national assembly eli: dynamic nonprofit board presentation document november 14, 2003 national...
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National Assembly ELI: Dynamic Nonprofit Board
Presentation document
November 14, 2003
NATIONAL ASSEMBLY OF HEALTH AND HUMAN SERVICE ORGANIZATIONS
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BACKGROUND ON BOARD GOVERNANCE MATERIALS
Organizations could use the materials to stimulate a conversation around current board performance and future priorities. To that end, we have also developed a board self-assessment survey to help boards assess their current performance against best practices. A copy of the report is available at www.mckinsey.com/practices/nonprofit/ourknowledge
These materials were intended to stimulate a discussion among National Assembly members on the topic of effective board governance. Topics covered included: • Board governance framework and perspectives• Key challenges to maximizing board contributions • Actionable ideas for improving the performance of your board
The following materials were prepared to facilitate a session on board governance for the National Assembly’s Executive Leadership Institute. Materials were based on findings from the McKinsey & Company report: The Dynamic Nonprofit Board: Lessons from High-performing Nonprofits. In addition, the results of surveys and interviews with members of the National Assembly as well as input from McKinsey teams serving nonprofit organizations on this topic were incorporated.
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CONTENTS
•Board governance research and framework
•Survey and interview results
•Common challenges and lessons learned
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BUILDING EFFECTIVE BOARDS OFTEN ARISES AS A KEY CLIENT CONCERN
“The motion has been made and seconded that we stick our heads in sand”
“Perhaps it would help if I go over it one more time”
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IN RESPONSE, WE LAUNCHED A RESEARCH PROJECT FOCUSED ON 3 MAJOR QUESTIONS
•How important is a high-performing board?•What are the characteristics of a high-
performing board?•What are the best practices in building a
high-performing board?
Key questions
• Interviews with board members and CEOs of Worth Magazine Top 100 Nonprofits
• Interviews with McKinsey nonprofit client teams
•Literature review and assessment
Methodology
•Report with lessons learned and example practices
•Set of promising practices to jumpstart board performance
•Board self-assessment tool
End products
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THE DYNAMIC NONPROFIT BOARD FRAMEWORK
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Monitor and improve performance
Monitor external and internal environment to highlight areas for board attention
Environment
Ensure leadership and resources
Ensure quality performance across 3 key board roles
Develop set of enabling practices around board composition, size structure, and processes
Enablers
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3 KEY ROLES ENCOMPASS NINE DETAILED RESPONSIBILITIES
• Shape the mission and vision
• Engage actively in strategic decision making and policy decisions
• Select, evaluate, and develop the CEO
• Ensure adequate financial resources
• Provide expertise and access for organizational needs
• Enhance reputation of organization
• Oversee financial management and ensure appropriate risk management
• Monitor performance and ensure accountability
• Improve board performance
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Monitor and improve performanceE
nsure leadership and resources
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ADDITIONAL LESSONS LEARNED FROM OUR RESEARCH
•While effective boards perform a comprehensive set of roles, they recognize the risk of being mediocre at everything; pick your spots carefully to allot valuable time where needed
•Recognize performance management as one of the board's core roles on par with strategy-setting and fundraising; take on the challenge of leading without stepping on staff toes
• Invest significant time in board self-evaluation and continuous improvement
•Sweat the little things: good meeting agendas, open communication, having fun
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CONTENTS
•Board governance research and framework
•Survey and interview results
•Common challenges and lessons learned
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OVERVIEW OF SURVEY RESPONSES
• E-mailed electronic survey to 70 member organizations
• 35 individuals responded
• 29% of respondents- board members, 63% CEOs, 8 % Other managers
• Average board size – 27 (minimum of 7, maximum of 71)
• 86% have an Executive Committee (Average size – 9)
Who responded . . .
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NATIONAL ASSEMBLY SURVEYS INDICATE MEMBERS FEEL THEY ARE NOT TAPPING BOARDS’ FULL POTENTIAL
Do you feel you are tapping board’s potential?
