Evaluating the Nonprofit CEO

As published in The Long Beach Business Journal, Third Sector Report Columnist

If you were to ask me to prioritize among all the responsibilities of a nonprofit board of directors, the performance planning and review process developed for the executive director would be the second on the list right behind advancing the mission statement.

And, yet, for more than a majority of the nonprofit organizations that I have worked with over the years, this responsibility of CEO performance planning and review has not even appeared on the list of board obligations, let alone at the bottom of it.

Responsibilities of Being A Good Employer

As business leaders, we recognize that employee performance planning, skill development, compensation review, and a formal evaluation process are fundamental components of operating a successful enterprise.  We also recognize that these steps minimize our liability, increase productivity, and create a managed work environment.

When nonprofit leaders fail to recognize their responsibilities to be a good employer, mass confusion can evolve over time and have a lasting impact on the culture of people working together to serve a mission statement.

This confusion most often results in an on-going lack of clarity regarding the role of the executive director in managing the organization versus the board’s role in governing the same organization.  Another confusion is conflict about work priorities. This creates an air of disharmony between the executive and policy-makers without any “check and balance” system for either party to use as a basis for deliberation.

The Third Sector, unfortunately, has lagged in its sophistication regarding human resources. It is one of those nonrevenue-generating positions or indirect service expenses which are difficult for boards to approve in budgets aimed at community service.  Yet, like every enterprise in the service industry, salaries normally account for a majority of total expenses.

The result has been a disproportionate number of alleged wrongful terminations because of lack of due process, inadequate human resource files, substandard employee handbooks with unclear documentation procedures, and astounding levels of conflict of interest as board members have inappropriately become involved with human resource issues.

Never forget that nonprofit is a tax exempt status offered to corporations by the Internal Revenue Service that meet specific criteria. While the status affords many societal benefits and advantages, it does not relieve the corporation and its board from an obligation to be an informed and lawful California employer.

There Is Potential Personal Liability Involved

An even more compelling reason for the executive performance planning and review process to be at the top of a board’s list of obligations is the potential personal liability that an individual board member could face depending on the human resource issue at hand and the behaviors of the board and its members in its resolution of the issue.  Employees of nonprofit organizations are guaranteed a right of confidentiality and a board of directors must be aware of how discussion of human resource issues should be lawfully treated.

A Board Should Always Have Third-Party Human Resource Counsel Available

No nonprofit board of directors should ever be without sound human resource legal counsel.  This counsel should never serve on the board, but, rather, should be counsel to the board.

There is no larger crime than dollars that have been entrusted through generous charitable giving or taxpayer dollars allocated for community betterment to be directed to pay for poor employment practices.

The best insurance policy for everyone involved is a performance planning and review practice that is modeled by the board in its relationship with the executive and then carried forward throughout the organization to other employees by the executive.

If you serve on a board of directors and I have successfully caught your attention, the objective has been achieved.  Over the next several issues, I will provide suggestions for making the nonprofit CEO performance planning and review process the single largest contributor to role clarity between staff and volunteers, priority-setting for the entire organization, and the art of delegation in a voluntary organization.

The bottom line is a truth that has created and sustained The Third Sector in our country over time: Developing and supporting good leaders of people will only build a larger base of followers to a mission statement.  

Executive performance planning and review for a nonprofit organization is about leadership development for everyone involved in the process.  Leadership is the greatest asset that a board of directors is entrusted to cultivate for the good of the organization, the good of the sector, the good of the community … and the good of the men and women who have dedicated their careers and their lives to The Third Sector.

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