Nonprofit Boards are Weird

post by HoldenKarnofsky · 2022-06-23T14:40:11.593Z · LW · GW · 26 comments

Contents

  Why nonprofit boards are weird
    Great power, low engagement, unclear responsibility, no accountability
    What makes a good board member? Few people even have a hypothesis
  So what DOES make a good board member?
    The board's main duties
    Engaging on main duties, staying out of the way otherwise
    Who should be on the board?
    A few practices that seem good
  Conclusion
  Footnotes
None
26 comments

Note: anything in this post that you think is me subtweeting your organization is actually about, like, at least 3 organizations. (I'm currently on 4 boards in addition to Open Philanthropy's; I've served on a bunch of other boards in the past; and more than half of my takes on boards are not based on any of this, but rather on my interactions with boards I'm not on via the many grants made by Open Philanthropy.)

Writing about ideal governance reminded me of how weird my experiences with nonprofit boards (as in "board of directors" - the set of people who formally control a nonprofit) have been.

I thought that was a pretty good intro. The rest of this piece will:

I am experienced with nonprofit boards but not with for-profit boards. I'm guessing that roughly half the things I say below will apply to for-profit boards, and that for-profit boards are roughly half as weird overall (so still quite weird), but I haven't put much effort into disentangling these things; I'm writing about what I've seen.

I can't really give real-life examples here (for reasons I think will be pretty clear) so this is just going to be me opining in the abstract.

Why nonprofit boards are weird

Here's how a nonprofit board works:

In my experience, it's common for the whole thing to feel extremely weird. (This doesn't necessarily mean there's a better way to do it - footnote has more on what I mean by "weird."2)

(Reminder that this is not subtweeting a particular organization! More than one person - from more than one organization - read a draft and thought I was subtweeting them, because what's above describes a large number of boards.)

OK, so what's driving the weirdness?

I think there are a couple of things:

I'll take these one at a time.

Great power, low engagement, unclear responsibility, no accountability

In my experience/impression, the best way to run any organization (or project, or anything) is on an "ownership" model: for any given thing X that you want done well, you have one person who "owns" X. The "owner" of X has:

When these things come apart, I think you get problems. In a nutshell - when no one is responsible, nothing gets done; when someone is responsible but doesn't have power, that doesn't help much; when the person who is responsible + empowered isn't engaged (isn't paying much attention), or isn't held accountable, there's not much in the way of their doing a dreadful job.

A traditional company structure mostly does well at this. The CEO has power (they make decisions for the company), engagement (they are devoted to the company and spend tons of time on it), and responsibility+accountability (if the company does badly, everyone looks at the CEO). They manage a team of people who have power+engagement+responsibility+accountability for some aspect of the company; each of those people manage people with power+engagement+responsibility+accountability for some smaller piece; etc.

What about the board?

So we have people who are spending very little time on the company, know very little about it, don't have much clarity on what they're responsible for either individually or collectively, and aren't accountable to anyone ... and those are the people with all of the power. Sound dysfunctional?4

In practice, I think it's often worse than it sounds, because board members aren't even chosen carefully - a lot of the time, a nonprofit just goes with an assortment of random famous people, big donors, etc.

What makes a good board member? Few people even have a hypothesis

I've searched a fair amount for books, papers, etc. that give convincing and/or widely-accepted answers to questions like:

In my experience, most board members just aren't walking around with any particular thought-through take on questions like this. And as far as I can tell, there's a shortage of good5 guidance on questions like this for both for-profit and nonprofit boards. For example:

To the extent I have seen a relatively common, coherent vision of "what board members are supposed to be doing," it's pretty well summarized in Reid Hoffman's interview in The High-Growth Handbook:

I use ... a red light, yellow light, green light framework between the board and the CEO. Roughly, green light is, “You’re the CEO. Make the call. We’re advisory.” Now, we may say that on very big things—selling the company—we should talk about it before you do it. And that may shift us from green light, if we don’t like the conversation. But a classic young, idiot board member will say, “Well, I’m giving you my expertise and advice. You should do X, Y, Z.” But the right framework for board members is: You’re the CEO. You make the call. We’re advisory.

Red lights also very easy. Once you get to red light, the CEO—who, by the way, may still be in place—won’t be the CEO in the future. The board knows they need a new CEO. It may be with the CEO’s knowledge, or without it. Obviously, it’s better if it’s collaborative ...

Yellow means, “I have a question about the CEO. Should we be at green light or not?” And what happens, again under inexperienced or bad board members, is they check a CEO into yellow indefinitely. They go, “Well, I’m not sure…” The important thing with yellow light is that you 1) coherently agree on it as a board and 2) coherently agree on what the exit conditions are. What is the limited amount of time that we’re going to be in yellow while we consider whether we move back to green or move to red? And how do we do that, so that we do not operate for a long time on yellow? Because with yellow light, you’re essentially hamstringing the CEO and hamstringing the company. It’s your obligation as a board to figure that out.

I like this quite a bit (hence the long blockquote), but I don't think it covers everything. The board is mostly there to oversee the CEO, and they should mostly be advisory when they're happy with the CEO. But I think there are things they ought to be actively thinking about and engaging in even during "green light."

So what DOES make a good board member?

Here is my current take, based on a combination of (a) my thoughts after serving on and interacting with a large number of nonprofit boards; (b) my attempts to adapt conventional wisdom about for-profit boards (especially from the book I mentioned above); (c) divine revelation.

