Note: anything in this post that you think is me subtweeting your organization is actually about, like, at least 3 organizations. (I'm currently on 4 boards in addition to Open Philanthropy's; I've served on a bunch of other boards in the past; and more than half of my takes on boards are not based on any of this, but rather on my interactions with boards I'm not on via the many grants made by Open Philanthropy.)
Writing about ideal governance reminded me of how weird my experiences with nonprofit boards (as in "board of directors" - the set of people who formally control a nonprofit) have been.
I thought that was a pretty good intro. The rest of this piece will:
- Try to articulate what's so weird about nonprofit boards, fundamentally. I think a lot of it is the combination of great power, unclear responsibility, and ~zero accountability; additionally, I haven't been able to find much in the way of clear, widely accepted statements of what makes a good board member.
- Give my own thoughts on what makes a good board member: which core duties they should be trying to do really well, the importance of "staying out of the way" on other things, and some potentially helpful practices.
I am experienced with nonprofit boards but not with for-profit boards. I'm guessing that roughly half the things I say below will apply to for-profit boards, and that for-profit boards are roughly half as weird overall (so still quite weird), but I haven't put much effort into disentangling these things; I'm writing about what I've seen.
I can't really give real-life examples here (for reasons I think will be pretty clear) so this is just going to be me opining in the abstract.
Why nonprofit boards are weird
Here's how a nonprofit board works:
- There are usually 3-10 people on the board (though sometimes much more). Most of them don't work for the nonprofit (they have other jobs).
- They meet every few months. Nonprofit employees (especially the CEO1) do a lot of the agenda-setting for the meeting. Employees present general updates and ask for the board's approval on various things the board needs to approve, such as the budget.
- A majority vote of the directors can do anything: fire the CEO, dissolve the nonprofit, add and remove directors, etc. You can think of the board as the "owner" of the nonprofit - formally, it has final say in every decision.
- In practice, though, the board rarely votes except on matters that feel fairly "rubber-stamp," and the board's presence doesn't tend to be felt day-to-day at a nonprofit. The CEO leads the decision-making. Occasionally, someone has a thought like "Wait, who does the CEO report to? Oh, the board of directors ... who's on the board again? I don't know if I've ever really spoken with any of those people."
In my experience, it's common for the whole thing to feel extremely weird. (This doesn't necessarily mean there's a better way to do it - footnote has more on what I mean by "weird."2)
- Board members often know almost nothing about the organization they have complete power over.
- Board meetings rarely feel like a good use of time.
- When board members are energetically asking questions and making demands, it usually feels like they're causing chaos and wasting everyone's time and energy.
- On the rare occasions when it seems like the board should do something (like replacing the CEO, or providing an independent check on some important decision), the board often seems checked out and it's unclear how they would even come to be aware of the situation.
- Everyone constantly seems confused about what the board is and how it can and can't be useful. Employees, and others who interact with the nonprofit, have lots of exchanges like "I'm worried about X ... maybe we should ask the board what they think? ... Can we even ask them that? What is their job actually?"
(Reminder that this is not subtweeting a particular organization! More than one person - from more than one organization - read a draft and thought I was subtweeting them, because what's above describes a large number of boards.)
OK, so what's driving the weirdness?
I think there are a couple of things:
- Nonprofit boards have great power, but low engagement (they don't have time to understand the organization as well as employees do); unclear responsibility (it's unclear which board member is responsible for what, and what the board as a whole is responsible for); and ~zero accountability (no one can fire board members except for the other board members!)
- Nonprofit boards have unclear expectations and principles. I can't seem to find anyone with a clear, comprehensive, thought-out theory of what a board member's ... job is.
I'll take these one at a time.
Great power, low engagement, unclear responsibility, no accountability
In my experience/impression, the best way to run any organization (or project, or anything) is on an "ownership" model: for any given thing X that you want done well, you have one person who "owns" X. The "owner" of X has:
- The power to make decisions to get X done well.
- High engagement: they're going to have plenty of time and attention to devote to X.
- The responsibility for X: everyone agrees that if X goes well, they should get the credit, and if X goes poorly, they should get the blame.
- And accountability: if X goes poorly, there will be some sort of consequences for the "owner."
