How Do You Know That?

After my last post which encouraged board members to ask hard questions, several readers asked what questions? Board members need full information to make good decisions. And that means asking lots and lots of questions – the ones that break out of group think, that uncover hidden issues, and that get to the essence of unseen problems or opportunities. 

I started brainstorming questions and came up with a very long list. So, I decided instead to share just a few really key questions. I organized them in five areas: finance, program, funding, staff, and board. But you will see that many of the questions overlap. 

I want to stress that it is vitally important to follow up on the information you are given. One simple question that I’ve found many board members don’t ask is “How do you know that?” Staff may say, “We have enough cash on hand for anticipated growth.” You ask, “How do you know that?” Staff may say “Programming is effective.” You ask, “How do you know that?” Well, you get it.  If an important assertion is made without reasonable supporting evidence, it’s the board’s job to uncover the truth, good or bad.

Take Care Not to Micromanage!

Asking hard questions and having a thorough understanding of an organization does not mean you should micromanage. Boards work at the strategy and policy level. You should ask about programs and their effectiveness, but you should not be designing programs. You should ask about staff turnover, but you do not hire or manage staff (except for the ED or CEO).

So, here are my questions. Please let me know if you have other strategic questions you think should be added to this list – or if you think some should be removed.

Questions About Finance

Overall, you want to know whether the organization has enough money to operate sustainably and to fulfill its mission not just this year but also going forward. From a governance perspective, verify that the organization is meeting its legal and contractual obligations and that it has internal controls to protect against fraud and cyber threats.

Board members should review financial documents at least quarterly. The 990 should be completed in a timely manner and reviewed by the board yearly. And auditors or outside consultants should report to the board, not the staff, and should meet with the board without staff present. 

1. How are financial reports created, what are the variances, and who has final sign off?

This question is all about checks and balances, identifying problems early, and avoiding fraud and errors.

Think carefully before you ask staff to create specialized reports that are not easily generated from the accounting system. These reports take valuable staff time, allow errors to be introduced, and make fraud harder to spot. At one organization, the board asked for several financial reports in a specific format. Staff responded by manually creating the reports since they could not be created from the accounting system. Staff were actually cutting and pasting numbers into a spreadsheet! The board had not realized that staff were doing this until one methodical board member caught a huge mistake and asked about it. 

The board should also understand any variances between this year’s actuals and budget and this year’s actuals and last year’s actuals. Looking at variances helps identify problems early. Remember not all variances are bad. For example, if your organization is growing this year’s actuals will be much greater than last year’s. Often variances are due to “timing,” but dig into that. Variances may also be the result of the assumptions made in the budget. See the next question. 

2. What are the assumptions made in the yearly budget and which ones are most risky?

Every budget is based on assumptions — how much revenue and expenses are anticipated. In one organization, management created the budget by listing all anticipated expenses and then plugging in a revenue number to cover those expenses without consulting with the fundraising team. This was not just a risky assumption but also a foolish one. Revenue projections need to be made based on past history and the organization’s pipeline of donors and grants. In this case, revenue came in far below the budget.

3. Does our budget align with our Theory of Change and our Vision/Mission?

Most of your budget should go to programs or activities that most effectively achieve the results you want. If most of your budget goes to less impactful programs, you have a problem.

When it was founded decades ago, an organization working with low-income and immigrant populations had one area with a group of programs. A second area was added after a few years. The organization funded both areas equally. Over time, everyone recognized that the second area was the most effective, though the original one did have necessary but more limited impact. One savvy board member asked why the areas were equally funded. No one had a good answer beyond it was the way it had always been. The board directed staff to align the budget with the strategic plan going forward.

Large corporate, foundation, or other institutional funders have their own theories of change (TOC). Organizations apply for their grants because they need the resources, even if the work is only partially aligned. This is often referred to as mission creep. If you are a funder and reading this, you should consider how you provide funding — a topic well covered by my friend Vu Le in his blog Nonprofit AF.

Questions About Program

Overall, you want to have a good grasp of what programs the organization offers, what impact you want to have, and how your activities lead to that impact.

4. What impact do we want to have, how do our activities lead to that impact, and are our activities the best to achieve that impact?

To be good ambassadors and to practice good governance, board members should be well versed in what impact the organization wants to have and how its activities lead to that impact, that is, the organization’s Theory of Change. 

Board members should be involved in developing an organization’s mission, theory of change, and strategic plan. Once these are identified, the board should ask hard questions to ensure that programs and other activities are the best ones to achieve that impact. 

