KEY CONCEPT

Most directors of nonprofit organizations do not have the required skills, resources and experience to be effective, according to a new Stanford survey of directors of nonprofit organizations.

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IDEA SUMMARY

The Stanford Graduate School of Business surveyed 924 directors of nonprofit organizations. Conducted in collaboration with BoardSource and GuideStar, the surveyed covered areas such as the engagement of directors, their understanding of a board’s obligations, and the governance structures and processes in place to help them fulfil their commitments.

The results show that despite the worthy missions of the organizations and the best intentions of the directors, nonprofit board processes and governance structures, including poor recruitment of experienced board members, undermine organizational success.

Among the key findings:

• Many directors don’t understand their organizations. 27% of directors surveyed believe their fellow board members don’t understand the mission and strategy of the organization. A third (32%) believed the board is not capable of evaluating the organization’s performance. One major problem is the quality of the data that the board receives, which many feel does not give them the information they need to make a valid performance evaluation.
• Most boards don’t have formal governance structures and processes in place. Areas that suffer as a result of a lack of a formal structure or formal processes include financial reporting, succession planning and CEO and board evaluations. For example, more than 40% of boards do not have an audit committee, relying instead on monthly bank statements to monitor the organization’s financial performance. Two-thirds of organizations do not have a CEO succession plan in place, and more than a third never evaluate their own performances.
• Many directors are not engaged, and do not understand their obligations. Almost two-thirds (65%) of directors in the survey do not believe the directors on their board have much experience — and almost half (48%) do not believe their fellow board members are very engaged. 47% believe that board members fully understand their obligations, the most important of which, according to those surveyed, is fundraising.

While having concerns about their fellow board members or some of the processes in place, most directors (92%) are very satisfied with the performance of their CEOs, and a significant majority (85%) were moderately or very satisfied with the performance of their organizations. Still more than two-thirds (69%) of nonprofit directors say their organization has faced serious governance-related problems in the past 10 years, notably being unable to meet fundraising targets (49%). Other problems include serious financial difficulty (29%), unexpected resignations of CEOs (23%) and attracting qualified new board members (16%).

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BUSINESS APPLICATION

Good governance structures and practices are required to help directors fulfil their obligations to support and advance the organizations they care about. Specific steps recommended by the leaders of the survey team to help directors succeed begins with the organization and its staff:

• Ensure that the organization has a focused mission, and that its skills and resources are aligned with that mission.
• Next, make sure that the mission is understood and embraced by the board, as well as management and other key stakeholders.
• Establish explicit goals and strategies, backed by rigorous performance metrics, aimed at achieving the mission.
• Hold your CEO accountable for achieving those metrics and goals.

The next set of recommendations focuses specifically on the board:

• Recruit individuals with the skills, resources, background and dedication required to meet the needs of the organization.
• Explicitly define the roles and responsibilities of board members in a way that best leverages their leadership, time and resources.
• Put in place well-defined board, committee and ad hoc processes to meet the governance obligations of the board. The goal is to be able to make key decisions and handle responsibilities in a timely and optimal fashion.
• Each board member’s contribution and overall performance needs to be regularly reviewed and assessed. The objective is not to place blame but to ensure that the directors feel that their time is well spent. 

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REFERENCES

2015 Survey on Board of Directors of Nonprofit Organizations. David Larcker, William F. Meehan III, Nicholas Donatiello & Brian Tayan (April 2015). 

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