Nonprofit Board Governance



this is the last in a series of four workshops brought to you by the alumni consulting team and the public management program both programs of the Center for Social Innovation just a quick word about each of them the alumni consulting team is an estimated to be one of the largest pro bono resource providers in the Bay Area and provides an estimated value of more than 1 million dollars in pro bono management consulting service annually to the nonprofit community through a network of GSB alumni and student volunteers for over three decades the public management program has prepared the next generation of social sector leaders by giving MBA students the knowledge and experience necessary to apply business principles to social and environmental issues the PMP remains the first and only Business School in the nation to offer a certificate in public management as I said both of these programs are programs of the Center for social innovation an umbrella organization that's committed to promoting effective and efficient solutions to social problems in the United States and around the world now I'd like to introduce our moderator William F Mian bill is the chairman of the West Coast practice of McKinsey and company during his 24 years with the firm bill has had extensive experience working with chief executives and senior managers of a wide range of businesses in New York asia-pacific and the western United States in addition to his private sector experience he has extensive experience working with many nonprofits in philanthropy health care education the arts the environment Public Television and economic death economic development he is on the board of many many nonprofit organizations including the San Francisco Symphony philanthropic research incorporated and the organs Shakespeare Festival just to name a few he currently is the chair of the board for the United Way of the Bay Area we are proud to have bill as a CSI lecturer and strategic management here at the GSB and as our resident expert on nonprofit board governance as a BA in English and comparative literature from Columbia University and an MBA from none other than the GSB in fact this year marks his 25th reunion from the GSB and as a p.m. here I cannot imagine a better slate of experts to share this issue to explore this issue with you this evening so please join me in walking welcoming this esteemed panel Thank You Julie I think I the real reason I'd facilitate these panels is that I have Julie get to introduce me once every year or so I never think more highly of myself than when Julie introduces me a couple of quick notes of introduction I'm going to just very briefly introduce our very distinguished panel and I'll ask each of our panel members to introduce themselves a little bit more depth when they begin their remarks on my left of course is John morgridge who you know probably most prominently is the chairman of Cisco but also extensively involved in the nonprofit and philanthropic sectors next is Kavita Ram Dass who is president CEO of the Global Fund for women and I think we've learned on these panels it's always best if we actually have the leader of a non-profit represent their point of view on government governance in addition to we volunteer board members and all the way to my at the end of my left is Bob Fisher a longtime executive at the gap and now on the board of directors and with extensive involvement primarily an environmental nonprofits I'm gonna start out just by asking each of our panel members will be speaking for about 10 minutes each and then we'll leave plenty of time for questions no need to write them on an index card but we'll be taking questions until probably 7:15 a little bit longer if you would like I usually start out of these things with just trying to orient us all with a few of what I call the nine attributes of best practices for nonprofit governance if my overarching theme is that if you give me any set of hard and fast rules for nonprofit governance I will find a nonprofit which violates every single one which is well governed and I will find you one that at least on the face adheres to those hard and fast rules very well and is not very well governed at all having said that I do think there are a few principles and I'll just share three or four of of my nine and perhaps the first one is the most important one which is I think well govern nonprofits have an ambitious mission which is clearly identified in my MBA class which now includes about 65 students every year the MBAs are assigned the task of going to find the mission for a nonprofit and to evaluate it and in virtually every year we conclude that probably 80 or 85% of those mission statements for those nonprofits have a significant lack by some relatively you know thoughtful criteria and so I just think it's very hard for a government for a governing body to be effective for a non-profit if the mission is not clear if it isn't ambitious if it isn't something that actually does energize them and the nonprofit themselves and I think it's it's one of those things that's perfectly obvious and and and far too rare that nonprofit board to actually just start with a profound thinking through their mission many of the questions you hear about nonprofit governance have to do with the mechanics how big should a non-profit board be is perhaps the most common question and the answer is 22 people there is no good answer to that question and I have seen a lot of people have a prejudice against large boards and I think that there are any number of very very effective large boards and again there are some very small boards you know five six or twelve people that are not very effective there's no question that larger boards are require more discipline more process but I