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83
Yes No
Why or why not?
“We haven’t demanded it.”
“We constantly need better definition and communication of expectations.”
“We have relied excessively on the outstanding performance of the CEO.”
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SUMMARY OF RESULTS HIGHLIGHT RELATIVE AREAS OF BOARD STRENGTH AND OPPORTUNITIES FOR DEVELOPMENT
Areas of strong performance
• Engage actively in strategic decision making and policy decisions
• Select, evaluate, and develop the CEO
• Enhance reputation of organization
• Provide expertise and access for organizational needs
• Oversee financial management and ensure appropriate risk management
Areas in need of development
• Shape the mission and vision
• Ensure adequate financial resources
• Monitor performance and ensure accountability
• Improve board performance
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MEMBERS REPORT THEIR BOARDS DRAW AN APPROPRIATE LINE BETWEEN STRATEGIC AND TACTICAL INVOLVEMENT
*Includes situation analysis, with peer review, threats, opportunities, sector overview
“The board is not likely to cross into management as it adheres quite clearly to its own policies for board/ staff interactions”
Tactical/operational
“If the board has a fault in this area, it is not being as fully engaged as it could be in strategic guidance”
“Our board is very operational and the staff pulls the board to operational issues because of our ‘way of work’ with committees”
“This is something we monitor closely. We are candid when we feel the line has been crossed”
Strategic
• Overall 92% of members feel that their boards’ provide an appropriate level of strategic guidance without infringing on the role of management
• Result potentially driven by the fact that 79% have board committees focused on strategic priorities and 58% have robust strategic plan*
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BOARDS ALSO EFFECTIVELY ENGAGING IN CEO EVALUATION
Members use a variety of review processes . . .
. . . leading to a set of follow-up activities . . .
• “Results are incorporated into ongoing monitoring”
• “Mentoring, training as needed . . .”
• “Annual progress review . . . is reflected in salary revisions”
• “Board conducts an annual review based upon outcomes of the organization”
• “The CEO writes an annual plan and meets a minimum of 4 times a year with the committees around the performance plan”
• “To date, we’ve not had a formal performance review of the CEO, but are planning to institute one for next year”
• 75% of members have pre-agreed written criteria
• 33% of members use 360° evaluation processes
. . . and led by various members of the organization
• “The executive committee is responsible for CEO reviews”
• “Review done by Chairman, Chair Elect, Chair Emeritus and Chair of HR committee”
• “The Executive Committees and the Executive Compensate Committee have full responsibilities in this arena”
• “The board chair does the performance review”
• “Done by officers and reported to board”
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MEMBERS SUCCESSFULLY TAP INTO VARIETY OF BOARD EXPERTISE…
Methods of tapping into expertise
• “We maintain a detailed list of board members’ individual expertise as well as interests”
• “Members recruited according to expertise/influence matrix, assigned to committees / task forces accordingly”
• “We tap board member expertise through [the appropriate] committee”
• 83% of members have a staff point person for managing board/staff relationships
• 79% use a diversity grid for mapping out areas of expertise
Areas of greatest assistance
• Legal
• Legislative
• Human services issues
• Program guidance
• Media
• Investment
• Diversity
• Networks/connections
• Writing contributions for publications
• Public speaking
• “Through a phone call.”
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… ALTHOUGH THE TYPES OF RECOGNITION BOARD MEMBERS RECEIVE FOR THEIR CONTRIBUTIONS VARIES CONSIDERABLY
“Satisfaction through participation in a premier nonprofit organization that is leading edge”
“Personal ‘thank you’ from the CEO and Chairman”
“Not much”
“Press releases in their home areas, installation at the national conference”
“. . . an opportunity to connect with an impressive board and staff”
“Years of service, committee chairs, president’s award, humanitarian award”
“National public recognition through publications and national organization meetings”
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MEMBERS HAVE ALSO BEEN LARGELY SUCCESSFUL IN LEVERAGING BOARD CONTACTS TO GAIN ACCESS
• “We use certain board members with asks for grants. We ask all board members to appeal to their employers for just about anything”
• “We asked our board members to connect with Congress on [an] issue and it was very successful”
• “Each board member brings a network of contacts and previous involvement. We seek to discover those connections and use them”
• “[We are] just beginning to take advantage of this . . .”
