|
FREQUENTLY
ASKED QUESTIONS: THE NONPROFIT CHIEF EXECUTIVE OFFICER
Should
every nonprofit have a chief executive officer (CEO)?
Regardless of size, volunteer or staff, or title every nonprofit
organization should have this function. The Boardsource book
The Nonprofit Board Answer Book clearly articulates
this fundamental issue.
“Every nonprofit organization should designate one person
to function as its operational leader. That person's title
does not have to include the words chief executive or chief
executive officer, but the bylaws and other policy documents
should identify which position carries the authority and responsibility
of running the organization day to day reporting to the board
of directors. The following are some reasons why:
- A board needs one point of accountability
- Staff members need to know where the buck stops
- Donors need to identify the leader
- Other external constituents need to know who is in charge
- Planning needs a facilitator
- The organization needs one spokesperson1
What is the proper title for this person?
The title of persons leading nonprofits has changed over time.
Historically that person has been known as the general secretary,
director, secretary, superintendent, executive director, etc.
The most common designation during the rapid development of
the nonprofit sector in the mid-20th century was Executive
Director. In the final decades of the century the title of
President and CEO became more and more common. As the sector
becomes more staff intensive and businesslike, this title
tends to more accurately reflect common understanding of role
and authority. The following will seek to define the role
and relationship of the board of directors with regard to
the chief executive officer.
What is the Board's Role in Engaging the CEO?
The board has the responsibility of hiring one person - the
chief executive officer. There are four components of the
employment of a CEO: engagement, support, evaluation and termination.
Each is important for the success of the CEO as well as the
organization.
How Should the Board Engage a New CEO?
The board of directors may be hiring
the first CEO or replacing a CEO that is retiring, moving
to a new position or is being terminated. Whatever the reason
the board should undertake the task in the same way. The plan,
activity and decision for this leadership transition should
be governed by an aggressive, patient and intentional search
rather than a passive seeking of applicants.
First, the board needs to develop a
current job description reflecting the current organization
and its environment. (See Appendix A for a sample job description.)
The board needs to delegate its authority
to a Search Committee. That committee initiates a process
of identifying candidates. While most nonprofits utilize volunteers
in this identification process, an increasing number of larger
nonprofits are engaging search firms that have developed a
nonprofit search practice. (Most major metropolitan areas
search firms have developed such services and are able to
conduct national searches.)
It is difficult to overemphasize the
danger of this time for the organization and its future if
the board does not take this task seriously. Boards all too
often focus on getting “it over with” by promoting an internal
candidate or informally selecting someone from the board or
community. “Unfortunately, the landscape is littered with
the results of poorly planned and managed leadership transition.
Diminished careers, disillusioned boards of directors, dysfunctional
management teams, bewildered constituents, and all too frequently
cynical public reaction flow from an inept transition.”2 We
urge the board leadership to expend resources and seek assistance.
That assistance can facilitate the interview of candidates
including review of credentials, experience and performance.
When the board makes a decision there
are two forms of engagement - letter of engagement or contract.
The latter is a legal agreement between the board and the
CEO usually for a fixed term of time. The former outlines
the terms of employment without a time limit. The primary
advantage of a contract is a built in review of the contract
with potential of non-renewal rather than the difficult volunteer
task of evaluation and involuntary termination.
While both forms of engagement are
practiced with success, we believe a letter of engagement
with strong support and evaluation provides for a collegiality
that strengthens the working relationship and the organization.
Appendix B contains a sample letter
of engagement. It should be noted that it not only sets forth
compensation and beginning date, but also the critical elements
of support, evaluation and termination.
How does the board carry out the support component?
While the term “support” describes
the entire relationship between board and CEO, it is used
here to describe specific commitments of the board as it delineates
the conditions of employment as well as the dynamic commitments
during the time of employment.
The
following outlines critical components of this support:
- The compensation and benefits established
in the employment of the CEO need to be carefully articulated
in the letter of engagement and reviewed on a regular basis.
Those benefits should reflect a current survey of what is
appropriate for this position in the marketplace as well
as being in line with the organization's resources.
- It should be cleanly established
that the Chair of the Board is the CEO's direct supervisor
and as such both persons should set up the mechanisms for
a successful and dynamic relationship.
- The board through its job description
and training agrees to fulfill its other nine responsibilities
as outlined in the FAQ about Governance and Boardsmanship.
