It seems simple enough: one good way to improve the effectiveness of nonprofit directors is to periodically assess their individual performance.

As noted in our previous blog, without a regular review process, problem directors are not confronted, absentee directors make meeting quorum requirements difficult, and good directors opt to leave. 

Director reviews are a form of peer review where directors sit in judgment of other directors and have inherent challenges and risks.  No one likes to have their performance critiqued, particularly when the standards are primarily subjective and, after all, the director has offered his services to the charity for free. That is why we recommend fully explaining the review process to all directors and the evaluative standards committed to writing either in a job description or report card.  We also recommend that any resulting “corrective action” be carefully thought out and judiciously implemented.

What performance should be evaluated?

Having committed to reviewing director performance, the next step is determining the standards to use.  Some standards will be easily quantifiable, while others are subjective.  The process should consider both the negatives and the positives of the director’s service.

1 Board Meeting Attendance.  Attendance is not optional.

The biggest personal risk directors can take—short of self-dealing—is regularly failing to attend board meetings. In other blogs, I have discussed all the protection afforded to nonprofit directors, but there are limits.  It is tough to argue that a director fulfills his fiduciary duties when he never shows up.

Consider this fictional interaction:

Prosecutor:  Were you aware of the problems in your organization?

Director:  No.

Prosecutor:  How could that be?  The problems were discussed at every board meeting.

Director:  But I never attended board meetings. Bylaws often state that missing three meetings in a row is a “good cause” to remove a director.  But with most boards now conducting remote meetings or allowing members to “call in” or “log on” to meetings, we need to rethink our attendance standards.  For a board struggling with today’s challenges, seventy percent attendance seems like a better expectation.  Attendance policy should recognize that directors may periodically have health or personal problems that keep them from participating.  These situations that call for exceptions should be addressed privately by the board chair.  But if a director’s participation is permanently reduced, the board must act.  Many bylaws provide for Emeritus Directors who are given honorary status but do not vote, contribute to a quorum or bear any obligations as fiduciaries.

2 Financial Support.  The “Give, Get or Get Out” rule.

Nowhere is it written that a fiduciary must make a financial contribution to a nonprofit agency, yet boards regularly establish giving standards for their directors.  Often, the more prestigious the board, the higher the price of participation.  A future blog will discuss board-giving standards at length, but for these purposes, if the board has an established policy that is uniformly enforced, it can be one criterion used in the renomination process.  A few caveats – these standards work best when there are exceptions and the exception process is transparent and uniformly accepted.  Charitable boards often seek a degree of diversity among their members.  Creating a giving standard that is so high it eliminates good candidates with unique points of view will, in the long term, make the board less effective.  On the other hand, anyone who embraces the charity’s mission should be willing to write a check that, to themselves, is significant.  Many grantmakers will want to know that every director has contributed to the agency.

3 Other Attendance.  Directors should get Participation Awards.

There is likely a lot going on in your charity: award ceremonies, fundraising events, visits from dignitaries, and other celebrations. Active board members attend these events and support them with their presence. Part of an assessment of directors should be their willingness to find time for these types of events.  These events provide excellent opportunities for directors to get a pulse on what’s happening in their agency; they reaffirm for employees and beneficiaries that the board is interested in what’s going on; and for visiting dignitaries and politicians, it reinforces the fact that community leaders support this organization and subtly suggest that the visitor should also.

4 The Positives.  Good deeds come in many forms.

A diverse board brings a wide variety of positive skills to board service. Some directors are born leaders destined to chair a committee or board. Some have unique skills that your board needs: lawyers, financial people, healthcare professionals, and marketing experts. Some can speak in support of a community you serve or hope to serve. Others bring sound judgment and enjoy the respect of their fellow directors.  All these positive contributions need to be factored into your director assessment process.

5 The Negatives. Decorum. Disruptive Directors must go.

Disruptive directors come in many different styles. There is the one who can’t seem to focus on the topic being discussed and wants to take the conversation in some totally different and usually irrelevant direction. Or there is a director who is always late, interrupting the proceedings to give a 5-minute explanation of lousy traffic or some dilemma that has befallen him and made him late once again. Or they’re the ones that have one good question or one good observation, which they pose at every meeting even though the entire board has heard and discussed the question time and time again. Sometimes, the director interrupts to advance his favorite cause, which can be related to the charity itself or some other external matter.  Regardless of the worthiness of the cause, repeatedly bringing it up during unrelated board discussions is a distraction.

While some of these behaviors should have been addressed during the director’s term, if that course has failed, the annual director assessment is an excellent time to put the concern on the table and discuss what, if anything, the board can do to change the behavior.  One thing is clear: if it isn’t addressed, good board members will leave, and important discussions will be interrupted and potentially hijacked.

Another issue of decorum is the attitude exhibited by some board members that allows them to contact staff members to either make inquiries about what’s going on in the agency or to suggest the employee take a specific action or consider a particular vendor. These behaviors are fundamentally at odds with a corporate structure that allows the executive director to direct the staff without interference.  This behavior also places employees in very compromising positions.   A director who does this once needs a warning.  A second time, stronger intervention, up to and including discharge needs to be seriously considered.

6 Another Negative. Conflicts of interests. Conflicts can be addressed, but it’s best to avoid them altogether.

Any good lawyer can explain to a board how to address even the most extreme conflicts of interest. Directors can avoid participating in matters in which they have an interest. Bid processes can be structured to ensure vendors with potential conflicts are not awarded sweetheart contracts. These procedures must be well documented and reviewable. But by far, the best way to address conflicts is not to have them.

At a minimum, directors with conflicts pose an operational challenge to a board. Conflicted directors may have to jump in and out of meetings depending on the topic discussed. They may also not be able to serve on certain committees or assume certain leadership roles.  

An annual review should assess how well the director has followed the rules and whether the conflict has become so problematic that it may be time to ask the director to resign.

A much bigger problem exists when a director has failed to disclose a conflict of interest.

Congratulations, you have completed your first director assessment; now what?

The next step may be the most difficult.  Having determined that a director’s performance is sub-optimal, what actions should the board leadership take?  There are at least three options:

  1. Let the report card speak for itself and hope the underperformance will improve.
  2. Begin a more formal counseling process with the board chair speaking to the director about the assessment, leading to a clear “plan of correction.”
  3. Decide it is time to remove the director, either by choosing not to extend his term or by using provisions in the bylaws to expel him.

One word of caution.  The first time a board undertakes a formal director assessment, can lead to hurt feelings, damaged egos and even outright conflict.  Few directors have any suspicions that their service isn’t fully appreciated by their peers.  The first round of report cards should accentuate the positives while softly noting the opportunities for improvement.