You're told that the organization is high impact in addressing a vital community issue, and that its services are cost effective. You're giving your time and money (hopefully, generously). And other people see that you're involved; they trust the organization because they trust you. Simply by serving on the board, you're vouching.
A cause you believe in. Nice people. That's great. Just one question: HOW DO YOU KNOW?
And there it is ... the essence of the role of the board.
The HOW DO YOU KNOW questions
HOW DO YOU KNOW if the organization is accomplishing what it has set out to do (its mission)? Truly meeting the needs of its clients? Maximizing its effectiveness? On track with its budget? On track with its strategic plan, and updating it in the face of new challenges and opportunities? In compliance with legal and regulatory requirements? Financially accountable?
Protecting the organization and cause you love
This doesn't mean that you need to be a board member who's a pain-in-the-neck. But raising the HOW DO WE KNOW questions in a reasonable way is your job. It's your responsibility to the community, those who contribute funds to the organization, and the kids you serve (or the homeless, or the environment, or the "fill in the blank").
The vast majority of nonprofit CEOs will gladly address these questions in order to ensure that the organization and the cause continue to be trusted and valued. As cautionary tales, there are a few high-profile scandals about nonprofit organizations, including, most recently, Three Cups of Tea author Greg Mortenson. In that case, the media ultimately asked how do we know whether donated funds were being used as promised. Once the question is so far out in the public, with no clear and apparent answers provided by the organization and its leadership, then the organization can be at serious risk, and the public can be distracted from legitimate and vital causes (see Gayle Tzemach Lemmon).
The answers to HOW DO YOU KNOW for nonprofits can more complex than for-profits
Unlike serving on a for-profit board, where there might be clear metrics to track units manufactured and sold, sales, profits, etc., there might not be simple measures to track a nonprofit's progress with regard to mission and programs. How do you measure whether children in your primary after-school program will not wind up in prison later in life, and how do you tease out that your after-school program was the key contributing factor to your students' later success? Not only is this difficult to measure, but it also requires a long term study, with answers that will not be available at a quarterly or annual board meeting, and it's also costly to measure; many nonprofits don't have the funding resources for such studies.
Yet, there are at least three ways that nonprofits can demonstrate that they are accomplishing what they have set out to do. First, in the most basic terms, by simply counting. For example, count and report how many people your job training and placement organization trained for jobs; the percentage of program participants that your organization actually placed in jobs; the average number of months it took to place them in jobs: the percentage of people who were still employed in their jobs 6 months later, and then one year later; the average salaries; the percentage that received health care from their employers; and responses to client satisfaction, and also employer satisfaction surveys. Second, through site visits; board members should make site visits to see how clients are treated and helped. Third, by having credible outside reviewers compare your programs to the state of the art.
Another challenge with nonprofits is that even financials can be more difficult to track, because there are often third party payers (county, city, state, federal, as well as health management organizations, for example); the vast variety of payers and funders are likely to be paying on different time cycles, and often only after services are provided; each payer with very different regulatory and reporting requirements; and often paying out of alignment with the organization's fiscal year.
The management value of HOW DO YOU KNOW questions
Not only are answers necessary to document and measure the value of your organization's services, and make a compelling case to donors and the public, but answers are also necessary for CEO and board decision-making.
Without answers to the HOW DO YOU KNOW questions, the board and the CEO are operating in the dark. Remember when you were a kid playing "pin the tail on the donkey"? You were blindfolded, then spun in a circle, and then had to place a pin with a tail on a donkey. The joke was on you when you took off the blindfold and saw that you had placed the tail on the face. Imagine having to make strategic organizational decisions with a blindfold on. Decisions that affect the lives of the world's poorest people, or victims of natural disasters, or men and women seeking recovery services. Isn't that what boards are asked to do when there are insufficient data?
With information about program outcomes, the costs of services, and the organization's revenues and expenses, the CEO and board can plan iteratively to maximize the organization's effectiveness and revenue opportunities. For example: which programs to enhance, expand or bolster vs. which to phase out, where to expand geographically vs. where to wind down, which programs need subsidizing through charity and which programs can generate fees for services to increase organizational revenues.
Furthermore, boards that can make an honest appraisal of the organization can determine how they can add value, and the kinds of people they need to recruit to the board to add perspectives, skills, networks, or resources that are needed.
HOW DO YOU KNOW? Program metrics, financial information, and your own eyes and ears
Here's the information that the board needs in order to ensure that the organization is accountable to its donors and the community, and to plan iteratively in order to maximize the nonprofit's effectiveness:
- Metrics—a dashboard—that show how the organization is performing with regard to its core programs. Some measures can be basic and simple, such as how many children were matched to tutors. Other measures might be more sophisticated; for example, showing how students who worked with tutors performed on reading tests as compared with students who did not work with tutors. Additionally, it's important to have both students and tutors complete surveys to provide their feedback about their experiences. The organization's staff should have the expertise to develop the dashboard, including drawing on best practices in the particular field to measure impact; a small committee of two or three board members could also be helpful. The dashboard should be simple to read and concise, using grids and charts. When the board reviews the dashboard, once or twice a year, this is an opportunity for the board to engage with the CEO or a senior staff member about the implications and possible programmatic changes to advance excellence and "customer service" towards mission and vision.
- Financial information that demonstrate the organization's financial status, accountability, and integrity including: a statement of activities (revenues and expenses) at every board meeting; an annual audit conducted by an outside auditor from an accounting/audit firm and presented directly to the board along with the management letter; the IRS Form 990 before it is filed; an annual conflict of interest statement and disclosure statement reviewed, signed, and submitted by each and every board member annually; a secretary of the board who is an attorney with a law firm; a board treasurer who is a CPA with an accounting firm; and the fulfillment of any additional reporting or regulatory requirements.
- Your own qualitative impressions from conducting site visits, interacting with staff and clients, and understanding the organization, its culture, and its values. Site visits also provide you with an opportunity to recognize and appreciate staff members, greet clients if that is appropriate, and show your respect for the CEO as the leader who has built an effective organization if that is the case. Site visits have an added value of inspiring board members about the organization's compelling work; board members are more effective advocates when they have seen the nonprofit in action.
The above list is not all-inclusive which is why it's necessary for nonprofit boards to include practicing attorneys and CPAs, and experts in each nonprofit's field of service, and why all board members should be alert, informed, and ask HOW DO WE KNOW.
Be curious, use common sense, and have fun
It should be part of an organization's DNA to be asking and answering the HOW DO WE KNOW questions on an iterative basis. In fact, a good CEO is always measuring in order to continuously improve her organizational model, meet her employees' and clients' interests, and to have fun at it. A good CEO enjoys engaging with his board to build the best organization possible to serve the mission. Success is the reward, and the numbers will prove it.