National Assembly ELI: Dynamic Nonprofit Board

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National Assembly ELI Dynamic Nonprofit Board

• NATIONAL ASSEMBLY OF HEALTH AND HUMAN SERVICE
  ORGANIZATIONS

Presentation document
November 14, 2003
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BACKGROUND ON BOARD GOVERNANCE MATERIALS
The following materials were prepared to
facilitate a session on board governance for the
National Assemblys Executive Leadership
Institute. Materials were based on findings from
the McKinsey Company report The Dynamic
Nonprofit Board Lessons from High-performing
Nonprofits. In addition, the results of surveys
and interviews with members of the National
Assembly as well as input from McKinsey teams
serving nonprofit organizations on this topic
were incorporated.

• These materials were intended to stimulate a
  discussion among National Assembly members on the
  topic of effective board governance. Topics
  covered included
• Board governance framework and perspectives
• Key challenges to maximizing board contributions
• Actionable ideas for improving the performance of
  your board

• Organizations could use the materials to
  stimulate a conversation around current board
  performance and future priorities. To that end,
  we have also developed a board self-assessment
  survey to help boards assess their current
  performance against best practices. A copy of
  the report is available at www.mckinsey.com/practi
  ces/nonprofit/ourknowledge

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CONTENTS

• Board governance research and framework
• Survey and interview results
• Common challenges and lessons learned

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BUILDING EFFECTIVE BOARDS OFTEN ARISES AS A KEY
CLIENT CONCERN
The motion has been made and seconded that we
stick our heads in sand
Perhaps it would help if I go over it one more
time
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IN RESPONSE, WE LAUNCHED A RESEARCH PROJECT
FOCUSED ON 3 MAJOR QUESTIONS

• How important is a high-performing board?
• What are the characteristics of a high-performing
  board?
• What are the best practices in building a
  high-performing board?

Key questions
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THE DYNAMIC NONPROFIT BOARD FRAMEWORK
Shape mission and strategic direction
Ensure leadership and resources
Ensure quality performance across 3 key board
roles
Monitor and improve performance
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3 KEY ROLES ENCOMPASS NINE DETAILED
RESPONSIBILITIES

• Select, evaluate, and develop the CEO
• Ensure adequate financial resources
• Provide expertise and access for organizational
  needs
• Enhance reputation of organization

• Shape the mission and vision
• Engage actively in strategic decision making and
  policy decisions

Shape mission and strategic direction
Ensure leadership and resources
Monitor and improve performance

• Oversee financial management and ensure
  appropriate risk management
• Monitor performance and ensure accountability
• Improve board performance

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ADDITIONAL LESSONS LEARNED FROM OUR RESEARCH

• While effective boards perform a comprehensive
  set of roles, they recognize the risk of being
  mediocre at everything pick your spots carefully
  to allot valuable time where needed
• Recognize performance management as one of the
  board's core roles on par with strategy-setting
  and fundraising take on the challenge of leading
  without stepping on staff toes
• Invest significant time in board self-evaluation
  and continuous improvement
• Sweat the little things good meeting agendas,
  open communication, having fun

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CONTENTS

• Board governance research and framework
• Survey and interview results
• Common challenges and lessons learned

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OVERVIEW OF SURVEY RESPONSES
Who responded . . .

• E-mailed electronic survey to 70 member
  organizations
• 35 individuals responded
• 29 of respondents- board members, 63 CEOs, 8
  Other managers
• Average board size 27 (minimum of 7, maximum of
  71)
• 86 have an Executive Committee (Average size
  9)

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NATIONAL ASSEMBLY SURVEYS INDICATE MEMBERS FEEL
THEY ARE NOT TAPPING BOARDS FULL POTENTIAL
Do you feel you are tapping boards potential?
Yes
No
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SUMMARY OF RESULTS HIGHLIGHT RELATIVE AREAS OF
BOARD STRENGTH AND OPPORTUNITIES FOR DEVELOPMENT

• Areas of strong performance
• Engage actively in strategic decision making and
  policy decisions
• Select, evaluate, and develop the CEO
• Enhance reputation of organization
• Provide expertise and access for organizational
  needs
• Oversee financial management and ensure
  appropriate risk management