When these things come apart, I think you get problems. In a nutshell - when no one is responsible, nothing gets done; when someone is responsible but doesn't have power, that doesn't help much; when the person who is responsible + empowered isn't engaged (isn't paying much attention), or isn't held accountable, there's not much in the way of their doing a dreadful job.
A traditional company structure mostly does well at this. The CEO has power (they make decisions for the company), engagement (they are devoted to the company and spend tons of time on it), and responsibility+accountability (if the company does badly, everyone looks at the CEO). They manage a team of people who have power+engagement+responsibility+accountability for some aspect of the company; each of those people manage people with power+engagement+responsibility+accountability for some smaller piece; etc.
What about the board?
- They have power to fire the CEO (or do anything else).
- They tend to have low engagement. They have other jobs, and only spend a few hours a year on their board roles. They tend to know little about what's going on at the organization.
- They have unclear responsibility.
- The board as a whole is responsible for the organization, but what is each individual board member responsible for? In my experience, this is often very unclear, and there are a lot of crucial moments where "bystander effects" seem strong.
- So far, these points apply to both nonprofit and for-profit boards. But at least at a for-profit company, board members know what they're collectively responsible for: maximizing financial value of the company. At a nonprofit, it's often unclear what success even means, beyond the nonprofit's often-vague mission statement, so board members are generally unclear (and don't necessarily agree) on what they're supposed to be ensuring.3
- At a for-profit company, the board seems to have reasonable accountability: the shareholders, who ultimately own the company and gain or lose money depending on how it does, can replace the board if they aren't happy. At a nonprofit, the board members have zero accountability: the only way to fire a board member is by majority vote of the board!
So we have people who are spending very little time on the company, know very little about it, don't have much clarity on what they're responsible for either individually or collectively, and aren't accountable to anyone ... and those are the people with all of the power. Sound dysfunctional?4
In practice, I think it's often worse than it sounds, because board members aren't even chosen carefully - a lot of the time, a nonprofit just goes with an assortment of random famous people, big donors, etc.
What makes a good board member? Few people even have a hypothesis
I've searched a fair amount for books, papers, etc. that give convincing and/or widely-accepted answers to questions like:
- When the CEO asks the board to approve something, how should they engage? When should they take a deferring attitude ("Sure, as long as I don't see any particular reason to say no"), a sanity check attitude ("I'll ask a few questions to make sure this is making sense, then approve if nothing jumps out at me"), a full ownership attitude ("I need to personally be convinced this is the best thing for the organization"), etc.?
- How much should each board member invest in educating themselves about the organization? What's the best way to do that?
- How does the board know whether the CEO is doing a good job? What kind of situation should trigger seriously considering looking for a new one?
- How does a board member know whether the board is doing a good job? How should they decide when another board member should be replaced?
In my experience, most board members just aren't walking around with any particular thought-through take on questions like this. And as far as I can tell, there's a shortage of good5 guidance on questions like this for both for-profit and nonprofit boards. For example:
- I've found no standard reference on topics like this, and very few resources that even seem aimed at directly and clearly answering such questions.
- The best book on this topic I've seen is Boards that Lead by Ram Charan, focused on for-profit boards (but pretty good IMO).
- But this isn't, like, a book everyone knows to read; I found it by asking lots of people for suggestions, coming up empty, Googling wildly around and skimming like 10 books that said they were about boards, and deciding that this one seemed pretty good.
- One of the things I do as a board member is interview other prospective board members about their answers to questions like this. In my experience, they answer most of the above questions with something like "Huh, I don't really know. What do you think?"
- Most boards I've seen seem to - by default - either:
- Get way too involved in lots of decisions to the point where it feels like they're micromanaging the CEO and/or just obsessively engaging on whatever topics the CEO happens to bring to their attention; or
- Take a "We're just here to help" attitude and rubber-stamp whatever the CEO suggests, including things I'll argue below should be core duties for the board (e.g., adding and removing board members).
- I'm not sure I've ever seen a board with a formal, recurring process for reviewing each board member's performance. :/
I use ... a red light, yellow light, green light framework between the board and the CEO. Roughly, green light is, “You’re the CEO. Make the call. We’re advisory.” Now, we may say that on very big things—selling the company—we should talk about it before you do it. And that may shift us from green light, if we don’t like the conversation. But a classic young, idiot board member will say, “Well, I’m giving you my expertise and advice. You should do X, Y, Z.” But the right framework for board members is: You’re the CEO. You make the call. We’re advisory.
