Knowledge Center: Article
Strengthening the onboarding practices of new directors2/22/2018 Julian Ha, Bill Hudson and David K. Rehr
When a disaster strikes, nonprofit organizations can mean the difference between struggling and thriving for those affected. Similarly, when big decisions loom on matters impacting vast swaths of the economy, associations ensure that the voices of the industries and professions they represent will be heard. Beyond their many differences in mission and populations served, the best and most effective nonprofit organizations and associations have one thing in common: good governance.
To assess the state of governance today at these organizations, Heidrick & Struggles partnered with the Antonin Scalia Law School at George Mason University to survey more than 500 board members of industry trade associations, professional societies, charitable causes, religious orders, fraternal organizations, and local civic organizations across North America. The news is mostly good. Respondents said that their board experience has been a positive, valuable use of their time. When asked why they serve, 91% said they did so because they support the mission of the organization. And though the work is uncompensated, they spend an average of 172 hours per year in service. Moreover, many seek out multiple service opportunities, with 41% having served on two to three such boards.
But in one important area of governance, many respondents declared their boards to be deficient: onboarding new members.
Just over half of the respondents reported that their organization had an onboarding process for new directors. Fewer than half of the respondents said that their organization’s onboarding experience properly prepared them to be effective board members. Some 20% of board members did not meet with the CEO, and 36% did not meet with the senior leadership of the organization.
Compare those figures with practices in public companies. In the 2016–2017 NACD Public Company Governance Survey, almost three-quarters of respondents reported that their board has a formal onboarding program. Nearly 84% rated their onboarding experience as effective or very effective. And more than 97% met with members of the executive team during the onboarding process.
The discrepancy is puzzling, given that many CEOs and directors of public companies serve on nonprofit boards. According to our research, 58% of Fortune 500 CEOs and 56% of Fortune 500 directors serve on the boards of charities, educational institutions, and government-related organizations. So do many CEOs and directors of companies listed on the other major indexes. These figures possibly understate the presence of these CEOs and directors—many serve on the boards of several nonprofits, and the percentages don’t include their representation on the boards of trade associations.
Nevertheless, nonprofit and association onboarding practices remain substandard in comparison with those of public company boards. That’s particularly worrisome for nonprofit and association boards because two-thirds of them have term limits, resulting in more frequent turnover than in the private sector, where term limits are rare. More than half of the respondents to our survey have been on their board for three years or less. The combination of short director tenures and high turnover means that accelerated onboarding is critical for getting new directors up to speed and taking immediate advantage of the perspectives and expertise they bring to board service. Nonprofit and association boards can start by taking the following concrete steps:
Import best practices from public company boards. With so many directors from public companies, nonprofit and association boards are typically well stocked with members who have firsthand experience with best practices in director onboarding. Draw on their expertise to supplement the suggestions offered here.
Designate an onboarding leader. An onboarding leader can ensure that all the steps in the onboarding process are completed in a timely manner that fully prepares new members in advance of their first board meeting. The onboarding leader could be the CEO, the chair of the board, or an experienced board member. In any case, an onboarding leader can transform what might have previously been an informal, haphazard process into a means of increasing board effectiveness.
Provide the new board member with comprehensive, well-organized information about the organization and the board. The information should include the most recent annual report, external audit reports, the bylaws of the board and the charters of board committees, the board’s responsibilities, its organization chart and committee assignments, descriptions of the organization’s activities, and the minutes of recent board meetings. Many nonprofits and associations appear to be effective at providing such information. More than 80% of respondents in our survey said that board responsibilities and the organization’s financials were explained to them. Three-quarters were informed about the hierarchy of the board and the organization, and about two-thirds were informed about the organization’s strategic plan and relevant legal considerations.
Arrange a substantive meeting with the organization’s CEO. The new director should come away from this meeting with an understanding of the CEO’s point of view about the organization’s mission, its critical challenges, and how the board can help. As we’ve noted, 20% of new nonprofit and association directors did not meet with the CEO. What of the 80% who did meet with the CEO? Because only half of all respondents went through a formal onboarding process and half reported that their onboarding was ineffective, it’s safe to say that many of these meetings were informal, did not take place as part of a comprehensive program, and ultimately may have lacked the organizational substance required to fully prepare the director for service.
Include orientation about the board’s processes and role. Don’t assume that the experience of directors who have served on other boards will necessarily translate directly to the new board. This assumption should include CEOs. Arrange a meeting with the organization’s chief legal officer, if it has one, to make sure that the new director understands the technical workings of the board, its committee structure, and board governance policies. If there is no chief legal officer, the task can be handled by the onboarding leader, the chair of the board, or someone the onboarding leader designates.
Provide the new director with insight into the board’s operating philosophy. Some 24% of survey respondents weren’t informed of board leadership hierarchy, and almost 40% weren’t told how the board itself makes decisions. Perhaps most notably, fewer than one-third of incoming board members received an explanation about the board’s evaluation of the CEO, though half indicated that the entire board is responsible for hiring, promoting, and terminating the CEO. What are the criteria for evaluation? How does the CEO interact with the board? What can the director expect at a typical meeting? How are decisions made? New board members should be given candid answers to all of these questions.
Customize onboarding for each director. Directors, and especially those serving nonprofits, are likely to come from widely diverse backgrounds and bring differing experiences and competencies. A first-time director of a nonprofit or association board may need more orientation about the world in which the organization operates. Also, consider that a layperson joining a board that consists largely of experts in the organization’s service area will need significantly more education on issues critical to that organization’s mission. Be sensitive to such differences and address them.
Pair the new director with an experienced director. Some 36% of survey respondents reported that they had been mentored by an experienced board member. (That figure may seem low, but in public companies it’s only a little over 10%, according to the 2016–2017 NACD Public Company Governance Survey.) Even if a formal mentoring program isn’t feasible, the onboarding leader can connect the new director with an experienced board member who can provide insight into the board’s culture, explain what to expect at meetings, and suggest how best to contribute to deliberations.
* * *
Why do the boards of so many nonprofits and associations appear to lag in onboarding? Perhaps it’s because they are not accountable to governance watchdogs such as the US Securities and Exchange Commission. Perhaps these organizations’ many public company members, with their knowledge of how boards generally work, don’t see the need for formal onboarding programs. Or maybe they believe that enthusiasm for the organization’s mission—which motivates the service of an overwhelming majority of respondents in our survey—suffices. But no matter the reason, with so much riding on the effectiveness of these organizations for their stakeholders, this cohort of directors should do all they can to accelerate the performance of new board members.
About the authors
Julian Ha (email@example.com) is a partner in Heidrick & Struggles’ Washington, DC, office.
Bill Hudson (firstname.lastname@example.org) is a partner in the Washington, DC, office.
Dr. David Rehr (email@example.com) is a professor of law at Antonin Scalia Law School, George Mason University.
This article was originally published in the November/December 2017 issue of NACD Directorship magazine.