have a couple of guidelines I think all effective boards have a small group of truly committed leaders if it's a 4 to 12 or 15 it's probably no more than 3 or 4 people if you have a board of 15 people with 4 people who are really deeply committed and energized and and spend a lot of time you're a very fortunate organization if you have a board of 75 or 80 it's probably 12 or 15 and perhaps that's represented in an executive committee it doesn't always have to be but but for sure you can identify those people by name and for me that the test is a relatively simple one which is for those people this activity is their number one non work non family activity and I think that that's almost just a minimum test in terms of how large a board can be I really don't think there's a simple test my rule of thumb is that a board can have up to 10 or 15% not active members and still be a vital board and not active meaning by you know simple rules of work wealth and wisdom are they generous personally do they help in the development process do they bring the skills that they're on the board to bring do they show up do they care and you're never going to get particularly on a large board below ten or fifteen percent in active members because there's always a few people you've asked on who turned out not to be able to deliver against their commitment or you made a mistake or their 87 years old and it's just more pragmatic to allow them to continue in their at that time so I really think that's the simplest test for the size of the board and there are many boards performing art boards perhaps most prominently we're for development purposes diversity purposes constituency purposes it makes a lot of sense to have a larger board it obviously means that you have to have very disciplined committee processes we're much if not most of the important work of the board is going to go on and you certainly need an executive committee that's high functioning with that size of a board the last thing I'll point out is I think effective boards have a process and a systematic way to engage the board in what I call the thing itself there are a lot of boards you go and you just wonder sometimes what you are the board of you go through the fans committee report and you go through the nominating committee report and you go through the marketing report and you go through this report and that report and it could be anything and in fact most of us are involved in nonprofit because we care deeply about the thing itself and it could be the environment it could be music it could be teaching kids to read it could be helping older people it could be any of a range of things and I think effective boards in a very disciplined way at the board meetings and outside of board meetings make sure that the board members feel like they're very much in touch with the reason that they're there in the first place if you're a symphony board member you want to see a musician or a musician director if you're on a board helping older people you'd like to actually spend some time with older people if you're supporting underprivileged families you should have a family that's been helped if you're teaching kids to read you should have some kids who've learned to read as a result of this program actually come to the board meetings and I think that that would be much more energizing than the next 15 minutes of the report from the Finance Committee so there are many other things that I think can contribute to an effective board but those are sort of my top three or four just trying to frame this again I think we have a terrific panel and John we look forward to your comments thank you how many of you are board members of an so we've got a lot of advice well I've always found these financial reports the most intriguing that by stating that I think that one of the real values of diversity on a board is that different people find different parts of the board activity intriguing and it's been amazing to me I think many boards have had kind of a policy of diversification but within the last since the spotlight has been put on business within the last two years the boards that I'm on and I'm on some national boards I'm on some university boards I'm on some local boards but I would say half of them now we get a spreadsheet with all of the capabilities lifts listed all the terms listed what what their area of expertise is and I think it's a real I think that's important because there should be someone that's interested in the financial report and what it indicates and what the budget is for the coming year because the quickest way for a non-profit to get in trouble is to spend money they don't have or spend money that doesn't become part of it last year I was on a national board and I should have known better they came forward with a budget that was ten percent over the prior year's budget there was no business that was planning to grow ten percent in the past this past year there just wasn't any I looked at a board I am on the local board that came in with a budget a couple of months ago that had an 18% increase for next year how many people in the room leave that you can raise 18% more in the coming July – July than you raised this year I just don't think it's going to happen and yet if someone's not interested guess what those budgets gets passed when you when you speak about the United Way there's been some real financial challenges you know a lot of the united united way's excepted designated giving but they didn't budget get designated giving and they got in a lot of trouble because they continued to give up to the top 100 as they had for the past decade and guess what the money came in and it wasn't designated that way it was designated to a lot of other organizations so I think the key thing in terms of one