Does Your Nonprofit Board Need a CGO?
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Nonprofit governance is tough and getting tougher. As a result, nonprofit boards are increasingly challenged to consistently deliver high-quality governance. Well-intentioned efforts to improve governance by reducing board size, restructuring standing committees, or identifying best practices have not resulted in demonstrably better governance quality across the nonprofit sector. BoardSource's 2021 Leading with Intent: BoardSource Index of Nonprofit Board Practices survey shows that board performance, as rated by a diverse mix of nonprofit CEOs, receives middling grades for key responsibilities. Looking at results over time (Chart 1), these responsibilities appear stuck in a rut that is not as good as the nonprofit sector needs!
In research recently conducted for the Center for Social Sector Leadership at UC Berkeley's Haas School of Business we explored a new idea: Would designating one board member to serve as a Chief Governance Officer (CGO) improve nonprofit governance? Interviews with 30 experienced nonprofit directors representing over 100 nonprofit boards supported the hypothesis that a CGO could catalyze improved board performance.
While the CGO title itself was questioned by some, it is intended to convey both an aspiration and a position of importance. Drawing on the feedback of our interviewees, this article summarizes the common sources of inconsistent governance quality and outlines the expected benefits of appointing one director as a CGO.
Eight Sources of Inconsistent Governance
Why does nonprofit governance fall short of the ambitious goals of the sector? Our review of existing board leadership surveys—most helpfully BoardSource's Leading with Intent: BoardSource Index of Nonprofit Board Practices and Stanford University's 2015 Survey on Board of Directors of Nonprofit Organizations—and the experience of the directors we spoke with collectively highlighted eight sources of inconsistent governance.
1. Nonprofit directors often lack a shared understanding of what good governance means. Few of the directors we spoke with defined "governance" the same way. Whether due to the lack of a universally accepted definition of governance, or the lack of standardized training when joining a nonprofit board, too many directors bring only a partial sense of the commitments they have accepted upon taking a board seat. If held at all, nonprofit board orientation programs are often created and driven by staff members to introduce new directors to the organization, but rarely include a director-driven discussion of the board's role, governance responsibilities, and how the board organizes itself to fulfill those responsibilities. Poor initial training and a lack of continuing director education perpetuates an underemphasis on governance and handicaps the board's ability to be effective partners in driving organizational performance. One of our interviewees concluded: "We fail from the very beginning."
2. Nonprofit boards do not always have the right voices in the boardroom. Most boards know they perform better when they have a strong, diverse set of directors sitting around the board table working effectively as a team. Driven by the need for fundraising help, however, many boards prioritize financial capacity and personal networks at the expense of community representation, professional skills in areas such as technology or social media, or other governance-relevant attributes. Many of the directors we spoke with noted that organizations were really "wrestling with Diversity, Equity, and Inclusion" (DEI), and that "DEI is really easy to screw up." Finally, the time commitment necessary and fundraising obligations associated with board service were both commonly cited as barriers to recruiting both younger and more diverse candidates.
3. Pressure to help organizations meet annual fundraising targets shifts attention away from governance. Stanford's 2015 Survey on Board of Directors of Nonprofit Organizations reported that almost half of nonprofit boards require board members to fundraise, and on those boards "90 percent of respondents believe that fundraising is as or more important than their other obligations as directors." Indeed, fundraising obligations often pull board attention from other governance responsibilities and encourage boards to grow, but at the cost of reduced ability for the board to work generatively and strategically as an effective team.
4. Boards fail to regularly assess governance performance and develop improvement plans. BoardSource's 2021 Leading with Intent survey notes that only 47 percent of boards have completed a self-assessment in the last two years, and almost one-third of responding organizations have never completed a self-assessment. BoardSource surveys over the years show that boards that regularly self-assess perform better against key governance responsibilities than boards that do not.