- Vision and Mission
- Policy
- Strategic Planning
- Fiduciary
- Resource Generation
- Community Liaison
- Government Relations
- Board Development
- Leadership
- The board should commit to a regular
evaluation of the CEO as a way to support growth in the
job. (The board is well advised to have a conflict resolution
process in place while there is no conflict.)
- The board will establish a succession
planning process to assure an appropriate board response
when the inevitable occurs - the CEO leaves.
Each of these will ensure that the working relationship between
board and CEO will be collegial rather than separate at best
and adversarial at worst.
How should the board evaluate the CEO?
The board should
conduct an annual evaluation of the CEO. The CEO should
be an active partner through self-evaluation. In addition
the job description and the CEO's annual work are primary
documents utilized in this review. Many boards have developed
a method of getting input from the various constituents
of the organization including supervised staff. The formal
method of doing this is called a “360 review.”
There are excellent instruments available through Boardsource
and other national resources. (See additional resources
at the end of this FAQ.)
Usually
the Executive Committee conducts the evaluation. It is all
too common that the Executive Committee or (worse) the chair
does not share the evaluation and compensation level with
the board. Such lack of transparency is not in the best interest
of the organization, board or CEO. It is important that the
evaluation be shared with the full board.
For
larger nonprofits we would suggest they utilize outside expertise
in conducting the evaluation. If they contract with a firm
to do an annual independent audit why not utilize a human
resource firm or qualified consultant to conduct the CEO review?
In
Appendix C there is a sample process and form taken from the
Free Management Library website. http://www.managementhelp.org/. The material was written by Carter McNamara, MBA, PhD, Authenticity
Consulting, LLC. Copyright 1997-2008 and adapted from the Field Guide to Developing and Operating Your Nonprofit Board
of Directors.
The issue of termination of the chief executive officer
A nonprofit board must be prepared for the inevitable - the
departure of the CEO. That departure can take several forms
- retirement, illnesses, job change, and forced resignation.
In speaking to a national conference about executive transition,
Frances Hessilbein emphasized that succession planning should
begin on the CEO's first day. Few things throw a nonprofit
more than the sudden departure of a CEO and the board should
have a plan in place to cover several crucial issues.
-
The board needs to have clarity of expectations so that
in the event of a planned or unplanned departure there is
clear delegation of responsibility and authority for who
does what.
- Once
the operational aspects of the organization are in place
the board needs to do a thorough self-assessment.
- As
a part of the annual evaluation of the CEO there should
be review of the CEO's future plans seeking to minimize
surprises.
- Finally
a succession plan should detail the necessary steps to undertake
an emergency transition plan.
- The
process for the search for a new CEO should also be laid
out in the succession plan.
A
good succession plan can help the board maintain its appropriate
role of governance so that it can stay out of assuming management
responsibilities. Or if circumstances dictate the necessity
of taking on management responsibilities the plan will help
the board (or Chair) back out when a new CEO begins.
Conclusion
The
issues involved in the topic of the “Nonprofit Chief
Executive Officer” are numerous and complex. We would
urge organizations to be proactive in education and training
for its CEO and board. The ASU Lodestar Center offers courses
through its Nonprofit Management Institute as well as topical
workshops. The Center is developing a symposium for CEOs
and Board Chairs that will be a valuable resource. In addition
there is a wealth of literature on the internet and in print.
Some of that is listed as Additional Resources at the end
of this FAQ. When considering how dynamic this issue is
consider the following:
“If
your organizations are changing - and they are,
If the CEO
role is changing - and it is,
If the role of the board chair
and the board itself is changing - and it is,
Then it is totally
logical to assume that the relationship between the CEO and
the board is changing too.”3
Notes:
1The
Nonprofit Board Answer Book: Boardsource, Jossey-Boss,
San Francisco. 2007 p 231
2Hesselbein, Frances
Hesselbein on Leadership (Jossey-Bass: San Francisco,
2002) p. 42.
3Peter Goldberg, President
of the Alliance for Children and Families, speaking at
a Board Chair/CEO Institute, February 7, 2009.