of the key things in governance is having diverse board with a lot of varied interests and backgrounds and that's true of a business board also and that reason you know in the same vein almost every nonprofit the number one challenge is fundraising and so it's got to be you have to have a body a group that that takes that on with with enthusiasm because it's a tough job I think the second thing that that's important in board governments is to be sensitive to for change you know most of most of the board's I sit on particularly the local boards are products of an inspired individual and they have a vision and that vision is is the driving force for that group but changes is impacting and it's impacting all nonprofits and change always is an opportunity most of us don't look at it that way and maybe in some cases it isn't I don't know but in the vast majority of cases change is a is a real driver and I think people who come out of the business world have a sense – and a relationship with change and the ability their ability to translate that and make it you know functional activity or make it impact within within the nonprofit the last thing I think that is important is I'm amazed in the nonprofit world I've always been amazed in the nonprofit world at the lack of leverage amongst the kind of industry group you know in the nonprofit world even today it they're basically silos they're basically silos and it seems to me that one one idea that I would strongly recommend in in board governance is that you have the executive director of some other nonprofit on your board and that you've worked that you asked your executive director to go on some other nonprofit point you know in business it's almost universal that you're on at least one other board and the preference is to have at least one or two presidents of operating companies on your board you look at you look at the board you look at the nonprofit boards I'll wager it's less than 10% that have someone who's on another board and yet I think it's very important because there is a lot of leverage there are a lot of you know one of the easiest ways to improve your capability is to steal a good idea you know you don't have to go through any of the pain or agony it's already been proven you know all you do is pick it up and carry it along and as a board member I think it's important it's helpful if you're on a couple of boards because then you really can do that you really can steal ideas and bring them and have them apply and then the last thing I think that that board should be sensitive to and it's on the same theme as collaboration and that is that there is leverage in collaboration you know in our company we look at markets and we look at the ecosystem of the market who are the players who are all the players that are in our space and then we figure out how we can leverage all of those capabilities so that we get not just a return on their dollar we invest but we get those are my observations I'll leave it there pass it on to my colleague good evening it's a pleasure to be here I must say that I was figuring out how my batting average was going to look after John and bill went through sort of the must-have requirements and I'm just glad to see that so far at least on John's list I'm batting two for three so it's not too bad even if you consider that I'm thinking about cricket and not baseball in addition to being here amongst an unlikely group of similar people I like sitting amongst lefties and I'm sitting between two and I'm one myself it's very nice feeling I'm perhaps the the only representative of a non-profit I mean board members who serve on nonprofits here but as CEO a nonprofit that not only works primarily internationally but perhaps the only representative right now who serves both I see you on as a board member on an organization that is consciously feminists dare I use that word and I hope that as I share some of my learnings as CEO you might find that there has been some advantages and some lessons learned and derive both from that philosophy and practice as the women's movement said many years ago the personal is political and I would add perhaps also a professional I'm going to talk about the three C's that I've that I'd like to share at this meeting just from my perspective booth is having served on a number of nonprofit boards but I'm going to speak with my with my C and my CEO hat on in this in this few minutes that I have the first C is communicate caring for any organization like the Global Fund for women that works in 160 countries and has 14 board members eight of whom live and work outside of the United States this is a basic requirement be able to communicate communicate communicate and to do so in a way that communicates a concern and a caring and an appreciation of your board members sharing information sending updates taking time to reconnect when you actually see each other it's not just nice feminist practice it also turns out to be extremely effective for making sure that the work happens so some examples of what I found to be very helpful in this regard part of what will referred to the Global Fund actually not only manages to bring the people whom we serve through our grant-making to visit and meet with board members but in fact we have as board members representatives from those organizations themselves so the women who are on our board from developing countries are often either former grantees or members of our broader Advisory Council some things that we do to try and make sure that we stay in touch during the time that we are far away from each other we meet only twice a year the board needs twice a year because they have to fly in from any different possible I provide the board with monthly email updates our CEO I make a special effort to share