This narrative speaks to the challenges faced by the board of directors of a non-profit, charitable, club in the choice and administration of its administrative director.
It's hard to believe that it was 18 years ago (1991) that the United Way of America scandal began to unfold and its administrative director, Bill Aramony, was convicted in 1995 of a amount of wrongdoings including embezzlement and spending funds unwisely. United Way was probably the most recognizable public charity in the country and it remains so today.
The governance of the United Way was placed, appropriately, in the hands of its board of directors. The board was comprised of Ceos of large, customary associates in corporate America. Unfortunately, its administrative director was allowed to show the way the affairs of the club with very minute accountability. Hence, it was only a matter of time before problems were bound to emerge. It seems easy to overlook the fact that non-profits are enterprise entities, quite a few of them are very large organizations, and many have large incomes.
Curiously, it has become base over the past decade to replace the title of 'executive director' with 'president.' This is technically incorrect; an administrative director is the chief worker of the charitable club and reports to its board; the 'president' is, by statute, the head (and often known as the chair) of the board of directors, supposedly elected by the membership of the club or its board, depending upon the process outlined in the Bylaws. While also technically incorrect, using the title of 'president' in lieu of 'executive director' may even add to confusion among unaware board members, causing them to rely more heavily on the 'president/executive director' than is prudent. (However, this is no excuse for the board member not knowing unquestionably the duties of his/her board position.)
It may be beneficial to distinction the issues of accountability for administrative directors in very large non-profits to those in small non-profits. Albeit purely anecdotal, it appears that large non-profits control very similarly to large for-profits. Ceo accountability and board oversight can be low while Ceo control is demonstratively excessive. The Aramony scandal of 1995 has similarities to the Kenneth Lay (Enron) scandal of 2001 in that too much power and authority was vested in the top officers of the club and too minute accountability was required by its board of directors.
Beyond the scope of this narrative - but an issue worthy of its own seminar in the hereafter - is the cronyism too often seen in the board room. Ceos tend to invite friends and colleagues to serve on the board - as do board choice committees - and the institution is base in both for-profit and non-profit organizations alike.
Systems failures, such as the United Way and Enron examples, clearly paved the way for the Sarbanes-Oxley (Sox) legislation that is intended to provide stronger oversight of for-profit organizations. The branch of old articles, and the focus of the town for Ethics, Governance, and accountability (Cega), acknowledges that Congress has moved quickly to empower the Irs to step up its oversight of non-profit entities.
In a old Cega article, "Non-Profit Accountability: A Board Gone Awry," the rude and irresponsible behaviour of current board members towards a old board member (with considerably more experience) was illustrated. There was also a promise that a hereafter narrative would speak to the issues arresting the administrative director.
This is that article.
In this example - which could well become a full-blown case study - a tenured administrative director retired after nearly 40 years of service. He was well known in his area of expertise and widely regarded as a man of great integrity and concern for those nearby him. His ego was virtually non-existent, he relied on his staff to do their jobs, and was supportive of creativity. He was very focused on the mission of the organization. Exchange of such an private is difficult for even the most ardent boards. In this case, a specialized crusade firm was engaged, candidates were identified, and finalists were interviewed by the board. A choice was made by a 5-4 vote of the board. (This is not a good sign when joining a new organization.)
Then the problems began...
Unfortunately, the prime private did not have the principal sense for the position of administrative director. This was discussed with the board in the final interview and was highlighted by the crusade firm. While the candidate pledged to gain those skills on the job, once hired, he immediately reneged on his promise. Immediately upon arrival to the non-profit organization, the new administrative director began to terminate employees, eliminate positions, dismantle programs and change the focus of the club in a dramatic fashion.
The old administrative director and the board of directors had worked well together for any years to define a very definite mission for the non-profit. It was immediately clear that the new administrative director had ignored the direction provided by the board. There was clearly a personal program by the new administrative director and, even worse, it was intentionally made public. When confronted by the chair and vice chair of the board, the administrative director turned the board against itself and worked his 5-4 choice vote to full advantage. But such gross insubordination is not sustainable. In only 10 months, the entire club was destroyed, the best board members had resigned in frustration, the administrative director left town under a cloud of suspicion and was subsequently sued by the club for misuse of funds.
Today, this charitable club is being led by a new board with no experience, minute perspective, and even less institutional knowledge. Adding to the challenge was the choice of a new administrative director using a process further described below: tapping the amount two man in the organization, who has even less sense than the now-departed predecessor. The hereafter does not look bright; but, pressure to make it appear arresting can unquestionably lead to worsening conditions.
What can be learned from this example?
First and foremost, it is very difficult to be a board member. It is not a job that should be taken lightly. Governance, ethics, and accountability are principal and boards must expect and uphold the top standards for the non-profit organization. Additionally, boards must move quickly and firmly to deal with rogue administrative directors that blatantly disregard board procedure and mission. The most foremost lesson from this example is the severity and immediateness of the negative consequences to a non-profit club - even one with a strong board, a known mission, and dedication to succeed. This example also illustrates the challenges, time commitment, and accountability of a board member; particularly, when the board member is a volunteer of a non-profit organization.
One of the key jobs of the administrative director is to implement the policies and foresight of the board of directors. While there is often a natural tension in the middle of the non-profit board (at least if the board is truly engaged in the charitable mission) and its administrative director, both need to work well together to successfully further the mission of the organization. And, the administrative director is most often the 'public face' of the organization, so issues of credibility and ethical behavior are preeminent to the perception of the club in the society and constituency it serves.
With regard to the choice of administrative directors in small and medium-sized non-profits, at least two methods are easy to characterize: (1) the use of a crusade firm to recognize any top candidates for extreme choice by the board of directors; and (2) the promotion of the 'number two' man among the non-profit staff for, supposedly, all the right reasons: he/she has been there a long time, knows the organization, time is critical, budgets cannot keep the use of crusade firms (or the salary of the old administrative director), etc. With the current economic crisis, arguably, funders are seeing for the most worthy of causes and best-run charities before they make their contributions. Permissible administrative director choice is critically important. In addition, prompt discipline of administrative directors is equally important.
If a disaster of this magnitude can occur with a strong board of directors in a charitable club with a solid past and a promising future, it is clear what can (and does) happen to non-profits with weak boards and imprudent administrative directors. There has never been a more foremost time for non-profit governance to be fully addressed, given the increased Irs scrutiny, economic pressures, and funding shortages.
As is usually the case, only the best will survive and thrive.