 5. How do we define and evaluate success?

As stewards of the organization’s finances, boards are tasked with making sure that resources are well used to further the organizations’ mission. 

In one example, a health organization was working to influence behavior of a certain population in a manner it had been using for decades. A new board member came in and questioned the effectiveness of what they were doing. The organization had not done a serious evaluation. It had proceeded on the assumption that what they were doing was effective. They had long-time funders who loved the mission and did not ask questions either. At the board’s direction, using some unrestricted funds, staff evaluated their program and found that it was not having the impact they expected. They had been spending money for years without making change. 

The follow up in this situation is to have board and staff work together to decide how to respond when programs are found to be ineffective. Can the program be modified or should it be ended? What programs or changes would staff recommend that could lead to the expected impact? What communication is needed with funders? 

6. How are people served by our organization involved in program design, implementation, and evaluation?

Success is an interesting concept: different people have different definitions of what it is. If your organization is serving a specific population, your staff should be working with them to determine how they define the challenges their community faces, the most effective solutions to these challenges, and how they define success. The expertise of your staff around specific areas (medical, policy, etc.) should be layered around a community-designed program. But your organization is most likely to achieve the impact it wants if its programs are designed, implemented, and evaluated with the people served. 

In one organization, staff made assumptions about what parents wanted for their children in an early learning setting. They launched the effort and no one showed up. At first, they thought the problem was outreach. They made changes, but still no one showed up. Finally, they talked to the parents who told them they had different goals and wanted programs that were completely different.

Questions About Staff

Overall, you want to make sure you have the best people for the job and that they are treated fairly. Some organizations become overly focused on low overhead which means staff are poorly paid and supported. This leads to burnout and turnover which is costly. Low overhead does not necessarily correlate with impact.  Additionally,  the board needs to know that the organization complies with employment laws and regulations and that it has and implements current hiring and personnel practices. 

7. Do we have the right staff to achieve our mission?

Organizations need staff with the right skills to reach their goals. Many nonprofit organizations do not set performance objectives or do consistent performance evaluations of staff. They may make staffing decision based on seniority rather than skill set. Especially if programs have changed or mission has been updated, EDs should evaluate their people.

One organization implemented a performance evaluation system that was designed with a board member who was a senior HR professional. When a government funder abruptly stopped all funding for a program, the organization faced layoffs. Instead of simply cutting the staff working on that program, the organization worked with the HR board member to identify criteria for who should be laid off based on skills that could be transitioned and performance ratings. No one challenged the fairness or transparency of the process.

8. What is our staff turnover?

High turnover is a huge red flag and your board needs to dig deep. Ask: Do we have a lot of turnover because of burnout? Poor management? Mismatch between staff and jobs? 

One reader shared a story about an organization that was experiencing high turnover. The board found out because several members served on other boards and noticed staff from the first organization being hired by other organizations. The board chair asked the ED what was going on and also hired an outside consultant to do confidential surveys. They discovered that staff felt the work environment was hostile. Staff complained specifically about a senior leader and that the ED supported this leader when staff brought the issue to her. After the survey, the ED finally let this senior leader go. But it was too late. Staff continued to leave because they did not have confidence in management. The board had to let the ED go as well. 

9. Do our hiring and personnel policies and practices reflect our values?

A lot of boards don’t consider this question. But if you have value family or diversity, then your policies should reflect this. Consider parental leave, flex time for people to care for family members, the ability to work from home. Also review job descriptions, hiring practices, and performance reviews for bias. Keep good data: do you have women and people of color in leadership positions? Why not? Are all the people of color leaving? Why?

Questions About Funding

Overall, you want to have varied and stable sources of funding and sufficient unrestricted funding to have sustainable operations for many years.  

10. Do we have varied and stable sources of funding?

No organization should depend on just one funder — whether it is an individual major donor, a large foundation, or the government.

A reader told me about an organization that relied heavily on a funder for more than 50% of their funding. As a result, they never developed a robust or diverse fundraising program. hen this individual decided to focus elsewhere, giving only a year’s notice. The organization had to regroup quickly, laying off staff, and severely curtailing operations. 

11. Do we measure how successful our fundraising efforts are?

How much does it cost to raise $1 for your organization? How effective are each of your fundraising efforts: events, mail or social media campaigns, major donor meetings, grants?

For example, while an organization might show gross vs net revenue for an event, most do not include staff time in this calculation. This does not mean you should stop holding all events, because events are great for developing a pipeline, for getting your message out broadly, and for celebrating achievements. But good decisions cannot be made without full information.

