Improving Quality and Performance in Your Non-Profit Organization--Chapter 8

Chapter 8

The Role of Boards in Change Management

The members of a board of directors of a non-profit are the “owners” of an organization. As the chief governing councils, their role in deciding to implement TQM, or any other change management strategy, and assuring that this philosophy is adopted from top to bottom, can be pivotal in TQM success or failure. Power between board and staff develops with organizational culture—the ideology, values, rituals, system of rewards and punishments, and accepted norms of behaviors that make each organization’s style unique.

Board members and board chairs serve for set terms. The balance of power between the CEO and the board oscillates constantly in a non-profit organization, depending on many factors, such as the motivation, time constraints, geographical accessibility, management style of the board/board chairman and the consolidation of power, respect, philosophy, type of organization, and culture of the organization.

Historically, people considered serving on a non-profit board to be an honor rather than a job with fiduciary responsibility. Until recently, there were few, if any, guides to participating on a non-profit board. The formation of organizations that provide publications, workshops, and general information, such as the National Center for Non-Profit Boards, the Association of Governing Boards, Independent Sector, and the National Council of Nonprofit Associations (and its state-wide affiliates), is a comparatively contemporary development. Board members rarely received any training or even an orientation. For many organizations, governance was either performed de facto by the paid staff with the board serving as a rubber stamp or, at best, an oligarchic management of a few volunteers.

This has changed for many reasons. First, there are new legal requirements with respect to financial accountability. Those who serve on boards are, more and more, asking for information, and refusing to rubber-stamp decisions. They can be financially liable in some cases of particularly egregious examples of mismanagement. Second, highly publicized scandals have rocked the non-profit world, as mentioned earlier. Third, non-profit management is becoming more complex and more competitive. Getting a handle on what is going on in a large non-profit organization is difficult enough for a full-time manager. But for a volunteer board member, it is no longer the rule to expect to sit in a room four times a year and listen to perfunctorily recited reports from staff and “dog and pony show” PowerPoint presentations.

The board member in modern times has recognized that he or she can no longer afford to risk being the silent partner, and has the right and even the duty to seek and obtain full access to all of the information needed to permit him or her and his or her colleagues to guide the organization’s future, beginning with hiring or firing the executive director, and including whether to implement a change management strategy. The board of directors, collectively and individually, must act to preserve and protect not only the organization’s financial assets, but its intangible assets (such as the good name of the organization), as well.

There is a classic saying attributed to political scientist Wallace Sayre that public management and private management are the same in all unimportant respects. That goes as well for a comparison of non-profit and for-profit boards. One of the most important differences is that non-profit boards typically stick to the core mission of their organization, even if opportunities avail themselves that may be “profitable.”

A second major difference is that many are driven by the exigencies of fundraising; in fact, unlike most for-profit board members who are paid, there is often an “admission fee” for serving on a non-profit board consisting of a written or unwritten requirement that a sizable charitable donation be made to the organization annually. Some foundations will even look at the degree to which board members participate in fundraising appeals as a factor in evaluating whether to make grants.

Third, non-profit boards must be accountable to many other stakeholders, such as clients, donors, political and community leaders, the media, and the public at large. For-profit companies generally are accountable only to the stockholders of the company. Non-profit boards are generally larger than their for-profit counterparts, and tend to be more pluralistic, building a political coalition to maintain wide community support for the organization. As a byproduct of this diversity, it is often more difficult to reach a consensus on making transformational changes, particularly since the predicted outcome of the change by its advocates may not be simply measured in “increased profit,” but rather a less easily measurable improvement in public service provided by the non-profit organization. While for-profit board members can debate whether one strategy will increase profit or not, there is at least a common currency and value being considered.

In non-profit board debate over a change in policy, the values may conflict and be much more nebulous. It is difficult to factor in the “opportunity cost” when that cost is measured in improvement to the community and society rather than in dollars. One additional complication resulting from a diverse board is that there are likely to be more hidden agendas. It is certainly simpler when the agenda, hidden or explicit, is to increase profit. All of these factors make coming to a consensus much more difficult in a non-profit organization.

