Should a CEO sit on the board of his/her own directors' companies?

Wednesday, April 28, 2010

Should We Be Considering Professional Board Chairs?

I recently returned from Australia where I facilitated a series of master classes in governance. While the US and Australian systems are similar, there are some distinct differences. One, to which I was introduced this trip, is a trend toward hiring professional board chairs. Though not wide-spread, it is prevalent enough that there are actually companies there that provide such individuals to organizations as required.

Clearly, there are advantages to such a concept. You ostensibly get a board chair that is unbiased, skilled and willing to give the time to the job since he or she is getting paid to do it. One would expect that such a person keeps up with the latest governance trends and has a broad perspective from working with different groups – both conditions that can lead to increased board effectiveness.

Some of the drawbacks are obvious, but not necessarily insurmountable. One board member complained to me that the professional board chair working in his organization was working with twenty other boards and often came to meetings unsure of which organization’s meeting she was actually at! I would think that far fewer than twenty boards may still be too many for a board chair to handle well. Of course, this is a relatively easy problem to circumvent. The board has an obligation to do its due diligence. A single question would have determined that this woman was over-committed. Still, in an emerging field where there may not be that many qualified individuals available for hire, organizations desperate for leadership may opt to move forward anyway and take their chances.

I would be concerned that any board chair for hire actually has the facilitation skills necessary to do the job effectively and is familiar with today’s proven governance practices. I meet a lot of people who tell me that they have chaired many boards over the years and know what they are doing. Unfortunately, I have observed that far too many of these individuals are mired in how things were done back in the days when they began their board service and are totally unaware of practices common throughout the sector now.

I also see the potential for conflict of interest. A professional board chair might work for several organizations with similar missions. While it could be advantageous to hire someone who has a depth of experience in your organization’s mission area, how can you be sure that your ideas, deliberations and decisions will remain in-house until they are ready to be shared with the community? Of course, this could prove an issue with anyone in the boardroom and if you deal with a true professional, this should not be a problem. More critically, the board chair is privy to discussions that can personally impact him or her, for instance whether the contract should be renewed and at what rate. If the organization has policies for dealing with such situations, this also can be handled in a transparent and judicious manner. Australia has the same duty of loyalty requirement we do in the US and conflict of interest has not been a sticking point for the nonprofits in that country.

The culture in the US may be the biggest barrier to such an idea taking hold here. I can foresee donors reacting negatively to the idea of having their money go to pay a professional board chair. So many already resent money being spent on even the most critical administrative fees. Link this to the expectation that has taken hold here – but not in Australia – that all board members must make a personal contribution and we have yet another potential obstacle. This expectation would imply the professional must “pay to play,” something that is unethical if not illegal. Yet, if the organization excludes the chair from the requirement, resentment is sure to build in the other board members who are held to the giving standard. They may already be upset, wondering why they shouldn’t get paid for their time.

Then, who wants to be the first to test the IRS response? Surely, as paying for a professional board chair is not accepted practice in the US, the board and organization may be liable for a hefty excise tax on that fee if it is deemed excess benefit.

Yet, I can’t help thinking about the potential benefit – boards running more efficiently and effectively. Acceptance of such a practice might even stimulate new jobs as individuals with the appropriate skills move into this arena and programs crop up to certify these professional board chairs!

Is this a bad idea if no organization is required to move in this direction or consider itself locked into a paid chair if it has used such a service in the past but now has the appropriate leadership in-house? What do you think?

Tuesday, April 27, 2010

Should We Insure the Founder?

Q: I’m on the board of an all volunteer organization. The founder plays the role of a full-time – albeit uncompensated – executive director. Lately, as more and more has fallen on this individual’s shoulders, some of the board members have brought up the idea of taking out life insurance and disability policies on her. The rationale being expressed is two-fold. First, there is a desire to provide the organization with a financial cushion if she can no longer shepherd the organization forward and we have to go with no or greatly reduced funding during the period required to find and train someone new. Second, there are some who wish to compensate this person for all she has done thus far, and feel that taking out an insurance policy to benefit either her or her beneficiaries is an inexpensive way to accomplish this. I’ve never heard of this before and feel uncomfortable about it. Am I out of touch or are the members of this sub-group?

