Nonprofit Boards Urged to Focus on the Challenges Posed by the Economy

Given the sour economy, charities must make tough decisions in the months ahead that will be critical to determining whether they survive, Rebecca W. Rimel, president of the Pew Charitable Trusts, told board members and other nonprofit leaders at a meeting in Washington last month.

“Compared to a year ago, we are all 20 to 30 percent poorer in terms of resources. Every one of our endowments has been impacted,” Ms. Rimel told the annual conference of BoardSource, an organization that works to improve nonprofit governance. “I read a lot of articles that say donations are not going to be impacted. I find that almost impossible to believe.”

In light of the volatile economy, she said, organizations should devise multiple scenarios for how they plan to conduct operations over the next year. “Plan for the worst, and hope for the best,” she advised.

Many charities will need to consider closing offices, merging or sharing costs with other organizations, or hiring contractors to perform duties previously handled by staff members, said Ms. Rimel.

Rather than shy away from this “unattractive list of alternatives,” she said, chief executives should consider the “significant cost of inaction” and act swiftly and decisively. And instead of making across-the-board cuts that “spread the pain,” Ms. Rimel recommended assigning priorities that enhance the organization’s chance of survival, focusing on what the organization does well, and making cuts in programs not essential to the charity’s mission.

Ms. Rimel said some groups will want to consider merging with like-minded organizations so they can more efficiently serve the needs of their constituents.

She also said nonprofit groups may want to reconsider what is most important as they select new trustees.

While many organizations favor board members with access to deep pockets, Ms. Rimel said, in difficult times it is even more important to have board members who also know how to conduct audits, understand financial issues such as compensation and benefits, and take seriously their responsibilities to oversee the use of contributions and other resources.

“This is no time for letterhead membership or a prestige board,” she said.

Ms. Rimel emphasized the need for clear and continual communication among the organization’s staff, board, and constituents. It is the chief executive’s responsibility to keep the board fully informed, she said, and the duty of the board to provide fair and frequent feedback.

She recommended that charities contact donors with outstanding pledges to forestall unpleasant surprises, and she urged chief executives to draft a candid and thoughtful letter to volunteers and donors detailing the organization’s financial standing and plans for the near future. “I bet everybody in the room who has an investment account has heard from your investment manager,” said Ms. Rimel. “That’s exactly what the sector should be doing.”

Like the Internal Revenue Service on its new Form 990, which includes questions about charities’ conflict-of-interest and whistle-blower policies, a growing number of grant makers are embedding good-governance requirements in their grant applications and evaluation processes, said Kathy Hedge, a strategic-initiatives adviser at BoardSource.

Ms. Hedge described a survey of 53 grant-making organizations, including family, community, and private foundations as well as corporations, that was conducted by BoardSource and FSG Social Impact Advisors, a Boston consulting group. The survey, which will not be released until next year, found that a large number of foundations are stressing the importance of due diligence for board members by asking probing questions of grantees about their board’s composition and involvement or requiring board participation in grant projects.

Some, like the Eugene and Agnes E. Meyer Foundation, in Washington, require that the board pass a motion affirming that they have read and accepted the offer of a grant. Others such as the Forbes Funds, in Pittsburgh, ask grantees to form ad hoc committees with two or three trustees who are charged with administering grants and monitoring projects that receive foundation support.

Some foundations in the survey emphasize good governance by holding special events for grantees with experts on governance, providing educational resources and board training, or forming peer circles so that board members can learn from each other.

The Gulf Coast Community Foundation of Venice, in Florida, offers free online self-assessments to board members and training for trustees during a two-day retreat. The Foellinger Foundation, in Indiana, asked community members to nominate outstanding board members and ran a six-week publicity campaign to highlight the importance of board leadership.

William P. Ryan, a research fellow at Harvard University’s Hauser Center for Nonprofit Organizations, offered advice to charity executives on how to steer their board’s attention away from the mundane details of daily operations toward larger, more important issues related to the organization’s mission and future direction.

Mr. Ryan suggested that boards use a “consent agenda,” which allows members to settle routine procedural matters ahead of time via e-mail so that trustees can spend the full meeting on more weighty matters.

Many boards’ structures are “historical artifacts,” said Mr. Ryan, with governance procedures guided by force of habit rather than reason. He urged chief executives to give careful consideration to how often and how long boards of directors meet, consider requiring trustees to notify the chairman if they intend to miss a meeting as a way to discourage half-hearted participation, and create agendas that pose questions or challenges for the board.

To enliven board meetings, Mr. Ryan suggested that the chief executive or board chairman begin each one by announcing a question or theme for the meeting, followed by few minutes of silence. This “silent start,” he said, puts board members in a reflective mood and makes it less likely that the discussion will be dictated by the first person to speak.

Most important, he said, chief executives should examine their own attitudes and behavior toward their board. An executive who is focused on “handling” board members and presents decisions that require only board ratification is less likely to have engaged and responsible trustees to turn to for advice, said Mr. Ryan.