Friday, November 27, 2015

Board Chair Best Practices #3: Pick Up the Check!

This month I began a blog series on board chair best practices. Click here to read Board Chair Best Practice #1 and Best Practice #2

Here’s Board Chair Best Practice #3: 

#3. Clarify Fuzzy Roles With a Prime Responsibility Chart

This week, a colleague shared a comment he heard from a board chair of an outstanding national ministry. When asked what the board chair’s job description entailed, this person joked:
“I can’t remember all my duties—but certainly one of them
is to pick up the check every time I have lunch with our CEO!”

I’ve never seen “pick up the check” on board chair job descriptions—but maybe we should add it! Here’s a tool, however, that will add clarity to the board’s work: “The Prime Responsibility Chart” (click here to download). Leveraging this one-page template has been a critical best practice in my board toolkit for over 30 years. 

A board member, Bill Benke, introduced it to me when he served on the board at Camp Sambica in Bellevue, Wash. Benke used a version of this chart when he was a strategic business analysis executive with The Boeing Company. The chart is simple and straightforward and can (and often should) be revised at any board meeting—based on policy decisions, cash flow, economic environment, and experience level of the CEO and senior team.

Most boards assign decision-making functions to various individuals and/or committees, including:
   • Board of Directors (example: hire and fire the CEO)
   • Executive Committee (minor decisions between board meetings)
   • Board Chair (appoint committees)
   • Board Treasurer (create finance committee agendas)
   • Finance Committee (recommend an auditor)
   • CEO (hire and fire direct reports, etc.)

The most important principle: only one person (or committee, etc.) has “Prime Responsibility” for a task or responsibility. Download the template to see how levels of responsibility can be assigned—based on board policy—using just three designations:
   • P = Prime Responsibility
   • A = Assistant Responsibility
   • AP = Approval Required

One board chair best practice is to ensure that roles and responsibilities are crystal clear between the board and the CEO, and between the board and its committees. This chart will help you eliminate all fuzzy roles!

Why is this so important? 

Proverbs 24:10 (The Message) reads, “If you fall to pieces in a crisis, there wasn’t much to you in the first place.” Don’t wait for the crisis (board/CEO conflict over fuzzy policy) to clarify board roles. As board chair, make clarity one of your top priorities—and eliminate conflict and friction before it happens.

POP QUIZ: At your next meeting, give the board a pop quiz with three questions on roles and responsibilities—and see if you have appropriate clarity.

Thursday, November 12, 2015

Board Chair Best Practices #2: Become a Student of Your CEO

Last week I began a blog series on board chair best practices. Click here to read Best Practice #1: Ensure that there is 100 percent board participation in the CEO’s annual performance review. 

Here’s Board Chair Best Practice #2: 

#2. Become of a student of your CEO and inspire your CEO to become a student of you.

Almost fifty percent of the time in my workshops and consulting, I have hallway conversations with really smart people who say something like, “I just don’t get my CEO (or board chair). We’re rarely on the same page. I’ve chaired other boards—and my relationship with the CEO was almost perfect! Help!”

So I go down the well-worn path: “How many hours have you invested in studying and understanding your CEO this year?”

“Is your CEO a reader or a listener? What are your CEO’s Top-5 strengths on the Gallup StrengthsFinder assessment? What is your CEO’s social style (driver, analytical, amiable or expressive)?  (Watch the 3-minute video on social styles.) Do you know your CEO’s spiritual gifts (leadership, mercy, teaching, etc.)—and, if so, are you leveraging them—or expecting them to exercise strengths and spiritual gifts that God hasn’t given them?”

I explain that every CEO must be a student of their board chair—and every board chair must be a student of their boss. That’s why I urge them to study two resources:

• Read the Harvard Business Review classic article, “Managing Your Boss,” by John J. Gabarro and John P. Kotter. While written for employees, the principles are easily transferable between CEOs and board chairs. You both must own and navigate the relationship—not in a manipulative way—but in a mutual respect way.

• Writing a “memo about me” is a terrific exercise for both the board chair and the CEO, suggested by leadership guru Marshall Goldsmith in his convicting book, What Got You Here Won’t Get You There: Discover the 20 Workplace Habits You Need to Break. Chapter 12, “Special Challenges for People in Charge,” encourages leaders to write a memo, “How to Handle Me.” If written with humility and transparency, it’s a brilliant, brilliant tool that would smooth out much boardroom conflict.

