Dr. Eugene Fram, professor emeritus in the Saunders College of Business at the Rochester Institute of Technology, believes that what is done in the business world, if done ethically, applies to nonprofits.
In a nutshell: A corporate entity’s profit equals a nonprofit organization’s mission and impacts, Fram said.
Fram has thought about boards at a high level as both an experienced director and an author. He’s delved deeply into the issue of board and CEO roles for “more years than [he cares] to admit” in both the corporate boardroom and nonprofit worlds.
Here are his views on establishing a culture in your relationship with the board that minimizes micromanagement of the CEO over the long term:
“What you need is substantial trust between the board and management,” Fram said. If the two parties have a culture where both the board and the CEO understand what each party is responsible for, you will build trust from the start and this will gradually become ingrained into the relationship, he said.
“My feeling is the CEO should not be viewed as someone who works for the board, but should instead be partners in a relationship, where both acknowledge their separate responsibilities,” Fram said. The board’s responsibilities are governance, while the CEO is responsible for operations, he said.
For the partnership to develop as it should, responsibilities need to be defined for each party that develop the necessary boundary lines, Fram said. “Boards can differ in how they look at these boundaries,” he said.
Some boards prefer very specific laundry lists of the respective roles be included in the bylaws or in policy that defines what is policy and what is operations, Fram said.
In Fram’s view, this all can be simplified a great deal and trust built. “I strongly believe this can be developed with six definitions that clarify what is the board’s responsibility and then the remainder is operations,” he said.
Here are brief explanations of the board’s responsibilities, according to Fram:
- Direct management. This means the board employs and evaluates the CEO. The board also provides long-term objectives that effect strategy that will achieve the organization’s mission and provide impacts.
- Judge management. The board receives and assesses the CEO’s short- and long-term reports based on the board policy that has been implemented.
- Approve management’s actions. This is the classic board overview function. When the board does this, however, it must recognize the CEO’s authority over operations and therefore accept his or her decisions on day-to-day matters when they are related to operations. There must be substantial delegation by the board to the CEO for operations, and the board can’t peer over the executive’s shoulder all the time.
- Advise management when that advice is sought. This is an important board action, where the board acts as a counselor or a peer when talking about problems and challenges. Management has the final say over operational decisions and is accountable to the board for their outcomes and impacts.
- Receive ongoing reports from management on the organization’s talent. The CEO is responsible for developing the organization’s next generation of leaders, while the board is responsible for ensuring there is a quality “bench” in place. The board is also up-to-date on the organization’s current issues and approves management’s vision.
- Form an active partnership with the CEO to maintain a robust fund development effort.
“With these six concepts as guidance, over time trust can be built,” Fram said.
Fram explains his ideas in more detail in two books: Policy vs. Paper Clips: How Using the Corporate Model Makes a Nonprofit More Efficient & Effective and Going for Impact: The Nonprofit Director’s Essential Guidebook.
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