Between October, 2002 and September, 2004, a team of management and financial specialists from Mid-Iowa Community Action (MICA) provided crisis intervention services to 23 community action agencies throughout the United States. The crises in which these agencies found themselves resulted—in part—from a breakdown of governing board oversight.
How do you know if your board of directors is losing its grip on your organization? Mel Gill, at the Institute on Governance, studied 20 Canadian nonprofits extensively and devised a list of 26 “signs that a board might be in trouble.” (2001, p. 25). More than 70 percent of the community action agencies that MICA consultants worked with in 2003 and 2004 exhibited 15 of those 26 warning signs (see Table 1); more than half of the agencies assisted exhibited 19 of the warning signs.
Public Money and Board Passivity
Like many nonprofit organizations, community action agencies operate with a great deal of public money—approximately 90 percent, in fiscal year 2003, according to statistics prepared by the National Association of State Community Services Programs. Such heavy reliance on public funding can minimize the responsibility of the board of directors. Community action boards give relatively little attention to establishing policies and procedures, because those are normally required conditions in contracts and grants. O’Reagan and Oster (2002, p. 18) studied the nonprofits used by the city of New York to deliver social and other services. They concluded that board passivity and public funding are closely associated.
One organization vividly illustrates how public funding can distort board priorities. Few community action agencies conduct systematic, extensive fundraising. One assisted agency, however, embarked on a $3 million campaign: not to underwrite new or innovative programming for low income people, but to construct a “legacy” central office in homage to the longtime executive director. The campaign was given an immense initial boost through the donation of $1 million by an individual who had grown up in the chief low income neighborhood serviced by the agency and who had gone on to immense commercial and corporate success. The board secured volunteer consultants to design the campaign and hired a campaign director.
Although the campaign director was a protégé of the former executive director, she unfortunately did not have any fundraising experience. When about 90 percent of the goal had been reached, the organization secured a construction loan and began to build. Pledges, however, were not monitored; many were not received. Building costs exceeded projections; new equipment for offices was purchased, although it had not been part of the construction budget. Employees were moved to the new facility from a former central office, which was then sold. The MICA team, invited to assist the agency to straighten out its finances and assist in the hiring of a new executive director and chief financial officer, discovered that the operating and maintenance costs for the new facility had not been projected. Actual costs turned out to be significantly higher than was budgeted for other facilities. Also, funder permission had not been sought or obtained for these higher space costs.
Loss of monetary control was the most common factor that led to intervention by the MICA consultants. Community action agencies typically receive support from dozens of funding sources. In the 40 years since their inception, most agencies have seen their annual budgets grow substantially. Many agencies have also had the same executive and management staff, as well as many board members, in place for all or significant portions of those 40 years. Most of the agencies MICA worked with had a few staff and board members who had “been there at the creation.” A second major factor precipitating crises was the departure of such long-serving individuals—or a need for them to depart.
The experience of one community action agency serving eight Midwestern counties illustrates the pitfalls of relying too much on longevity and not enough on performance. The board of directors in this organization was incredulous when members of the MICA team began describing to them the dysfunctions of their Head Start program (the reason for intervention), and then connected those dysfunctions to the inadequacies of the top management team. The board chair threw copies of two prior Head Start reviews at the consultants during one tumultuous meeting, asserting that they proved “we run a pretty good program”—which is what the board had been told by the Head Start director and executive director. In fact, the reports constituted a nine year history of extensive noncompliance and deficiency of which the board had remained blissfully ignorant.
It was apparent to the MICA team over the 10 months they worked with this agency that the board suffered from “no bad news is not good news” syndrome. Agency managers systematically failed to acknowledge program inadequacies. The executive director proved to be an individual who could not deal with conflict and was effectively bullied into silence by managers who would not take responsibility. The board accepted the director’s facade of calm reasonableness, of a certain philosophical bent, without independent mechanisms for critically assessing information presented to it. The board did not seek multiple perspectives from which to assess organizational effectiveness and health.