12. Does our fundraising plan align with our TOC and our budget?

This question assumes there is a fundraising plan. And there should be. One that shows varied sources, explains how the sources will be approached, discusses the board’s role, and sets expectations about when and how money will be raised.  

As explained above, fundraising staff needs to be part of developing a budget. They need to provide a reality check based on their pipeline about what they think they can raise.

Likewise, fundraising staff need to be clear about the mission and theory of change so that they can approach donors and apply for grants that are well aligned and avoid mission creep.

Questions About Board

Overall, you want board members who are passionate about the mission; who can contribute work, wisdom, or wealth; and who are engaged. 

13. Do we have the right people on the board – people with time, energy, skills, insight, wealth and/or access to wealth to support the organization?

How do you balance who is on the board? Good practice is to develop a list of who you want based on skills, demographics, geographies. Next identify who you already have. Finally, start talking to lots and lots of people who might become board members or know people who could become board members. This step-by-step approach is helpful but be cautious about being too structured as one board member advises here. I also believe in term limits so you can rotate new people with new ideas and energy on the board every year.

14. Are board meetings structured to encourage members to contribute and engage?

For some boards, the board chair and ED develop the agenda. For others, the executive committee does. The ED should never control the agenda alone — the board should be in charge of its own agenda and meetings. An ED with too much control of the agenda can paint an overly rosy picture of the organization as explained here.

On several boards when I have been chair, I sent out an email several weeks before each meeting asking all board members if they had something to add to the agenda at this or a future meeting. I found this worked well to create an inclusive and transparent culture. 

I am a strong proponent of making board meetings interactive. See this post for more information. With one of the most effective boards I have been on, the CEO saw the board as thought partners. He came to the board with ideas and asked for what he called our “wise counsel.” He was always clear that the decision was his, but he had board members with great experience and skills and he wanted to take advantage of those. 

Don’t make the entire board meeting reports by staff or committee chairs. That’s boring. Instead, think of strategic questions you would like to ask of the board and focus on those. At the same time, create a culture of having board members read their packets ahead of time so instead of reporting out, they can simply ask questions.  

15. Do we have an effective board and how do we know that? 

Good practice is to have the board create a yearly work plan that leads into the organization’s strategic plan, just as staff does. Each committee might develop its goals which are consolidated into an overall plan. Items for the plan might include number and type of new board members, fundraising goals for the board, updates (as necessary) to by-laws or the strategic plan, review of various policies and procedures, etc. At the end of the year, the plan should be reviewed to see how the board did. It’s also good practice to survey board members to see if they feel engaged, if their skills are put to best use, and which committee(s) they would like to be on. 

A few boards I have been on have had board members do individual plans as well, covering items such as their annual donation, attending programmatic or fundraising events, hosting an event, inviting others to events, serving on at least one committee, etc. 

6 Comments

  1. Great article!
    I have a question. One of my clients- a CEO of a nonprofit organization– is frustrated because board meetings are totally filled with generative conversations! She thinks the board has gone too far with the Governance as Leadership model.
    She is frustrated with the volume of board conversations versus some of the pragmatic needs– fundraising, advocacy, etc. Suggestions?

    1. Janet Levinger

      The CEO needs to work with the board chair to develop the agenda. The generative conversations should focus on areas that will HELP the staff fulfill the mission of the organization. No organization needs to revisit mission and strategy at every meeting. The CEO might also put the pragmatic issues at the beginning of the agenda — so they don’t run out of time because other discussions have gotten too long. I think having the board create its own goals can also help — these goals should include fundraising and advocacy. If they are going to judge themselves on how well they are doing in these areas, they are more likely to focus on them. Glad to chat more if you would like.

  2. Susan Howlett

    Great questions, Janet! In every category! Wish I’d had them 20 years ago! Well done!

    1. Janet Levinger

      Thank you. Glad they are helpful. Please share with others you think would benefit!

  3. Yoram Bernet

    Janet – having just come from a meeting of my boys’ school’s finance committee, this feels like a great set of questions for a non-profit board. That said, while I was buoyed to see the first question in the image: “are we sustainable”, I was disappointed to see that it didn’t make the list of the15 most important questions. As our kids prepare to strike for the climate tomorrow – could any question be more important at this point? It seems to me that sustainability,, whether environmental, social or governance should be on the list too.

    1. Janet Levinger

      Good point — I see “Are we sustainable” as an uber question. But adding it to the top 15 does make sense in the broader sense you list above. Thanks for your input. And please share with others.

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