QUESTION 14: How Prepared Are We to Work With Activists?

The $500,000 Restricted Gift, the Hospital, and the Jury

Ram Charan’s final chapter in Owning Up addresses the challenging issues faced by for-profit public companies. You’ll be tempted to skip this chapter (since nonprofit ministries do not have shareholders). 

But—your ministry does have stakeholders—so don’t miss the wisdom on how to communicate with any “activist” or social media eruption.

Charan writes, “Bloggers search through the footnotes of SEC filings. Seventy-eight-year-old women with no corporate leadership experience file shareholder proxies and end up interviewed on business channels.” 

Warning, he says: “Your performance as a board will increasingly be scrutinized, as much as the [organization’s] performance.”

QUESTION 14 of 14: How Prepared Are We to Work With Activist Shareholders and Their Proxies? Owning Up: The 14 Questions Every Board Member Needs to Ask, by Ram Charan (Order from Amazon)

Finally! We’re in the last chapter of this important book. (Watch for the index and summary in my next blog.) In this blog, I’m taking liberties with the for-profit topic—to address just one of many related topics for nonprofits. Let’s call them activist or dissatisfied donors.

In his powerful book, Trust: The Firm Foundation for Kingdom Fruitfulness, Dan Busby says that “We ignore perceptions at our peril.” His short chapter on “Perceptions” includes “Ten Major Issues Can Lead to Misperceptions.” (The list: compensation, fringe benefits, intellectual properties, family members paid by the ministry, related-party transactions, and five more.)

Is your board proactively discussing these 10 major issues—or will you be unprepared when a ministry issue (fake news or not) hits the fan and/or the internet? 

Busby quotes Harvey McKinnon:

“Donor loyalty is not about the donor being loyal to you; 

it is you being loyal to the donor.”

Being proactive means your board will have policies and practices that will give confidence to givers that restricted gifts will, in fact, be restricted for the specified use. In the absence of trust, “activist” stakeholders and donors can and will sound the alarm—often inappropriately.

Ram Charan’s chapter includes several examples of activists and he lists the affected companies, by name. Some handled the issues with wisdom—and a few didn’t. He gives “four pieces of advice” for boards when “activist investors come calling.” While no Scripture is cited, you’ll find Jesus’ principles in his recommendations.

Likewise, Busby includes an “activist” true story in Trust—and he adds the Scripture (2 Cor. 8:14-25) in the chapter, “Honoring Giver Intent.” He also shares the true story of a hospital in Oklahoma that received a $500,000 gift from Troyal G. Brooks in 2005. The giver’s intent was to honor his mother by naming a new facility after her. In 2008, the hospital reneged on the agreement and planned to use the funds for another project—so Brooks sued the hospital.

Busby writes, “…the agreement with the hospital was oral; therefore, the jury had to determine who was telling the truth. In 2012, a jury awarded Troyal the $500,000 gift back plus the maximum in punitive damages—$500,000.” He adds, “Troyal is better known as Troyal G. (Garth) Brooks. Ironically, the hospital is located on Garth Brooks Way.” Yikes!

Ram Charan writes, “Every shareholder matters.” Dan Busby would add, “Every giver matters—and trust is the firm foundation for Kingdom fruitfulness.” 

BOARDROOM DISCUSSION: Dan Busby quotes Max De Pree: “When things go awry, trust powers the generators until the problem is fixed.” Here’s an agenda item for your next meeting: “How Prepared Are We to Work With Activist or Dissatisfied Donors?”

CHECK OUT THESE HELPFUL ECFA RESOURCES

• READ: Lesson 22, “Whopper Mistakes Can Unravel Your Ministry,” in More Lessons From the Nonprofit Boardroom. (Click here to read the four-page chapter.) See especially “Whopper Mistake #3: Failure to provide accountability for restricted gifts.” Click here to read Kecia Klob’s color commentary, including this from Max De Pree: “The first responsibility of a leader is to define reality.”

• READ: Lesson 31, “Where Two or Three Are Gathered on Social Media…” in More Lessons From the Nonprofit Boardroom. While this lesson is focused on conflicts of interest, it’s a timely reminder that you’re just one click away from a social media firestorm. (Click here to read the four-page chapter.) 