Table 1: Percentage of MICA-Assisted Community Action Agencies Exhibiting Gill’s Warning Signs of a Board in Trouble
Human Resources Difficulty recruiting credible board members 78% Financial and organizational performance Chronic unplanned or unmanaged deficits 70% Call for outside audit /operational review by funders 87% Persistent failure to meet individual or organizational performance targets 83% Role confusion between board and CEO 61% Meetings Low attendance at board, committee meetings 83% Low level of participation in discussions at meetings 83% Poor meeting management: lack of focus, no agendas, unprepared members 83% Board culture Underground communication 52% Poor communication between CEO, chair, full board 78% Unresolved conflicts within the board 78% Members feel removed from “what’s going on” 83% Board divided into competing factions 61% Decision-making “Rubber stamping” of CEO recommendations 57% Focus on operational detail not big picture 83% Poor communication with funders, key stakeholders 91% Decision deadlock or paralysis 87% Members ignoring, circumventing organizational policies and procedures 65% CEO ignoring, circumventing organizational policies and procedures 57%
Community action agencies have a rich history. Originally intended to promote political as well as economic empowerment during the “War on Poverty,” these agencies were built on the principle of “maximum feasible participation” of low income people. Part of their purpose was to act as a developer of political representation. Unfortunately, very soon after many community action agencies began to achieve some diversification of local power structures, particularly for minority groups formerly excluded from power, the federal government yielded to pressure from existing political structures and largely retreated from this principle in spirit and in regulation. Where originally community action agencies were required to have at least 51 percent participation from local low income residents, current Community Services Block Grant legislation only requires that community action boards consist of one-third low income persons, or their representatives; another third must be elected local officials; and the final third can be selected from a broad cross-section of the private sector.
The experience of one large urban agency illustrates how the political ghosts of minority empowerment found at the core of some community action agencies overtook the larger anti-poverty mission. In this case a dynamic African American executive director was exposed by a local newspaper to have used a company credit card to pay for vacation expenses for her husband—expenses not repaid until the newspaper called attention to them. She had also not paid for the cost of catering her wedding reception from the agency’s food service. As a result of this publicity, the board refused to renew the executive director’s contract, even though it had just given her a positive annual performance evaluation. In the following three months of board indecision and contract extensions, the director was indicted by the local prosecutor for one misdemeanor and four felonies related to financial misconduct. The board became increasingly polarized by these discussions, finally voting not to renew the director’s contract and naming a program director as interim executive.
Unfortunately, 60 days later five board members passed a motion (5–4) to rehire the former executive director, with a salary increase. This action was taken at the end of a three hour meeting after nearly half the board members had left and without the vote having been put on the agenda. In response, four of the directors who had been absent filed for and obtained an injunction preventing the executive director from returning. After two more months of public and private negotiating, the board agreed in executive session to drop the plan to rehire the former executive director. As part of the compromise, all but three board members agreed to resign simultaneously. A “blue ribbon panel” of local nonprofit leaders put together a new slate of board members, which was finally seated 12 months after the first vote of no confidence in the old executive director.
What should have been an issue of management integrity became instead a fight about why an African American holding a powerful community position was being attacked for behavior that minority board members perceived white power brokers had seldom been held accountable for. The quality of services to low income people, and the organization’s $500,000 deficit, faded from board members’ attention, even though the organization was facing the loss of a very large federal Head Start program. The fight also manifested the experience of many communities—rural as well as urban—in which community action agencies and their programs became significant local players as employers of a large number of people.
In fact, even the reduced requirements for low income representation can be ineffective. Fewer than half of the “low income members“ on MICA-assisted boards were actually low income persons. Many of these agencies asked community groups and organizations to nominate low income representatives. Even though many of the referring organizations—social service agencies such as Catholic Charities, Lutheran Social Services, county welfare offices, and job training programs—do serve low income families, many of the persons they recommend to the community action boards are middle income. Other boards get around the often complex mechanisms they have created for selecting low income representatives by filling vacant seats through appointments by the board chair.
This kind of problem, where there is a significant gap between what is claimed to be in the governance system and what is really there, is not exclusive to Community Action Agencies or to boards with foiled requirements for constituency involvement. But it can and does present serious problems that boards and executives should be concerned about. First and foremost, if a system for ensuring a voice on the board for those being served does not work but the board accepts the misrepresentation, what else will they accept? Constituency involvement is the kind of endeavor that has to be approached with seriousness of purpose for it to be successful.
The MICA consulting team offers these lessons from its work with boards of agencies in crisis:
1. Board members need to be selected for and socialized to the mission of the organization.
2. Boards too often act as a collection of individuals/constituencies, unless they are educated and supported in their functions and responsibilities as a group.
3. The executive and leadership staff in a nonprofit of any size must take responsibility to nurture and support their board.
Sixteen of the 17 community action agencies that MICA began to work with in 2003 and 2004 lacked a sense of strategic direction, which was most tangibly evident in the absence of a strategic plan.
Consistent with having no strategic plan, the agencies with which MICA teams worked lacked established processes for orienting and educating board members. Board members interviewed by MICA teams nearly universally admitted that they did not know their responsibilities as members. No boards in the 23 agencies MICA assisted had organized training or educational activities for board members when first contacted. A number had, at one time, developed some orientation or training materials, but they were not regularly and consistently used. No staff or board member had been clearly assigned responsibility for ensuring that board members fully understood the expectations of their service. Although many of the boards with which MICA worked had nominating committees, those committees did not exercise responsibility for policing and maintaining membership. They limited their activity to identifying and recommending members.