Red lights also very easy. Once you get to red light, the CEO—who, by the way, may still be in place—won’t be the CEO in the future. The board knows they need a new CEO. It may be with the CEO’s knowledge, or without it. Obviously, it’s better if it’s collaborative ...
Yellow means, “I have a question about the CEO. Should we be at green light or not?” And what happens, again under inexperienced or bad board members, is they check a CEO into yellow indefinitely. They go, “Well, I’m not sure…” The important thing with yellow light is that you 1) coherently agree on it as a board and 2) coherently agree on what the exit conditions are. What is the limited amount of time that we’re going to be in yellow while we consider whether we move back to green or move to red? And how do we do that, so that we do not operate for a long time on yellow? Because with yellow light, you’re essentially hamstringing the CEO and hamstringing the company. It’s your obligation as a board to figure that out.
I like this quite a bit (hence the long blockquote), but I don't think it covers everything. The board is mostly there to oversee the CEO, and they should mostly be advisory when they're happy with the CEO. But I think there are things they ought to be actively thinking about and engaging in even during "green light."
So what DOES make a good board member?
Here is my current take, based on a combination of (a) my thoughts after serving on and interacting with a large number of nonprofit boards; (b) my attempts to adapt conventional wisdom about for-profit boards (especially from the book I mentioned above); (c) divine revelation.
I'll go through:
- What I see as the main duties of the board specifically - things the board has to do well, and can't leave to the CEO and other staff.
- My basic take that the ideal board should do these main duties well, while staying out of the way otherwise.
- The main qualities I think the ideal board member should have - and some common ways of choosing board members that seem bad to me.
- A few more random thoughts on board practices that seem especially important and/or promising.
(I don't claim any of these points are original, and almost everything can be found in some writing on boards somewhere, but I don't know of a reasonably comprehensive, concise place to get something similar to the below.)
The board's main duties
I agree with the basic spirit of Hoffman's philosophy above: the board should not be trying to "run the company" (they're too low-engagement and don't know enough about it), and should instead be focused on a small number of big-picture questions like "How is the CEO doing?"
And I do think the board's #1 and most fundamental job is evaluating the CEO's performance. The board is the only reliable source of accountability for the CEO - even more so at a nonprofit than a for-profit, since bad CEO performance won't necessarily show up via financial problems or unhappy shareholders.6 (As noted below, I think many nonprofit boards have no formal process for reviewing the CEO's performance, and the ones that do often have a lightweight/underwhelming one.)
But I think the board also needs to take a leading role - and not trust the judgment of the CEO and other staff - when it comes to:
- Overseeing decisions that could importantly reduce the board's powers. The CEO might want to enter into an agreement with a third party that is binding on the nonprofit and therefore on the board (for example, "The nonprofit will now need permission from the third party in order to do X"); or transfer major activities and assets to affiliated organizations that the board doesn't control (for example, when Open Philanthropy split off from GiveWell); or revise the organization's mission statement, bylaws,7 etc.; or other things that significantly reduce the scope of what the board has control over. The board needs to represent its own interests in these cases, rather than deferring to the CEO (whose interests may be different).
- Overseeing big-picture irreversible risks and decisions that could importantly affect future CEOs. For example, I think the board needs to be anticipating any major source of risk that a nonprofit collapses (financially or otherwise) - if this happens, the board can't simply replace the CEO and move on, because the collapse affects what a future CEO is able to do. (What risks and decisions are big enough? Some thoughts in a footnote.8)
- All matters relating to the composition and performance of the board itself. Adding new board members, removing board members, and reviewing the board's own performance are things that the board needs to be responsible for, not the CEO. If the CEO is controlling the composition of the board, this is at odds with the board's role in overseeing the CEO.
Engaging on main duties, staying out of the way otherwise
I think the ideal board member's behavior is roughly along the lines of the following:
Actively, intensively engage in the main duties from the previous section. Board members should be knowledgeable about, and not defer to the CEO on, (a) how the CEO is performing; (b) how the board is performing, and who should be added and removed; (c) spotting (and scanning the horizon for) events that could reduce the board's powers, or lead to big enough problems and restrictions so as to irreversibly affect what future CEOs are able to do.