I'll go through:

(I don't claim any of these points are original, and almost everything can be found in some writing on boards somewhere, but I don't know of a reasonably comprehensive, concise place to get something similar to the below.)

The board's main duties

I agree with the basic spirit of Hoffman's philosophy above: the board should not be trying to "run the company" (they're too low-engagement and don't know enough about it), and should instead be focused on a small number of big-picture questions like "How is the CEO doing?"

And I do think the board's #1 and most fundamental job is evaluating the CEO's performance. The board is the only reliable source of accountability for the CEO - even more so at a nonprofit than a for-profit, since bad CEO performance won't necessarily show up via financial problems or unhappy shareholders.6 (As noted below, I think many nonprofit boards have no formal process for reviewing the CEO's performance, and the ones that do often have a lightweight/underwhelming one.)

But I think the board also needs to take a leading role - and not trust the judgment of the CEO and other staff - when it comes to:

Engaging on main duties, staying out of the way otherwise

I think the ideal board member's behavior is roughly along the lines of the following:

Actively, intensively engage in the main duties from the previous section. Board members should be knowledgeable about, and not defer to the CEO on, (a) how the CEO is performing; (b) how the board is performing, and who should be added and removed; (c) spotting (and scanning the horizon for) events that could reduce the board's powers, or lead to big enough problems and restrictions so as to irreversibly affect what future CEOs are able to do.

Ideally they should be focusing their questions in board meetings on these things, as well as having some way of gathering information about them that doesn't just rely on hearing directly from the CEO. (Some ideas for this are below.) When reviewing financial statements and budgets, they should be focused mostly on the risk of major irreversible problems (such as going bankrupt or failing to be compliant); when hearing about activities, they should be focused mostly on what they reflect about the CEO's performance; etc.

Be advisory ("stay out of the way") otherwise. Meetings might contain all sorts of updates and requests for reactions. I think a good template for a board member, when sharing an opinion or reaction, is either to (a) explain as they're talking why this topic is important for the board's main duties; or (b) say (or imply) something like "I'm curious / offering an opinion about ___, but if this isn't helpful, please ignore it, and please don't hesitate to move the meeting to the next topic as soon as this stops feeling productive."

The combination of intense engagement on core duties and "staying out of the way" otherwise can make this a very weird role. An organization will often go years without any serious questions about the CEO's performance or other matters involving core duties. So a board member ought to be ready to quietly nod along and stay out of the way for very long stretches of time, while being ready to get seriously involved and engaged when this makes sense.

Aim for division of labor. I think a major problem with nonprofit boards is that, by default, it's really unclear which board member is responsible for what. I think it's a good idea for board members to explicitly settle this via assigning:

This can further help everyone find a balance between engaging and staying out of the way.

Who should be on the board?

One answer is that it should be whoever can do well at the duties outlined above - both in terms of substance (can they accurately evaluate the CEO's performance, identify big-picture irreversible risks, etc.?) and in terms of style (do they actively engage on their main duties and stay out of the way otherwise?)

But to make things a bit more boiled-down and concrete, I think perhaps the most important test for a board member is: they'll get the CEO replaced if this would be good for the nonprofit's mission, and they won't if it wouldn't be.

This is the most essential function of the board, and it implies a bunch of things about who makes a good board member:

In my experience, most nonprofits are not looking for these qualities in board members. They are, instead, often looking for things like:

I think a good profile for a board member is someone who cares greatly about the nonprofit's mission, and wants it to succeed, to the point where they're ready to have tough conversations if they see the CEO falling short. Examples of such people might be major funders, or major stakeholders (e.g., a community leader from a community of people the nonprofit is trying to help).

A few practices that seem good

I'll anticlimactically close with a few practices that seem helpful to me. These are mostly pretty generic practices, useful for both for-profit and nonprofit boards, that I have seen working in practice but also seen too many boards going without. They don't fully address the weirdnesses discussed above (especially the stuff specific to nonprofit as opposed to for-profit boards), but they seem to make things some amount better.

Keeping it simple for low-stakes organizations. If a nonprofit is a year old and has 3 employees, it probably shouldn't be investing a ton of its energy in having a great board (especially since this is hard).

A key question is: "If the board just stays checked out and doesn't hold the CEO accountable, what's the worst thing that can happen?" If the answer is something like "The nonprofit's relatively modest budget is badly spent," then it might not be worth a huge investment in building a great board (and in taking some of the measures listed below). Early-stage nonprofits often have a board consisting of 2-3 people the founder trusts a lot (ideally in a "you'd fire me if it were the right thing to do" sense rather than in a "you've always got my back" sense), which seems fine. The rest of these ideas are for when the stakes are higher.

Formal board-staff communication channels. A very common problem I see is that:

I've seen this dynamic improved some amount by things like a staff liaison: a board member who is designated with the duty, "Talk to employees a lot, offer them confidentiality as requested, try to build trust, and gather information about how things are going." Things like regular "office hours" and showing up to company events can help with this.

Viewing board seats as limited. It seems unlikely that a board should have more than 10 members (and even 10 seems like a lot), since it's hard to have a productive meeting past that point.11 When considering a new addition to the board, I think the board should be asking something much closer to "Is this one of the 10 best people in the world to sit on this board?" than to "Is this person fine?"

Regular CEO reviews. Many nonprofits don't seem to have any formal, regular process for reviewing the CEO's performance; I think it's important to do this.

