Starting From Scratch

How charities cope when their boards need a makeover

The recent outbreak of scandals at such high-profile organizations as American University, the Getty Trust, and the Smithsonian Institution — situations worsened, observers say, by failures of those groups’ boards to provide oversight — has set off waves of recrimination, soul searching, and finger pointing. But for Charles W. Anderson, chief executive of the United Way of the National Capital Area, the controversies have served to remind him of just how far his own charity has come.

Five years ago, the United Way in the District of Columbia was reeling from its own financial scandal, a messy affair that resulted in the wholesale replacement of the group’s Board of Directors and a jail sentence for the charity’s former leader after he was convicted of stealing more than $500,000 from the organization. The incident quickly took a toll on the group’s fund raising: In 2002, it was forced to forfeit its participation in the Combined Federal Campaign — its biggest account, according to the organization — as a direct result of the scandal. That year, revenue plummeted to $38-million, compared with $97.6-million the previous year.

Today, says Mr. Anderson, who took over as president in 2003, the charity is recovering — thanks in part to the way in which it rebuilt its board.

“It takes years to build up trust in an institution, and you can lose it in a matter of minutes or seconds,” he says. “A few years ago we weren’t sure we would even be able to stay afloat financially. We’re financially healthy, and we’re seeing a lot of progress in public support.”

Although donations have remained stable — the group says it generated $35.2-million (an unaudited figure) for the 2005 fiscal year, the latest one for which data are available — the group has not yet been invited to rejoin the Combined Federal Campaign. But the group points to some recent developments as promising for its recovery: A former trustee, Lynnwood Campbell, is returning to serve as board chairman, and several high-profile local luminaries, including Marcus Washington, a Washington Redskins linebacker, have lent their aid to the charity’s fund-raising efforts.

While the United Way’s decision to restructure its Board of Directors was made under duress, the problems that it faced, including a board that was unwieldy in size and unaccountable in structure, are ones shared by many nonprofit organizations. And the journeys that United Way and other groups took to improve their governance hold lessons for groups in turmoil.

While cautioning that high-profile scandals do not represent the vast majority of nonprofit organizations, Richard Chait, co-author of Governance as Leadership: Reframing the Work of Nonprofit Boards, nevertheless urges charities to pay attention to cautionary tales. “The scandals should serve as reminders to all nonprofits that governance entails more than advocacy and philanthropy,” he says. “Trustees, as fiduciaries, are responsible for the organization’s ethical conduct.”

No matter how large or small a group is, “there’s a common denominator about the kind of problems that boards have,” says Marla Bobowick, vice president of products at BoardSource, an organization in Washington that works with charities to strengthen their governance. “Look at the boards that haven’t had great success lately and chances are you’ll see a lack of engagement and a lack of thoughtfulness.”

Ms. Bobowick, whose group has worked with more than 75,000 nonprofit leaders, argues that the most successful boards share an ability to find the right balance between overseeing the organization and raising funds, serving as a monitor and a leader, and providing challenge and support.

“If all the board does is sit around and look at financial statements, they’re going to miss something — either a compliance issue or an opportunity,” she says.

Drastic Measures

The story of how the United Way of the National Capital Area turned itself around contains plenty of lessons for other nonprofit institutions that have been mired in negative publicity and the resulting loss of public trust. Lesson number one: When scandal strikes, drastic action may be required.

The Washington charity disbanded its Board of Directors in 2002 and replaced it with a much smaller and more structured entity. The current board, says Mr. Anderson, consists of 21 people, fewer than half as many as served on the previous board. And the body has been reorganized, he adds, to maximize its oversight role and ensure that neither corruption nor financial malfeasance ever taints the charity again.

“On the old board, everything went through the financial and administration committee, and information didn’t necessarily get shared with the rest of the board members,” says Mr. Anderson. “Early on, the new board adopted key components to show the public that we were serious about honesty and integrity. Today we’ve got separate audit, finance, and governance committees as well as an independent ethics committee. What we’ve done is build in a lot of checks and balances.”