The core values of an organization are often shaped by the board. For example, looking at the type of executive director hired by the board is one major way these values are instilled. For example, has the board chosen someone with a master’s in Social Work (MSW), whose education was likely shaped by humanistic concerns and serving client needs, or a master’s in Business Administration (MBA), who was touted as being able to get rid of all of the dead wood and beat the competition into the ground? Does the board have difficulty approving projects utilizing new technologies? Are budgets expected to be incremental? Is the executive director given a long leash or a short leash? Does the board schedule retreats with key staff to plan strategically? Does the board hire consultants to help it solve problems and does the board take their advice or use them as window dressing? How often does the board change its own internal procedures to accommodate the needs of new members or to adjust to changing conditions? How important is quality with respect to the board’s internal procedures?

Answers to these and related questions provide cues to staff on the values of the organization, and are significant in establishing a baseline for organizational culture, particularly in new organizations.

John Carver, in his landmark book Boards That Make A Difference, proposed a new paradigm for board-CEO relations. In simple terms, the role of the board in the Carver model is to stay out of day-to-day management and instead concentrate on setting out in broad terms what goals the CEO is expected to accomplish, and the broad constraints and rules. In this model, the board’s role is to determine ends and outcomes. The board is also charged with explicitly devising general constraints on how the executive may achieve these outcomes (such as prohibiting discrimination and establishing grievance procedures for employees) that the CEO is expected to follow. Carver’s influence has gone far beyond the non-profit sector, as leaders of all types of organizations have recognized the value of his new way of looking at the balance of power between those who govern organizations and those who manage them on a day-to-day basis.

Board and Management Attitudes About Quality

A study of the respective roles of boards and management on the issue of total quality was commissioned by the American Society for Quality Control (ASQC) and carried out by the Gallup organization in 1993. Many were surprised by the results, which showed an astounding degree of agreement between upper-level corporate executives and a smaller sample of outside directors. Participants in the survey were asked to rate on a 10-point scale whether management or the board had responsibility for determining quality policy, with “10” indicating that management had total authority and “1” that the board had total authority. Two-thirds of the managers responded with a rating of 8, 9, or 10, although service companies (presumably as would be the case in non-profit organizations) showed less of a tendency to favor total management responsibility. Two-thirds of the outside directors also gave the response an 8, 9 or 10, although only about 15% rated this a 10 compared to 35% of executives.

The survey also considered whether respondents felt this balance between board and management responsibility would be changing. The results indicated that both managers and board members felt that this balance would not be changing.

Charles A. Aubrey III, a member of the National Productivity Review Editorial Advisory Board and Chairman of ASQC, writing in Should the Board of Directors be Involved in TQM? (Summer, 1993 issue of National Productivity Review), implies that successful companies with strong board chairs recognize that they can’t be silent and have a hands-off policy. Instead, they must be partners in the total quality effort.

John Nash, president of the National Association of Corporate Directors, when interviewed in the same article, said:

For boards, quality is an indirect issue—a management issue. Boards in the United States don’t intervene unless they think there may be a problem. They want to know ‘Are we competitive? If not, why is quality a factor here?’ It’s a management responsibility to brief the board on quality matters. Boards don’t manage. Quality falls within management’s purview unless the board has set a policy on quality.

This contrasts sharply to the view of John Carver. Carver says in his book that boards should be more proactive with quality issues, and that continual improvement goes against the tradition of organizations with long histories. The conventional way that boards operate disempowers management and becomes meddlesome. There is a contradiction in simultaneously tying the hands of top management by micromanaging TQM at the board level, and the empowering of employees (including the manager)—one of the tenets of TQM. Carver suggests that the board should be talking about quality as an outcome for management to achieve and be judged by, but it should be up to management to find the means to reach those goals without interference from the board. However, it is the board’s responsibility to pursue excellence in the governing process itself.