5. Poor governance processes push boards to underinvest in critical issues and governance activities. Weak governance processes contribute significantly to inconsistent governance. Inefficient meetings, poor facilitation, and unwieldy agendas pull time from critical topics. Outdated committee structures, underperforming committee leadership, or lack of annually updated plans fails to ensure that committees are focused and accountable. A bias towards consensus too often leads boards to rubber stamp decisions, and inadequate preparatory materials coupled with tight timelines leave boards struggling to debate complex issues, explore strategic choices, or act with confidence. Finally, a lack of accurate key performance indicators leaves boards wondering about the real performance of the organization and whether they know enough to provide well-informed direction.
6. A low-accountability board culture leads to inconsistent effort by individual directors. Experts agree and our interviewees confirmed that a strong board culture "has a significant influence on the way [a] board carries out its work." Often, however, voluntary board work takes a back seat to directors' day jobs, leading to poor preparation for board participation and decision-making. A weak board culture often manifests itself in "nonprofit nice" communication and fails to hold underperforming directors accountable for quality engagement. Unlike public corporate boards, nonprofit self-assessment processes rarely ask directors to evaluate the performance of their fellow board members, which can contribute to a low-accountability culture. The Stanford survey cites that "almost half of respondents do not believe that their fellow board members are very engaged in their work, based on the time they dedicate to their organization and their reliability in fulfilling their obligations."
7. Confusion between the board's role and that of management. As passionate volunteers, nonprofit directors can overstep boundaries and get too involved in the day-to-day activities of the organization, frustrating nonprofit managers and diverting time from more appropriate governance topics. Leading with Intent notes that "the board's understanding of roles and responsibilities is fundamental to the board's performance," and supports the argument with assessment data that shows "boards that have a strong understanding of roles also tend to have stronger performance across all other [board] performance areas."
8. Governance has gotten tougher. The world is changing in ways that expose weak governance practices. The overwhelming majority of our interviewees agreed that governance is getting tougher, which has multiplied the risks facing the reputation and finances of nonprofits. Commonly cited challenges that boards now grapple with include:
- Financial complexity: The fiscal impact of the pandemic and increasingly complex business models have resulted in financial oversight that is "wider and deeper than it used to be."
- Technology: Digital tools enable nonprofits to digitize records, access new audiences, reimagine programs, and assess impact with better data than ever before. However, these opportunities often require significant investments and can expose nonprofits to data theft and privacy issues.
- Sociocultural shifts: Societal reckoning with systemic racism has prompted many nonprofits to rethink assumptions and renew commitments to Diversity, Equity, and Inclusion (DEI) in their programming, staffing, and board composition.
- Increased public scrutiny: Rating agencies have established new standards for transparency that make the impact of board decisions available for all to see. Meanwhile, social media has created a new level of exposure and risk for a nonprofit's public reputation while elevating expectations for rapid responses to unfavorable news items. Partnerships with both for-profit companies and other nonprofits further complicate nonprofit governance as public controversies surrounding partners can create new reputation management dilemmas.
- Evolving legal duties: Recent legal decisions are raising expectations for how boards fulfill their duty of care and loyalty. Changes in corporate compliance law suggest that nonprofit boards, like their for-profit counterparts, are increasingly liable for their organization's activity, even in the absence of information.
All these issues require boards to be on the lookout for the next big issue or risk, which is where a CGO could help. We asked our panel of experienced directors whether appointing one board member as a CGO would result in a higher level of board attention to these and other important governance issues and thereby help boards lift their governance game. The overwhelming response was YES, with 97 percent believing a CGO would be helpful in all or in many situations.
Defining the CGO Role
The CGO role that emerged from our conversations was one of an internal governance quality advocate who helps the board comprehensively engage with its governance obligations. In this capacity, the CGO has two key areas of oversight:
1. Ensure compliance with legal and social expectations. The CGO should ask questions to ensure the board and organization comply with current and emerging legal and ethical standards to preserve the organization's license to operate in the community. On behalf of the board, the CGO should manage and update the list of compliance expectations; collaborating with staff and the board to ensure all standards are met and accurately reported. The CGO should, by definition, have strong awareness of the organization's bylaws and policies, which are the foundational documents informing board governance requirements.