The most common format I've seen is something like: one board member interviews the CEO's direct reports, and perhaps some other people throughout the company, and integrates this with information about the organization's overall progress and accomplishments (often presented by the organization itself, but they might ask questions about it) to provide a report on what the CEO is doing well and could do better. I think this approach has a lot of limitations - staff are often hesitant to be forthcoming with a board member (even when promised anonymity), and the board member often lacks a lot of key information - but even with those issues, it tends to be a useful exercise.

Closed sessions. I think it's important for the board to have "closed sessions" where board members can talk frankly without the CEO, other employees, etc. hearing. I think a common mistake is to ask "Does anyone want the closed session today or can we skip it?" - this puts the onus on board members to say "Yes, I would like a closed session," which then implies they have something negative to say. I think it's better for whoever's running the meetings to identify logical closed sessions (e.g., "The board minus employees"), allocate time for them and force them to happen.

Regular board reviews. It seems like it would be a good idea for board members to regularly assess each other's performance, and the performance of the board as a whole. But I've actually seen very little of this done in practice and I can't point to versions of it that seem to have some track record of working well. It does seem like a good idea though!

Conclusion

The board is the only body at a nonprofit that can hold the CEO accountable to accomplishing the mission. I broadly feel like most nonprofit boards just aren't very well-suited to this duty, or necessarily to much of anything. It's an inherently weird structure that seems difficult to make work.

I wish someone would do a great job studying and laying out how nonprofit boards should be assembled, how they should do their job and how they can be held accountable. You can think of this post as my quick, informal shot at that.

 Comment/discuss [LW · GW]

Footnotes

  1. I'm using the term "CEO" throughout, although the chief executive at a non profit sometimes has another title, such as "Executive Director." ↩

  2. A lot of this piece is about how the fundamental setup of a nonprofit board leads to the kinds of problems and dynamics I'm describing. This doesn't mean we should necessarily think there's any way to fix it or any better alternative. It just means that this setup seems to bring a lot of friction points and challenges that most relationships between supervisor-and-supervised don't seem to have, which can make the experience of interacting with a board feel vaguely unlike what we're used to in other contexts, or "weird."

    People who have interacted with tons of boards might get so used to these dynamics that they no longer feel weird. I haven't reached that point yet myself though.

     ↩
  3. The fact that the nonprofit's goals aren't clearly defined and have no clear metric (and often aren't susceptible to measurement at all) is a pretty general challenge of nonprofits, but I think it especially shows up for a structure (the board) that is already weird in the various other ways I'm describing. ↩
  4. Superficially, you could make most of the same complaints about shareholders of a for-profit company. But:
    • Shareholders are the people who ultimately make or lose money if the company does well or poorly (you can think of this as a form of accountability). By contrast, nonprofit board members often have very little (or only an idiosyncratic) personal connection to and investment in the organization.
    • Shareholders compensate for their low engagement by picking representatives (a board) whom they can hold accountable for the company's performance. Nonprofit board members are the representatives, and aren't accountable to anyone. ↩
  5. Especially "good and concise." Most of the points I make here can be found in some writings on boards somewhere, but it's hard to find sensible-seeming and comprehensive discussions of what the board should be doing and who should be on it. ↩
  6. Part of the CEO's job is fundraising, and if they do a bad job of this, it's going to be obvious. But that's only part of the job. At a nonprofit, a CEO could easily be bringing in plenty of money and just doing a horrible job at the mission - and if the board isn't able to learn this and act on it, it seems like very bad news. ↩
  7. The charter and bylaws are like the "constitution" of a nonprofit, laying out how its governance works. ↩

  8. This is a judgment call, and one way to approach it would be to reserve something like 1 hour of full-board meeting time per year for talking about these sorts of things (and pouring in more time if at least, like, 1/3 of the board thinks something is a big deal).

    Some examples of things I think are and aren't usually a big enough deal to start paying serious attention to:

    • Big enough deal: financial decisions that increase the odds of going "belly-up" (running out of money and having to fold) by at least 10 percentage points. Not a big enough deal: spending money in ways that are arguably bad uses of money, having a lowish-but-not-too-far-off-of-peer-organizations amount of runway.
    • Big enough deal: deficiencies in financial controls that an auditor is highlighting, or a lack of audit altogether, until a plan is agreed to to address these things. Not a big enough deal: most other stuff in this category.
    • Big enough deal: organizations with substantial "PR risk" exposure should have a good team for assessing this and a "crisis plan" in case something happens. Not a big enough deal: specific organizational decisions and practices that you are not personally offended by or find unethical, but could imagine a negative article about. (If you do find them substantively unethical, I think that's a big enough deal.)
    • Big enough deal: transferring like 1/3 or more of valuable things the nonprofit has (intellectual property, money, etc.) to another entity not controlled by the board. Not a big enough deal: starting an affiliate organization primarily for taking donations in another country or something.
    • Big enough deal: doubling or halving the workforce. Not a big enough deal: smaller hirings and firings.
     ↩
  9. Sometimes the Board Chair is the CEO, and sometimes the Chair is an employee of the company who also sits on the board. In these cases, I think it's good for there to be a separate Lead Independent Director who is not employed by the company and is therefore exclusively representing the Board. They can help set agendas, lead meetings, and take responsibility by default when it's otherwise unclear who would do so. ↩
  10. Nonprofits can get expertise on topic X by hiring experts on X to advise them. The question is: when is it important to have an expert on X evaluating the CEO? ↩
  11. Though it could be fine and even interesting to have giant boards - 20 people, 50 or more - that have some sort of "executive committee" of 10 or fewer people doing basically all of the meetings and all of the work (with the rest functioning just as very passive, occasionally-voting equivalents of "shareholders"). Just assume I'm talking about the "executive committee" type thing here. ↩