Aubrey, in the same article referred to earlier, suggests that quality cannot happen without quality commitment and involvement from the very top, without clear direction and support from the board. The board must be knowledgeable enough to provide oversight, ask the right questions, request pertinent reports, and provide management with a basis for fair accountability.

Perhaps the board’s role can be that of a coach and mentor on quality. Certainly, board members come from diverse settings—many serve on other boards where TQM or another change management strategy has either been implemented or planned. Some may be CEOs themselves who have dabbled with TQM and have firsthand knowledge about its benefits and pitfalls. Boards can be a valued resource to managers planning TQM. What the board shouldn’t be doing, as Carver suggests in his philosophy, is telling management which computer statistical package to implement, which mid-level manager to honcho the program, and what the recognition program should be.

One provocative finding of this survey with implications for managers instituting a TQM program is that board members were more interested in looking at reports related to customer satisfaction measures and indicators of quality already achieved, as opposed to quality plans that would set the course for the future.

One conclusion that can be drawn is that when TQM programs are contemplated by top managers, it is important to create a path for board acceptance of the TQM planning process. This can be arduous and it can take years before results show up in the reports of customer satisfaction, which are the fodder of boards. Also, the survey showed that boards are interested in comparisons with past performance of an organization, rather than comparisons with competitors or evaluations in absolute terms.

Boards can play a pivotal role in creating an environment that facilitates the adoption of change management strategies as politically transforming as TQM. It may make a big difference in the board’s attitude if the suggestion to pursue TQM as an option comes from an active board member rather than from management. In either case, it is management’s responsibility to educate the board about what is involved with TQM (or, for that matter, any other change management strategy), including the costs, the expected benefits, the time frame involved, the organizational resources that will be devoted to it, the personnel who will be assigned to perform the training (either outside consultants or from within the organization), the extent to which similar or competing organizations are utilizing TQM, and what objectives are to be accomplished.

In organizations whose boards think the Carver model is a simple ruse to shift power from the board to management and fail to grasp the vision inherent in Carver’s new paradigm, obtaining approval to begin implementing a change management strategy may be as difficult a task for management as the actual implementation. The CEO suddenly smitten with TQM may have a vision of an agency that places the customer first, but that epiphany may have been the result of that manager’s entire professional life (and, perhaps some of his personal life consisting of sleepless nights worrying about the organization’s future) focusing upon the organization, its shortcomings, and its potential to achieve greatness, or, at least, remain competitive. Board members of a voluntary organization, on the other hand, may be contemplating issues relating to that organization for perhaps a total of three or four hours every three months, and they may have virtually no clue about the day-to-day costs of quality failures that may be invisible to the board, the public, and other stakeholders, but which create those sleepless nights for the CEO.

Unlike their for-profit counterparts, who often receive lucrative compensation for their board services, those who serve on non-profit organization boards do so, almost universally, as volunteers and from a sense of noblesse oblige. Many board members may be from professions that have minimal exposure to change management strategies, and may be totally unfamiliar with TQM, and skeptical about calls to implement it without putting up substantial resistance. CEOs need to be sensitive to the fact that boards are not likely to perfunctorily authorize TQM interventions without months, or perhaps years, of study, perhaps by an internal board committee. CEOs may find the board authorizing a cautious, toe-in-the-water, skeletal implementation of TQM that, of course, is antithetical to TQM principles almost by definition. Savvy CEOs will recognize that group decision-making is not the best environment for making decisions about change management.

To overcome this, CEOs should continually be bombarding board members with journal articles and news clippings about quality management successes well before any proposal to implement organizational TQM adoption is considered. It takes time to plant the seed of enthusiasm for TQM in a board of directors, and if the board remains unconvinced, TQM proposals may be placed on the scrap heap along with other proposals that may have not found an effective voice of advocacy within the board.