Related Resources
- Boardsource The Nonprofit Board Answer Book (John
Wiley and Sons, Inc: New York, 2007)
- The Wet site of Boardsource. Inc http://www.boardsource.org/
- National Council of Nonprofit Associations: http://www.councilofnonprofits.org/
- Free Management Library website. Carter McNamara, MBA,
PhD – www.managementhelp.org
- Hesselbein, Frances Hesselbein on Leadership (Jossey-Bass:
San Francisco, 2002)
- Wilbur, Robert H. ed. The Complete Guide to Nonprofit
Management (John Wiley and Sons, Inc: New York,
2000)
- The Jossey Handbook of Nonprofit Leadership and
Management (Jossey-Bass, San Francisco, 2004)
- ASU Lodestar Center website - http://www.asu.edu/copp/nonprofit/index_lodestar.htm
- ASU Lodestar Center website for Nonprofit Management
Institute - http://www.asu.edu/copp/nonprofit/edu/nmi_front.htm
- Tierney, Thomas “The Leadership Deficit” Stanford
Social Innovation Review, Summer 2006
http://www.ssireview.org
(This article “Should
every nonprofit have a chief executive officer (CEO)?” has
been developed by the many persons and organizations seeking
assistance from the Lodestar Center for Philanthropy and
Nonprofits Innovation. We invite you to add your questions
and reactions through the” Ask the Nonprofit Specialist” section
of the center’s website so that we might improve
and expand these FAQ.)
Appendix A - Sample Job Description
Sample Job Description for Position of Chief Executive Officer
(The following job description should be reviewed and customized by an organization to meet the needs and nature of the organization.)
Job Title: |
Chief Executive Officer |
Function: |
• To implement the strategic goals and objectives of the organization
• With the chair, enable the Board to fulfill its governance function
• To give direction and leadership toward the achievement of the organization's philosophy, mission, strategy, and its annual goals and objectives |
Reports to: |
Board of Directors |
Major Functions/
Accountabilities:
|
- Board Administration and Support -- Supports operations and administration of Board by advising and informing Board members, interfacing between Board and staff, and supporting Board's evaluation of chief executive
- Program, Product and Service Delivery -- Oversees design, marketing, promotion, delivery and quality of programs, products and services
- Financial, Tax, Risk and Facilities Management -- Recommends yearly budget for Board approval and prudently manages organization's resources within those budget guidelines according to current laws and regulations
- Human Resource Management -- Effectively manages the human resources of the organization according to authorized personnel policies and procedures that fully conform to current laws and regulations
- Community and Public Relations -- Assures the organization and its mission, programs, products and services are consistently presented in strong, positive image to relevant stakeholders
- Fundraising (nonprofit-specific) -- Oversees fundraising planning and implementation, including identifying resource requirements, researching funding sources, establishing strategies to approach funders, submitting proposals and administrating fundraising records and documentation
Job description last revised and authorized by Board: [insert date!!] |
The above sample description is taken from the Free Management Library Web site. Carter McNamara, MBA, PhD – http://www.managementhelp.org/
Appendix B – Sample Engagement Letter
Dear ___________________,
Is it our pleasure to offer you the position of
(title) of (organization’s legal name) beginning
on (date). The formal job description outlining title,
function, and accountabilities is attached as part
of this letter of engagement. The board has carried
out a thorough search and decision making process.
In making this offer it wishes to pledge itself
to the following three components of the organization’s
relationship to you as chief executive officer.
Support:
Your beginning compensation shall be (amount) annually. The board shall review your compensation on an annual basis. In doing so the board shall take into account performance, organizational resources and appropriate compensation levels in the market.
In addition the organization shall provide support through the following benefits: (Sampling: vacation, sick leave, expenses, professional development, bonus, retirement, etc.)
The Chair of the Board shall provide direct supervision and communication with the rest of the board.
The board will carryout the responsibilities of the board in support of those the organization serves, staff, volunteers and CEO. The board pledges to support and participate in board training as well as board evaluation as a means of ensuring this commitment.
As is appropriate in a change in leadership the CEO shall work with the board in initiating and completing a strategic planning process within one year.
Evaluation:
The board will conduct an annual performance evaluation. The evaluation will utilize your accepted work plan, self-evaluation, and feedback in providing an evaluation that endeavors to recognize accomplishments and areas of future growth. Where growth issues are identified the board pledges to work with you in developing professional and person growth plans that will help you succeed.
The evaluation will be shared with you and the full board.
Termination:
In offering this letter of engagement the board recognizes that succession planning needs to be in place throughout what we hope will be a long and prosperous relationship between you and the organization.
Therefore the board will develop with you a succession plan that will include the following:
- The identification of a person or persons who will be available to provide leadership in the event of your absence.