26 comments

Comments sorted by top scores.

comment by Elizabeth (pktechgirl) · 2022-06-23T18:32:08.330Z · LW(p) · GW(p)

It sounds like you are describing large non-profits where the CEO's goals and the mission statement are separable and funding is from many small sources that can't possibly provide accountability. But a fair number of orgs start as one person's mission, and your choices are "they stay as CEO" or "zombie org that probably dies shortly". In that case it seems like the board's duty is to shut the org down when donors would want it shut down, with an orderly redistribution of remaining money, and otherwise be neutral or supportive. But board members are appointed by the CEO, not the donors, which seems unaligned with that.

It also seems weird to me to say the board is the only check on CEOs. Large funders at small orgs have enormous amounts of power and often do thorough investigations. People complain about it a lot.

comment by Jay · 2022-06-24T22:57:29.415Z · LW(p) · GW(p)

A lot of the nonprofit boards that I've seen use a "consent agenda" to manage the meeting.  The way it works is:

  • The staff create the consent agenda and provide it to the board members perhaps a week in advance.
  • Any single board member can take any item off the consent agenda and onto the regular agenda.
  • The consent agenda is passed in a single motion.  It always passes unanimously, because anything that any member thinks merits attention has been moved onto the regular agenda (where it is separately discussed and voted on).

It doesn't do much for governance directly, but fewer time-wasting consent votes can make room for more discussion of issues that matter.

comment by Raemon · 2022-06-25T22:45:35.002Z · LW(p) · GW(p)

I think this post has some assumptions behind it that are worth spelling out (and maybe arguing for separately – I think I agree with the implicit worldview here, but I don't think it's well established)

As others have noted, people vary in what they want out of a board. Here's a couple reasons you might want one:

  1. You have to. The IRS rules say you do. (from this perspective, you want a minimal, easy-to-throw-together board).
  2. You want the prestige of high status people being vaguely affiliated with your org, and a board is an effective way to do that. 
  3. You (the founder) want to have checks on your power to give yourself a sanity check (because you want to create good incentives for yourself, to help improve your own integrity and rationality [LW · GW])
  4. You (the founder) want to have checks on your power to improve other people's trust in you, so that you can get more resources. (This is similar to previous point, but instead of trying to improve your decisionmaking for it's own sake, it's more that you want resources that accrue to people with trustworthy epistemics/decisionmaking)
  5. You (the founder) are part of a broader nonprofit ecosystem and you care about other nearby orgs having good institution design. Maybe you trust yourself fine without a board, but you don't trust the other orgs in your ecosystem and you want to move towards a world where everyone is deliberately constraining themselves for the betterment of civilization [LW · GW].

This post seems to basically be arguing that 3, 4 and/or 5 are particularly valuable, and worth prioritizing especially if you're a larger org. (I think all three points are pretty valuable)

comment by Manuel Allgaier (white rabbit) · 2022-06-29T13:22:25.903Z · LW(p) · GW(p)

What about democratically elected non-profit boards?

Most national EA organisations with paid staff (like EA France, EA Norway or EA Germany just to mention a few) are registered associations that have their board (re-)elected by its members every 1-2 years. That way board members can be fired by the association members they represent.

I don't think this is perfect, the average member often does not have enough info to judge the performance of a board member and elections have their own downsides (like sometimes favoring popular and charismatic candidates over the best candidates for the job), but at least for national EA orgs it does seem like the best option to me (medium confidence).

This seems a lot more common in mainland Europe than in the UK or the US. Is this something we should explore more for other nonprofits as well? What other non-profits have clearly defined members (e.g. beneficiaries, stakeholders, ...) that could elect a board?

Replies from: JenniferRM
↑ comment by JenniferRM · 2022-07-01T17:15:50.616Z · LW(p) · GW(p)

Years ago, as part of my youth that was actually well spent, I was elected to the board of a non-profit student cooperative, and "education" was broadly part of our mission, with specifically "education in self-governance" as a goal we aimed for in all resident student members, to at least some degree.

Electing board members and then teaching them to be good board members was explicitly part of what was going on.

I. Good Theory Seems Rare

I wish I could transmit Holden's text back in time to my younger self (or maybe this one [LW(p) · GW(p)] from another comment) because it would have been useful to have almost any coherent theory back then when I was theory-less and "just trying to help" perhaps using the vague idea that "showing up is 90% of success".

Something in the by-laws of that co-op, which I came to admire greatly, was the idea of multiple kinds of board seats selected in various ways. 

We had an 8 seat board to govern a co-op that owned 4 houses, with the smallest house (which in retrospect maybe we should have sold and bought a bigger one) having 7 bedrooms. Two of the seats were appointed by institutions the co-op wanted to stay friendly with and the "grown-ups" that these institutions sent to our institution were fantastic members, and great role models. Two seats were filled by "at large" elections, and then 1 seat each was filled by each house, to ensure universal representation.