QUESTION 13: How Do We Stop From Micromanaging?

The WORST Thing to Happen to a Board!

We all agree—board members should not micromanage the ministry. But think more deeply about this. Ram Charan writes:

“The worst thing to happen to a board is when the CEO and the management team lose respect for the board.”

Don’t skip this chapter—because at the root of lost respect is often a micromanaging board! 

QUESTION 13 of 14: How Do We Stop From Micromanaging? Owning Up: The 14 Questions Every Board Member Needs to Ask, by Ram Charan (Order from Amazon)

“A common complaint among chief executives,” writes Charan, is that board members “get into the weeds, digging into operational details that have little strategic value.” The problem: one board member inappropriately weighs in on a tasty topic—others join in on the fun—“and for the rest of the meeting the discussion never lifts to a higher altitude.”

There are numerous solutions for mitigating micromanagers, but it takes a savvy board chair, a grace-giving CEO, and other board members with self-awareness and high EQ (read my review of Emotional Intelligence 2.0).

Charan delivers more than a dozen insights on addressing the micromanaging board member. I appreciated these four take-aways:

1. Pause the PowerPoint. Sometimes, management may contribute to the problem by “providing too many slides and unnecessary details.”

2. Ask Quality Questions. “Asking questions of an operating nature is not in itself micromanaging, as long as the questions lead to insights about issues like strategy, performance, major investment decisions, key personnel, the choice of goals, or risk assessment.” (I often recommend the book, The Coaching Habit, which lists seven types of questions, including “The AWE Question: And What Else?)

3. Hint With Humor. Ram Charan notes that not all board members are self-aware, so the board chair (or Lead Director on many for-profit boards) must step up to the plate. Example: When a board member “started badgering a company’s IT director about its systems, the board’s Lead Director stepped in and joked, ‘Hey (Joe), are you looking for a job in IT?’ The tone was collegial and humorous, but the director got the point.” (Click here to read how Rich Stearns addressed micromanaging board members at World Vision U.S.)

4. Monitor 12-Month Metrics. “It also helps when the board has agreed upon the twelve-month priorities, and is clear about the strategy and the milestones.” A dashboard “also helps board members stay on point.”

Boards expect CEOs to be excellent at delegation—but boards must also model a delegation culture. Healthy boards delegate to their CEOs. Unhealthy boards micromanage. “Delegation” is one of 30 short prayers in the little book by Richard Kriegbaum, Leadership Prayers. While every CEO should pray this prayer—this stunning and sobering prayer can also by prayed by board members:

“Help me to be clear about the distant goals and about who needs to do what to reach those goals. When I do this well, the spirit of the one to whom I delegate will respond with zeal. My own spirit will rejoice, and I will follow that person with confidence.

“By your grace, my leadership will either enhance or restrain the work of your Spirit in those who lead me, making them more effective or less effective. Those I chose to follow will have a profound impact on the results in the organization, and they will have a profound impact on me.”

Ram Charan writes: “The worst thing to happen to a board is when the CEO and the management team lose respect for the board.” Maybe the best thing to happen to a board is when the board selects the right CEO—and then trusts their CEO.

BOARDROOM DISCUSSION: Think back to the last time a board member was meandering into micromanagement mode. Did your board chair step up to the plate and address it appropriately? Are you ready for the next time it happens? 

CHECK OUT THESE HELPFUL ECFA RESOURCES

• READ: Lesson 20, “Apply for a Staff Position and You Can Deal With That Issue! Help board members not to cross the line into operational details,” in Lessons From the Nonprofit Boardroom. (Click here to read the four-page chapter.) In his color commentary on this lesson, Richard Stearns writes, “Your board likely comprises professionals at the top of their fields, so it’s natural that they’re curious and opinionated about details in their realm of expertise. But just because they can wade into operational minutiae doesn’t mean they should. That’s not what a board of directors is designed to do.” (Click here to read the blog.)

• TOOL: Need a dashboard template for tracking CEO annual goals? Check out “Tool #11: Monthly Dashboard Report” in ECFA Tools and Templates for Effective Board Governance: Time-Saving Solutions for Your Board. (Read more here.)