What would happen if you applied the “managing your boss” wisdom from Gabarro and Kotter to board chair/CEO relationships?

“At a minimum, you need to appreciate your [CEO’s] goals and pressures, his or her strengths and weaknesses. What are your [CEO’s] organizational and personal objectives, and what are his or her pressures, especially from [the board and others]? What are your [CEO’s] long suits and blind spots? What is the preferred style of working? Does your [CEO] like to get information through memos, formal meetings, or phone calls? Does he or she thrive on conflict or try to minimize it? Without this information, a [board chair] is flying blind when dealing with the [CEO], and unnecessary conflicts, misunderstandings, and problems are inevitable.”

In addition to a 12-point checklist the article addresses that critical question: “Is my [board chair/CEO] a reader or a listener?”

“Peter Drucker divides [CEOs] into ‘listeners’ and ‘readers.' Some…like to get information in report form so they can read and study it. Others work better with information and reports presented in person so they can ask questions. As Drucker points out, the implications are obvious. If your [CEO] is a listener, you brief him or her in person, then follow it up with a memo. If your [CEO] is a reader, you cover important items or proposals in a memo or report, then discuss them.”

Obviously…all of the above is just as critical for CEOs as they become students of the revolving person in the board chair. (More on that down the road!)

QUESTION TO BOARD CHAIRS: How many hours have you invested this year in becoming a student of your CEO’s learning style, strengths and spiritual gifts? And how will you help your CEO to understand your style and strengths?

Friday, November 6, 2015

Board Chair Best Practices #1: CEO Annual Reviews

I’ve heard this refrain numerous times—and it’s true: “As the board goes, so goes the organization. And the board will be no more effective than its chair.”

Here’s my Board Chair Best Practice #1 (stay tuned for more):

#1. Ensure that there is 100 percent board participation in the CEO’s annual performance review. Since the board chair is not the CEO’s boss, never-ever-ever should the board chair conduct the CEO’s annual review as a Lone Ranger.  

The best boards agree with the CEO—in advance—on the format and setting for the CEO’s annual review and the protocol for how the CEO responds with next steps, following the review. 

My opinion: 50 percent of the annual review should be based on agreed-upon annual measurable goals, set at the beginning of the year. (Peter Drucker said, “If you have more than five goals, you have none.”) 

The other 50 percent: focus on biblical qualities, including character, leadership, vision, passion, and other critical characteristics per your ministry’s culture, DNA, and mission.

Some organizations conduct a 360 review (the board, the CEO’s direct reports, and the CEO’s own self-assessment). Others develop metrics to discern if the core values of the ministry are being lived out, and if so, to what degree.

As a reminder, though, heed this wisdom from Ten Basic Responsibilities of Nonprofit Boards (Second Edition), by Richard T. Ingram, regarding CEO performance reviews: 

“In the end, although we may not be able to precisely define what outstanding leadership is, we know it when we see it! Let’s admit that this very subjective process is more art than science, more human than anything else. We can and should use various objective measures or strategic indicators of the organization’s progress on its financial condition, for example, as part of the assessment process—but whether a leader stays or goes so often hangs on much more subtle factors.”

And, as I’ve often quoted in this blog, here again is Ram Charan’s insight from Owning Up: The 14 Questions Every Board Member Needs to Ask, by Ram Charan

“There is nothing more important for a CEO than having the right strategy
and right choice of goals, and for the board, the right strategy
is second only to having the right CEO.”

He also notes, “With the right composition, a board can create value; with the wrong or inappropriate composition, it can easily destroy value.” So while you’re conducting the annual performance review of your CEO, be sure you schedule the board’s annual self-assessment process.

As the board goes, so goes the organization. Great boards are intentional about spiritually discerning God’s direction and how they will steward all the resources of the ministry—including their CEO’s leadership and tenure. Many times, however, it’s the board chair that must lead and put the CEO’s annual review on the front burner (sorry—bad metaphor!).

QUESTION: Is your board creating value or destroying value when it conducts your CEO’s annual performance review? (If you’re not conducting an annual review—you’re not adding value, and you’re missing an opportunity to grow your leadership.)

Thursday, October 29, 2015

Governance Stew

Not every blog needs several hundred words. Sometimes one-liners are adequate and satisfying. Or a paragraph. So for today, I’ve tossed several governance ingredients into the kettle. After simmering, add your own spice as needed. 

