Is a Board Restructuring in Your Future?
September 18, 2017 | by Gene Mitchell
For a board that is not functioning at its best, or is facing significant new challenges, restructuring might be in order. Here is what some governance experts see in today’s boards.
What are the signs of a board needing restructuring? Why is board self-assessment so important? Where do structural governance problems end and “board culture” problems begin? What types of changes are today’s boards making most often?
For answers to those questions and more, we spoke with 3 governance experts:
- Eileen Johnson, a partner in Whiteford, Taylor & Preston, LLP, a law firm based in Maryland and active in 6 states plus the District of Columbia.
- Michelle Bohreer, a partner in Bohreer & Zucker, LLP, a law firm based in Houston, TX. She also serves on the board of National Senior Campuses, Inc., a LeadingAge member based in Springfield, VA.
- David Kushner, president and founder of The Kushner Companies, a leadership and governance consulting firm in Chevy Chase, MD.
Johnson, Bohreer and Kushner presented an education session, “Board Restructuring in a Changing Environment,” at last year’s LeadingAge Annual Meeting & Expo in Indianapolis, IN.
LeadingAge: In the case of an organization that is facing important changes—perhaps growth or repositioning, or coping with a threat of some kind—how often does a significant governance change need to be considered as part of the response?
Eileen Johnson: Most boards can make organizational or operational changes without a governance change, assuming they have adequate leadership on the board. Sometimes a governance change is needed because for some reason they can’t make [big] changes, given the organizational structure at the time.
Michelle Bohreer: It’s part of the board members’ fiduciary duty to ask themselves frequently, “Is our structure the most efficient and effective for carrying out our mission?” In my mind, that question comes not only with a large change in terms of the business scope or model, but is something that the board should be grading itself on, at least on an annual basis. The board should be checking itself to see, “Are we still nimble, are we still efficient? Are we the right size and structure to accomplish our mission?”
David Kushner: If you’re making significant operational changes it depends on the type of change. It is possible to make internal structural or membership or other types of changes without changing governance, and frankly I don’t recommend changing governance based on internal or operational shifts. Governance modifications are best considered when [a change] will fundamentally affect the mission.
Eileen Johnson: One challenge with nonprofit boards or management teams is that they [are often] trying to solve individual problems by making minor changes to the bylaws. When you look at really long bylaws you can guess some of the history. A lot of bylaws reflect [an organization’s] past challenges; they’ve tried to solve them without owning up to the problems. And the problems are often individuals, not structure, so they try to do workarounds. When someone presents bylaws to me, my first response is to ask, “If you were starting this organization today, what governance structure would you need to have in place to support this?”
LeadingAge: If you can generalize from your experience, what are the most frequent red flags, or signs of a board that needs restructuring, and how do those problems tend to manifest themselves?
David Kushner: Here are some drivers from my perspective: The organization has suffered a loss of membership or revenue that makes the board start to think about restructuring, but initially not necessarily the board, but other activities that could lead to restructuring of the board itself. Or, there’s an identification of weak leadership on the board; if it becomes clear to board members that they don’t have the right caliber of people on the board, there may be a growing sense they need to restructure governance.
Also, when [the board] has had static leadership over a long time—the same people in the same roles, serving multiple terms—at some point there is a level of frustration among other board members, because they don’t see an option for them to advance into leadership roles. That can lead to consideration of changes, including modifying term lengths, adding term limits or restructuring officer positions. Also, what I hear more today is, “Our board isn’t representing the makeup of our constituency as well as it should; we don’t have enough young professionals, not enough diversity, not enough x or y.” That tends to lead to a conversation about the need to rethink governance.
Eileen Johnson: Sometimes the board is way too large, or there’s an executive committee that’s really a board within a board running things because the board is too large and unmanageable. If they are having meetings and nothing ever happens, that’s a sign there’s a problem. This is hard to articulate because it’s politically sensitive, but when the board is a rubber stamp with a strong CEO that is bulldozing through board meetings because he or she needs to say the board blessed something, that’s a problem.
“When someone presents bylaws to me, my first response is to ask, ‘If you were starting this organization today, what governance structure would you need to have in place to support this?’”
LeadingAge: When you meet with a new client or board, and they’ve brought you in to help solve a perceived problem, how often is the problem really about norms and personalities rather than structure?
Eileen Johnson: Something most nonprofit board members have in common is that they are nice people. They don’t want to hurt feelings. They won’t always act on [a problem] even when the bylaws give them authority to remove someone. Board chairs don’t address members who don’t attend meetings or aren’t prepared for meetings. There may be a reluctance to pull people on the carpet when they’re not fulfilling their duties.
David Kushner: The majority of the time problems are based on personalities and interrelationships, and once you start digging into this you might find some structural issues that require assessment. If you have a weak leader, or even a leader or group of leaders who are unwilling to take action, it begins to weaken the board. Other members think, “Some people aren’t carrying their weight and no one speaks to them about it.” The whole infrastructure of the board and its governance can begin to weaken. I often focus attention on the committee that oversees nominations and governance training for the board. They are likely not recruiting the right people to the board. It doesn’t mean the structure is wrong. The most critical factor is selecting the right people to be progressive.
Michelle Bohreer: Sometimes you need to couple the people change and the structural change together, because as Eileen said, nonprofit board members are nice. By coupling a structural change that gives a new path to a people change, to highlighting some of those issues, it creates a nicer way of implementing new strategies with new members.
LeadingAge: How do you get started when you go into a dysfunctional board and a lot of the problems relate to personalities and relationships?
David Kushner: First, I read the bylaws, articles of incorporation, etc. Then I want to separately interview each board member, either face-to-face, which is valuable, but typically it’s a telephone interview. It is important to get a sense from them about how they feel about the overall board. This provides an enormously wealthy repertoire of comments, perceptions and issues that allow me to come to the board and leadership with a summary of what I heard from them. It’s a type of self-assessment they may not have done before.