Slimming Down

The question of how many people to include on a board of directors is one that plagues many charities, says Ms. Bobowick. While BoardSource research indicates that the average board has 17 members, many charities have much larger boards. “With a big group the question is how engaged the people are,” says Ms. Bobowick. “Board work is about more than just showing up.”

When Susan Stepleton took over as president of Parents as Teachers, a St. Louis charity that encourages greater family involvement in children’s early learning, just getting enough of the group’s 35 trustees to attend meetings was a challenge. The organization ultimately determined that it needed fewer but more-engaged trustees, including people who had previous experience serving on other nonprofit and corporate boards.

As part of its makeover, Parents as Teachers took a hard look at the individual board members and had a frank discussion with each regarding what he or she was able or willing to give. “It sounds like a tough conversation, but people know when they’re not carrying their weight,” says Ms. Stepleton. “For a few of our board members, that conversation came as a real relief.”

Today, the board has slimmed down to 21 members, who each serve three-year terms that can be renewed once, and four additional “life members,” predominantly people who were involved in the founding of the organization.

Ms. Stepleton says that she is also pleased with the new additions to the board, people who have been added because their professional backgrounds — including strategic planning, marketing, and policy expertise — fit the needs of the organization: “People have been added very carefully after long courtships, with clear expectations of what they’ll contribute.”

Wanted: Star Performers

The United Negro College Fund, a higher-education assistance program for members of minority groups, has never lacked for big names on its Board of Directors. But when the Fairfax, Va., organization changed leaders three years ago, the new administration decided to trade in star power for star effort.

“The challenge with the really big names is that you can never get their attention for very long,” says John P. Donohue, the group’s executive vice president for development. “We looked at attendance and committee membership and decided there was room for improvement.”

The solution: While the board of the United Negro College Fund still includes a number of corporate titans — the 21 members of its 36-member board who come from businesses include the chief executives of Wal-Mart and Costco — the organization has changed its recruitment strategy to focus on up-and-coming professionals who are willing to work hard on behalf of the charity.

“Instead of just going through a list of top companies in the U.S., we’re seeking out folks who have objectives and value systems that align with ours,” says Mr. Donohue. “We’re still recruiting from corporate ranks. What’s changed is what we’re asking them to do.”

Now, instead of “a phone call a year,” he says, board members are being asked to provide fund-raising help and oversight of the charity’s activities. Another board meeting has been added to the schedule, and committee members are expected to be easily accessible through video conferencing. So far, the trustees are rising to the challenge with “inspiring” conduct, he says.

Shannon MacFayden, an executive vice president at Wachovia Bank, in Charlotte, N.C., is a recent addition to the board. She confesses to having been taken aback when Michael Lomax, president of the United Negro College Fund, explained just how much was expected of her as a new recruit.

“Dr. Lomax was very clear,” she says. “He needed somebody who was going to be very hands-on, very engaged, not just figurehead leadership. He explained that I needed to show up for meetings, be prepared for meetings, and be actively engaged in fund raising. My first thought was, ‘Gosh, this is a lot of work.’”

But two years into her new role, Ms. MacFayden says that she is thrilled with both the position and its demands. Her experience working on the compensation committee at Wachovia, she says, has made her a natural fit to take on oversight responsibilities on the board. And, despite what she acknowledges has been a steep learning curve, she is looking forward to her next term: “I hope that I’m the kind of board member that they’re going to want around for a long time.”

Fighting Inertia

While charity executives typically prize loyalty among their board members, some nonprofit groups find that trustees want to stay in their roles for too long. That was the situation facing Artreach-Dallas, a charity that helps needy people gain access to the city’s arts and cultural events.

The 25-year-old charity had a 20-member board of directors and no limit on the number of terms members could serve. The result, says Alex Ramsay, who became president of the board in February, was that several long-serving board members had become jaded.

“People get worn down over time and become emotionally resigned,” says Ms. Ramsay, who has since accepted the resignations of three trustees and added a half dozen new ones.

