5 Red Flags Every Nonprofit Board Member Should Watch For
Nonprofit board members have a lot on their plate. Some are more educated and prepared to fill the role due to past board experience or an excellent board orientation and an ongoing education and evaluation program.
There are incredible staff leaders in higher education and throughout the nonprofit arena. They are passionately committed to making a difference and are servant leaders. However, each year, there are visible reminders that board members are holding a public trust, and they have a fiduciary responsibility to safeguard a nonprofit.
Here are a few red flags that board members should be aware of. It is not to say that all would be wrong in all circumstances, but that board members should question and get more information. These situations have been observed and learned from over 30 years, and the stories behind each example (unfortunately there are several for each) don’t end well for the nonprofit.
1. The CEO and top staff compensation just doesn’t feel right.
Running a nonprofit is different than running a for-profit organization. However, the high demands are similar, and it doesn’t mean a CEO and senior staff should take a vow of poverty for often working long hours. Any organization should have independent compensation studies to guide pay, but even with these, use the smell test: If it doesn’t smell right, even with apparent justification, something may be wrong. Be sure that compensation is total and includes any deferred compensation or pay from an affiliated entity.
2. Programs keep changing.
This is a sign of mission creep. Every nonprofit should have a strategic plan to provide focus for the shorter term and operational plans to ensure that goals are attained. One nonprofit paid a consultant to direct a strategic planning process, and when the CEO (the search for whom was done by the same consultant) came on board, he rewrote most of the plan, unchecked by the board.
3. The CEO’s family is employed by the nonprofit.
While in academia, this is more common (with safeguards), the reality is that no matter how qualified the spouse or other family member, this will only raise questions and be a distraction. It even carries over to part-time, seasonal work. I recall one CEO’s college daughter having a several-thousand-dollar bonus for her summer job that was allegedly approved by the board chair. There were scores of other summer employees in the same position, and no one else was rewarded in this manner.
4. Consultants appear to have ongoing, cushy arrangements.
Years ago at a major nonprofit, the CEO was beginning to fail, the culture imploding and he didn’t sneeze without asking a certain consultant or member of his firm. This firm conducted other services for the organization, many of which they redid in a few years. A few savvy board members put a stop to the relationship, but in a few years, the CEO was able to bring the consultant back. When the CEO was eventually fired, the board chair retained the same consultant and CEO coach to perform a CEO search, even though the service was offered for free by the organization’s national office.
5. The budget keeps increasing, but so does the debt.
If an organization is borrowing on a revenue model that can’t be sustained, this is a problem. Many nonprofits base compensation studies on budget size, meaning that as a budget increases, the CEO and other senior staff see commensurate increases, even if the growth is built on debt and unsustainable fundraising or earned income models. Many colleges and nonprofits are facing financial troubles and are on the brink of bankruptcy because of overleveraging that the board allowed. Recently, a college president who had raised some money, but borrowed a whole lot more resigned to accept a lower position at another institution. Savvy board members knew that enrollment goals were not being met and growth had stopped—in a few years, the college will be in severe trouble without a huge enrollment spurt or more fundraising success than it has ever enjoyed, both of which would be unlikely. As noted above, capital projects and new initiatives should be tied to a strategic plan conducted with broad involvement and appropriate financial models to support the need and sustainability.
These five red flags should cause any board member to ask questions, dig deeper and challenge. There are times when you should speak up, even if it is uncomfortable. Your allegiance is to the organization, not to individual staff or board members.
Looking for Jeff? You'll find him either on the lake, laughing with good friends, or helping nonprofits develop to their full potential.
Jeff believes that successful fundraising is built on a bedrock of relevant, consistent messaging; sound practices; the nurturing of relationships; and impeccable stewardship. And that organizations that adhere to those standards serve as beacons to others that aspire to them. The Bedrocks & Beacons blog will provide strategic information to help nonprofits be both.
Jeff has more than 25 years of nonprofit leadership experience and is a member of the NonProfit PRO Editorial Advisory Board.