- The identification of a process of professional development of staff who may one day succeed you or other officers of the organization
- The plan for normal operations and authority in the event of a sudden unexpected loss of key leadership including volunteer leadership.
- The process for the board to initiate in the event of your permanent departure as CEO.
The Chair and CEO shall be jointly responsible for the development and presentation of this succession plan to the board within six months of the beginning of your engagement as CEO.
The term of this engagement shall not be fixed and your service shall be at the pleasure of the Board of Directors. If you accept the terms and intent of this letter of engagement please sign one copy and return it to the Chair of the Board.
Sincerely yours,
(Name), Chair
Accepted: ______________________________________ Date: ______________
|
Appendix C – Sample Evaluation Form for CEO
This sample should be customized to the particular culture and purpose of the agency by modifying the performance criteria (in the following table) as appropriate for the organization, inserting those criteria in the table below, and conducting the evaluation using the updated table.
Directions:
- The Board establishes a policy for evaluating the Chief Executive and establishes a current or ad hoc committee to carry out the evaluation. See “Guidelines for the Board's Evaluation of the Chief Executive.”
- Board, working with the Chief Executive, establishes performance criteria and inserts them in the table below. References organizational goals and the Chief Executive's job description.
- The Board assigns specific weighing factors for each of the major categories below. Factors depend on what the Board believes should be priorities for the Chief Executive during the evaluation period. The factors should total 100%. Example weightings might be finances 15%, revenue 20%, human resources 15%, products/programs 20%, facilities 10%, planning and governance 20%.
- Each Board member and the Chief Executive complete the table below about the Chief Executive's performance during the evaluation period. Each criteria is ranked from 1-5, with
1 = Unsatisfactory, 2 = Partially within expectations, 3 = Meets expectations, 4 = Exceeds expectations, and 5 = Far exceeds expectations. This numerical ranking system tends to give perspective more than commentary. Rankings with commentary is ideal.
- Multiply each ranking by the category's weighting factor. Put the answer in the score column.
- On a separate sheet of paper, provide any commentary that addresses rankings below 3. Consider adding commentary for high ratings as well.
- Provide evaluation sheet and commentary to the Board member who is assigned to collate the sheets (usually the Board Chair).
- The Board may decide to provide the Chief Executive an average ranking for each category. Similarly, commentary can be summarized or each comment provided to the Chief Executive.
- The evaluation committee provides the evaluation report to the Chief Executive and schedules a meeting with him or her shortly thereafter.
- Ensure the meeting is update and ends on a positive note.
- Ensure plans are made to address ratings below 3, including specific actions by specific dates.
Sample Basic Form for Evaluating Chief Executive
Name of Preparer |
Ratings |
Weight
Factor |
= Score |
Finances, consider:
• No loss of operating funds; no prolonged legal difficulties
• Develops realistic budgets and stays within them
• Maintains needed cash flow
• Receives a "clean" financial audit
Comments: |
|
|
|
Revenue, consider:
• Raises enough revenue to accomplish significant program goals and maintains or builds a financial balance keeping with organizational policy
Comments: |
|
|
|
Human Resources, consider:
• Maintains or increases productivity of staff
• Maintains sufficient and effective volunteer corps (nonprofits)
• No undue staff turnover; no ongoing personnel complaints
Comments: |
|
|
|
Products/Programs, consider:
• Maintains or expands programs per plans
• Program evaluations demonstrate effectiveness
• Meets yearly program goals and objectives
Comments: |
|
|
|
Facilities, consider:
• Maintains professional surroundings and safe working environment
Comments: |
|
|
|
Planning and Governance, consider:
• Has in place a clear mission statement and strategic plan
• Maintains an active Board that provide good governance to the organization
Comments: |
|
|
|
Please note that websites frequently change
and while we endeavor to keep links current, some might not
work. When you encounter such a problem you can help us by
sending an e-mail to robert.duea@asu.edu so that we might
investigate and make changes to our information and links.
Copyright © 2010
Arizona Board of Regents for and on behalf of the ASU Lodestar
Center for Philanthropy and Nonprofit Innovation, College
of Public Programs, Arizona State University. All rights
reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form
or by any means, electronic, mechanical, photocopying,
recording or otherwise, without the express written permission
of the ASU Lodestar Center, except for brief quotations in
critical reviews.
Last updated: 05/10/2010
Frequently
asked questions | How questions
are answered | Ask a question
|