II. Some Wise, Some New?

From the perspective of very wise members who came in based on their skills, their power to provide rhetorical "ballast" on the board involves noticing obviously false-or-bad proposals or ideas, and then helping people see alternatives that are better or wiser or more based in theories not ruled out by plainly visible observable. They can shape the whole discourse in deep ways simply by letting it breathe and nudging rarely. One of the tricks here is to TEACH new young board members WHILE ALSO obeying the precept "if you don't have anything nice to say, don't say anything at all". This precept, however, is obviously not a universal <3

A key point here: high quality service in benevolent governance is not very personally remunerative to the server. Mostly what you do is apply common sense and elbow grease, and mostly what you're short of is high quality people who are able and willing. 

If you have elected representatives, who were willing to run, and able to win an election, it might be wise to cherish them, and teach them? But having such capacity is itself potentially tricky.

(I think there might be a thing that happens sometimes, at the level of civilization-scale oscillations, where the default of a failing governance system is that its death throws bring on conflict and drama, and then people who love conflict and drama get sucked in for the fun of the fight, and then fighting isn't actually fun, and eventually you have a lot of people, who are engaged, and exhausted by the fighting, and enough of them switch to minimizing conflict while having a seeming-surplus of competent civilization-level "fight-prone governors", and then you get a brief golden age until they (inter-generationally?) forget how to draw in new people and teach them how or why to govern well.)

III. Conflict Isn't Fun In The Long Run

The whole red/yellow/green system Holden talked about, and having closed board meetings without the CEO present seems to aim directly at carving out semi-formal exceptions, where un-nice words that could create dramatic conflicts are solicited, but they are solicited in a way that will do the least damage, in case un-nice words are necessary, while avoiding costs... that seems really really useful for what are hopefully really really rare situations?

I think maybe Holden's model presumes that a non-profit already has a giant war-chest/endowment, and that fund-raising, and body-raising, and anything-except-theory-of-mission-raising is already handled, and what's necessary is simply to not irreversibly destroy or degrade mission-oriented capacities for a presumptively perpetual mission? 

The student housing co-op I served was somewhat similar, and in that it owned houses, and had membership, and collected "rent", and planned to acquire houses over and over into the deep future, without serious risk of bankruptcy (the question here was "how much financial pain now was worth how much growth in service for future students we would never know?"), until it had enough houses to serve every student in the city who wanted to live in a student housing co-op. 

(In practice, at that time, we had a waiting list of students, and were far from the long term goal of serving the whole target demographic.) 

The limiting re-agent for the co-op, then, was usually executive capacity, and my participation might have been a net positive, given the alternatives? But also my participation was already institutionally conceived of as: potentially flawed, potentially improvable, and part of what the institution did on purpose as part of its "educational" mission.

In the co-op, part of our recurring yearly patterns included trying to find at least two of the youngest board members, who were likely to stick around, and sending them (plus, if lucky, a third or fourth and fifth) to the NASCO annual conference. 

Sometimes there's a person who refuses to accept a nomination for election to the board, and you send them to the conference, and they come back willing to serve. NASCO was also helpful as a sort of long-running slow-moving abstract community in which one could find people who understood student housing co-ops and were interested in being the executive director of one.

IV. Economically "Marginal" Missions Serving Those In True LOCAL Need

I chatted with my dad a bit, and he was on the board of a town Rotary club during his well spent middle age, and consistent with that service he ended up on the board of the town senior center, that got money from the county to pay a director to run it. (This "being on multiple boards" thing is a pattern that recurs convergently in certain kinds of voluntarily governed civilizations.) 

He had this to say in the end: "We loved our executive director. The town loved her. The tragedy was when she retired and sold her house in town and moved away." In that case, the problem was, arguably... underfunding? (Maybe "inadequate succession planning"?) The seniors were being served, but in their age and poverty, they lacked the capacity to non-trivially govern themselves, or pay for their own governance services... maybe? It is often hard to trace causality cleanly in these matters.

Maybe "towns" are just no longer demographically viable in the current economic meta? For now, I'm happy that towns still exist, even though I don't live in one anymore. I think they might be critical to the continuance of large functional voluntary governance at the highest levels. Maybe? It is repetitive to say, but maybe the repetition is correct: it is often hard to trace causality cleanly in these matters.

comment by alyssavance · 2022-06-23T17:54:07.142Z · LW(p) · GW(p)

Great post. I'm reminded of instructions from the 1944 CIA (OSS) sabotage manual:

"When possible, refer all matters to committees, for “further study and consideration.” Attempt to make the committee as large as possible — never less than five."

comment by demarquis · 2022-06-29T21:46:28.918Z · LW(p) · GW(p)

I am a former (now retired) management consultant and human resources trainer and manager. When I was professionally active, I specialized in non-profit and government clients. I recognize nearly everything that X said about non-profit governing boards, with the caveat that what he describes is typical for larger and more complex organizations (https://www.academia.edu/download/42331960/Nonprofit_Boards_Size_Performance_and_Ma20160207-32480-1x3h68o.pdf). There are very few good primers on non-profit governance (https://ideaexchange.uakron.edu/cgi/viewcontent.cgi?article=2482&context=akronlawreview) However, I would like to add a few additional details, based on my personal experiences.