Engagement Thermometer:
You can’t stick a cooking thermometer into a board member’s arm—so how do you measure board meeting engagement? Recently, a highly engaged church elder told me, “It’s fun when long meetings don’t even feel long!”

Aristotle (384 -322 BC):
“The soul never thinks without a picture.”

Board Member (21st Century):
Regarding the style, length and frequency of CEO written reports to the board, a board chair told me recently, “I’m more of a People magazine guy versus a Forbes magazine guy.” (So how would you characterize your board members’ reading preferences? One size doesn’t fit all.)

Poor Management Is Not a Crime. Discuss!
“The Justice Department won’t charge former Internal Revenue Service official Lois Lerner over tea-party groups’ applications for tax-exempt status, concluding that IRS officials bungled the matter but committed no crimes.

“Our investigation uncovered substantial evidence of mismanagement, poor judgment and institutional inertia, leading to the belief by many tax-exempt applicants that the IRS targeted them based on their political viewpoints,” Assistant Attorney General Peter Kadzik wrote to Congress on Friday. “But poor management is not a crime.” (The Wall Street Journal, Oct. 23, 2015)

Board Homework:

Peter Drucker:
“All the first rate decision makers I’ve observed had a very simple rule: If you have quick consensus on an important matter,
don’t make the decision.
Acclamation means nobody has done the homework.” 
(Peter Drucker’s Five Most Important Questions: Enduring Wisdom for Today’s Leaders, by Peter F. Drucker, France Hesselbein, and Joan Snyder Kuhl)

At your next board meeting, ask each board member to toss a memorable governance principle or axiom or complex issue into the governance stew—and then serve it up in small discussion groups (with food, of course).

QUESTION: What’s the best governance axiom you’ve heard—and why?

Wednesday, October 21, 2015

ECFA Financial Management Survey Highlights

Results from the first-ever survey of financial management practices of ECFA-accredited organizations was recently published by ECFA. The executive summary of the ECFA Nonprofit Financial Management Survey 1.0 can be downloaded here on the ECFA website.

Share the “Top 10 Highlights” with your board:

#1. CFO Hats. Chief financial officers wear numerous hats—including financial management. Only 10% of CFOs in the survey devote 100% of their time to the financial management role. Of the other 90%, just under 70% of those CFOs also have administration and/or operations roles. Plus, 21% of this group wear fundraising/development hats—in addition to their CFO hats.

#2. Written Policies. Almost 79% of CFOs said their financial policies are in writing, but only 59% said their most important financial policies are incorporated in a “Board Policies Manual” or other board-approved document.

#3. Financial Policy Trends. CFOs shared 90 comments in response to the question “What is one financial policy trend that you are observing that may have a significant impact on your organization in the future?” 

Trends included upcoming FASB changes, investment and operating reserve policies, authorization levels and thresholds for expenditures, sustainability policies, internal controls for internet protocol (keeping financial information confidential), credit card policies, volunteer policies (and replacing staff with volunteers), requiring performance management of all initiatives including new staff, program policies that impact fees and costs, “the trend to minimize the importance of financial policies,” and pushback by younger staff that there are too many policies.

#4.  ACA. Who is taking the hit on the Affordable Care Act? Responding to their budgeting assumptions about the ACA, almost 73% of ministries have not restructured some of their fulltime positions as part-time positions. Yet, 35% agreed or strongly agreed that employee contributions for health insurance will increase, while another 31% were undecided at this point.

#5. Budgeting for Reserves. When asked “Does your ministry annually budget for cash reserves?” 38% of organizations responded “Never” or “Rarely.” The remaining 62% responded as follows: 22.5% said “Always,” 16.5% said “Frequently,” and 22.8% checked “Sometimes.”

#6. Internal Controls Policies. Fraud prevention procedures and checklists, etc., are formally reviewed at least annually by the financial management team in over 60% of ministries. More than 79% of the survey respondents have a written whistleblower policy.

#7. CFO Measurable Goals. Fifty percent of CFOs said they had measurable goals that their CEOs have affirmed for this current fiscal year—but only 45% of that group report progress to their CEOs! Plus, just 40% of the direct reports to CFOs have annual measurable goals.

#8. Measuring Mission Impact. The survey revealed that almost 85% of CFOs agree or strongly agree that “Our donors are highly interested in knowing about our mission impact.” Yet, just 72% of CFOs agreed or strongly agreed that their boards are very focused on measuring mission impact.