• Areas in need of development
• Shape the mission and vision
• Ensure adequate financial resources
• Monitor performance and ensure accountability
• Improve board performance

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MEMBERS REPORT THEIR BOARDS DRAW AN APPROPRIATE
LINE BETWEEN STRATEGIC AND TACTICAL INVOLVEMENT
Tactical/operational
Strategic
If the board has a fault in this area, it is not
being as fully engaged as it could be in
strategic guidance
Our board is very operational and the staff
pulls the board to operational issues because of
our way of work with committees
This is something we monitor closely. We are
candid when we feel the line has been crossed
The board is not likely to cross into management
as it adheres quite clearly to its own policies
for board/ staff interactions

• Overall 92 of members feel that their boards
  provide an appropriate level of strategic
  guidance without infringing on the role of
  management
• Result potentially driven by the fact that 79
  have board committees focused on strategic
  priorities and 58 have robust strategic plan

Includes situation analysis, with peer review,
threats, opportunities, sector overview
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BOARDS ALSO EFFECTIVELY ENGAGING IN CEO EVALUATION
Members use a variety of review processes . . .

• Board conducts an annual review based upon
  outcomes of the organization
• The CEO writes an annual plan and meets a
  minimum of 4 times a year with the committees
  around the performance plan
• To date, weve not had a formal performance
  review of the CEO, but are planning to institute
  one for next year
• 75 of members have pre-agreed written criteria
• 33 of members use 360 evaluation processes

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MEMBERS SUCCESSFULLY TAP INTO VARIETY OF BOARD
EXPERTISE
Methods of tapping into expertise

• We maintain a detailed list of board members
  individual expertise as well as interests

• Through a phone call.

• Members recruited according to
  expertise/influence matrix, assigned to
  committees / task forces accordingly

• We tap board member expertise through the
  appropriate committee

• 83 of members have a staff point person for
  managing board/staff relationships

• 79 use a diversity grid for mapping out areas of
  expertise

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ALTHOUGH THE TYPES OF RECOGNITION BOARD MEMBERS
RECEIVE FOR THEIR CONTRIBUTIONS VARIES
CONSIDERABLY
Satisfaction through participation in a premier
nonprofit organization that is leading edge
Personal thank you from the CEO and Chairman
Not much
. . . an opportunity to connect with an
impressive board and staff
Press releases in their home areas, installation
at the national conference
Years of service, committee chairs, presidents
award, humanitarian award
National public recognition through publications
and national organization meetings
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MEMBERS HAVE ALSO BEEN LARGELY SUCCESSFUL IN
LEVERAGING BOARD CONTACTS TO GAIN ACCESS

• We use certain board members with asks for
  grants. We ask all board members to appeal to
  their employers for just about anything

• We asked our board members to connect with
  Congress on an issue and it was very successful

• Each board member brings a network of contacts
  and previous involvement. We seek to discover
  those connections and use them

• We are just beginning to take advantage of
  this . . .

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MEMBERS REPORT STRONG BOARD INVOLVEMENT IN RISK
MANAGEMENT ROLE
Boards are confident in their understanding of
potential risks . . .

• 88 of boards have a list of closely watched
  financial metrics and ratios
• 96 of boards are aware of their organizations
  financial exposure
• 83 of boards have a clear understanding of the
  nature of the organizations liability and
  reputational risks and have strategies to
  mitigate them

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SUMMARY OF RESULTS HIGHLIGHT RELATIVE AREAS OF
BOARD STRENGTH AND OPPORTUNITIES FOR DEVELOPMENT

• Areas of strong performance
• Engage actively in strategic decision making and
  policy decisions
• Select, evaluate, and develop the CEO
• Enhance reputation of organization
• Provide expertise and access for organizational
  needs
• Oversee financial management and ensure
  appropriate risk management

• Areas in need of development
• Shape the mission and vision
• Ensure adequate financial resources
• Monitor performance and ensure accountability
• Improve board performance

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SURVEY RESULTS INDICATE POTENTIAL FOR IMPROVEMENT
ON BOARD ROLE IN DRIVING MISSION AND VISION
Board performance on shared understanding of the
mission . . .