QUESTION 12: How Can Our Board Self-Evaluation Improve Our Functioning and Our Output?

“The Acid Test of Effective Corporate Governance”

A board member, clearly proud that he had invested 250 hours on board work the previous year, told Ram Charan, “We put in a lot of hard work.”

But Charan, wisely, pushed past the rhetoric and non-measurable metrics—and instead—threw him this zinger: “Let me ask you something. What would you say are the one or two things your board did that really made a difference for the [organization]?”

You guessed it. The board member “…took a long pause and looked up at the ceiling. He seemed lost in thought, like he was struggling to come up with a concrete answer. As I waited for him to respond, I realized that he probably had never thought about his board work in that way.”

QUESTION 12 of 14: How Can Our Board Self-Evaluation Improve Our Functioning and Our Output? Owning Up: The 14 Questions Every Board Member Needs to Ask, by Ram Charan (Order from Amazon)

Board members “should not confuse hard work, as commendable as it is, with meaningful results,” writes Ram Charan. That insight is just on the first of 14 wisdom-packed pages in Chapter 12 on the critical need for boards to conduct self-evaluations.

Charan adds, “The board’s output—the quality of the decisions it makes and actions it takes—is the acid test of effective corporate governance.”

Don’t confuse inputs (meeting frequency, meeting length, etc.) with outputs. Boards should “explicitly state that the central purpose of their board self-evaluation process is to continuously improve their ability to govern effectively.”

Peter Drucker agrees: 

“Self-assessment can and should convert good intentions and knowledge into effective action—not next year but tomorrow morning.”

The Drucker quote is from the robust 30-page resource, “Tool #5: The Board’s Annual Self-Assessment Survey,” in ECFA Tools and Templates for Effective Board Governance: Time-Saving Solutions for Your Board. According to ECFA’s research (see page 32), 31% of board members said YES to this question: “In the last two years, have you had an outside person help your board look in the mirror to do self-assessment for how it could improve?”

Tool #5 gives you multiple options in three major sections:
• Section 1: Do-It-Yourself
• Section 2: Facilitated by a Consultant or Board Coach
• Section 3: Template: “Best Governance Practices” Survey

If you opt for the Do-It-Yourself approach, Tool #5 gives you seven options, including this free assessment from ECFA:

CLICK HERE to complete the NonprofitBoardScore™, a tool developed by ECFA. The online survey will give you instant feedback and allow you to re-take the evaluation over and over (perhaps every six months or at least annually). Email the link to everyone on your board—and encourage each board member to save and print the results for discussion (and action!) at your next board meeting. 

READY FOR CANDOR? If you have a healthy board—competent in Governance 101 practices—and you’re ready for a challenge, ask your Governance Committee (or Executive Committee) to consider peer evaluations at least once a year. Very common in for-profit governance, peer evaluations are very uncommon within nonprofit ministry boards. Read Ram Charan’s suggestions in Chapter 12 first—and then discern if your board is ready to go deeper.

According to the Harvard Business Review article, “What Makes Great Boards Great,” by Jeffrey A. Sonnenfeld, it is the soft side of board governance that distinguishes high quality boards from the rest of the governance rat race. He labels it a “virtuous cycle of respect, trust and candor”—but, he warns, even that can be broken at any point. For your first peer review, perhaps ask a board coach to help you set the guardrails.

To paraphrase Proverbs 9:7, “Teach a wise board member, and he or she will be the wiser; teach a good board member, and he or she will learn more.” 

BOARDROOM DISCUSSION: What do we want to learn from our next board self-evaluation? Ram Charan writes that board members “should not confuse hard work, as commendable as it is, with meaningful results.” What are the one or two things our board has done in the last six months that has really made a difference for the ministry?

CHECK OUT THESE HELPFUL ECFA RESOURCES

• READ: Lesson 1, “Wanted: Lifelong Learners. Would you trust a surgeon who stopped learning?” in Lessons From the Nonprofit Boardroom. (Click here to read the four-page chapter.) In his color commentary on this lesson, Ralph E. Enlow, Jr., writes, “I find that the fatal combination of passivity and agenda clutter conspires to crowd out efforts to walk the talk of continuous board development.” (Read the blog.)