One of my clients was a government agency whose primary mission was to receive and distribute grant money to chronically unemployed residents of the local community. There were over a dozen different grants, each from a different federal or state agency or private foundation. Each of these funders had their own unique, very stringent reporting requirements, and to satisfy this requirement my client agency had hired twenty or so “grant administrators” whose job it was to monitor the services being delivered, how many recipients there were, compile reports and send them to the funders. When the local government hired a new agency director, one of the first things she tried to do was get these grant administrators to report summaries of this information to her, in a format that she believed would be maximally useful to the department as a whole. There was a great deal of resistance to this, to the point that many of the administrators simply refused to follow her instructions on the basis that they had limited time to do any more paperwork. When she tried to force the issue, they complained to certain members of the City Counsel, who took their side against the department director. Reporting to her was seen as less essential than reporting to the funding sources, because any compromise there could threaten the source of the revenue.

It is common for larger non-profits and service delivery agencies to receive funds for multiple sources, each of which are required to be spent only on the specific services they were intended for. This means that money obtained this way cannot be mixed into a general overall budget, which is then dispensed by the organization’s executives at their discretion. The most common way for these organizations to ensure that this requirement is met is by organizing different projects groups, each of which is responsible for managing the funds obtained by a different funding source. Each of these will have their own project managers and project staff, which form a division within the overall organization. Such organizations can perhaps be better understood not as cohesive well integrated bureaucracies, but as a kind of mini conglomerate, with each project team as a kind of stand alone company within the larger umbrella organization. In such a conglomerate, the project managers might very well have more power over the services they are dispensing than the executives in charge of the organization as a whole.

This will have obvious implications for a board of directors, who, being low engagement but high in power, will almost always defer to the funding sources, even to the point of undermining their own CEO, which they themselves have chosen. It’s generally just easier to read the funding requirements, which the agency will have agreed to in writing at the time the grant was accepted, and just defer to whomever is responsible for carrying out the terms of the agreement. This reduces the CEO to a kind of administrative caretaker, whose primary job is to find new sources of revenue when the current grants run out (and make sure the lights stay on).

This is widely recognized among management professionals as problematic for the overall performance of the organization (https://journals.sagepub.com/doi/pdf/10.1177/0899764099283002). Non-profits, as the original post pointed out, are driven by their missions, not by profits, and therefore must depend on the clarity of their mission to derive any performance metrics for the organization as a whole. When funders impose strict requirements on the disbursement of their funds, they almost never consult the mission statement of the organizations that receive their money. At most, they might give lip service when selecting a set of recipients during the proposal review process, but once the contract is signed, there is little incentive for the grant givers to care much what the rest of the recipient organization is doing. Most granting agencies are non-profit foundations or government agencies themselves, and they have their own boards and sources of revenue to placate, their own agency performance metrics to meet, and all that depends on the success of the projects they fund, not on the projects other funders support even in the same organization. Therefore the non-profit which is receiving funds from multiple sources may find themselves stretched in multiple directions, “chasing the money”, and not in a position to either pursue overall organization effectiveness, nor even to respond in an effective way to the changing needs of the community they serve.

So the way in which US non-profits are organized to receive and disburse money for services to the community has certain built in flaws to it (much of this is codified in state and federal tax law). All of this will be more true for large, complex organizations than smaller ones. Non-profits that only have one funding source, or one dominant source, or who are able to raise most of their own funds, have the freedom to follow a different dynamic. My consulting firm has a philosophy that organizational improvement starts with fundraising. You then follow the money until it reaches the clients and try to measure the effects. Ideally you come up with a “service unit per dollar per client” that makes sense for that particular organization, and that can become the basis of identifying areas of improvement (https://bizfluent.com/info-10062727-cost-per-unit-service-cost-per-client-outcome-cost-per-services-completion.html).

I think one of the core duties of the governing board is to be aware of this information and use it as feedback every few years and use it for the purpose of strategic planning. This speaks to another principle that I haven’t seen published anywhere but is based on my own personal experience: The direction that the board provides, and their ability to provide it, depends on the quantity and quality of the information they have. Ideally this is provided to them by the CEO, who therefore has an opportunity to develop a relationship with the board and exercise strategic leadership. But the board’s job is to review this information independently, discuss it among themselves, and provide feedback to the CEO regarding what direction they think the organization should be going in. But to do that, you have to stop chasing the money, and put the mission first, the essence of strategic planning (https://c4npr.org/wp-content/uploads/2020/07/per_brief_tenkeys.pdf).

Although I wouldn’t necessarily put it this way with my clients, the most fundamental decision the board can make under these circumstances is “what should we do when the terms of the current grant runs out” with the understanding that “renew the grant” isn’t the default option. It can be wrenching for the board and the executive to confront the risk of letting grants go, and looking for new ones, but that’s the most strategic decision they can make. Maybe they want to go for a different set of grants, or instead of grants they may want to build up a pool of small donors, or go to fee for service, or some other arrangement. Considering these options is what gives the executive and the board working together the freedom to even have an organizational strategy.

But this approach is non-obvious and hard. So I would say that the a key approach to improving governing board effectiveness, in addition to various features of board structure and process, is a recognition of the importance of strategic governance.

comment by Raemon · 2022-06-25T22:48:04.810Z · LW(p) · GW(p)

Curated. One of the more valuable topics on LessWrong over the past few years has been various flavors of institution design. Many of our previous posts (such as the Moral Mazes sequence) were sort of broad and abstract. I like that this post gets into the grittier nuts-and-bolts of how to design an institution. 

I've personal had the experience of being sort of confused how to relate to boards that I've been on, and found this helpful. 

comment by Ray Deck III (ray-deck-iii) · 2022-06-27T14:46:22.231Z · LW(p) · GW(p)

Nonprofit Founder/CEO here. This is really good analysis. So good that I'd love to have you on my board! 