• 46 of members have a board where EVERY director
  can summarize the mission of the organization,
  where it hopes to be in 5 years, and why it is an
  effective agent of change

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MEMBERS REPORT DISSATISFACTION WITH BOARD
FUNDRAISING PERFORMANCE
There are mixed fundraising expectations . . .

• Everyone is expected to contribute. There is a
  Formal solicitation with specific ask
• There currently is no expectation of financial
  contribution . . . influenced by the reading some
  have of the carver model
• No current explicit financial contribution
  levels are required . . . although a total board
  fundraising goal is set

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SURVEYS HIGHLIGHT ISSUE AROUND BOARD ROLE IN
ENSURING ACCOUNTABILITY
To whom is your board accountable? . . .
We havent worked out a good board
accountability strategy yet
Good question!
Members
To the persons served, their families, and their
communities
"Unaccountable
We haven't done this
Only 38 of members receive feedback directly
from service recipients to the board
We have no shareholders. It is not a membership
movement
Our board is accountable to the organizations
we serve
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SURVEYS INDICATE OPPORTUNITY TO IMPROVE LEVEL OF
BOARD INVOLVEMENT IN PERFORMANCE MEASUREMENT ROLE
. . .
71 of boards play an active role in measuring
operations performance
42 of boards play an active role in measuring
program performance

• Key areas of the strategic plan are monitored.
  Balanced scorecard used. Specific goals are set
  in finance, resource development, and HR

• Our boards role here is limited

• They focus on ends rather than means they
  dont get involved in measuring individual
  programs

• We monitor through a variety of standing
  committees

• We dont do this

• They review the data provided by management

• We monitor mostly by adherence to strategic
  plan goals

• We review our success regularly with the board,
  but not at a huge level of detail

• The CEO who is in charge of operations is
  evaluated

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. . . SPECIFICALLY AROUND SETTING PERFORMANCE
INCENTIVES
but most do not take specific actions to
encourage performance before an issue arises
Most boards address performance issues once
raised

• Our board doesnt hold our feet to the fire
• The board is not really engaged in this
• Fortunately for the organization Ive been
  self-motivated and driven for the organization
  for over 10 years
• This would impact incentives, taken into
  consideration with compensation

• The board can vote to terminate a program
• This has not yet happened, but the policies call
  for a corrective action plan
• Usually staff has already prepared some
  recommendation for change or improvement
• We have arranged for executive coaching

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SURVEYS ALSO INDICATE BOARDS SPEND LIMITED TIME
ON SELF-EVALUATION

• 35 of organizations evaluate individuals and
  overall board performance
• 21 of organizations give individual board member
  feedback
• 67 have a board development and evaluation
  committee
• 46 use an assessment tool for evaluating board
  performance at a regular interval
• Those organizations that do evaluate board
  performance use a variety of methods
• We evaluate at every meeting in writing
• Individuals are evaluated each year by the Board
  Governance Committee based on engagement, level
  of engaged, funds raised and contributed, added
  value
• Periodically the board as a whole does a
  self-evaluation

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CONTENTS

• Board governance research and framework
• Survey and interview results
• Common challenges and lessons learned

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SEVERAL CHALLENGES WERE RAISED WITH REGARD TO
ENABLING EFFECTIVE BOARD PERFORMANCE
. . . but many had suggestions for how to improve

Several boards identified challenges . . .
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CHALLENGE OF RECRUITING HIGH-PROFILE INDIVIDUALS
WAS MOST OFTEN RAISED AND ADDRESSED
What strategies have been most effective? . . .
Get the organization, corporation, or individual
involved in one of our programs or program
events Identify an easily understood issue that
resonates personally or intellectually with the
member rather than try to explain the overall
value of the organization What seems to work is
to treat it very seriously. Force potential
members to do a due diligence on the org and
examine whether they are truly committed Also
be direct and honest on expectations. Treat it
like a business deal and they will understand
that
Who is best position to recruit successfully? .
. .
. . . it appears to us that the best technique
is to use local association leaders to identify,
recommend and help recruit such persons Get one
or two high profile board members . . . have them
recruit people they know Having a CEO who
attracts such persons We've been successful
where Board members have personal relationships
with high-profile candidates