’t bother to respond to voting requests. Not a big surprise there, as you can imagine. It’s as if the rule were crafted with the specific intent that it could never be changed. And it probably was.
As you may know, every board has regulatory requirements to follow, and some of them come from California’s Nonprofit Integrity Act, an offshoot of federal Sarbanes Oxley legislation. Despite a state requirement to the contrary, the agency’s audit committee is chaired by the chair of the finance committee – a violation of the audit committee’s independence. You might have expected the auditors to pick up on that, but the agency has had the same outside auditor (a sole practitioner) for well over 20 years, and he is apparently unaware of the audit committee independence requirement. The board never puts the audit up for competitive bidding, presumably because they are comfortable with their old auditor. And then there are the accounting records themselves. The agency’s accounting is maintained in a large group of Excel spreadsheets that was built and is maintained by a single individual in the accounting department. No standard accounting software is in use, although one such product is owned by the agency. It’s just never been installed.
And then there are the policies that the Board uses to guide its operations – or absence of policies. For example, there is no written policy to guide board decisions for such things as:
- The board member selection and qualification process – so existing board members often simply stay on for an additional term. No real thought is given to special skills that the board should have, even though a number of skills frequently needed by nonprofit boards are absent from the board roster.
- defining what is expected of board members – things like meeting attendance, committee participation, or personal giving. Some board members actually make no financial contribution to the agency at all, since none is required.
- how long they can stay on the board – because board leadership is afraid they won’t be able to attract new board members to serve, as they have on several occasions actually dropped below the minimum number specified in their bylaws. No one can remember a board member ever being turned away if they want to stay on, although the bylaws actually provide the chairperson with some ability to do that.
- proper separation of duties between board and staff – so several board members actually do staff level work, and sometimes get special consideration in board meetings because of their “special contribution.”
Despite the traditional role of directors in outreach, this organization is almost unknown outside its immediate community, despite the fact that it provides services to people over a significant geographic area of Los Angeles County. Its CEO is rarely involved in community activities other than those organized by the agency itself, usually for fund raising.
Doesn’t sound like it would be much fun serving on this board, does it? And pretty hard to make progress in today’s challenging environment for nonprofits. Want to know how another agency approached its mission? Don’t miss my next post in this series – tune in next week.
And while a part of my firm’s practice is fixing culture problems just like this one, I am hoping you will get ideas you can pursue on your own just by reading this series. And as always, I welcome your comments and feedback.