Good governance a necessity in NPOs


 

Comparing between Innovation, Poverty Impact, Governance, Sustainability and Replication, which element is most crucial to master in a nonprofit?

This question was raised during a recent strategy session we had and for us, it was not so easy to decide, as most of these elements are crucial in nonprofits. After some deliberation and some research afterward, we can confidently say that good governance should be the main priority for any nonprofit. Research shows that most nonprofits fall short in governance as a key area of performance.

 

In Engine of Impact: Essentials of Strategic Leadership in the Nonprofit Sector, William F. Meehan III and Kim Starkey Jonker define seven essential components of strategic leadership that a nonprofit must master in order to maximize its impact:

  • mission,
  • strategy,
  • impact evaluation,
  • insight and courage,
  • organization and talent,
  • funding, and
  • board governance.

 

Meehan and Jonker suggest that to be truly high performing, nonprofit needs to be strong in all seven of these areas and cannot have a weakness in any of them. As they explain in Engine of Impact, “an inability to master even one component can prevent an organization from achieving its goals.”

The Stanford Social Innovation Review conducted a study on this topic in November 2017. They found that more than 50% of nonprofits struggle with board governance and it was indicated as the most challenging aspect out of the above-mentioned seven elements.

Further analysis of responses from nonprofit executives, staff, and board members yields these findings:

  • More than half (52 percent) of nonprofit organizations are not ready to scale their impact because they have a weakness in strategic thinking (i.e., in mission, strategy, impact evaluation, or insight and courage).
  • Roughly, one – quarter (27 percent) of nonprofit organizations exhibit strong strategic thinking but have a weakness in strategic management (i.e., in organization and talent, funding, or board governance) that hampers their ability to scale.
  • Only a small share (11 percent) of nonprofit organizations have mastered both strategic thinking and strategic management and are therefore ready and able to scale their impact.

Even though these findings are bleak and discouraging, the solutions are achievable by sharpening performance in the key elements of strategic leadership. Strategic leadership broadly refers to the combination of strategic thinking and good governance.

Good governance at a board level starts with the engagement and participation of board members themselves. Serving on a nonprofit board is not a passive service but should be an active participation in the direction of the organisation such as reviewing budgets, project proposals, and strategic plans. However, more importantly, they should engage with the frontline activities of the organisation when the opportunity presents itself from time to time. If board members are uncertain of what daily functions and which communities the organisation serves and lose track of the pulse of the organisation, how can they offer strategic leadership.

Many donors and investors are scrutinizing the oversight, responsibilities and involvement of board members when evaluating organisations to support. Recent studies show that many board members do not have the skills, resources and experience needed to guide struggling nonprofits in an already uncertain and high demanding sector. It was also found that over a quarter of nonprofit boards do not have a deep understanding of their organization’s mission and strategy.

The Stanford Survey on Leadership and Management in the Nonprofit Sector found that nonprofit board members often do not play the roles that they should, especially with respect to fundraising and succession planning. Each nonprofit board member has a responsibility to participate in fundraising activities. In the survey, only 42 percent believe that their nonprofit’s board plays a very strong role in fundraising activities.

One of the most important roles of any nonprofit board is to oversee and plan for the succession of the executive director and to ensure that the organization conducts succession planning for the senior management team. Despite its importance, succession planning is not prevalent in the nonprofit sector, and many boards fall short in this area. In fact, 53 percent of nonprofit executives and staff disagreed to varying degrees with the statement “My organization conducts thorough and proactive succession planning for the executive director and top executives.”

Effective nonprofit boards periodically review and assess the performance of each board member (typically through their governance committee). Unfortunately, frank discussions and board self-assessments happen rarely in today’s nonprofit sector. Only half (51 percent) of respondents who are nonprofit board members indicated that they receive regular and specific feedback on their participation and involvement that helps them to improve their performance. Many reports also indicate a lack of diversity on boards.

When confronted with these realities about nonprofit boards across the world, it is essential that nonprofits embrace strengths within its existing board members and execute a clear strategy on how to correct shortcomings if they exist, to ensure longevity and strategic leadership on nonprofit boards.