Ideally they should be focusing their questions in board meetings on these things, as well as having some way of gathering information about them that doesn't just rely on hearing directly from the CEO. (Some ideas for this are below.) When reviewing financial statements and budgets, they should be focused mostly on the risk of major irreversible problems (such as going bankrupt or failing to be compliant); when hearing about activities, they should be focused mostly on what they reflect about the CEO's performance; etc.
Be advisory ("stay out of the way") otherwise. Meetings might contain all sorts of updates and requests for reactions. I think a good template for a board member, when sharing an opinion or reaction, is either to (a) explain as they're talking why this topic is important for the board's main duties; or (b) say (or imply) something like "I'm curious / offering an opinion about ___, but if this isn't helpful, please ignore it, and please don't hesitate to move the meeting to the next topic as soon as this stops feeling productive."
The combination of intense engagement on core duties and "staying out of the way" otherwise can make this a very weird role. An organization will often go years without any serious questions about the CEO's performance or other matters involving core duties. So a board member ought to be ready to quietly nod along and stay out of the way for very long stretches of time, while being ready to get seriously involved and engaged when this makes sense.
Aim for division of labor. I think a major problem with nonprofit boards is that, by default, it's really unclear which board member is responsible for what. I think it's a good idea for board members to explicitly settle this via assigning:
- Specialists ("Board member X is reviewing the financials; the rest of us are mostly checked-out and/or sanity-checking on that");
- Subcommittees ("Board members X and Y will look into this particular aspect of the CEO's performance");
- A Board Chair or Lead Independent Director9 who is the default person to take responsibility for making sure the board is doing its job well (this could include suggesting and assigning responsibility for some of the ideas I list below; helping to set the agenda for board meetings so it isn't just up to the CEO; etc.)
This can further help everyone find a balance between engaging and staying out of the way.
Who should be on the board?
One answer is that it should be whoever can do well at the duties outlined above - both in terms of substance (can they accurately evaluate the CEO's performance, identify big-picture irreversible risks, etc.?) and in terms of style (do they actively engage on their main duties and stay out of the way otherwise?)
But to make things a bit more boiled-down and concrete, I think perhaps the most important test for a board member is: they'll get the CEO replaced if this would be good for the nonprofit's mission, and they won't if it wouldn't be.
This is the most essential function of the board, and it implies a bunch of things about who makes a good board member:
- They need to do a great job understanding and representing the nonprofit's mission, and care deeply about that mission - to the point of being ready to create conflict over it if needed (and only if needed).
- A key challenge of nonprofits is that they have no clear goal, only a mission statement that is open to interpretation. And if two different board members interpret the mission differently - or are focused on different aspects of it - this could intensely color how they evaluate the CEO, which could be a huge deal for the nonprofit.
- For example, if a nonprofit's mission is "Help animals everywhere," does this mean "Help as many animals as possible" (which might indicate a move toward focusing on farm animals) or "Help animals in the same way the nonprofit traditionally has" or something else? How does it imply the nonprofit should make tradeoffs between helping e.g. dogs, cats, elephants, chickens, fish or even insects? How a board member answers questions like this seems central to how their presence on the board is going to affect the nonprofit.
- They need to have a personality and position capable of challenging the CEO (though also capable of staying out of the way).
- A common problem I see is that some board member is (a) not very engaged with the nonprofit itself, but (b) highly values their personal relationship with the CEO and other board members. This seems like a bad combination, but unfortunately a common one. Board members need to be willing and able to create conflict in order to do the right thing for the nonprofit.
- Limiting the number of board members who are employees (reporting to the CEO) seems important for this reason.
- If you can't picture a board member "making waves," they probably shouldn't be on the board - that attitude will seem fine more than 90% of the time, but it won't work well in the rare cases where the board really matters.
- On the other hand, if someone is only comfortable "making waves" and feels useless and out of sorts when they're just nodding along, that person shouldn't be on the board either. As noted above, board members need to be ready for a weird job that involves stepping up when the situation requires it, but staying out of the way when it doesn't.
- They should probably have a well-developed take on what their job is as a board member. Board members who can't say much about where they expect to be highly engaged, vs. casually advisory - and how they expect to invest in getting the knowledge they need to do a good job leading on particular issues - don't seem like great bets to step up when they most need to (or stay out of the way when they should).