• 83% of members have boards that connect their organizations to public, corporate, foundations, or other actors
• 83% of members have board members that represent the organization and its interests at external meetings
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MEMBERS REPORT STRONG BOARD INVOLVEMENT IN RISK MANAGEMENT ROLE
Boards are confident in their understanding of potential risks . . .
• 88% of boards have a list of closely watched financial metrics and ratios
• 96% of boards are aware of their organization’s financial exposure
• 83% of boards have a clear understanding of the nature of the organizations’ liability and reputational risks and have strategies to mitigate them
. . . and actively manage their organizations’ risk exposure
“We consider safety, brand, image”
“[We have] open discussions with General Counsel present”
“We follow advice from the CEO and board members with expertise in that field”
“Board committees continually look at these issues, including financial, legal, and public reputation risks”
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SUMMARY OF RESULTS HIGHLIGHT RELATIVE AREAS OF BOARD STRENGTH AND OPPORTUNITIES FOR DEVELOPMENT
Areas of strong performance
• Engage actively in strategic decision making and policy decisions
• Select, evaluate, and develop the CEO
• Enhance reputation of organization
• Provide expertise and access for organizational needs
• Oversee financial management and ensure appropriate risk management
Areas in need of development
• Shape the mission and vision
• Ensure adequate financial resources
• Monitor performance and ensure accountability
• Improve board performance
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SURVEY RESULTS INDICATE POTENTIAL FOR IMPROVEMENT ON BOARD ROLE IN DRIVING MISSION AND VISION
Board performance on shared understanding of the mission . . .
. . . mirrors their use of tactics to connect the board to its mission . . .
• 42% have a mechanism for board members to participate in program activities
• 42% of members periodically focus meetings solely on mission
• “63% explicitly discuss decisions as they pertain to mission and develop “case law” for future decisions
• “46% of members have a board where EVERY director can summarize the mission of the organization, where it hopes to be in 5 years, and why it is an effective agent of change
. . . and leads to significant vision issues
• “Our board fails to set high expectations”
• “We need the board’s help with strategic visioning”
• “[Our board needs] to help ‘raise the bar’ by asking us tough questions on key issues”
• “The board is reactive not proactive . . . I’m redefining everything and bringing it to the board for approval i.e., mission, vision, strategic plan, etc.”
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MEMBERS REPORT DISSATISFACTION WITH BOARD FUNDRAISING PERFORMANCE
There are mixed fundraising expectations . . .
• “Everyone is expected to contribute. [There is a] Formal solicitation with specific ask”
• “There currently is no expectation of financial contribution . . . influenced by the reading some have of the carver model”
• “No current explicit financial contribution levels are required . . . although a total board fundraising goal is set”
. . . and few organizations have put processes in place to encourage it . . .
• 21% set individual board member fundraising goals
• 38% provide board with training on fundraising
• “We provide every member with a document that describes board member responsibilities, including financial contribution expectations”
. . . but most are disappointed by board fundraising performance
• 77% of respondents indicated a desire to improve board’s fundraising
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SURVEYS HIGHLIGHT ISSUE AROUND BOARD ROLE IN ENSURING ACCOUNTABILITY
“Our board is accountable to the organizations we serve”
“Members”
“We haven’t worked out a good board accountability strategy yet”
“To the persons served, their families, and their communities”“We haven't done this”
“We have no shareholders. It is not a membership movement”
Only 38% of members receive feedback directly from service recipients to the board
“To whom is your board accountable?” . . .
“Good question!”
