National Center on Nonprofit Enterprise (NCNE), highlights some of the critical, but often overlooked aspects of board leadership in ensuring short- and long-term sustainability.The following NPQ interview with Richard Brewster, executive director of the
In your experience, how do nonprofit boards generally approach discussions of organizational finances?
Well, the danger is that boards—or, rather individual board members—concentrate on what is of particular concern to them to the exclusion of everything else. You often end up with a bunch of oppositional conversations, where various board members champion their points of view or the particular services they care about, with the overall welfare of the nonprofit placed somewhere in the distant background. A good board, led by its chair, will instead focus on what is necessary to achieve short-term financial health—if that is an issue—and long-term sustainability.
To guard the short-term health of the organization, what should boards pay attention to?
Cash — pure and simple. If the board has to think about the short-term financial health of the nonprofit, then its survival is probably at risk, and cash is always the first place to go. The board may not need to be involved in cash management, although when the risk level is high, those board/staff roles can and sometimes should mix, but it needs to assure itself that it is being done well.
Besides asking for a cash projection (the amount of money slated to come in and go out of an organization and when), the board should look at the following: (1) whether and for how long the organization can make payroll, (2) whether and when the organization can reasonably expect to pay creditors for planned expenditures, and (3) how to ensure that the nonprofit doesn’t take on debt it can’t afford —using lines of credit, for example, or by dipping into endowment or investments inappropriately. When an organization is under stress, staff may be tempted to cut corners in the way it manages money. This tactic is generally motivated by hope, but the board needs to help play a guardianship role with the development of well-crafted policies that protect the organization from falling off a cliff.
A lot of times the board of an organization in short-term financial trouble will first be called on to do emergency fundraising. If a member of the board has easy access to money that will solve the problem—especially if it is unrestricted—and this will not disrupt the nonprofit unduly, then fine. But the first responsibility of a board is oversight, not fundraising, and to spend time on this effort to the exclusion of ensuring fiscal discipline is a failure of accountability.
What should boards focus on if they are concerned about long-term sustainability?
This may be counterintuitive, but the central question is the quality of the program. In other words, the worst threat to nonprofit sustainability is if your program is crap. A nonprofit’s only reason for keeping going is to change people’s lives, communities, the environment, and so on for the better. If a nonprofit is not making the biggest difference it can with the resources available, it is being wasteful. From an economist’s perspective, it is not putting its resources to best use and is inefficient. I’d find it odd to apply the word sustainable in any really meaningful way to such an organization.
I once visited an agency that provided disability care services. I walked into a foyer with a frayed linoleum floor on which, in a corner, a client with cerebral palsy was sitting kind of splayed out. A staff person was talking to me as if there was nothing out of the ordinary, and other staff members were walking around, paying him zero attention. At some point, I asked about the man, and the staff member reacted a bit defensively but gave me to believe that I should not concern myself with him. This organization had enough money to continue this kind of demeaning se