Nonprofit Functionality: 7 Indications Your Board Needs to Investigate a More Effective System

Outside the obvious red ink or even absence of financial reports, what might be the indicators for the board to reference that all is not right with their nonprofit?

Nonprofit board members, the fiduciary owners of a nonprofit, are responsible for ensuring optimal outcomes. My practice has led me to identify the following seven signs or indicators, which may require at least an investigation, if not further action by a prudent board.

1. Staff turnover is high

Staff turnover and/or extraordinary complaining to the board is one indicator that the organization is not functioning efficiently. While a “score-card” or “dashboard” can provide some degree of understanding about efficiency and effectiveness, these reports rarely capture working conditions. Good working conditions are a management responsibility and, if badly managed, can ensure institutional failure at many levels.

2. Funders/donors question the use of funds

Effectively, four patterns should raise board member’s eyebrows. They might have a problem with funders when: Funding proposals are rarely successful, previously approved projects are rarely approved, written critiques or even warnings are received and board members who have relationships with funders receive
negative “words.”

3. Trust between the CEO and board is on the decline

Relational and transactional dynamics describe the interchange between a board and the CEO. When either or both dynamics are negative, the board’s confidence that its goals can be achieved is reduced.

4. dissatisfaction with or not using services

Marketing researchers suggest that one in three unhappy consumers do nothing about their complaints. Evidence further suggests that the few consumers who do complain are a representative sample of the number of individuals who really are dissatisfied. Another sign of a nonprofit’s pending disaster is when a nonprofit’s clients start regularly complaining to the board and staff about service quality or availability. Mission cannot be achieved when a nonprofit’s consumers are unhappy or fail to even ask for services.

5. Negative gossip or lack of willingness to partner

Today’s environment really requires that nonprofits “play well” together. Nonprofits that hog the turf, bully other organizations out of the turf or attempt to be all things to all people will feel the consequences—particularly by funders who are very clear that isolation is not acceptable. Negative opinions voiced by board or staff from other nonprofits are another indicator that at least a board conversation is warranted.

6. Regulators

Regulators including local, state and national government and national and state certifying bodies play a prominent role in ensuring that nonprofits achieve standards of excellence. The difference between regulators and consumers is of course that when regulators identify “issues,” they can impose consequences. Prudent boards know that inaction in response to negative reviews cannot produce positive results.

7. Professional Advisors

Professional advisors, including accountants, attorneys, governance specialists and development consultants, among others, are hired by a nonprofit as a resource to meet needs that are not otherwise available but, needed by the nonprofit. Because of their “inside” knowledge and vast array of experience, often with similar types (size, age and/or mission) of nonprofits, professional advisors can provide more objective information than might otherwise be available. And because of their position within the organization, these advisors may be aware of characteristics, behaviors or other indicators that can serve as indicators that the board should consider its relationship with its executive.

Boards should indeed make the “space” available to listen to their consultants when warnings are issues. Warnings may be formal or informal and when they are issued verbally or written, professional advisors are generally conservative in identifying issues, which highlight the executive in less than a favorable light. At any rate, when the professional advisor says “pay attention”, paying attention can pay off for the nonprofit.

Conclusion

The seven signs described in this article are offered to provide guidance for nonprofit boards to adopt systems, policies, procedures and evaluation mechanisms that will enable a board to be proactive in executing its fiduciary responsibility. Scorecards, dashboards, annual performance reviews and regularly scheduled executive sessions following board meetings can be employed as tools to be proactive rather than reactive.
Once these tools are in place, the board will be in a stronger position to focus on its role of strategy and advocacy.