#9. Effectiveness Ratings. While CFOs rated their effectiveness fairly high in five major categories, the two highest scores were in the financial reporting and internal control areas—a rating of 4.24 and 4.23, respectively, on a scale of 1.00 to 5.00 (5.00 being the highest). Financial performance was rated the lowest at 3.97, but still quite effective.

#10. Financial Dashboards. CFOs are utilizing a wide range of financial dashboards when reporting to the board of directors. More than 400 dashboard examples were submitted, including many duplicates, of course.

At your next board meeting, review these top 10 highlights and ask board members to complete the “Financial Management Organizational Assessment” included in the executive summary.

QUESTION: Of the top 10 highlights above, identify the one area that needs the greatest improvement so your board can more effectively steward your ministry’s finances.

Wednesday, September 30, 2015

Happy Birthday! (When Is It?)

Pop quiz for board chairs and all board members:
  1. When is your CEO’s birthday?
  2. When is your CEO’s employment anniversary at your ministry? How many years?
  3. Is your CEO a reader or a listener?
  4. What are your CEO’s Top 5 strengths from the Gallup Organization’s StrengthsFinder assessment?
  5. What are your CEO’s most dominant spiritual gifts?
  6. On the social styles chart, is your CEO a Driver, Analytical, Amiable, or Expressive?
  7. What is your CEO’s love language?
  8. What is one thing on your CEO’s bucket list?
  9. What is your CEO’s favorite Bible verse?
  10. What are three of your CEO’s measurable goals for this fiscal year?
  11. Describe how God led your CEO to accept the leadership post at your organization.
  12. In honoring your CEO for achieving a key annual goal, would he or she prefer a plaque on the wall, or a cash bonus?

How well do you know your CEO?  (Stay tuned for “Lessons Learned” in the next blog post.)

QUESTION: How well do you know your CEO—and why might that be important?

Monday, September 21, 2015

Monitoring (Not Micro-managing) Programs and Services

Here’s a common question from board members: “How do we appropriately monitor programs, products and services without becoming micro-managers?”

According to BoardSource’s Ten Basic Responsibilities of Nonprofit Boards, the fifth responsibility is to monitor and strengthen programs and services. “The board’s fundamental responsibilities begin with ensuring that current and proposed programs and services align with the organization’s stated mission and purposes.”

Richard T. Ingram adds, “What the organization actually does, and how well it does it, should be at the heart of board curiosity.”

So how do you discern “how well it does it” without getting into the weeds?  I tilt toward customer/client survey information to keep the board at a high level.  In assessing organizational activities, Ingram lists four bullet points including this:
   • “Studying both the cost-benefit ratio of major undertakings and user satisfaction data (hearing from users of certain programs and services) to facilitate an exchange of information and learning.”

I’ve observed ministry boards use a variety of user satisfaction data including:
• Conducting focus groups with their “primary customers” (per Peter Drucker’s definition)
• Assessing their Net Promoter Score (one ministry I work with has improved their score from 52, to 56, to 58 in the last three years)
• Using inexpensive online survey tools, like SurveyMonkey

Excellent boards inspire their CEOs and senior team members to set annual customer satisfaction goals—and then report on them (quarterly is helpful, annually is essential). Multi-year benchmarking trends will help the board discern program directions and the allocation of resources to where the results are most promising.

Excellent boards balance cost-benefit ratios with Henry Blackaby’s classic aspiration, “Find out what God is doing and then join Him.”

When CEOs and board chairs observe that their board members are micro-managing, they stop and ask if it’s because the board has failed to affirm three to five annual “S.M.A.R.T.” goals for the CEO (Specific, Measurable, Achievable, Realistic, and Time-related). Or, if the goals are in writing (and in the minutes), perhaps the CEO is not reporting goal progress in monthly or quarterly reports.

For the Christ-centered board, a focus on S.M.A.R.T. goals and dashboard reports (including one for customer satisfaction) also becomes a focus on prayer. An occasional email from a board member to the CEO (“How can I pray more effectively about your five annual goals this month?”) will bless the socks off any CEO!

QUESTION: Facilitate an around-the-board-table quick response exercise to this question, “Are we appropriately affirming, monitoring, and assessing our ministry’s programs, products, and services? If not, what should we change in the next 30 days?"