A: There are a number of issues inherent in your question. We have to look at each individually if you are to have an idea of how best to proceed. But, let me start by answering your direct question. Providing life insurance and disability policies to management-level employees is fairly common. These are usually relatively small policies that are included as part of an overall benefits package and negotiated or provided at the time of hire. The benefit generally equals a percentage of the annual salary and is paid out to the employees and/or their beneficiaries, not the organization.1

The provision of “key person” life insurance, to which I believe your board colleagues are referring, is less common in the nonprofit sector, but not unheard of. In this case, where the founder is, I assume, the face of the organization, the chief fund raiser, the administrator, and more, key person life insurance is appropriate because you are seeking to cover the organization for the loss of such critical skills over the period of time that it takes to get back on track. In fact, the situation you describe is a textbook example of when to purchase such insurance.

However, to me, more important than whether this sort of action is typical or appropriate, is the potential impact of these options. You indicate that the founder is doing all the work. Where is the board? The direct service volunteers? Succession planning is all about having the infrastructure in place whereby the organization can keep running smoothly even without the key player(s). (Read or listen to the 2010 CoreStrategies’ Consultants’ Roundtable on Succession Planning.) Your organization seemingly does not have such an infrastructure. My fear is that with your organization so reliant on a single individual, it will be hard to find someone with the desire or capability to take over the organization under such conditions. And, unless you do so in a timely manner, the organization will be forced to dissolve. This means that the insurance money that you collect will end up being turned over to another organization, since all assets of a nonprofit must go to another nonprofit with a similar mission upon its dissolution. I might suggest that you consider whether the premium money would be better spent on board training and/or the hiring of staff to provide some redundancy of skills so that the organization is not so dependent on the founder going forward.

If, as you indicate in your question, the board is concerned about recognizing the efforts of the founder/de facto executive director, it might choose to use the funds it intended to use to pay these premiums to provide her with an annual salary, even if it is a small one. That way the individual is guaranteed some compensation for her efforts at a time when she can personally benefit from it.

1 About a year ago it was learned that a number of Fortune 500 companies had taken out life insurance policies on staff level employees, as opposed to management personnel as is typical. This was unbeknownst to the employees. The named beneficiary was the corporation. This created a public relations nightmare because the corporations were seen to be betting on and benefiting from their employees’ deaths – especially in those cases where the families of the deceased were unable to pay medical bills that had amassed or even burial costs and the corporations walked away with tens of thousands of dollars.

Monday, April 12, 2010


With the new social media, many, especially those of us of the baby boomer generation, experience nothing short of paralyzing fear when we think about meshing our public and private lives. We ask ourselves questions such as, “What if my students access my Facebook (FB) page? What if my boss catches a compromising tweet?” More appositely for nonprofit organizations, “What if a client or volunteer starts to trash the organization?” No longer can organizations control outgoing public messages. The official spokesperson becomes whomever decides to tweet, text or FB.

Is the new social media a paradigm shift? Must we have fear? Have we lost control of the who, what, where, when, why and how a message becomes public? I thought so. Then I began to think about Robert Putman and his piece entitled, Bowling Alone. In it, he hypothesizes and presents some analytical data that attempts to explain why baby boomers (and some include generation Xers) became a society of non-joiners. Reflecting on his writings and the one element I found missing from his analysis led me to the conclusion that we are not experiencing a paradigm shift. We are again becoming joiners, just in new and different ways. We are returning to the historical era of pre air-conditioning (AC) and pre urban sprawl (US).

Before AC and US, folks lived side-by-side with windows wide open during the hot summer months. Conversations, arguments, meetings and trysts were nearly impossible to conceal. People were unable to hide behind closed up car windows shaded with a dark tint. We heard everyone’s dog bark and everyone’s toilet flush. As Dr. Terrie Temkin described it--everyone knew everyone else’s dirty little secrets. Public and private lives were impossible to separate. As much as we may try to remain isolated in our own homes, cars and offices, and as much as we try to separate our professional and personal lives, our conversations once heard only by our neighbors pre AC and US are now amplified throughout cyberspace by those unseen and perhaps unknown. As Margaret J. Wheatley writes in Leadership and the New Science, “The invisible is more of an active player in our lives than ever before” (2006, p. 53). Privacy and communication control for nonprofit organizations is a thing of the past. Whereas in the 40s and 50s chatter and gossip was limited to neighbors, friends and co-workers, today its reach is limited only by the speed and sophistication of the technology employed.

As Heather Gowdy, write in Convergence (see previous blog), successful nonprofits, among other things, will, “Expand their reach and deepen their impact through networks and coalitions...” and they will strategically use new technology as part of an overall communication plan. The key to overcoming the new social media fear is to remember that it is a conversation and not a monologue. Engage wisely, listen sincerely and attentively, and ensure your responses are in line with the vision and values of your organization.