Eileen Johnson: I’m usually brought into work with leadership and the CEO on bylaws and restructuring. I try to find out what they’re trying to achieve, and identify their challenges and ask them why they think it is that way. They can be more forthcoming when the rest of the board is not listening in. Is it the case that the board’s nominating committee has been run by the same people looking for the same things all the time? In some cases, the bylaws require that they have representatives of certain populations on the board; they have trouble finding them, and will choose anyone who checks that box. I also look at how they get the board’s work done. Do they have functioning committees? Lots of clients have them but they don’t always function well.
Michelle Bohreer: Sometimes a restructuring has to start with education because we often have boards that were created under one environment or business model and the environment has changed. Perhaps it’s a single-site [life plan community] and every member was related to the founder, and now 8 years later you have 5 communities and you can’t have a properly operating board fulfilling its fiduciary duties for an enterprise of that size with that board. Sometimes we have to start by educating the board as to what they haven’t been doing, what they need to focus on and how much time and commitment they should be spending. Once we do that, it brings them into realizing we need a different structure and our committees have to do more work.
“By coupling a structural change that gives a new path to a people change … it creates a nicer way of implementing new strategies with new members.”
LeadingAge: Can you describe, in general terms, the kinds of governance changes you most often recommend?
Eileen Johnson: Make boards smaller, and form councils and task forces; not everyone needs to be on a board. You may have a major donor; put them on a council and be involved and attend your functions, but don’t necessarily expect them to be a full board member. Look at the nomination process: Is there a board member job description? What’s expected of them? Are you telling people in advance how many meetings there are, how many committees they’ll serve on? Is there an expectation of charitable contributions? Look at the committee and task force structure and see what they need. Is there an executive committee? What does it do? What are its limits?
David Kushner: The other piece of this issue is the necessity to have a robust board orientation program. When boards tell me they’ll do orientation in 2 hours, I ask whether they believe that in 2 hours they will be able to cover everything a new member needs to be an effective board member. Frankly it is not the number of hours, it’s the depth of information to be shared which may require more than one session. How much retention can you get from a one-session orientation meeting? I encourage boards to do ongoing education and orientation for members, which leads, again, into an assessment question, “How well did we do; was the orientation program that we used informative for you as a new member?”
LeadingAge: What are your thoughts about standing committees? Are there too many? Is there too little flexibility in them?
David Kushner: Following a board assessment of its committee structure, if the number, or scope of various committees can be reduced, I encourage it. There’s a shift that’s taken place over the last decade to considering creating more task forces or working groups. Board members or other volunteers can work on a project, submit a report, and then move on. I find more and more, especially with busy members of boards, that they don’t want to commit to a long process.
LeadingAge: Can you talk about board member recruitment and board orientation? What are your thoughts about a trend toward expanding the range of people recruited for board positions in nonprofits?
Michelle Bohreer: It’s critical to expand the range. To really satisfy a critical criterion for the board, which is diversity, and diversity in all aspects, you have to look beyond what you’ve typically done. That means expanding your pool. We do have to always expand our scope in terms of who the right director would be.
Eileen Johnson: One resource a lot of nonprofits overlook is that there are organizations in many cities and states that are like job banks for boards, that match up business people and organizations in need of board members. Maybe they’re not aware these entities exist, but it’s a resource they should look into. Sometimes it’s through a community foundation.
Michelle Bohreer: NACD [National Association of Corporate Directors] actually has a board director match service. And I’ll also say, once you’re on a board, you start getting calls about interest in serving on other boards. Part of it is just being out there.
LeadingAge: In your experience, how many boards do regular self-assessments?
David Kushner: Successfully getting boards to do any type of assessment is an achievement. It’s a growing trend though, and it is improving; and more boards are more willing to do this. Boards want an easy to use assessment form; if it’s too long they won’t bother. Most boards only end up doing this when a problem occurs instead of, as Michelle said, reviewing their work each year to be ahead of the curve.
Eileen Johnson: BoardSource has a lovely tool. It’s online, and gets very in-depth in terms of the types of activities the boards should be engaged with—strategic thinking, strategic planning. It’s not that expensive, relatively speaking.
“There’s a shift that’s taken place over the last decade to considering creating more task forces or working groups. Board members or other volunteers can work on a project, submit a report, and then move on.”
LeadingAge: Our members are mission-driven organizations. Can you address mission and how it might be used to help a board restructure, to help solve problems it perceives, and how important the mission is any restructuring you do?
David Kushner: It’s an essential topic of discussion. When I begin to work with a client on either governance issue or planning projects, it is essential to understand their mission. I want to know if or when it was revised or updated, because the mission is the driver of the activities of the organization. Everything they’re doing should be aligned with the mission and if it’s not, that opens the door for consideration of other governance matters. If a board does an annual self-assessment there ought to also be an annual review of the mission.
Michelle Bohreer: I see mission as the benchmark for every decision; when our board is deciding to move in a certain direction or considering a certain kind of action, I put the mission in front of me and get myself comfortable that that action is consistent with our mission. If it isn’t consistent, you should ask yourself, is our mission really our mission? Once you’re comfortable that it is, you shouldn’t be taking action that is not consistent. Using the mission is a great way to redirect potential action. By simply asking other directors, is what we’re talking about consistent with our mission? When people pause and put mission back in different way to look at that and I’ll come around.
Eileen Johnson: I advise boards to keep focus on the mission. Write it on the top of every board agenda. Have it posted in the boardroom. These people want to do good, and there is a need, but it might not be the right need for that organization to fill.
Gene Mitchell is editor of LeadingAge magazine.