Are you familiar with John Carver's Policy Governance Model? It's the approach we (imperfectly) implemented a couple years ago. 

https://www.carvergovernance.com/pg-np.htm


In Policy Governance, the board decides "ends" which Carver defines as a) accomplish what b) for whom c) by when d) at what cost? All other concerns are matters of "means" and delegated to the staff, which is led by the CEO. 

The hardest part of nonprofit boards, IMO, is the high power / low engagement dynamic you point out. Every so often, say once every 3-5 years in a healthy organization, the board has one or more extremely important decisions to make. And odds are good that when it becomes clear that such a choice is needed, the board doesn't have the information they would need to make a good decision. So best case, the decision is delayed while they catch up. Worst case, they guess. Or . . . well maybe worst case is that they never decide, and the organization is whipsawn. 

But regardless, a significant portion of my time is spent maintaining a high enough level of engagement that, should such a choice emerge, the board can act without too severe a delay.

comment by Paul Crowley (ciphergoth) · 2022-06-24T02:29:38.130Z · LW(p) · GW(p)

Perhaps this is a bad idea, but it has occurred to me that if I were a board member, I would want to quite frequently have confidential conversations with randomly selected employees.

Replies from: Benito
↑ comment by Ben Pace (Benito) · 2022-06-24T02:57:38.597Z · LW(p) · GW(p)

I suspect "confidential within the board" will be much more useful.

Replies from: gordonst
↑ comment by gordonst · 2022-07-02T23:45:42.311Z · LW(p) · GW(p)

Actually, I think Paul gets it right. I think to be effective Boards needs information that doesn't come to them through the CEO and Management team.

Replies from: ciphergoth
↑ comment by Paul Crowley (ciphergoth) · 2022-07-29T20:21:16.554Z · LW(p) · GW(p)

This is true whether we adopt my original idea that each board member keeps what they learn from these conversations entirely to themselves, or Ben's better proposed modification that it's confidential but can be shared with the whole board.

comment by ozziegooen · 2022-06-24T22:11:44.590Z · LW(p) · GW(p)

Really nice to see this. I broadly agree. I've been concerned with boards for a while.

I think that "mediocre boards" are one of the greatest weaknesses of EA right now. We have tons of small organizations, and I suspect that most of these have mediocre or fairly ineffective boards. This is one of the main reasons I don't like the pattern of us making lots of tiny orgs; because we have to set up yet one more board for each one, and good board members are in short supply.

I'd like to see more thinking here. Maybe we could really come up with alternative structures. 

For example, I've been thinking of something like "good defaults" as a rule of thumb for orgs that get a lot of EA funding.
- They choose an effective majority of board members from a special pool of people who have special training and are well trusted by key EA funders.
- There's a "board service" organization that's paid to manage the processes of boards. This service would arrange meetings, make sure that a bunch of standards are getting fulfilled, and would have the infrastructure in place to recruit new EDs when needed. These services can be paid by the organization.

Basically, I'd want to see us treat small nonprofits as sub-units of a smoothly-working bureaucracy or departments in a company. This would involve a lot of standardization and control. Obviously this could backfire a lot if the controlling groups ever do a bad job; but (1) if the funders go bad, things might be lost anyway, and (2), I think the expected harm of this could well be less than the expected benefit.

comment by Charlie Steiner · 2024-01-09T01:07:37.764Z · LW(p) · GW(p)

Good post, and relevant in 2023 because of a certain board-related brouhaha.

comment by Kevin Lacker (kevin-lacker) · 2022-06-23T20:44:06.872Z · LW(p) · GW(p)

I think you actually do not have very much power as a board member. During normal operations, you can give advice to the CEO, but you have no power beyond the "access to the CEO". If the CEO resigns or is being forced out, you briefly have an important power, but it is a very narrow power, the ability to find and vote in a replacement CEO.

The position is very public and respected so it may feel like "a lot of power" but quite often even a mid level employee at the organization has more real power over the direction of the company than a board member does.

comment by Dagon · 2022-06-23T16:49:05.023Z · LW(p) · GW(p)

There's a lot of variance in what a given org's stakeholders (donors and employees, mostly) WANT from its board.  Most of my experience is from more established private and public companies, a few startups, and some non-EA nonprofits (local, but pretty large and established, food and underserved-worker charities), and there are a few different archetypes I've seen.

Some boards are pretty much there to give private advice to the CEO/founder/owner, and rubberstamp their formal decisions.  In effect, they serve the majority shareholder, and much of their activity is invisible to the rest of the organization.  Some boards (especially for public companies) are really there as a judicial branch - a check on the power of the CEO and officers, and advocates of shareholder financial interests.  Some (especially small and mid-size nonprofits) are big donors, looking to make sure they get to feel good about the money they're donating - via advice and the threat (I've seen it happen, though) of removal of the exec director.  This can be micro-managing high-profile activities, or just helping set goals and high-level priorities.

In the end, donors for a nonprofit are the equivalent of shareholders for a for-profit company.  A whole lot of weirdness ensues when there are one or a few whales that must be pleased.  And less weirdness when most of the ownership/funding comes from a mass of people supporting the idea that this org is the best way for them to meet their goals.  To some extent, this is unfortunate, as more distributed donations usually requires more energy to the development group, compared to operations.

comment by Andrew_Critch · 2022-07-04T15:38:36.404Z · LW(p) · GW(p)

Great post! Nice to have this out in the open; I too have observed numerous non-profit boards with the properties you describe (>5?) and agree with your recommendations for what the board should prioritize, including specialization, protecting the Board's authority and the CEO role (for future CEOs), and mainly focussing on evaluating the CEO.

