Use self-assessment tools to promote individual, group accountability
An old adage says, “If everyone is accountable, no one is.” This truism about individual accountability proves its truth again and again in informal settings, as well as in professional environments. Yet, boards of directors are an important exception—especially nonprofit boards.
In doing their work, all trustees are equally responsible for what gets done or does not get done. Even those who assume special roles on these boards, such as chair or treasurer, do so to enhance the group’s ability to function in a more responsible and efficient way. They have no individual powers outside the context of the board’s corporate responsibility.
Perhaps it is the very reality of being responsible as a group that makes board work so messy. And, sometimes, everyone being responsible can lead to situations that are not just messy, but also illegal.
Ensure High Quality Decision Making
A recently settled litigation in New York illustrates this point. In September of 2008, Brooklyn Care Works, a nonprofit mental health organization, declared bankruptcy after more than 100 years of service. In February 2009, a group of vendors filed suit in bankruptcy court against the board both “in their individual and representative capacities.”
The suit sought more than $1 million in compensation. The vendors alleged that the Brooklyn Care Works board was guilty of gross negligence and breaches in its fiduciary duties.
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The court documents list various examples, such as acting for more than two years without a quorum, not annually evaluating the executive director, even though he was accused of dipping into Federal Insurance Contributions Act tax money and other pension funds to pay bills.
Nov. 24, 2009, the New York Nonprofit Press reported that the former board settled the litigation by agreeing to pay $425,000. This litigation certainly will serve as a warning to all nonprofit board members that accountability is not to be taken lightly.
In this column, we suggest resources that may be helpful to nonprofit trustees who want to ensure high quality decision making at the board level.
Decisions are the board’s essential product.
What the Law Requires
First, accountability of boards means that all trustees should know what the law expects. The general duties of nonprofit directors are spelled out in state laws under three rubrics: Duty of Care, Duty of Loyalty, and Duty of Obedience.
Duty of Care requires that directors act in good faith and use the degree of diligence, care, and skill that prudent people would use in similar circumstances. Duty of Care covers such responsibilities as attending and participating in board and committee meetings, reviewing materials, giving oversight to finances, and selecting and evaluating the CEO.
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Duty of Loyalty requires that directors put the interests of the nonprofit above personal interests. In order to comply with the Duty of Loyalty, all nonprofit boards should have a written conflict of interest policy. In turn, the board should ask all directors to sign a document that states clearly that they understand the policy and have no conflicts.
Having the conflict of interest form signed annually helps the board regularly remind itself of the basic expectations of the law. Any nonprofit board can ask its general counsel to provide such a form or, as Alliance members, organizations can request samples from the Alliance’s Severson Center.
Finally, Duty of Obedience prohibits directors from performing acts that are contrary to public laws or to the organization’s own governing documents. Such documents include the certificate of incorporation and the bylaws.
Study Shows Need for Diligence
We hope that the Brooklyn Care Works litigation was a highly exceptional case. Perhaps it is, at least in reaching such extreme legal exposure. However, there is strong evidence that indicates a real need for greater diligence to the Duties of Care, Loyalty, and Obedience by many nonprofit boards.
For example, during the final quarter of 2009, the University of Notre Dame’s Mendoza College of Business conducted three Executive Education Seminars for more than 100 nonprofit CEOs and other senior managers. They represented 90 organizations in 20 states. In preparation for the seminars, participants were surveyed about the quality of their boards. (Take a similar survey.)
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Without specifying any particular measurements, respondents were asked to rate the quality of their boards on a scale of 1 to 10, with 10 representing the highest quality. On average, they rated their boards at 6.5—basically a grade of D or F.
Other questions helped clarify where respondents felt the greatest deficiencies existed. When asked if the board had a policy for term length for directors and officers, virtually everyone responded affirmatively. Yet, when asked if the board always followed these policies, 20 percent indicated that they did not.
Similarly, all replied that their board has a policy and procedures for the annual evaluation of the CEO. However, 10 percent acknowledged that such evaluations are not done regularly.
Other discrepancies included such fundamental expectations as attendance at meetings and financial contributions to the organization according to an agreed-upon formula.
Anecdotal feedback shows that these survey replies accurately describe the current reality of too many boards.
Self-Assessment Tool
One tool we highly recommend to improve the situation is the self-assessment tool, which allows trustees and directors to rate their individual and group performance. The self-assessment should be implemented on an annual basis. Such an instrument asks directors and trustees to rate their level of participation, their knowledge of policies and procedures, their overall satisfaction with the board’s functioning, and, perhaps most importantly, the quality of board decisions.
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Among the more than 100 respondents in the Notre Dame survey, only 50 percent of the boards represented used a self-assessment tool. Though it was not a finding of the data analysis, there is a high probability that the boards with the most deficiencies would be among those that do not annually self-assess.
The value of using such a tool has impact on two levels. First, each director has a structured opportunity each year to be accountable for his or her participation in and commitment to the organization.
Second, such instruments, when collated, give a pretty good picture of the entire board’s accomplishments or problem areas. They give a systemic way to encourage good behavior, compliance, and quality by all directors and by the board as a whole.
Letting best practices rely on goodwill and personal behavior is risky. An annual self-assessment process will strengthen the board’s effectiveness and offer directors a more rewarding experience. Such a practice will demonstrate that individuals who serve on nonprofit boards can equally share in the accountability and still be effective—despite the contrary truism.
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Thomas J. Harvey, MSW, is director of the Master of Nonprofit Administration Program at the University of Notre Dame’s Mendoza College of Business. During his 40-year career, he has led local and national organizations committed to confronting the challenges of poverty, discrimination, and access to health care and human services. He is former senior vice president of the Alliance, and he served as president and CEO of Catholic Charities USA. In 2002, he helped found the Alliance’s Executive Leadership Institute. He has been named as one of the 50 pioneers within the field of social work during the past 50 years by the Council on Social Work Education. John Tropman, Ph.D., is professor and associate dean for faculty affairs at the University of Michigan School of Social Work. He’s also an adjunct professor at the university’s Ross School of Business. His research focuses on the organizational elements that create high-performing human service organizations, which has resulted in numerous articles and more than 20 books. As a consultant, he works with both individuals and organizations. He’s also a member of the faculty for the Alliance’s Executive Leadership Institute.
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