Such board fatigue had begun to take a toll on the organization’s books; fund-raising efforts last year fell short by some $30,000, a significant amount for a charity with a $250,000 budget. But Ms. Ramsay feared that unless steps were taken to energize the board and renew members’ commitments to the group, more serious problems could result. “When you get complacent on a board, that’s when bad things can happen,” she says. “The door opens for things to implode.”

While Ms. Ramsay says that the infusion of new blood has resulted in a newly energized board, her efforts to make over the structure aren’t through yet. She is seeking to change the charity’s bylaws to include term limits for trustees. Letting board members serve indefinitely, she says, “often leads to fatigue and weariness just when you most need people.”

For Oklahoma Shakespeare in the Park, a nonprofit performance and theater-training group based in Oklahoma City, it took a pair of disasters to light a fire under its Board of Directors.

Two blazes destroyed the group’s stage, then located in a suburban park outside Oklahoma City. When the first blaze occurred in 2001, the charity responded by raising the money to rebuild. But when fire claimed the stage again in 2005, the board — by then whittled down to eight, mostly veteran members — was overwhelmed, says David Holt, who took over as president of the board in October of that year.

In the wake of the board’s sluggish response after the second fire, he says, “we realized that if the group was going to survive we needed fresh blood, energy, and a new vision.”

In beefing up the board’s ranks, Mr. Holt sought members who had skills that the tiny organization, with its two staff members and annual budget of $175,000, desperately needed. The reconstituted board now has 17 members, including a lawyer, three public-relations experts, and a graphic designer, all of whom have joined since 2005.

Now Mr. Holt, who works as the chief of staff for the mayor of Oklahoma City, says that he hopes the new energy at the board table will pay off with a booming box office this summer. The signs are auspicious. The group has a new stage downtown and brought in $120,000 in grant money in 2006, twice what it typically raised in a year.

A 21st-Century Board

When Allan I. Bergman took over as president of the Anixter Center in 2004, he was replacing someone who had run the Chicago disability-rights and service organization for 25 years. And while the charity appeared to be in good condition — it serves 5,000 Chicagoans per year and has a $33-million budget — Mr. Bergman was concerned that the group’s Board of Directors was spending too much time rehashing past decisions and not enough filling the forward-looking role needed by a large organization in the 21st century.

“I was aware of all of the board scandals out there, all of the bad examples,” he says. “I also knew that the bar had been raised.”

One of Mr. Bergman’s first steps as the new head of the center was to organize a two-day retreat for the 33 board members. The featured guest at the retreat was a lawyer who laid out the major legal duties and fiduciary responsibilities that accompany board membership.

By the time the retreat was over, the group had committed to restructuring itself and had rewritten its bylaws. It also backed a plan to shrink its own numbers. The new bylaws, adopted in 2006, allow for 15 to 21 members to serve on the board; currently, board membership stands at 20.

But perhaps most important has been the changed understanding of what the board does, says Mr. Bergman.

Today, the quarterly meetings of the board are devoted to strategic planning, including discussions about where the charity should be 10 years from now. “In the old days the board met to read committee reports,” says Mr. Bergman. “But the business of the board is the future, not the past or the present.”

The board’s president of the past two years, MaryMargaret Sharp-Pucci, an epidemiologist and a prominent activist for the deaf in Chicago, says that the new meeting style has changed the way that board members relate to one another and to the charity that they serve.

“We’re not as passive as we were before,” says Dr. Sharp-Pucci, an Anixter trustee for 10 years. “Now the rule is that you come in prepared and you use the time to discuss strategic issues.”

Dr. Sharp-Pucci insists that the enhanced communication, among board members themselves and with charity leaders, does more than make the quarterly meetings productive. It will protect the organization from running into the kind of oversight trouble that has confounded such charities as the Smithsonian and the United Way of the National Capital Area.

“The more communication we have and the more training we have in what our responsibilities are, the less chance there is of running into problems,” she says. “We were a good and responsible board before, but now we’ve reduced our risk even further. Now we have a culture of asking questions.”