• TOOL: With 30 pages and more than a dozen self-assessment options, check out “Tool #5: The Board’s Annual Self-Assessment Survey,” in ECFA Tools and Templates for Effective Board Governance: Time-Saving Solutions for Your Board. (Read more here.)

QUESTION 11: How Can Executive Sessions Help the Board Own Up?

Spoken Words and Unspoken Thoughts

Are you familiar with “Kim’s Rule of Committees?” It’s in the witty book by Arthur Bloch, Murphy’s Law Book Three: Wrong Reasons Why Things Go More!

“If an hour has been spent amending a sentence, 

someone will move to delete the paragraph.”

I’ve often shared my “Murphy’s Law” with CEOs (waiting anxiously outside the boardroom during an executive session): 

“There is no relationship between the actual length of an executive session and the substance of the governance work actually accomplished in that session.” 

QUESTION 11 of 14: How Can Executive Sessions Help the Board Own Up? Owning Up: The 14 Questions Every Board Member Needs to Ask, by Ram Charan (Order from Amazon)

While Ram Charan calls the executive session “the single most important innovation in corporate governance to date,” this closed door meeting of the board—without the CEO or staff in the room—is a delicate dance.

And caution! If your board chair is inexperienced or inept at leading an executive session, prepare for the worst. Your organization would never thrust a staff member into a critical role without coaching or mentoring (or at the least—reading something!)—yet boards venture into executive sessions often inappropriately prepared.

So…here are two resources. First, read Chapter 11 in Owning Up and be forewarned: “…if executive sessions are not run well, they can undermine trust and clog the flow of information and ideas, which makes it harder for the board to do its job.” Charan weighs in on the best time for executive sessions (he prefers before a board meeting), why the CEO should be in the room at the beginning of the session, and how to “loop in” the CEO after the executive session. 

My guess—this might be the first time you’ve read 11 pages on effective executive sessions—the good, the bad, and the ugly.

Second, read Lesson 17, “Botched Executive Sessions Are Not Pretty,” in More Lessons From the Nonprofit Boardroom, by Dan Busby and yours truly. (Click here to read the six-page chapter.) We recommend seven principles:

• PRINCIPLE 1: An executive session without the CEO should never include issues that are of a non-sensitive nature. 

• PRINCIPLE 2: A board should always meet in executive session in at least two situations: (1) when considering the CEO’s periodic review, and (2) when reviewing the CEO’s compensation. 

• PRINCIPLE 3: Board meetings should rarely be conducted unless the CEO is included in the meeting. 

• PRINCIPLE 4: The CEO should generally be present at the beginning of an executive session. 

• PRINCIPLE 5: Following an executive session, the gist of the discussion should be communicated to the CEO in a constructive manner. 

• PRINCIPLE 6: During the executive session, not every comment made by every board member will necessarily be appropriate or substantive. 

• PRINCIPLE 7: If feedback to the CEO is not provided right after the session, it should be conveyed within a day or two so that the discussion is fresh in the minds of board members sharing the report. 

When the board chair (and perhaps another board member joining him or her) communicates the important content of the executive session to the CEO, they should remember John Carver’s wisdom, “The board speaks with one voice, or not at all.” Under no circumstances should comments or feedback from an executive session be attributed to individual board members. Anonymity is of utmost importance.

In addition to these two resources, we pray that it comes naturally to your mind and heart to add a third resource—God’s Word. Perhaps you’ll begin your next executive session with Psalm 19:14 (TLB): “May my spoken words and unspoken thoughts be pleasing even to you, O Lord my Rock and my Redeemer.” 

BOARDROOM DISCUSSION: “Just as the board needs an agenda, an executive session needs an agenda.” What should be on the agenda for our next executive session? When should we meet—before or after the regular board meeting?

• READ: Lesson 17, “Botched Executive Sessions Are Not Pretty,” in More Lessons From the Nonprofit Boardroom, by Dan Busby and John Pearson. (Click here to read the six-page chapter.) Click here to read Philip Boom’s color commentary on this lesson.