special accomplishments of the staff and of individual board members recently one of our board members was nominated to a fairly significant and senior UN position she was very shy about sharing this news but I was in a position to be able to share that news with the board more generally and with our staff that was something that was an appreciation of caring gestures of appreciation again maybe this is unique to a women's organization I would argue that it's good practice for nonprofits people who serve on your boards do so at no cost for the most part except as both bill and John mentioned a deep interest and commitment to the issues it doesn't hurt to show your appreciation send flowers to the board member who spent extra hours helping you complete your strategic plan offer a gift gift certificate of appreciation when somebody has taken the additional time to work with staff on a particularly difficult budget review process to make sure that you weren't presenting an 18% growth rate or whatever small gestures like that don't cost a lot of money but they do communicate caring and concern and I think that they can be very effective ways in which you can sort of build a community on your board that that really makes a difference a few other examples that we use at the Global Fund because many of the people who serve on our board are not in fact wealthy philanthropists themselves and yet they work as board members on an organization that gives away over five million dollars a year in grants to women's rights groups we offer outgoing board members the chance to award a grant of their own to a group of their own special concern or involvement as a gesture of trust and respect it has to meet global fund criteria but it is something that they can make to a group of their own choice we've also made a special effort to link alumni board members so that people who go off the board also receive updates from myself as a CEO ongoing information about what key decisions have been made by the board opportunities to come back and reconnect with people who they've you know had connections with in the past and that's that's proven to be very helpful my second C is constructive criticism one of my best lessons as a relatively new CEO and the Global Fund's Board of the of the Global Fund for women came from a comment made maybe three years ago by my Board Chair Jacques Elina Pechanga who's a leading feminist in Brazil and has been on our board as board chair for the last two years she asked why is there so much applause at Global Fund board meetings is this an American practice and then I I sort of I you know I initially I wasn't quite sure what she meant and then she went on to explicate that she felt that does the staff feel that we as a board are simply here to listen to our multiple achievements and to applaud them because you know the reports that john was talking about you know we don't see them except twice a year and we sort of feel we have to roll out our multiple achievements in this that and the other the Development Report the marketing report all our fabulous materials and and there is this sort of environment and created in which sort of the board members have to sit back sort of with glaze depreciation and then sort of applaud at the end of it she urged us to think about a different design she said you know such a format of a board meeting makes us feel unable to listen to what it is you really worry about what's on your mind where do you need our help where is our expertise going to be helpful to you and I think it changed for us as soon as I could hear that not as oh it's a critique of how we run the global fund but really from a place of this is constructive criticism that could really help us run these meetings in a much more effective way I think we were able to change our board meetings around so that we were able to get the best value of the time of the board members who in fact do have extraordinary expertise on a number of different issues and could have been a resource to program staff and others and fundraising staff and finance staff had we really been able to go and say you know we're working on this knotty issue and we'd really like to spend a couple of hours talking with you and getting your feedback so constructive criticism something that you should be both willing to hear as a CEO without your defences up which is I think an initial reaction of many of us because we think we work so hard at these nonprofits and we just want our accomplishments to be on review but also being willing to provide constructive criticism when we when we feel that might be necessary in terms of kind of board performance and their ability to respond to issues and my last see courage of conviction nonprofit organizations have often been referred to as the independent sector independent that is of either government or the private sector our do-good hats require us to work from a place of high moral conviction where we place a high premium on certain principles and values at all times but maybe particularly in these times where patriotism is defined by lack of dissent and where we defend Liberty by detaining people indefinitely it should be I believe the role of a board of trustees to demonstrate and embody call values and the courage of their conviction which goes back to the issue of a clearly defined mission if in fact you are an organization whose mission it is to see the world as one entity shared by all of us then it must be the board that lives up to that courage and demonstrate and embodies that courage of conviction and then in turn enables that to continue to have the nonprofit feel that its mission is clear and consistent even through difficult times at the Global Fund we have found that the wisdom of that collective conscience if you will