One of my clients was a government agency whose primary mission was to receive and distribute grant money to chronically unemployed residents of the local community. There were over a dozen different grants, each from a different federal or state agency or private foundation. Each of these funders had their own unique, very stringent reporting requirements, and to satisfy this requirement my client agency had hired twenty or so “grant administrators” whose job it was to monitor the services being delivered, how many recipients there were, compile reports and send them to the funders. When the local government hired a new agency director, one of the first things she tried to do was get these grant administrators to report summaries of this information to her, in a format that she believed would be maximally useful to the department as a whole. There was a great deal of resistance to this, to the point that many of the administrators simply refused to follow her instructions on the basis that they had limited time to do any more paperwork. When she tried to force the issue, they complained to certain members of the City Counsel, who took their side against the department director. Reporting to her was seen as less essential than reporting to the funding sources, because any compromise there could threaten the source of the revenue.
It is common for larger non-profits and service delivery agencies to receive funds for multiple sources, each of which are required to be spent only on the specific services they were intended for. This means that money obtained this way cannot be mixed into a general overall budget, which is then dispensed by the organization’s executives at their discretion. The most common way for these organizations to ensure that this requirement is met is by organizing different projects groups, each of which is responsible for managing the funds obtained by a different funding source. Each of these will have their own project managers and project staff, which form a division within the overall organization. Such organizations can perhaps be better understood not as cohesive well integrated bureaucracies, but as a kind of mini conglomerate, with each project team as a kind of stand alone company within the larger umbrella organization. In such a conglomerate, the project managers might very well have more power over the services they are dispensing than the executives in charge of the organization as a whole.
This will have obvious implications for a board of directors, who, being low engagement but high in power, will almost always defer to the funding sources, even to the point of undermining their own CEO, which they themselves have chosen. It’s generally just easier to read the funding requirements, which the agency will have agreed to in writing at the time the grant was accepted, and just defer to whomever is responsible for carrying out the terms of the agreement. This reduces the CEO to a kind of administrative caretaker, whose primary job is to find new sources of revenue when the current grants run out (and make sure the lights stay on).
This is widely recognized among management professionals as problematic for the overall performance of the organization (https://journals.sagepub.com/doi/pdf/10.1177/0899764099283002). Non-profits, as the original post pointed out, are driven by their missions, not by profits, and therefore must depend on the clarity of their mission to derive any performance metrics for the organization as a whole. When funders impose strict requirements on the disbursement of their funds, they almost never consult the mission statement of the organizations that receive their money. At most, they might give lip service when selecting a set of recipients during the proposal review process, but once the contract is signed, there is little incentive for the grant givers to care much what the rest of the recipient organization is doing. Most granting agencies are non-profit foundations or government agencies themselves, and they have their own boards and sources of revenue to placate, their own agency performance metrics to meet, and all that depends on the success of the projects they fund, not on the projects other funders support even in the same organization. Therefore the non-profit which is receiving funds from multiple sources may find themselves stretched in multiple directions, “chasing the money”, and not in a position to either pursue overall organization effectiveness, nor even to respond in an effective way to the changing needs of the community they serve.
So the way in which US non-profits are organized to receive and disburse money for services to the community has certain built in flaws to it (much of this is codified in state and federal tax law). All of this will be more true for large, complex organizations than smaller ones. Non-profits that only have one funding source, or one dominant source, or who are able to raise most of their own funds, have the freedom to follow a different dynamic. My consulting firm has a philosophy that organizational improvement starts with fundraising. You then follow the money until it reaches the clients and try to measure the effects. Ideally you come up with a “service unit per dollar per client” that makes sense for that particular organization, and that can become the basis of identifying areas of improvement (https://bizfluent.com/info-10062727-cost-per-unit-service-cost-per-client-outcome-cost-per-services-completion.html).
I think one of the core duties of the governing board is to be aware of this information and use it as feedback every few years and use it for the purpose of strategic planning. This speaks to another principle that I haven’t seen published anywhere but is based on my own personal experience: The direction that the board provides, and their ability to provide it, depends on the quantity and quality of the information they have. Ideally this is provided to them by the CEO, who therefore has an opportunity to develop a relationship with the board and exercise strategic leadership. But the board’s job is to review this information independently, discuss it among themselves, and provide feedback to the CEO regarding what direction they think the organization should be going in. But to do that, you have to stop chasing the money, and put the mission first, the essence of strategic planning (https://c4npr.org/wp-content/uploads/2020/07/per_brief_tenkeys.pdf).
Although I wouldn’t necessarily put it this way with my clients, the most fundamental decision the board can make under these circumstances is “what should we do when the terms of the current grant runs out” with the understanding that “renew the grant” isn’t the default option. It can be wrenching for the board and the executive to confront the risk of letting grants go, and looking for new ones, but that’s the most strategic decision they can make. Maybe they want to go for a different set of grants, or instead of grants they may want to build up a pool of small donors, or go to fee for service, or some other arrangement. Considering these options is what gives the executive and the board working together the freedom to even have an organizational strategy.
But this approach is non-obvious and hard. So I would say that the a key approach to improving governing board effectiveness, in addition to various features of board structure and process, is a recognition of the importance of strategic governance.
