By Richard Browdie and Doug Eadie
What a nonprofit board essentially does when it governs is make a continuous stream of decisions and judgments that answer three critical questions.
- Where do we want to take our nonprofit over the long run, in terms of the people we will serve, our range of services, budget size, finances, etc.?
- What do we want our organization to be in the near term, in terms of mission, operating plan and budget?
- How are we performing, in terms of service delivery, finances and administration?
Governing is a complex, high-stakes process. Experience has taught that truly high-impact governing is a team sport, involving a Strategic Governing Team: the board working closely with the CEO and his or her senior executives.
Board Ownership: A Powerful Governing Fuel
Board members who feel like strong owners of their governing decisions make for more reliable partners with the CEO and executive team – partners who can be expected to support even the most high-stakes, complex decisions. The surest way to turn board members into real owners of their governing work is to involve them in a meaningful way in shaping their governing decisions.
By contrast, boards that are merely a passive audience for finished staff work tend to feel little or no ownership, and hence to be less reliable partners. Although these points might seem obvious, they are often violated in practice, as the following true life example illustrates.
A Familiar Tale of Futility
The staff task force of a prestigious nonprofit operating a well-regarded nursing home had labored mightily over six months fashioning a strategic initiative expected to yield a powerful return on investment within only two to three years: expanding into assisted living through a merger (in reality, an acquisition).
The task force had built a compelling case buttressed by an in-depth analysis projecting demand, a detailed financing plan, and a rigorous cash flow analysis. After an afternoon with the task force, going over its report line by line, the CEO was confident the board would not only appreciate the stellar staff work but, more importantly, would sign off on the initiative – almost certainly unanimously.
Yet this initiative went the way of many best-laid plans – winding up on the shelf. Not having been involved in shaping it, board members were caught off guard when the CEO and task force members presented the initiative at a special board work session. The discussion quickly broke down into nitpicking the plan to death. The session ended with everyone feeling frustrated and irritated.
By contrast, the Benjamin Rose Institute (BRI) in Cleveland, OH, engaged its board of directors actively, and early, in shaping the dramatic, high-stakes decision described below – a decision that board members truly owned and stood by during its implementation.
Board Engagement at the Benjamin Rose Institute
In 2005, the BRI Board of Directors announced the mission-changing decision to exit the nursing home business. When a new president/CEO had joined BRI in 2002, he had quickly understood the depth of the problem that eventually would lead to this dramatic decision. BRI board members had been aware for some time of mounting financial losses connected with the handsome, state-of-the-art nursing home BRI had built, but they believed the losses were only the product of a lack of concern for budgetary discipline.
After two years of aggressive cost-cutting and believing that Medicaid nursing home rates were going to change significantly (they did), and given that 95% of BRI’s long-term care residents were Medicaid eligible, it became clear that a concerted effort was needed to make sure the board genuinely understood (1) the complex and somewhat counter-intuitive debt structure that had been put in place, and (2) that BRI operating losses would begin to grow again.
The need for funds to satisfy the debt structure could soon require elimination of other equally large and mission-critical areas of activity: BRI’s nationally known research center and its large community service commitments to very-low-income seniors in and around Cleveland. Further, the board had to spend intensive time becoming familiar with the evolving policy environment and the numbers in order to understand the strategic choices available to them.
Concerted action was clearly needed to avert financial disaster. Believing that BRI board members truly are the owners of the organization’s considerable assets, and its liabilities, the new president/CEO reached agreement with the board on a methodical process of board engagement, in close collaboration with the CEO, to fashion a strategic response to the situation that would put the organization on a sound business footing.
Key elements of the process, which played out over several intensive work sessions, included:
- understanding how BRI had ended up in the dire financial situation that was demanding board attention.
- clarifying the core values that should guide board members’ decision making.
- surfacing the available strategic options and their likely impact on BRI’s future.
Many of the same people had been on the board when it made the decision eight years earlier that led to the financial crisis: opening the state-of-the-art nursing home. Therefore, a critical part of the process was helping them understand how their having been immersed in the details of the nursing home decision had actually interfered with their seeing and understanding the big picture. They needed to know that rising above the trees and seeing the whole forest might have led them to a more sustainable decision and averted the crisis they were now addressing.
The decision-making process was designed to help board members fully understand the sources of BRI’s budgetary problems and the options that remained after all cost-cutting efforts were in place.
The president/CEO and executive team supplied considerable education on the reimbursement environment going forward, along with trends in the field. Then they created scenarios that enabled board members to examine alternatives associated with the choices available to them.
The president/CEO also varied the format of meetings, working with individuals in small as well as large groups, thereby enabling board members to become comfortable with the information in the format that worked best for them.
The result was a high level of agreement among BRI’s Strategic Governing Team members – the board, president/CEO and executive team – on the decision reached, as well as a full understanding of the economic and mission-related consequences.
The methodical engagement process unified the board, increasing its resolve and support for the direction ultimately taken. Board members had been transformed into stalwart owners of the dramatic decision to leave the nursing home business. And, an important byproduct of the decision-making process was realized – the creation of a model for effective board involvement in setting directions going forward.
Richard Browdie is president/CEO of the Benjamin Rose Institute. Doug Eadie is president & CEO of Doug Eadie & Company and author of The Board-Savvy CEO.