Replies from: Andrew_Critch
↑ comment by Andrew_Critch · 2022-07-04T15:40:08.179Z · LW(p) · GW(p)

To add to the content a bit: I haven't liked it when I've seen Boards totally unwilling to replace the CEO, e.g., due to a promise of loyalty to never replace them, or feeling socially outranked by the CEO. A board that feels that way should, in my opinion, focus on gracefully replacing itself with new members who would not feel too socially-or-morally-outranked-by-the-CEO to replace the CEO; otherwise there is basically nothing holding the CEO accountable for currently held resources (only future reputation).

comment by _Dan · 2022-06-26T00:17:40.926Z · LW(p) · GW(p)

Fred Wilson who is a fairly well-known VC has written a number of posts on his blog on this topic that could be an interesting read for additional ideas. You can try https://avc.com/search/board/ to get a list of posts to choose from.

comment by Measure · 2022-06-23T20:42:05.682Z · LW(p) · GW(p)

The footnotes link to an external site rather than to the LW footnotes. The return links appear correct, but don't work (perhaps because of the first problem).

comment by jonmenaster · 2022-06-24T06:51:40.637Z · LW(p) · GW(p)

Lots of good information - for people considering joining a nonprofit board and reading this, be sure to ask about whether the org carries directors and officers (often referred to as D&O) insurance - otherwise you could be personally liable for problems that happen!

comment by M. Y. Zuo · 2022-06-24T01:25:59.790Z · LW(p) · GW(p)

Viewing board seats as limited. It seems unlikely that a board should have more than 10 members (and even 10 seems like a lot), since it's hard to have a productive meeting past that point.11 When considering a new addition to the board, I think the board should be asking something much closer to "Is this one of the 10 best people in the world to sit on this board?" than to "Is this person fine?"

Strongly Agree. 

The smaller the better, that's the common characteristic of all effective boards. And everyone I respect, and spoken to on this, agrees.

If Apple could go from almost bankrupt to the most successful company on Earth, and execute the greatest comeback in human history within a single generation, with a board of less than 10, then every nonprofit can do the same. I'd even say be wary of the motives of anyone who claims boards must be dozens large.

comment by Sami Cunningham (sami-cunningham) · 2022-07-19T16:16:20.128Z · LW(p) · GW(p)

Have you heard of the Sociocracy model? I think it addresses many of these valid concerns.

comment by gordonst · 2022-07-03T01:16:20.178Z · LW(p) · GW(p)

On the subject of books/essays about the role of boards, I wanted to suggest Servant Leadership, the collection of Robert Greenleaf's essays on leadership and institutions. Specifically, the first three essays: "The Servant as Leader, "The Institution as Servant", and "Trustee as Servants" (note: the first essay, "Servant as Leader", has nothing to do with the question of effective nonprofit governance, but it's necessary to understand the other two essays; plus, it's one of the great essays ever written on the subject of leadership).

That said, I should preface this recommendation by warning folks that this set of essays is trying to do something different than Holden's very practical advice above (and what I suspect you will find in the "Boards That Lead" book which Holden recommends). Holden is giving advice for being effective in the kinds of boards that exist today.

Greenleaf, on the other hand, is calling for a complete rethink of the structure and role of both executive teams and boards in two fundamental ways:
- Transitioning from the traditional pyramid organizational structure with CEOs as supreme leaders to a primus inter pares (first among equals) model where leadership is far more distributed among the executive team.
- Developing an expectations that Boards become far more engaged than they are today, while at the same time having a very specific, constrained role that consists of setting overall organizational goals, appointing the executive team, assessing organizational performance, and acting upon that assessment when necessary to change the goals or executive leadership.

I find the argument that Greenleaf makes compelling (especially his description of why the current model for the CEO role is so destructive for both organizations and the CEOs themselves), but it's also worth noting that Greenleaf's focus was on large institutions (whether businesses, nonprofits, universities, or churches) and not small startups.
 

comment by aviv (avivo) · 2022-06-23T17:33:19.975Z · LW(p) · GW(p)

I think this piece is highly applicable to a particular kind of organization, with particular kinds of goals. However, it would be stronger if described that scope up front (and alluded that variants are needed in many other environments). 

It might apply most to non-profits with full-time staff that aim to grow, (or are already large) and have a large pool of potential funders available if they can demonstrate effectiveness at achieving their missions, or some other reliable revenue generation. (Essentially the non-profit equivalent of venture funded startups, except maximizing mission instead of profit.)

For example, a volunteer-run community garden non-profit is going to have different core challenges! Especially if the board is the people doing most of the work, or people are there for community and the legal structure exists mostly for accounting. While this is less relevant for EA orgs, that isn't clear from the framing.

There are also many practical difficulties in implementing some of these recommendation given the existing funding and volunteer environments and norms (and the human and community aspects around organization formation and growth).  As alluded by Dagon, there are many different things that a board is trying to do. Ideally there would be e.g. other kinds of structures that provide status and insight for major funders and fundraisers, without direct governance power. I think it would be hard to implement many of these recommendations without such alternatives.