Dr. Eric Lankin
Who is the Boss of your Nonprofit?
A successful nonprofit is run as a dynamic relationship and balance between the professional staff and the volunteer leaders, defined as the Board of Directors. Everyone has their roles but like a marriage, one must be prepared to give and take in the day-to-day functioning of the organization.
Ultimately, the nonprofit is owned by the volunteer leaders, called the Board of Directors. The Board is responsible for two critical components of the functioning of the organization: First, as a fiduciary, meaning it has the ultimate authority and responsibility for the finances of the group. Of course, the Board can hire help to manage the finances including a chief financial officer, auditors, fundraisers, accountants and bookkeepers. Still, even with the help it chooses to hire, it’s the Board’s responsibility to insure that the organization’s budget is being followed and that the resources of the organization are being developed and managed properly. Often, the Board may task the CEO or Executive Director to hire and manage a staff, but it does not absolve the Board with the ultimate fiduciary responsibility and continue to be legally responsible to observe the laws governing the finances and functioning of the nonprofit organization.
I experienced an example of the above issue when consulting with a nonprofit with its professional President preparing for retirement and the organization not yet having a succession plan. I asked the Board chair, “Who is the boss of the organization?” He responded, “The President and the Executive Director.” I then asked, if the President chooses to retire, who was personally raising 30-40% of the annual budget, what would you as the Board chair do?” He realized he would be faced with a new challenge, because he realized that he needed a plan. Without a plan, he would probably have to put in large sums of his own money to keep the nonprofit open during a pressured transition. Ultimately, even if there is professional leadership, in this case, the board is still in charge.
Not only does the Board have fiduciary responsibility but also owns the process of deciding the mission of the organization. When the nonprofit opened its door of the first day of its legal existence, it surely had already determined why it was in business and the markets it chose to serve. As the group grows and understands that it has the need and opportunity to expand its mission, the ultimate authority to approve the new or expanded direction, rests with the Board of Directors.
Perhaps, it's the CEO or sometimes called the Executive Director that is considered the Boss of the nonprofit. In many ways, the responsibility of the executive leads that man or woman to be the most knowledgeable of the everyday program, finances, staff, and facilities owned or leased to the nonprofit. The CEO is correctly tasked to hire and fire all staff, although some organizations have a Board committee called a “Personnel Committee” that advises the executive about staff compensation issues. That committee often recommends to the Board about the compensation for the CEO position, as it is the Board’s decision to determine the compensation level of the CEO. But since the decision to hire or fire the CEO rests with the Board, the CEO has to know that the Board is the boss.
Perhaps the real power in a nonprofit rests with the funders. If the funding sources of a nonprofit are well diversified, then no one funder can dictate the direction of the nonprofit. However, the issue becomes cloudy when there is one major funder, whose oversize donations indicate his or her close connection and often deep involvement. Few CEO’s or Board Chairs have the courage to sacrifice the over-sized gift of the major funder that, if withdrawn in a disagreement, would imperil the financial integrity of the nonprofit.
Coercive power lies with the government and their regulations and laws affecting the nonprofit. Governments establish regulations for nonprofits because donations to nonprofits are often tax-deductible, and because of that, they have established that they have the authority to insure that the goals and activities of the nonprofit fit with the society’s civic goals. When a State Attorney-General sued a charity for lending money at fair market value to senior staff for personal needs, it was the Attorney-General’s determination that these loans violated a provision that loans could not be made to “officers” of a nonprofit. It did not matter whether its Board had approved the loans and it was all done above board. It was even mentioned in their financial statements. The coercive power of the government through the enforcement of regulations in New York demanded that these employees repay these loans immediately. Using this matter as an example, a powerful and successful CEO, even with the Board’s consent, cannot overrule a decision of the government’s enforcing its laws and regulations.
Finally, the marketplace can have a claim of power over a nonprofit. If the reputation of the nonprofit is damaged due to poor service or consistent delivery of an inferior product, the market, as customers, may leave, imperiling the health of the nonprofit. Moreover, malfeasance of its leadership, financial improprieties made public, or illegal activities often dissuades the community from participating in the activities of a nonprofit or delivering support. I openly wonder religious organizations whose leaders are accused of improprieties salvage their membership, donors, and markets. These organizations still might have a contribution to make to the community. With a damaged reputation, that work becomes uniquely challenged.
In summary, no one player within this ecosystem can successfully assert that they are the exclusive boss. The successful functioning of a nonprofit depends on the goodwill and the cooperation of many moving parts with many sources of power and responsibility.