that is housed in our Board of Governors has really served us well resulting most recently in a thoughtful and very balanced statement on world affairs that helped us negotiate and navigate relations both on the one side with 2,000 grantee organizations in 160 countries many of which were not feeling particularly warmly towards the United States or organizations based in it in recent times and at the same time to balance and negotiate and navigate our relationships with a primarily us donor base who was seeking to engage with the rest of the world in a manner that was both respectful and non defensive and I think again in this we were helped greatly by being able to look to our board to demonstrate the kind of courage of conviction and clarity of their understanding of the mission of the organization and I felt again in my role as CEO that that was a place where I had much to learn from sort of the collective wisdom of the board thank you Bob thanks Bill there was a couple years ahead of me here at Business School and I guess one of the big regrets I have is not going to work for him after he recruited me to McKinsey but we all end up on the same panel anyway I was a 1980 graduate of the business school and I left Business School and had no nonprofit experience and I was lucky enough to be invited to go on the board of the Bay Area Discovery Museum which is over on rince Marin County side of the Golden Gate Bridge it was the first board experience I had and it was a great experience it was a startup board it was a local board it was small there were older mentors available for me which was a wonderful way to break into the nonprofit world and I think that as as board members join it's it's critical that they're indoctrinated into the board and the way of that particular board because there's a lot of culture in each and every board that's made up and I gained some developed development experience which is critical as all of you know for any board what worked through a capital campaign in 1992 I was invited to go on the board of the Natural Resources Defense Council NRDC which is a national policy and advocacy environmental organization and I had no environmental background at that point in time but I did have an unrecognised passion and I think passion for a board member is a critical component that board just for all of you is about 40 members 25 attend the meetings and six to eight do most of the work so it's not that different from some of the things bill talked about and I headed a committee they're looking at institutional strategies I was really brought on the board because there were few business voices on that board and they felt that they needed a different perspective and John spoke a bit earlier about perspective and it was through that that I began building knowledge around the issues of of the environment in 1996 I went on the board of the Golden Gate National Park Association which is a local board involved with support for the GGN ra there about 30 board members there attend do most of that work I've been involved there in strategic planning and in 1999 enjoyed the board of Conservation International which is an international group that is working to protect the Earth's biodiversity I've been involved with long range planning there there about 40 board members 20 attend 10 do most of the work so through my experience I've found that I wanted to give you a little background about where I've where I've been and the work I've done has mostly been institutional in nature and organizational and planning and focus in terms of board governance I guess I'd just like to start out by saying that good good governance starts with great people and in the end if you have great people on your board it's a pretty obvious thing and those great people need to be harnessed their energy needs to be marshaled but if you start out with the right raw material and you can motivate that raw material through leadership I think you're gonna have a great board it could be – mentioned her three C's I have I guess six six E's that that make up the personal qualities that I think are necessary for a board member and many of these are obvious and they're true for nonprofit boards as well as business supports ethical board member must be ethical they must be energetic they must be endowed well doesn't have they don't have to be but that's certainly a benefit to the organization they must be empathetic and there's a big difference between a non-profit board and a for-profit board and the way that the board members relate to the institution I think that I was reading an article about the sort of the ineffectiveness of business leaders when they serve on nonprofit boards and I think it's very important to distinguish between the the way that you approach a non-profit board and the way that you approach a for-profit board because the people working at the at the not-for-profit board are there for very different reasons generally than the ones that are at the for-profit board and the two last E's our effectiveness and expertise and I really feel business experience is a very important quality and John talked about the understanding of continual change and certainly in the world we live in today all organizations need to continually reflect and and look at themselves and how how they can change to make themselves better concerning board governance I really see that there are sort of soft issues and they're hard issues and the soft issues involve the feel and style of the board bill talked a little bit about the size and the makeup and there's no right size but I think that the board has to reflect the chairman the chairman has to be a strong leader of that board and the executive director or president of that institution and the the communication and the