2. Champion the adoption of proven governance practices that enable the board to help the organization fulfill its mission effectively and efficiently. To achieve exceptional governance, the CGO's oversight must be complemented by a commitment to adopting board practices known to support organization performance and mission fulfillment. These practices and mindsets are an ever-evolving list, with BoardSource CEO Anne Wallestad's 2021 SSIR article "The Four Principles of Purpose-Driven Board Leadership" as the latest contribution in this field. A critical aspect of the CGO's responsibility is to ask: "What aren't we doing that would help our nonprofit perform better?"
While the CGO cannot singlehandedly deliver high quality governance, as an advisor to the whole board and a thought partner to the busy board chair they can pose the right questions to stimulate thoughtful board discussion. Interviewees agreed that comparing board practices against an accepted list of good governance questions would be a strong starting point for a CGO. For example: Are our nonprofit's articles, bylaws, and board-approved policies up-to-date and in compliance with legal obligations and societal expectations? Does the board annually review CEO performance and update their goals? Does the Board regularly review a set of key performance indicators to track organization impact, financial performance, and overall health? Using resources available in the sector, we assembled a working list of questions covering a wide range of topics that a CGO could use to prompt a board to recognize and address gaps. The full list is available here.
In addition to asking questions that prompt board reflection and action, the CGO should play a hands-on role in four activities:
- Leading a bi-annual review of governance effectiveness and monitoring initiatives to improve board performance.
- Driving new director governance training and shaping supplemental training and education over time.
- Monitoring external governance-related developments pertaining to the law, regulations, and social expectations on behalf of the board.
- Engaging with the CEO on how staff can best support high quality governance by, for example, ensuring appropriate board materials are prepared and/or framing board discussions to encourage engagement with genuine issues.
These primary responsibilities define a CGO role that will be of value to many boards by addressing the sources of inconsistent governance. The experienced directors we spoke with noted, for example, that a CGO driving regular board self-assessment and strengthening the governance focus of new director orientation could help build a stronger shared understanding of what good governance means and reduce confusion on the roles of the board and management. Likewise, a CGO working with the board chair and CEO to develop an annual board calendar and committee mandates would help ensure that the full range of governance responsibilities, particularly compliance oversight, are regularly addressed each year. In addition, a CGO participating in the nominating process could encourage an equal emphasis on recruiting for diversity and skill set as for individual fundraising capacity. Our interviewees were especially interested in the value a CGO might add to boards looking to anticipate, rather than react to, changing legal or societal expectations by actively monitoring external governance-related articles and forums.
One might question whether the responsibilities outlined above are the work of a good governance committee. Unfortunately, as many as half of nonprofit boards do not have a committee dedicated to governance. For those that do, they are often combined with nominating responsibilities into a single committee, with the reality that the challenges and urgency of filling empty board seats often means the nominating function frequently trumps the sometimes mundane aspects of governance assessment and improvement initiatives. The CGO role seeks to rebalance this natural bias.
Identifying the CGO
Who is best suited to serve as this good governance catalyst? This answer will vary by organization. Importantly, naming a CGO does not require a nonprofit to dismantle existing structures or committees. A CGO should be able to work within existing committee and leadership structures and remain effective despite inevitable board leadership transitions.
Skill set is the critical driver of an individual's ability to fulfill the CGO role. First and foremost, mindset is key. An independent, objective, organization-first mindset and willingness to ask hard, sometimes uncomfortable questions is essential to this role. This may be challenging for existing board leaders already in the center of the governance process. Secondly, legal skills are nice to have, but not essential. Communication and persuasion skills are as important as technical knowledge. Specific legal expertise can be acquired pro bono or at a reasonable cost if a legal professional is not already on the board or staff. Finally, training is necessary. A CGO should be trained in board governance, ideally through a formal training or certification program, or via the experience of serving on multiple strong boards.