The care and feeding of board members cannot be limited to helping them understand their roles and responsibilities, as fundamental and important as that knowledge is. Executives and managers must also ensure that board members understand their organization’s work. Community action boards are regularly bombarded with a great deal of specialized, technical information about programs and budgets, all of which are filled with acronyms and programmatic jargon. Executives and staff need to take the time to “translate” this information so members can assimilate it. Board members should be provided with opportunities to observe or participate firsthand in the work of the organization. Member involvement is too frequently limited to participation in board, and sometimes committee, meetings. Board members in all of the troubled agencies with which MICA worked revealed that they did not know about—or did not understand the gravity of—the noncompliance and loss of control issues that caused their organization’s crisis.
In Nonprofit Management & Leadership (1998), Holland and Jackson point out that although board members are sought out for their position, influence, skills, or professional expertise, they are not adequately involved in the work of the organization to develop the “affective knowledge” that would allow them to apply those “cognitive” resources. They further point out one of the unfortunate consequences of this weakness:
This gap between cognitive ability and the knowledge needed to apply that ability may partially explain why so many nonprofit boards “are often little more than a collection of high-powered people engaged in low-level activities” (emphasis added) (Taylor, Chait, and Holland, 1996, p. 36, cited in Holland and Jackson (1998, p. 19–20))
Finally, the MICA team’s experience has repeatedly verified the conclusion that the middle of a crisis is not an environment conducive to board development. (Holland, 2002, p. 422) The MICA team has come to formulate this dilemma as, “Those who got you in trouble can’t get you out of trouble.” A crisis usually results from ignorance or denial. The largest hurdle the MICA intervention team has faced is the inability of both executives and board members to understand:
1. that there is a crisis,
2. the nature and severity of the crisis, and
3. the options available for resolving it.
A board that presides over the decline of an organization that has become deeply dysfunctional is unlikely to be able to turn that organization around. One in four boards of the agencies MICA worked with in 2003–2004 had to be dismantled. A much higher number probably should have been. This entailed reducing to three or six persons, preserving the tripartite representation required by the Community Service Block Grant. Membership was restored by recruiting new members with no “baggage” to cloud their decision-making. That one of those boards is attempting to reconstitute itself by bringing back “old regime” directors testifies to the difficulty of escaping the box of prior experience.
If you are a board member
Make sure you understand your responsibilities under state law and as defined in the by-laws of your nonprofit.
Make sure that you are briefed on the full range of work your organization does, including requiring your staff to present information to you in terms you understand.
Make sure that your board receives and understands assessments of the efficiency and effectiveness of programs your nonprofit administers, whether those assessments are done by the staff or by funders.
Expect assessments that identify problems to be accompanied by staff plans to correct and eliminate those problems. Follow up to ensure the corrections have been completed.
Set multi-year and annual agendas of results you want your executive to achieve—results in terms of how the lives of persons served will be different, how the community will be more responsive to the needs of persons served, and of how your organization will be more capable of serving target populations and of collaborating with community partners.
Establish processes to find out what roles your community sees you in. Understand clearly the limits of action imposed by funding source grants, contracts, and program regulations. Work to close the gap between the two sets of expectations.
If you are an executive or manager
Recognize that members do not come to your board fully equipped—no matter what their prior community experience may be.
Provide each new board member with background on your organization and your board’s structure.
Continually educate members about the work your organization does. Provide opportunities for members to observe or participate in that work and inform them in terms that support their understanding.
Understand that the board has a collective (that is, group) responsibility to the organization’s mission and community. One of the board’s chief responsibilities is to continually revisit and revitalize that mission in consultation with the community, so that it continues to be the standard against which all organizational activity and results are measured.
Gill, Mel. “Governance in the Voluntary Sector: Summary of Case Study Findings.” The Institute on Governance, 2001, www.iog.ca.
Holland, Thomas P. 2002. Board accountability: Lessons from the field. Nonprofit Management and Leadership 12: 409–428.
Holland, T. and Jackson, D. 1998. Strengthening board performance: finding lessons from demonstration projects. Nonprofit Management & Leadership 9: 121–134.
O’Regan, Katherine and Oster, Sharon. 2002. Does government funding alter nonprofit governance? Evidence from New York City nonprofit contractors. Journal of Policy Analysis and Management 21: 359–379.
Owen Heiserman is a research specialist with Mid-Iowa Community Action (MICA), Marshalltown, Iowa. He is a member of a team of management and financial consultants funded through a grant from the Office of Community Services, in the Administration for Children and Families, U.S. Department of Health and Human Services. This Peer-to-Peer team performs assessments and provides reconstructive and restructuring services to community action agencies in crisis.