In my experience, most nonprofits are not looking for these qualities in board members. They are, instead, often looking for things like:
- Celebrity and reputation - board members who are generally impressive and well-regarded and make the nonprofit look good. Unfortunately, I think such people often just don't have much time or interest for their job. Many are also uninterested in causing any conflict, which makes them basically useless as board members IMO.
- Fundraising - a lot of nonprofits pretty much explicitly just try to put people on the board who will help raise money for them. This seems bad for governance.
- Narrow expertise on some topic that is important for the nonprofit. I don't really think this is what nonprofits should be seeking from board members,10 except to the extent it ties deeply into the board members' core duties, e.g., where it's important to have an independent view on technical topic X in order to do a good job evaluating the CEO.
I think a good profile for a board member is someone who cares greatly about the nonprofit's mission, and wants it to succeed, to the point where they're ready to have tough conversations if they see the CEO falling short. Examples of such people might be major funders, or major stakeholders (e.g., a community leader from a community of people the nonprofit is trying to help).
A few practices that seem good
I'll anticlimactically close with a few practices that seem helpful to me. These are mostly pretty generic practices, useful for both for-profit and nonprofit boards, that I have seen working in practice but also seen too many boards going without. They don't fully address the weirdnesses discussed above (especially the stuff specific to nonprofit as opposed to for-profit boards), but they seem to make things some amount better.
Keeping it simple for low-stakes organizations. If a nonprofit is a year old and has 3 employees, it probably shouldn't be investing a ton of its energy in having a great board (especially since this is hard).
A key question is: "If the board just stays checked out and doesn't hold the CEO accountable, what's the worst thing that can happen?" If the answer is something like "The nonprofit's relatively modest budget is badly spent," then it might not be worth a huge investment in building a great board (and in taking some of the measures listed below). Early-stage nonprofits often have a board consisting of 2-3 people the founder trusts a lot (ideally in a "you'd fire me if it were the right thing to do" sense rather than in a "you've always got my back" sense), which seems fine. The rest of these ideas are for when the stakes are higher.
Formal board-staff communication channels. A very common problem I see is that:
- Board members know almost nothing about the organization, and so are hesitant to engage in much of anything.
- Employees of the organization know far more, but find the board members mysterious/unapproachable/scary, and don't share much information with them.
I've seen this dynamic improved some amount by things like a staff liaison: a board member who is designated with the duty, "Talk to employees a lot, offer them confidentiality as requested, try to build trust, and gather information about how things are going." Things like regular "office hours" and showing up to company events can help with this.
Viewing board seats as limited. It seems unlikely that a board should have more than 10 members (and even 10 seems like a lot), since it's hard to have a productive meeting past that point.11 When considering a new addition to the board, I think the board should be asking something much closer to "Is this one of the 10 best people in the world to sit on this board?" than to "Is this person fine?"
Regular CEO reviews. Many nonprofits don't seem to have any formal, regular process for reviewing the CEO's performance; I think it's important to do this.
The most common format I've seen is something like: one board member interviews the CEO's direct reports, and perhaps some other people throughout the company, and integrates this with information about the organization's overall progress and accomplishments (often presented by the organization itself, but they might ask questions about it) to provide a report on what the CEO is doing well and could do better. I think this approach has a lot of limitations - staff are often hesitant to be forthcoming with a board member (even when promised anonymity), and the board member often lacks a lot of key information - but even with those issues, it tends to be a useful exercise.
Closed sessions. I think it's important for the board to have "closed sessions" where board members can talk frankly without the CEO, other employees, etc. hearing. I think a common mistake is to ask "Does anyone want the closed session today or can we skip it?" - this puts the onus on board members to say "Yes, I would like a closed session," which then implies they have something negative to say. I think it's better for whoever's running the meetings to identify logical closed sessions (e.g., "The board minus employees"), allocate time for them and force them to happen.
Regular board reviews. It seems like it would be a good idea for board members to regularly assess each other's performance, and the performance of the board as a whole. But I've actually seen very little of this done in practice and I can't point to versions of it that seem to have some track record of working well. It does seem like a good idea though!
The board is the only body at a nonprofit that can hold the CEO accountable to accomplishing the mission. I broadly feel like most nonprofit boards just aren't very well-suited to this duty, or necessarily to much of anything. It's an inherently weird structure that seems difficult to make work.
