05/16/2017

The Nonprofit CEO Exceeds The Authority Boundary – What Happens Then?

by Eugene Fram

It happens! When it does, it’s the board’s job to inform the CEO that he or she has taken on too much authority. As a board chair of a human service nonprofit, I encountered such a situation. The CEO signed a long-term lease contract on his own that should first have been approved by the board. The financial obligations involved weren’t significant. When the CEO recognized his error, I then asked for formal board ratification. None of us does our jobs perfectly. But a CEO has to recognize the board’s ultimate authority for long-term contracts and similar issues, even when the financial obligations are insignificant. Obviously, if the CEO continually takes such actions, there is a serious communication problem.

I don’t believe you need as much board-CEO trust in the for-profit world as in the nonprofit world. In the former, the “bottom line” can give directors a reasonably clear (not exact) indication of how the CEO is performing. In the nonprofit world, there is no organizational solid bottom line, except the one that says income must match expenses. Also, of importance, there are many qualitative outcomes, such as community impact, that are not part of the financial statements and must be considered in the evaluation. The need to assess organizational impacts has increased significantly in recent years and will likely accelerate in the future.

Board directors must trust in the ability of the CEO they have selected to do the job and clearly make the person accountable. Since there is no complete long-term performance bottom line for many nonprofit organizations, and the cost of obtaining sold qualitative performance metrics is so high, most nonprofits have to rely on imperfect metrics to obtain a semblance of comprehensive long-term performance.

Please click here to read the complete article from Nonprofit Management.