Industry Insights

Good Intentions or Intentionality:  Which Describes Your Board of Directors?

March 2015
Author:  Steve Sauer

Steve Sauer

Director

Audit

Manufacturing & Distribution
Not-for-Profit & Government

111 S. Tejon Street, Suite 800
Colorado Springs, CO 80903-2286

Colorado Springs
719.471.4290

Most historians agree the form and function of today’s board of directors began around the advent of the 20th century. English authorities decided the ultimate authority in a company was vested in the board of directors, and the nature and extent of its authority was to be enumerated in the articles of association (or incorporation). So after 100 years of practice, these boards have evolved into exceptional governing bodies presiding over their organizations … right?

Not exactly. According to a January 2015 study conducted by BoardSource, boards of not-for-profit organizations are not as close as they think to achieving the pinnacle of effective governance. On the contrary; the study reveals that, on average, not-for-profit leaders give boards a B- in overall performance. It would appear, then, that in our age of constant political, economic, regulatory and demographic changes, significant improvements are necessary—even vital to the health of the not-for-profit sector as a whole.

BoardSource is a 501(c)(3) organization dedicated to advancing the public good by building exceptional not-for-profit boards and inspiring board service. BoardSource supports, trains and educates more than 100,000 not-for-profit board leaders from across the country each year. Since 1994, BoardSource has collected and analyzed trends in not-for-profit board practices, policies and performance through its Nonprofit Governance Index and released surveys reporting findings in 1994, 1996, 1999, 2004, 2007, 2010 and 2012. Now reintroduced as Leading with Intent, the 2015 study remains the only national survey that gathers information from both chief executives and board chairs on their board room experiences.

The current study began in May 2014, when BoardSource sent questionnaires to nearly 27,000 not-for-profit chief executives across the country serving organizations of all shapes and sizes. Of the approximately 880 CEO responses received, nearly 250 of them also connected BoardSource with their board chairs, meaning the findings and conclusions reflected in the study are generated from both sides of the board table. BoardSource posed questions related to three principal areas of governance:  board members, board responsibilities and board culture—essentially the who, what and how of the board room.

Visit BoardSource’s webpage to read the study in its entirety.

Board Members:  Board Composition & Structure

BoardSource analyzed several factors related to a board’s composition and structure:  size and term limits, composition and diversity, recruitment and elections, use of committees and the frequency, length and quality of board meetings. Let’s explore a few.

Regarding size and term limits, BoardSource notes that over the years, the number of directors has slowly but modestly declined to a current average of 15 members. Chairs are generally offered two consecutive terms ranging from one to two years per term, while non-officers typically are offered two consecutive three-year terms. The average chair devotes about 15 hours a month to the organization.

Board diversity was another key theme in the study. BoardSource found that while boards generally are proficient in functional diversity, boards—on average—lack social diversity, particularly in race/ethnicity and age. However, it appears the trend is moving in the right direction (see below). What’s most striking is BoardSource’s finding that while chairs and CEOs readily acknowledge the lack of diversity in these two areas, only 16 percent to 28 percent of chairs and CEOs believe expanding diversity would significantly increase their board’s ability to advance the organization’s mission. BoardSource concludes diversity is not a numbers game—it’s about getting and retaining the people who count.

Source:  BoardSource, Leading with Intent: A National Index of Nonprofit Board Practices

When it comes to meetings, most boards have four primary committees:  executive, finance/audit, governance/nominating and fundraising/development. The typical board member only spends about 25 hours a year in meetings, but overall attendance has been declining. While 85 percent of boards have at least 75 percent attendance, only 37 percent of boards have more than 90 percent attendance—and these figures have slowly atrophied in recent years. Furthermore, while 80 percent of CEOs report providing board members with necessary information in a timely manner, only 40 percent believe their board members come to meetings prepared with a focus on strategy and policy. Clearly, there’s room for improvement.