I wish someone would do a great job studying and laying out how nonprofit boards should be assembled, how they should do their job and how they can be held accountable. You can think of this post as my quick, informal shot at that.
- I'm using the term "CEO" throughout, although the chief executive at a non profit sometimes has another title, such as "Executive Director." ↩
- A lot of this piece is about how the fundamental setup of a nonprofit board leads to the kinds of problems and dynamics I'm describing. This doesn't mean we should necessarily think there's any way to fix it or any better alternative. It just means that this setup seems to bring a lot of friction points and challenges that most relationships between supervisor-and-supervised don't seem to have, which can make the experience of interacting with a board feel vaguely unlike what we're used to in other contexts, or "weird." People who have interacted with tons of boards might get so used to these dynamics that they no longer feel weird. I haven't reached that point yet myself though. ↩
- The fact that the nonprofit's goals aren't clearly defined and have no clear metric (and often aren't susceptible to measurement at all) is a pretty general challenge of nonprofits, but I think it especially shows up for a structure (the board) that is already weird in the various other ways I'm describing. ↩
- Superficially, you could make most of the same complaints about shareholders of a for-profit company. But:
- Shareholders are the people who ultimately make or lose money if the company does well or poorly (you can think of this as a form of accountability). By contrast, nonprofit board members often have very little (or only an idiosyncratic) personal connection to and investment in the organization.
- Shareholders compensate for their low engagement by picking representatives (a board) whom they can hold accountable for the company's performance. Nonprofit board members are the representatives, and aren't accountable to anyone. ↩
- Especially "good and concise." Most of the points I make here can be found in some writings on boards somewhere, but it's hard to find sensible-seeming and comprehensive discussions of what the board should be doing and who should be on it. ↩
- Part of the CEO's job is fundraising, and if they do a bad job of this, it's going to be obvious. But that's only part of the job. At a nonprofit, a CEO could easily be bringing in plenty of money and just doing a horrible job at the mission - and if the board isn't able to learn this and act on it, it seems like very bad news. ↩
- The charter and bylaws are like the "constitution" of a nonprofit, laying out how its governance works. ↩
- This is a judgment call, and one way to approach it would be to reserve something like 1 hour of full-board meeting time per year for talking about these sorts of things (and pouring in more time if at least, like, 1/3 of the board thinks something is a big deal). Some examples of things I think are and aren't usually a big enough deal to start paying serious attention to:
- Big enough deal: financial decisions that increase the odds of going "belly-up" (running out of money and having to fold) by at least 10 percentage points. Not a big enough deal: spending money in ways that are arguably bad uses of money, having a lowish-but-not-too-far-off-of-peer-organizations amount of runway.
- Big enough deal: deficiencies in financial controls that an auditor is highlighting, or a lack of audit altogether, until a plan is agreed to to address these things. Not a big enough deal: most other stuff in this category.
- Big enough deal: organizations with substantial "PR risk" exposure should have a good team for assessing this and a "crisis plan" in case something happens. Not a big enough deal: specific organizational decisions and practices that you are not personally offended by or find unethical, but could imagine a negative article about. (If you do find them substantively unethical, I think that's a big enough deal.)
- Big enough deal: transferring like 1/3 or more of valuable things the nonprofit has (intellectual property, money, etc.) to another entity not controlled by the board. Not a big enough deal: starting an affiliate organization primarily for taking donations in another country or something.
- Big enough deal: doubling or halving the workforce. Not a big enough deal: smaller hirings and firings.
- Sometimes the Board Chair is the CEO, and sometimes the Chair is an employee of the company who also sits on the board. In these cases, I think it's good for there to be a separate Lead Independent Director who is not employed by the company and is therefore exclusively representing the Board. They can help set agendas, lead meetings, and take responsibility by default when it's otherwise unclear who would do so. ↩
- Nonprofits can get expertise on topic X by hiring experts on X to advise them. The question is: when is it important to have an expert on X evaluating the CEO? ↩
- Though it could be fine and even interesting to have giant boards - 20 people, 50 or more - that have some sort of "executive committee" of 10 or fewer people doing basically all of the meetings and all of the work (with the rest functioning just as very passive, occasionally-voting equivalents of "shareholders"). Just assume I'm talking about the "executive committee" type thing here. ↩