Up Close: Dr. Channing Hillway

Dr. Channing Hillway, a non-profit organizational consultant based in Ventura, California, is a regular contributor to the soc.nonprofit.org electronic mailing list, where experts and novices alike share their problems and seek advice. He received his doctorate in leadership, policy, and complex organizations, from the University of California, Santa Barbara. He has worked with both large and small non-profit organizations. One of his current interests is Total Quality Management under the broader context of communication, and he is working on a textbook targeted to students who are hoping to become professionals in the communication areas or are seeking to enhance personal and organizational excellence.

“ The non-profit sector has been less attuned to quality issues due to the nature of the people who participate,” he observes. “People are drawn to work as volunteer board members and workers for their own reasons and there is a reluctance (by an organization’s leadership) to directly address the intentions and competencies of such persons.”

Hillway feels that those involved in non-profit organizations have different, not necessarily better or worse, motivations than those who are drawn to for-profit organizations. But generally, this difference results in large variations in the dynamics within the two types of organizations.

“ The paid professionals are often working for lower salaries than their counterparts in the private sector and everyone seems to be endeavoring to avoid unnecessary conflict,” he analyzes. “The big issues are how more funding can be found to carry on the work and how can everyone feel okay about being part of the team. What that really means, then, is that small non-profits tend to exhibit the same behaviors we see in public schools and bureaucracies—a reluctance to directly address personnel and efficiency problems. The myth is maintained that everything is just fine in the organization when it may not be.”

Eventually, some event occurs that brings the organizational leadership back to reality, and facilitates its focus on solving problems that have either been swept under the rug or ignored as a result of organizational denial.

“ A crisis provides a window of opportunity for the organization,” he points out, giving an example of one non-profit client, a choral group, which was immobilized by the resignation of a key staff member.

“ The organization put on several major concerts each year with full orchestra, and was partially paralyzed by the executive director’s determination to maintain control over everything,” Hillway relates. “She continued to ask for volunteers and then micromanaged them to death, so that people were moving in and out of committee and project positions.” As a result, the pool of volunteers was dwindling while the organization was growing. “The exec claimed that the relationships she had built in the community over many years meant that only she could do certain tasks and held such tasks as her own sacred trust. When she resigned her position, there was simply no one with the time to take her place.

“ A part-time exec was hired who immediately began recruiting people for various tasks, and then empowered them to do the work,” he continues. “The organization has experienced an explosion of volunteerism and is healthier than it has been in years. The change took place, however, with very little effort to implement TQM or any similar plan. People were not asking the questions that would lead to a discussion of any structured form of organizational development. Instead, they just wanted to get to work, and they wanted permission to show what they could do.”

He feels that board members play a key role in promoting improvement of quality and performance of non-profit organizations.

“ I believe that only when there is a critical mass of leadership people—board members who understand quality management—are the right questions asked and the door opened for any significant, structured organizational development effort,” he says.

As an organizational consultant, he expresses his frustration at clients who fail to recognize that their organizations can use some “therapy” with respect to quality management and improving business processes. Organizations are often eager to hire outside consultants to improve fundraising and grantsmanship, but are less likely to invest in services designed to promote organizational development. One particular client is a candidate for organizational intervention, Hillway says, although the organization hired him solely to develop grant proposals.

“ The problem here is, once again, with an exec who has grown into his position in the organization—a drug and alcohol rehabilitation center whose clients include many homeless people—and has proven his value as a hands-on leader,” he describes. “He is now faced with moving to a higher level of leadership and needs assistance. The assistance he wants, however, is not the assistance he needs. He needs help with restructuring the way he and his organization get things done. I have offered my services in this area and the non-verbals I received in return suggested people were alarmed at the prospect of having to begin paying for something for which they believe they have already been paying.”

Hillway predicts that a crisis in this organization will occur in the near or distant future, opening the door to change. In the meantime, he says, the door to solving the problem is closed. Change management strategies, such as TQM and BPR, often provide the forum to discuss organizational problems and involve all members of the organization in seeking solutions. And that can’t be a bad thing, he summarizes.