The CGO must be on the board. While a few interviewees suggested an external advisor or staff member could fill the role, most felt that the CGO needs to be a respected leader on the board able to credibly raise and address issues when they happen. So, who should this person be? There is tremendous variability in the ways nonprofits deploy leadership to oversee and support their activities. Whether a board creates a new position or repurposes an existing role, nonprofits have a rich set of options to implement the CGO model:
Board chair: The board chair has the greatest influence on governance quality in most nonprofits and could be a logical candidate for the CGO role. In fact, "Chair as CGO" was the initial hypothesis of our research. Recasting the board chair as a board governance expert, particularly in the face of a strong CEO/ED, could help underline the board's role and reduce risk for the organization. We recognize, however, that the chair role is already a demanding volunteer job, and chairs are often selected for different strengths, like fundraising skills or a high-profile reputation. Not to mention that in certain situations, the chair can be part of the governance problem.
Vice chair: The vice chair is often an underutilized role in many nonprofits, and the CGO designation could reinvigorate the position with a well-defined purpose. Re-envisioning the vice chair as CGO could also serve as a development opportunity for future chairs.
Chair of a standalone governance committee: Combined nominating and governance committees were commonly described as allocating their time to "90 percent nominating and 10 percent governance" issues. A CGO leading a refocused, standalone governance committee would add heft and capacity to support the board's most critical role.
Executive committee: The CGO role could also be formalized as a responsibility of the executive committee or added to the responsibility of an existing executive committee member or board officer. Our discussions suggested that in high functioning boards, strong executive committees could be effective arbiters of good governance.
Independent director: Last and by no means least, an experienced director with the right skillset might take on the role, particularly on a smaller board or one with few committees.
It is clear that no one size fits all and that the tremendous variety of nonprofits makes the choice of who to fill the role a far more nuanced and localized one.
Implementing the CGO Role
Our hope is that boards do not allow these variables to get in the way of testing the concept. Allow local factors to shape how the CGO is selected and learn what works best for your organization. To implement the role effectively, we suggest the following actions:
Recruit the skill set and be prepared to waive other board expectations (i.e., give-get fundraising requirements, other committee memberships) to get and retain the right candidate. A CGO's responsibilities will be time consuming and require a meaningful commitment outside of board meetings.
Make CGO an officer of the board and/or a member of the executive committee. The CGO must be seen as a real leadership role within the board with a two- or three-year term and a maximum of six years in the role.
Have the CGO report to the board, not the chair. The CGO should regularly report on governance topics, as part of regular committee chair reports. This approach reinforces the advisory role the CGO plays to the entire board and helps ensure that important perspectives are not stifled by the board chair.
Sponsor the CGO to receive governance training and certification. As a CGO is a new concept, there are not yet training programs that focus specifically on this role, but there are a variety of governance-oriented training programs and resources available in the nonprofit sector.
Support the CGO's membership in good governance forums such as those provided by BoardSource, the National Association of Corporate Directors (NACD), or the Women Corporate Directors Foundation (WCD).
Arrange for access to outside counsel so the CGO can discuss issues and only bring forward those which deserve board consideration. Particularly for a CGO without legal training, access to pro bono counsel or a small budget for external legal advice (assuming no internal counsel) will give the CGO confidence and avoid wasting the full board's time on issues where the law is clear.
Consider adopting the role on a temporary basis. Boards who wonder whether the CGO is valuable can adopt the role for a two-year trial. Preceding the adoption with a self-assessment and following up two or so years later with another self-assessment will enable the board to assess whether the role made a meaningful difference.
Too many nonprofit boards are stuck in a rut of substandard governance and need a new way to break out. The majority of our interviewees felt that designating a CGO to help nonprofit boards lift their governance game is a new idea whose time has come. For boards struggling with governance, it is a low-cost, practical solution with significant upside. The best way to answer the question of whether appointing a CGO on your nonprofit board is a worthwhile exercise is to have an informed director answer our suggested CGO questions and see whether gaps in current practices merit an investment in catalyzing better governance. For many nonprofits, we believe the answer will be yes.