Q:  I’m from a small community. We have two organizations that compliment each other’s mission. The CEOs alternate service on each other’s boards. This has people throughout the community making accusations that they are “taking care of each other.” I’d love your thoughts on this.

 

A: My thoughts run the gamut on this one. There are some benefits to such a practice. There are definitely some concerns. And there are some recommendations that I, for one, would make.

First, it is clear that the two people like, respect and trust one another.  That is important when it comes to board/CEO relationships. Further, you say it is a small town. I don’t know how small, but the perception, if not the reality, may be that there are few potential board members with the level of expertise in their field that these two share. Most organizations are looking for the most competent board members they can find. Besides, let’s face it: these individuals would not have to sit on each other’s board to “take care of each other.”

Regardless of these arguments for maintaining the status quo, the fact that people are talking – and not positively – should be a warning to both organizations, their boards and the two individuals directly involved. Certainly, ending the practice of the two CEOs sitting on each other’s boards would be the cleanest solution. At a minimum both organizations need a strong conflict of interest statement– one that explicitly prohibits board members from profiting from their relationship with the organization. In addition, I’d suggest that procedures for decision making that exclude the interested party are in place and disclosures be announced at every meeting once people see the agenda rather than just once a year. Such a policy would add an important level of transparency. Minutes that reflect the CEO board member recusing him/herself on questionable votes or clearly voting in opposition to his/her own organization’s best interests can also be used to show the community that all is above board.

I have to question, however, where the rest of the board is in all this. After all, it is the board’s responsibility to recruit – not the CEO’s. If these boards are merely acquiescing to the wishes of their CEOs when it comes to bringing on the other CEO, and not seriously vetting that person, they are opening themselves up to potential liability. How? Say the CEO board member’s organization gets clients it might not get without the existence of this relationship. The CEO board member could be said to benefit financially from the relationship – a no, no in the sector. The no, no is sufficiently significant that every board member and the organization could be required to pay substantial penalties for allowing the situation to occur.

Another concern I have is that you say accusations are flying around this small town. What if donors stop contributing to one or both of these organizations because they believe there is some hanky-panky going on? Can either board afford to take this chance? After all, the boards are charged with ensuring the sustainability of their organizations. In today’s anemic giving environment this is a risk I personally would be afraid to take.

To help ensure the community is comfortable with the way you do business I go back to my earlier suggestion of ending the practice of having CEO colleagues from related organizations sitting on your boards. However, to benefit from the expertise, trust and respect factors that surely have guided such choices in the past I would suggest that several nonprofit CEOs in town get together once or twice a month in a CEO Roundtable to share issues, concerns, challenges and successes as well as ideas for improving their organizations’ impact in the community. The intent of having these individuals serve on each other’s boards would be served without incurring the downside of that practice. The results of such regular exchanges might even prove much stronger!

Good luck.