Board pitfalls: How to avoid common mistakes

Charles L. Baker

The resignation of CEO Kenneth Lewis from the Bank of America last September drew strong criticism about the bank’s lack of succession planning. The company’s board was still scrambling to find a replacement months after Lewis” resignation, with some critics blaming the company’s disorganization for their inability to find a qualified candidate.

While not all resignations are as public as this one, the incident brings to light a crucial factor in every organization's ability to survive: how its board handles difficult situations. There are three times in the life of an organization when the very nature and role of the board makes errors most likely: the hiring of a new executive, the handling of grievances, and the termination of an executive.

“The board made a mistake,” however, is not a phrase heard often. Experienced managers and board members know it happens, but boards “like CEOs “don’t easily admit error. This discussion is not about the merits, considerable though they are, of admitting our human frailty. Instead, it’s about how to avoid making mistakes altogether.

Planning for the future
It isn’t a question of if, but when an organization's current executive will leave. Whatever the cause, the sudden loss of leadership can be disruptive to staff, the community, donors, customers, and “most importantly “clients.

The importance of a company’s succession planning skills in the midst of an economic recession is thrust into the spotlight, which can pose a threat to companies struggling to survive. The National Association of Corporate Directors” 2009 survey of 700 U.S.-based directors stated that 90% of CEOs believe that succession planning is integral to the company. But only 11% believe planning was being properly implemented by their board, and 51% stated that the board was doing an average job dealing with it.

The board's approach to succession planning is critical to both emergency and well-planned transitions, and the subject of transitions should be a topic for discussion at least annually. Just as every good CEO is thinking about who will step up at the departure of a key member of the management team, the board must have a written plan for replacing the CEO.

Hiring an executive
Hiring a search firm may be the first suggestion raised in the board meeting when the organization loses an executive, but there may be a better strategy. The board can interpret this situation not as a matter of urgency, but as an opportunity. A better first step might be to ask this question, “How can we use this opportunity to assess the current health of our organization?”

The board often feels enormous pressure to act quickly, but this is a good time to be careful rather than hasty. Given the traditional “honeymoon” period for new executives “that first 12 months or so when boards are very reluctant to terminate a poorly performing CEO “a bad hire can have serious consequences to the health of the organization.

The work experience of a board member is usually well removed from the employees and clients of a child welfare organization, so assessing the health of the organization may be more difficult than it would first appear. Members of a board are nearly always drawn from the world of business “managers, attorneys, CPAs, and occasionally, physicians and religious leaders “and assessing the health of a child welfare nonprofit is not at all like doing so for a private company. One former executive of a growing CWLA member agency in the Mid-Atlantic region kept a retired CEO of a sister agency on his board for the first five years of his tenure. While this former executive was present to interpret the myriad of licensing requirements, specialized personnel rules, and state and federal contract requirements to the other members of the board, the agency flourished. But when that one knowledgeable person cycled off the board, the board chair began to question some traditionally accepted billing practices. The always-fragile relationship of trust between board and executive faltered. Frustration built and the talented executive lost his job.

Before a board can determine just who they need to lead the agency, they first need to assess or reassess “the purpose of the agency’s work and the quality of the organization's performance. And the moment when the old executive has left might be the best time to ask these questions:

Why is this organization vital to our community? This question goes directly to the mission and vision of the organization. Nonprofits must be all about passion “the passion for making their community, and the world, a better place.

Unfortunately, keeping this mission alive often falls, by default, to the staff. That’s not how it should be. The agency belongs to the community, and the board is the community’s representative. To be effective, the board must be passionate about the work of the organization.
In this time of transition, a thoughtful board might ask a few board members or staff at other community organizations to discuss with them how the organization is unique. Asking questions like “How would our community be harmed if our organization ceased to exist?” and “We know we've been important in the past, but is our work still relevant?” may inspire some helpful answers.

What is the quality of the service we provide? There are a couple of obvious, but often overlooked places to find this answer: the agency’s customers and the agency’s employees.

A good customer survey is best carried out by a competent consultant who is experienced in the field. Beginning with a review of referral sources, the consultant will visit both with individuals who have made referrals and managers of their respective organizations. These interviews are likely to yield some surprising strengths and weaknesses. Yes, it is true that customers don’t always know what they need, and their focus may often be on price rather than quality, but such a survey will provide food for thought.

What is the quality of the relationship between management and staff? Not enough child welfare organizations regularly assess employee morale. Since employees are primarily responsible for delivering service, it’s vital to know how they feel about their work. Unhappy employees provide poor quality service.
Is the agency fiscally sound, are our facilities excellent, and are our salaries and benefits competitive? Only after considering the assessments above would the board begin to consider this fourth area. Saving this assessment for last keeps the priorities in proper order; it is mission and quality first. As one of my wise board members put it, “I’d rather give our clients the best care and close in six months than give them poor service and stretch it out for two years.”

Surprisingly, the best way to manage an organizational health assessment may be to hire an interim executive. An experienced, perhaps retired, CEO can bring a day-to-day perspective that is invaluable to the board. Given a contract of six months to a year, a person who is knowledgeable about child welfare can make a thorough assessment in each of the above areas and engage the board in a broad discussion of the ramifications of decisions.