I am a former (now retired) management consultant and human resources trainer and manager. When I was professionally active, I specialized in non-profit and government clients. I recognize nearly everything that X said about non-profit governing boards, with the caveat that what he describes is typical for larger and more complex organizations (https://www.academia.edu/download/42331960/Nonprofit_Boards_Size_Performance_and_Ma20160207-32480-1x3h68o.pdf). There are very few good primers on non-profit governance (https://ideaexchange.uakron.edu/cgi/viewcontent.cgi?article=2482&context=akronlawreview) However, I would like to add a few additional details, based on my personal experiences.
One of my clients was a government agency whose primary mission was to receive and distribute grant money to chronically unemployed residents of the local community. There were over a dozen different grants, each from a different federal or state agency or private foundation. Each of these funders had their own unique, very stringent reporting requirements, and to satisfy this requirement my client agency had hired twenty or so “grant administrators” whose job it was to monitor the services being delivered, how many recipients there were, compile reports and send them to the funders. When the local government hired a new agency director, one of the first things she tried to do was get these grant administrators to report summaries of this information to her, in a format that she believed would be maximally useful to the department as a whole. There was a great deal of resistance to this, to the point that many of the administrators simply refused to follow her instructions on the basis that they had limited time to do any more paperwork. When she tried to force the issue, they complained to certain members of the City Counsel, who took their side against the department director. Reporting to her was seen as less essential than reporting to the funding sources, because any compromise there could threaten the source of the revenue.
It is common for larger non-profits and service delivery agencies to receive funds for multiple sources, each of which are required to be spent only on the specific services they were intended for. This means that money obtained this way cannot be mixed into a general overall budget, which is then dispensed by the organization’s executives at their discretion. The most common way for these organizations to ensure that this requirement is met is by organizing different projects groups, each of which is responsible for managing the funds obtained by a different funding source. Each of these will have their own project managers and project staff, which form a division within the overall organization. Such organizations can perhaps be better understood not as cohesive well integrated bureaucracies, but as a kind of mini conglomerate, with each project team as a kind of stand alone company within the larger umbrella organization. In such a conglomerate, the project managers might very well have more power over the services they are dispensing than the executives in charge of the organization as a whole.
This will have obvious implications for a board of directors, who, being low engagement but high in power, will almost always defer to the funding sources, even to the point of undermining their own CEO, which they themselves have chosen. It’s generally just easier to read the funding requirements, which the agency will have agreed to in writing at the time the grant was accepted, and just defer to whomever is responsible for carrying out the terms of the agreement. This reduces the CEO to a kind of administrative caretaker, whose primary job is to find new sources of revenue when the current grants run out (and make sure the lights stay on).
This is widely recognized among management professionals as problematic for the overall performance of the organization (https://journals.sagepub.com/doi/pdf/10.1177/0899764099283002). Non-profits, as the original post pointed out, are driven by their missions, not by profits, and therefore must depend on the clarity of their mission to derive any performance metrics for the organization as a whole. When funders impose strict requirements on the disbursement of their funds, they almost never consult the mission statement of the organizations that receive their money. At most, they might give lip service when selecting a set of recipients during the proposal review process, but once the contract is signed, there is little incentive for the grant givers to care much what the rest of the recipient organization is doing. Most granting agencies are non-profit foundations or government agencies themselves, and they have their own boards and sources of revenue to placate, their own agency performance metrics to meet, and all that depends on the success of the projects they fund, not on the projects other funders support even in the same organization. Therefore the non-profit which is receiving funds from multiple sources may find themselves stretched in multiple directions, “chasing the money”, and not in a position to either pursue overall organization effectiveness, nor even to respond in an effective way to the changing needs of the community they serve.
So the way in which US non-profits are organized to receive and disburse money for services to the community has certain built in flaws to it (much of this is codified in state and federal tax law). All of this will be more true for large, complex organizations than smaller ones. Non-profits that only have one funding source, or one dominant source, or who are able to raise most of their own funds, have the freedom to follow a different dynamic. My consulting firm has a philosophy that organizational improvement starts with fundraising. You then follow the money until it reaches the clients and try to measure the effects. Ideally you come up with a “service unit per dollar per client” that makes sense for that particular organization, and that can become the basis of identifying areas of improvement (https://bizfluent.com/info-10062727-cost-per-unit-service-cost-per-client-outcome-cost-per-services-completion.html).
I think one of the core duties of the governing board is to be aware of this information and use it as feedback every few years and use it for the purpose of strategic planning. This speaks to another principle that I haven’t seen published anywhere but is based on my own personal experience: The direction that the board provides, and their ability to provide it, depends on the quantity and quality of the information they have. Ideally this is provided to them by the CEO, who therefore has an opportunity to develop a relationship with the board and exercise strategic leadership. But the board’s job is to review this information independently, discuss it among themselves, and provide feedback to the CEO regarding what direction they think the organization should be going in. But to do that, you have to stop chasing the money, and put the mission first, the essence of strategic planning (https://c4npr.org/wp-content/uploads/2020/07/per_brief_tenkeys.pdf).
Although I wouldn’t necessarily put it this way with my clients, the most fundamental decision the board can make under these circumstances is “what should we do when the terms of the current grant runs out” with the understanding that “renew the grant” isn’t the default option. It can be wrenching for the board and the executive to confront the risk of letting grants go, and looking for new ones, but that’s the most strategic decision they can make. Maybe they want to go for a different set of grants, or instead of grants they may want to build up a pool of small donors, or go to fee for service, or some other arrangement. Considering these options is what gives the executive and the board working together the freedom to even have an organizational strategy.
But this approach is non-obvious and hard. So I would say that the a key approach to improving governing board effectiveness, in addition to various features of board structure and process, is a recognition of the importance of strategic governance.