Non-Profit accountability - The administrative Director

Corporate Bylaws Template - Non-Profit accountability - The administrative Director

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This report speaks to the challenges faced by the board of directors of a non-profit, charitable, club in the option and supervision of its menagerial director.

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Corporate Bylaws Template

It's hard to believe that it was 18 years ago (1991) that the United Way of America scandal began to unfold and its menagerial director, Bill Aramony, was convicted in 1995 of a whole of wrongdoings along with embezzlement and spending funds unwisely. United Way was probably the most recognizable social 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 fellowships in corporate America. Unfortunately, its menagerial director was allowed to show the way the affairs of the club with very miniature 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 business entities, quite a few of them are very large organizations, and many have large incomes.

Curiously, it has come to be common over the past decade to replace the title of 'executive director' with 'president.' This is technically incorrect; an menagerial 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 obscuring 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 positively the duties of his/her board position.)

It may be beneficial to variation the issues of accountability for menagerial 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 miniature accountability was required by its board of directors.

Beyond the scope of this report - but an issue worthy of its own argument in the hereafter - is the cronyism too often seen in the board room. Ceos tend to ask friends and colleagues to serve on the board - as do board option committees - and the convention is common 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 field of old articles, and the focus of the town for Ethics, Governance, and accountability (Cega), acknowledges that Congress has moved speedily 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 report would speak to the issues animated the menagerial director.

This is that article.

In this example - which could well come to be a full-blown case study - a tenured menagerial 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 extremely focused on the mission of the organization. Exchange of such an personel is difficult for even the most ardent boards. In this case, a specialized search firm was engaged, candidates were identified, and finalists were interviewed by the board. A option 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 premium personel did not have the needful contact for the position of menagerial director. This was discussed with the board in the final interview and was highlighted by the search firm. While the candidate pledged to gain those skills on the job, once hired, he immediately reneged on his promise. Immediately upon advent to the non-profit organization, the new menagerial director began to halt employees, eliminate positions, dismantle programs and change the focus of the club in a dramatic fashion.

The old menagerial director and the board of directors had worked well together for several years to define a very exact mission for the non-profit. It was immediately clear that the new menagerial director had ignored the direction in case,granted by the board. There was clearly a personal agenda by the new menagerial director and, even worse, it was intentionally made public. When confronted by the chair and vice chair of the board, the menagerial director turned the board against itself and worked his 5-4 option vote to full advantage. But such gross insubordination is not sustainable. In only 10 months, the whole club was destroyed, the best board members had resigned in frustration, the menagerial 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, miniature perspective, and even less institutional knowledge. Adding to the challenge was the option of a new menagerial director using a process added described below: tapping the whole two man in the organization, who has even less contact than the now-departed predecessor. The hereafter does not look bright; but, pressure to make it appear animated can positively lead to worsening conditions.

What can be learned from this example?

First and foremost, it is extremely difficult to be a board member. It is not a job that should be taken lightly. Governance, ethics, and accountability are needful and boards must expect and uphold the highest standards for the non-profit organization. Additionally, boards must move speedily and firmly to deal with rogue menagerial directors that blatantly disregard board policy and mission. The most leading episode 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 menagerial 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 menagerial director, both need to work well together to successfully added the mission of the organization. And, the menagerial director is most often the 'public face' of the organization, so issues of credibility and ethical behavior are paramount to the perception of the club in the community and constituency it serves.

With regard to the option of menagerial directors in small and medium-sized non-profits, at least two methods are easy to characterize: (1) the use of a search firm to recognize several top candidates for ultimate option 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 reserve the use of search firms (or the wages of the old menagerial director), etc. With the current economic crisis, arguably, funders are finding for the most worthy of causes and best-run charities before they make their contributions. Permissible menagerial director option is critically important. In addition, prompt discipline of menagerial 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 menagerial directors. There has never been a more leading time for non-profit governance to be fully addressed, given the increased Irs scrutiny, economic pressures, and funding shortages.

As is commonly the case, only the best will survive and thrive.

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