"Unaccountable”
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SURVEYS INDICATE OPPORTUNITY TO IMPROVE LEVEL OF BOARD INVOLVEMENT IN PERFORMANCE MEASUREMENT ROLE . . .
71% of boards play an active role in measuring operations performance
• “Key areas of the strategic plan are monitored. Balanced scorecard used. Specific goals are set in finance, resource development, and HR”
• “[We monitor] through a variety of standing committees”
• “[We monitor] mostly by adherence to strategic plan goals”
• “The CEO who is in charge of operations is evaluated”
42% of boards play an active role in measuring program performance
• “They focus on ends rather than means – they don’t get involved in measuring individual programs”
• “We don’t do this”
• “They review the data provided by management”
• “Our board’s role here is limited”
• “We review our success regularly with the board, but not at a huge level of detail”
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. . . SPECIFICALLY AROUND SETTING PERFORMANCE INCENTIVES
Most boards address performance issues once raised…
…but most do not take specific actions to encourage performance before an issue arises
• “Our board doesn’t hold our feet to the fire”
• “The board is not really engaged in this”
• “Fortunately for the organization I’ve been self-motivated and driven for the organization for over 10 years”
• “This would impact incentives, taken into consideration with compensation”
• “[The board] can vote to terminate a program”
• “This has not yet happened, but the policies call for a corrective action plan”
• “Usually staff has already prepared some recommendation for change or improvement”
• “We have arranged for executive coaching”
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SURVEYS ALSO INDICATE BOARDS SPEND LIMITED TIME ON SELF-EVALUATION
• 35% of organizations evaluate individuals and overall board performance–21% of organizations give individual board member feedback–67% have a board development and evaluation committee–46% use an assessment tool for evaluating board
performance at a regular interval
• Those organizations that do evaluate board performance use a variety of methods–“We evaluate at every meeting in writing”–“Individuals are evaluated each year by the Board
Governance Committee based on engagement, level of engaged, funds raised and contributed, added value”
–“Periodically the board as a whole does a self-evaluation”
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CONTENTS
•Board governance research and framework
•Survey and interview results
•Common challenges and lessons learned
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SEVERAL CHALLENGES WERE RAISED WITH REGARD TO ENABLING EFFECTIVE BOARD PERFORMANCE
. . . but many had suggestions for how to improve Several boards identified challenges . . .
• “Setting regular monthly committee meetings and making them accessible by phone”
“Time and expense of travel”
• “One solution is regular communications using multiple vehicles”
• “We have mentors and mentoring to help members grow”
“The Board is too big”
“Achieving the balance between clout and local constituencies”
• “Highest clout on executive committee, special constituents on board committees”
• “Be direct and transparent” • “The non-financial and financial
expectations of new board members are shared during the nominating process and during their orientation”
“Leveraging people in the right way”
• “Keep matrix of board make-up that informs selection of new board members”
“[Achieving] diversity of voice, gender, ethnicity”
• “By publishing a calendar of meetings and events, people will make every effort to incorporate them into their schedules”
“Better attendance at board meetings. Greater participation in committees”
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CHALLENGE OF RECRUITING HIGH-PROFILE INDIVIDUALS WAS MOST OFTEN RAISED AND ADDRESSED
“Get the organization, corporation, or individual involved in one of our programs or program events”
“Identify an easily understood issue that resonates personally or intellectually with the member rather than try to explain the overall value of the organization”
“What seems to work is to treat it very seriously. Force [potential members] to do a due diligence on the org and examine whether they are truly committed”
“Also be direct and honest on expectations. Treat it like a business deal and they will understand that”
“. . . it appears to us that the best technique is to use local association leaders to identify, recommend and help recruit such persons”
“Get one or two high profile board members . . . have them recruit people they know”
“Having a CEO who attracts such persons”
“ We've been successful where Board members have personal relationships with high-profile candidates”
“What strategies have been most effective? . . .”
“Who is best position to recruit successfully? . . .”