style and how those two people work together has the potential to have enormous impact on how that board how that board is governed those two people together with the with the nominating committee really shaped the board and again John spoke about the grid that everybody that it's important to look at diversity of background and perspective as you're putting a board together boards can communicate in many different kinds of ways they can communicate either formally or in a very open fashion I find the most effective boards are the ones where there's good discussion at the board and not just a series of present one presentation after another if you're going in to listen to presentations you can really do that today on email or any other number of other ways to communicate but with the with the executive director and what the chairman of the board need to do is is marshal the talent of that board to gain a perspective on a critical issue that that that institution is is laboring over and I think in the end there's two qualities there that are you just can't have you can't go without our courage and empathy and again that sensitivity to the nonprofit world that I talked about but again as bill mentioned which is really true a few great people can make a huge difference on a board without those few great people the board will really not be effective and ultimately I think the institution will flounder there are other hard issues concerning board governance and many of these issues are the same issues and footing in the not-for-profit world that are faced that we're facing today in the for-profit world we're not that far away from the enactment of the sarbanes-oxley Act I hate to bring that up and group but those kinds of reforms are going to be coming down the pike in the in the not-for-profit world as well and it's interesting because of all the boards I've sat on we've had finance committees where we've looked at how we're going to invest the money and we've looked at the budget but we've never had audit committees and I think that from my perspective having an audit committee having a control perspective on the board both in terms of skills as a board member but also in terms of the way that the board looks at at their duties their fiduciary duties to the to the stakeholders in that institution having an audit committee I think today is something you really can't can't do without and having the skills of understanding a county and control are much much more important today than I think they have ever been in the past because of the visibility that nonprofit boards have in terms of committee structure in terms of sarbanes-oxley and some of the ramifications of that I think internal controls code of ethics you know it really should go without saying that the people that are working for an institution or ethical but I think unfortunately we've seen with various different scandals that there are times when when even nonprofit boards lack a level of ethics that uh that they should have and so I think we will ultimately be forced to institute codes of ethics Institute certification of the financial reports and ultimately I think there are aspects of the sarbanes-oxley that will add to good governance as long as you don't as long as these institutions don't sort of get clobbered by bureaucracies so we've got to balance the you know bureaucracy and processes with creativity and passion and certainly on that that is I feel the same way about a for-profit board that I do a not-for-profit board and if you don't have a good balance I think we're that institution will ultimately be in trouble but in the end it's about people it's about great leadership it's about leadership with the executive director and it's about leadership with the chairman of the board that really goes about building the to reflect the institution

What is Good Governance?



when a group is too large for everyone to be involved in decision-making it creates an entity to facilitate the process in an association that entity is the board of directors members delegate the bulk of decision-making to the board who then delegate the implementation of those decisions to staff governance is the rules and practices by which the Board of Directors ensures accountability fairness and transparency in its decision making good governance is a robust and reliable system for making confident and timely decisions good governance gives members confidence in the decision making process and leads to better decisions it builds trust and respect between members and elected leaders and it ensures ethical decision making governance determines who has a voice in making decisions how those decisions are made and who is accountable the rules for governing are defined in the associations bylaws and other governance documents ultimately however it's the norms and actions of the association's leaders that determine the effectiveness of governance here are some of the most important characteristics of good governance associations have an obligation to communicate explain an answer to members for the consequences of the decisions they made members should be able to follow and understand the decision making process including how and why a decision was made board decisions should be consistent with relevant legislation common law and the association's letters patent boards make decisions based on what is best for the membership which requires that they solicit and listen to their needs associations should implement decisions and follow processes that make the best use of available resources while mitigating risks the rules and practices by which the board of directors operates determines its governance good governance ensures accountability fairness and transparency as the Association works to fulfill its mandate