Charity Loses $25 Million to Investment Fraud—Where Was the Oversight?
“Dead Bunnies” President of Mount St. Mary’s U. Tenders Resignation
Headlines like these are all too common in the wake of leadership and governance missteps. And, the aftermath can be devastating—communities are torn apart, factions form, and reputation and trust are negatively impacted. This past year has been particularly volatile for independent schools, with both public and private governance crises bringing turmoil to school communities. The result has been firings, resignations, negative press, and declines in enrollment, to name just a few of the aftershocks. What is in the DNA of these meltdowns, and can we take steps to prevent them in the future? I think the answer is clearly yes, but, like a plane crash, these occurrences are multidimensional and we need to examine the various root causes to begin moving forward on the path to change.
Selecting the Right Trustees
In the wake of the Penn State and University of Virginia scandals a few years ago, many governance and leadership experts examined who we invite to trusteeship and how that impacts a board’s effectiveness. Writing in the Huffington Post, consultant Alice Korngold suggests that we need to look beyond roles and ensure that potential trustees possess the following skills, abilities, behaviors, and experience. They must:- be fully committed to the mission and understand the role of the board in achieving the mission;
- have the diversity of experience, expertise, networks, relationships, and perspectives that are needed for the particular board to advance the organization in achieving its greater vision;
- be willing to work in partnership with the CEO to create and achieve the revenue model for success;
- have leadership potential; and
- commit to the legal duties of care, loyalty, and obedience.
What We Can Learn from Financial Scandals
In the aftermath of a number of nonprofit financial scandals, SeaChange Capital Partners and Oliver Wyman released a report entitled “Risk Management for Nonprofits.” It examined what characteristics were shared by those government-funded nonprofits that went into decline following such scandals. These included:- The organizations were fragile to begin with.
- The organizations had a longstanding challenge in recruiting and retaining a strong chief financial officer.
- The crisis was precipitated by an event, such as the departure of the executive director.
- The organizations failed to do explicit scenario planning despite facing inherently uncertain situations.
- Trustees were not made fully aware of important long-term trends in financial performance or the operating environment.
- Trustees did not get timely, actionable information at the appropriate level of detail before or during the early stages of the crisis.
- Trustees took too long to realize that there was a problem and then delayed taking action even after they had decided it was necessary.
Leadership transitions are often the most vulnerable stage in a school’s lifecycle. The Bridgespan Group, writing in Stanford Social Innovation Review, suggests the following potential implications of failing to adequately plan for succession:
Key Elements of Costs of Unwanted Executive Turnover
| FINANCIAL COSTS | PRODUCTIVITY COSTS |
|---|---|
| Recruiting (e.g., advertising, search fees) | Management/HR time spent recruiting/managing executive's transition |
| Hiring inducements (e.g., relocation) | Productivity loss due to unfilled positions and time for new hire to ramp up |
| New hire orientation (e.g., training, "road shows," coaching) | Lost expertise, institutional knowledge, or cultural capital of exiting executive |
| Payout accrued time off exiting exec | Lost relationships (e.g. funders/constituents/partners) |
| Disruption to strategic direction/momentum | |
| Other key talent may leave or have lower morale |
Libbie Landles-Cobb, Kirk Kramer, and Katie Smith Milway (The Bridgespan Group), "The Nonprofit Leadership Development Deficit," Stanford Social Innovation Review
Additionally, in the worst-case scenario, the search for a new head is not thorough, well executed, or effectively communicated—and disaster reigns. The results can be devastating for both the school community and the new head alike, as we have seen in case after case.
Another key driver of school crises is failure to identify and plan for risks. In a recent survey conducted by NAIS in association with United Educators, only 15 percent of responding schools noted that they maintain a register identifying the risks most critical to mission success. History has shown that those schools that have identified the most pressing risks, developed needed policies and practices around them, and have written plans for how they will deal with each one fare much better when the unthinkable occurs. Once this foundational work is done, scenario planning can be particularly effective for boards and leadership teams to identify vulnerabilities that need to be addressed before an actual crisis occurs.
Finally, failure to educate trustees about long-term trends affecting schools may be one of the drivers of unjustified school head firings that can lead to fractured school communities. For example, if the board is not educated about the market challenges facing the school, members may engage in magical thinking about what is possible and blame the head when unattainable goals are not reached.
The Key Roles of Board Culture and Diversity
Another study, “Leading with Intent,” recently released by BoardSource, examines nonprofit board performance and various root causes of dysfunction related to board makeup and structure, culture, trustee understanding of roles and responsibilities, board education, transparency and clarity between board and head, assessment practices, and policies and plans. The report is a must read for any school board, but I want to call out a few key points.The study underscores the crucial importance of board diversity in effective functioning, noting that the composition of the board has a huge impact on how it governs. The authors suggest: “A board that is homogeneous in any way risks having blind spots that negatively impact its ability to make the best decisions and plans for the organization.” This kind of diversity can be critical to a board successfully maneuvering through a complex crisis as bringing many different lenses to a situation can help in anticipating issues before they play out negatively in the school or in the press.
BoardSource also identifies the important role that trust plays in healthy governance and particularly how important it is when the going gets rough. The study examines how building social time into the board calendar correlates with better collaboration, identifying that those boards that allow time for social interactions work more effectively as a team.
Finally, the report calls out the key role that culture plays in effective governance. The data suggests a strong link between the board’s ability to work as a collaborative team and the board chair’s ability to:
- resolve conflict, build consensus, and reach compromise,
- foster an environment that builds trust among board members,
- establish clear expectations of board service, and
- encourage board members to frame and discuss strategic questions.
A board assessment can help to identify strengths and weaknesses in all key areas of board structure, operations, and culture, and can be a first step in identifying vulnerabilities before they are exposed midcrisis.
There are no doubt many more root causes when a school’s leader and its board fail to work together than those I have called out here. I invite the community to start a dialogue about this important relationship so that we can learn and grow.