If the time comes to hire a search firm to fill the permanent position, the information collected in the agency assessment can be very valuable. For example, if the quality of the organization's service is not as high as desired, or employee morale is low, then the search firm can help by looking for candidates with experience in improving those areas.

It’s important for the board to realize that its goals are somewhat different than that of the search firm. Finding the right candidate to fit an organization may take time, but given the set fee of most search contracts, the search firm maximizes their revenue by working quickly. When interviewing candidates for the final choice, the board should share the information gained from the agency assessment and ask the candidates about their experiences and how they would proceed to sustain the agency’s strengths and shore up its weaknesses. It’s prudent for the board to take its time and even double check recommendations before making a final decision.

Handling internal conflict
Assessing employee morale is especially important in this economic climate. Bridgespan conducted a survey last May asking 100 nonprofit leaders about the condition of their organizations. According to Bridgespan partner William Foster, 92% of nonprofit organizations are dealing with the effects of the economic downturn, and 41% are experiencing layoffs.

Such conditions warrant regular surveys of employee satisfaction. Easy-to-create online surveys conducted every six months can show progress over time. The survey questions should focus on the work itself, rather than salaries and benefits. For example, “Do I have the training I need?” “Are my co-workers competent?” “Do I get the direction I need from my supervisor?” “Do I think my work genuinely makes a difference?”

Morale extends further to the CEO and the board members, and their relationship with each other. Often, conflict between these leaders can cause complications. Two kinds of situations have historically led to deep conflict between the board and the CEO:

Grievances communicated to board members about staff who report to the CEO, and
Grievances communicated to board members about the CEO.

The investigation of a grievance can require the wisdom of Solomon. One board member of a member agency in CWLA’s Southern region reported receiving a complaint of “gender insensitivity” regarding a program supervisor. Fearing the worst, the board member kept the identity confidential, making the incident impossible to investigate. Only the intervention of a consultant, who determined the complaint to be frivolous, eventually restored the faith of the board in the executive and the supervisor.

Handling voluminous grievances can be alleviated by detecting and dealing with them immediately. In both types of incidents mentioned, it is important for board members to remember that they are not empowered to take any action unless the board is in session in an officially called meeting, and it is generally very problematic for board members to discuss personnel concerns outside of a board meeting. To function at its best “certainly in regard to a potentially critical decision “all the board members need to be present and have their voices heard. A few members, via phone conversations or e-mail, can become a powerful clique that can prevent legitimate discussion. Rumors spread by e-mail have become a critical concern in many organizations.

In best practice, the board should consider a policy that individual members forward all grievances against staff, other than the CEO, directly to the CEO for his or her action without further board involvement. Although the CEO may report his or her actions to the board chair later, he or she will investigate the grievance and take any needed actions without approval from the board. In many of these cases, the CEO may find it necessary to terminate the employment of the employee making the complaint. Board members without personnel experience may be confused by this action, but every organization must have a strong sense of trust to function effectively. Employees who go over the head of the CEO because they do not believe grievances will be handled fairly undermine the trust necessary to work together.

Grievances against the CEO should be taken very seriously. It can be a wise policy to accept such complaints only face-to-face, not via telephone or e-mail. To give such a grievance a serious hearing, it may be best to have them heard by more than one board member, preferably in a pair or small group that includes the chair.

Many grievances are filed as a response to a negative performance review and should be referred back to the CEO. However, there are situations of malfeasance or sexual misconduct that would necessitate calling a special board meeting and the eventual termination of the CEO. These difficult situations will be made much less stressful when the board has a succession plan and a written contract with the CEO.

The termination of the executive
The partnership of the board chair and the CEO is critical. In healthy organizations, these two speak often and collaborate on visions for the future as well as unanticipated crises. They are team members who work together to set an agenda and guide the organization. My favorite memory of this relationship happened when I called my board chair in his office 300 miles away to report a tragic accident. After listening to the report, he responded, “Well, Charlie, I don’t know how I could help, but should I just get in the car and come down to be with you?” That’s a partner you can count on.

But the relationship between the board chair and the CEO is not always so supportive. In many cases, the climate leading to the termination of a CEO is a lack of trust, and one of the most difficult issues a board may face is a power struggle between a long-term executive and the board chair. The board chair inevitably wins these conflicts in the short run, but often the agency “and its most important asset, its good reputation “loses in the long run.

Prior to such conflicts, the board needs several policies to prevent damage to the organization. As a critical first step, a modern organization will have an employment agreement with the CEO. This agreement spells out termination procedures and protects both the agency and the executive. With a carefully constructed employment agreement, most terminations will take place in an executive session of the board. The details of the severance package “both salary and benefits “should be in the contract, negotiated well in advance of the conflict. With terms agreed upon in advance, and knowing that both parties have reputations to protect, it is possible to deal with termination quietly. The executive will want to protect his or her professional reputation, and the board must be concerned about the reputation of the agency.

Boards can make mistakes “especially at the critical times of losing and searching for a CEO. Thoughtful boards, however, can prevent most common mistakes with careful planning. They can have a solid contract with the current executive, keep a succession plan up to date, pay attention to staff morale, and use leadership change as an opportunity to make an agency assessment that will keep the organization strong.

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Charlie Baker is President of Baker & Company in Louisville, Kentucky, and a consultant providing assistance and support to CEOs and boards of child welfare organizations.

This feature: Published with permission from Children's Voice, January/February 2001 by courtesy of CWLA.