Good nonprofit boards put a lot of time into strategic planning, creating effective policies, and raising funds – all very important roles.
But very few put enough time into their single most critical task: monitoring, supporting, evaluating, and, if necessary, replacing the CEO.
An organization can have the best five-year plan in creation. It can have the most thoughtfully engineered board committee structure imaginable. It can have an investment policy that would put an Ivy League university to shame. And none of that matters if the CEO is ineffective, because the CEO is the person who executes the plan and carries out the policies. Or, more exactly, the CEO hires and manages the people who execute the plan and carry out the policies. How well they do their work determines how well the organization achieves its mission. And their performance is the CEO’s responsibility.
This would lead you to think that ensuring the CEO’s effectiveness would be board’s top priority. But many boards shy away from doing comprehensive, meaningful evaluations. And when CEOs are doing a poor job, more often than not boards look the other way and avoid evidence of crisis.
I was once on a board where the central agenda item at one of my first meetings was the CEO’s annual evaluation. The board chair, who was a successful corporate leader, called an executive session and, in the course of five minutes or so, discussed the conversation he and the vice chair had had with the CEO about his performance. That conversation apparently comprised the CEO’s entire annual review, and the chair was simply reporting the high points back to us.
I asked two questions, both, to my mind, simple and uncontroversial.
The first was: How much is the CEO getting paid? The second was: Did the chair interview key staff members to get feedback on how the CEO was carrying out his work?
The board chair hemmed and hawed about the salary level before blurting it out. As it turned out, the salary level was perfectly fine –it seemed neither too high nor too low – but given the number of stories about clueless nonprofit boards paying their CEOs too much, I continue to be surprised when CEO salaries are treated as a state secret. (Moreover, since CEO salaries are available for the world to see though tax returns posted on Guidestar, it’s a singularly poorly kept secret.) All board members should know what the CEO is getting paid, and they should feel comfortable that the compensation was arrived at through a structured, objective process that included salary comparisons with like organizations.
As for my question about whether staff were contacted in the review process, the board chair harrumphed that that’s totally inappropriate, and that that kind of inquiry would undermine the authority of the CEO.
I couldn’t disagree more. Again, the work at the nonprofit is carried out by the staff. The staff are chosen and motivated and monitored and supported by the CEO. A CEO who leads them well runs a good organization. A CEO who leads the staff badly inevitably runs an ineffective organization. And so isn’t it logical for the board to ask the staff how the CEO is doing?
I have seen many examples of CEOs who do a magnificent job of managing up – that is, attending to the board, providing them with the attention and information they need, building close personal friendships – while doing a mediocre-to-lousy job of managing the staff. And I have seen that in nearly every case the board fails to look below the surface. Board members take all their information and guidance from the CEO alone and ignore clear warning signs, such as high staff turnover rates or poor financial performance. I know of one small organization that had 100% annual turnover of staff year after year and a disturbing structural deficit, but the board chair insisted that there was nothing wrong. If there was a problem, said the chair, it was that the staff did not appreciate the genius of the CEO. The CEO was kept on about five years too long, until the organization had lost all credibility and was on the verge of bankruptcy.
I understand why boards fail to act. Firing a CEO is ugly and unpleasant. And running a search for a successor is time consuming, overwhelming, and fraught with challenges – plus there’s no guarantee that the new person will be any better than the incumbent. (Better the devil you know, and all of that.) Given that board members are volunteers, they are much more likely to look the other way than to recognize problems and start the process to send the CEO packing.
But the most important role of a nonprofit board is to hire and oversee the CEO. A critical element of this is to have a formal annual review, a process that solicits confidential input from board members and key staff members, requires the CEO to submit a self-evaluation with goals for the next year, includes a study of CEO salaries for comparable institutions, and provides honest feedback. It is only through this sort of process that a board even begins to know if there are issues.
It’s lonely being a CEO, and even the best need support and direction. Meanwhile, the bad ones – for the good of the organization, the staff, the clients, and themselves – need to be shown the door.
Copyright Alan Cantor 2014. All rights reserved.