BoardSource asks CEOs whether they feel they have the right directors around the table. While the following graph shows an almost perfect bell curve, it reveals there are almost as many satisfied CEOs as dissatisfied CEOs. Though these percentages are sufficient to meet a quorum, BoardSource strongly believes these indicators should drive boards to constant development, evaluation and recruitment.

Source:  BoardSource, Leading with Intent: A National Index of Nonprofit Board Practices (Washington, D.C.: BoardSource, 2015)

Board Responsibilities:  Charting the Course, Ensuring Adequate Resources & Providing Oversight

BoardSource cites three fundamental board roles:  charting the course, ensuring adequate resources and providing oversight. However, it identifies 10 basic board responsibilities, noted below, used to rate not-for-profit boards as a whole. Overall, the B- grade reflects responsible, but not exceptional, performance.

Source:  BoardSource, Leading with Intent: A National Index of Nonprofit Board Practices (Washington, D.C.: BoardSource, 2015)

The results of the 2015 study closely mirror previous years. Boards consistently rate higher in their commitment to the mission and providing oversight and support. Much of this stems from board members’ general technical, structured and compliance-driven gifting. Boards continue to struggle in fundraising, serving as community ambassadors, eliciting the commitment and engagement of current directors and recruiting new ones. These responsibilities are more adaptive where solutions are not prescribed and directors must navigate multiple viable options.

It goes without saying that fundraising is just tough work. Despite all the formulas, programs and presentations on the matter, it boils down to relationships at the end of the day. And when it comes to board relationships, let’s face it:  Some don’t have ’em, some don’t work to get ’em and others don’t want to use ’em. While BoardSource cites sizable improvements from previous studies, this item should remain near the top of every chair’s agenda. The following graph compares various fundraising requirements to board participation, the results of which speak for themselves.

Source:  BoardSource, Leading with Intent: A National Index of Nonprofit Board Practices (Washington, D.C.: BoardSource, 2015)

Another common weak area is advocacy—stepping up and speaking out. Board members are essential to successful community advocacy, and “they need to improve their ability to raise their collective voices as committed and informed champions for their missions.” Only 37 percent of boards actively monitor the impact of public policy issues on their organizations and their field, while less than half of boards are apprised of or participate in their organization’s advocacy activities. The study concludes board members need to be better informed about public policy issues to enhance their decision-making abilities and become more effective organization ambassadors.

Board Culture:  Board Dynamics & Leadership

After covering the who and what of board governance, we turn to the how. How do directors do what they do? The study examines this question from three angles:  board development and assessment, board dynamics and CEO relations. BoardSource cites some interesting statistics:

  • One-third of boards admit they don’t make board development a priority by using training, guest speakers and other educational activities to support continuous learning.
  • Fifty-two percent of boards have conducted recent board self-assessments (within one to three years).
  • One out of five CEOs strongly agree the majority of board members are engaged.
  • One out of four boards have not gathered comparable data or documented their process on setting executive compensation.
  • One out of three boards have an executive succession plan, while half of CEOs intend to leave the post within the next five years.

Despite the numbers, if one were to get to the crux of the how, it could be summarized as “introspection” and “forward thinking.” For many professionals, these traits are second nature in their day jobs. However, there appears to be a disconnect when those professionals carry out their fiduciary duties in the boardroom. To borrow a quote from an association CEO used in the study, “Several prominent board members continue to hold onto long-held beliefs and expectations that are no longer relevant in today’s society.” This was indirectly evidenced in the study through the overwhelming lack of parity between the CEO’s responses and the chair’s responses to the same questions:

While this represents just a small sample of the comparative figures in the study, the study reveals the chair’s perspective is almost always more optimistic than the CEO’s. If an organization’s mission can be advanced or hindered by its culture and the culture is driven by its leadership, directors must continually challenge their perspectives to ensure they match reality.

The form and function of effective governance has come a long way in the last century. However, BoardSource again concludes that additional work is needed. A careful examination and application of BoardSource’s study would be highly advantageous for all directors seeking to lead their organizations with intentionality—not just good intentions.

BKD LinkedIn BKD Twitter BKD Youtube BKD Google Plus