Nonprofit Business Advisor, Strategies to Survive and Grow in Tough Times

The Special Challenges of Association Governance

By Bill Charney September 4, 2015

The US Internal Revenue Service (IRS) recognized 92,331 trade and professional associations in 2010, a 3.4 percent increase since 2001.1 Here, experienced consultant Bill Charney, who has helped a wide variety of associations implement governance improvements—often using the Policy Governance® system—highlights some of the particular challenges they face.

“Governance Is Governance”

Kenneth Dayton, a preeminent philanthropist and former chairman and CEO of Dayton Hudson Corporation (now Target Corporation), gave his now-famous “Governance Is Governance” speech to the 1986 Independent Sector leadership forum (published in 1987).2 Dayton’s message to nonprofit leaders confounded the notions, common then and now, that we still refer to as “traditional” board practices.

Conveying his “deeply held conviction” that governance is not management, Dayton stated that chair and CEO roles must be separated, that an all-powerful chair or a weak CEO is a threat to organizational success, and that the governance job is identical in both the nonprofit and for-profit sectors. The only distinction, he noted, is that nonprofit “trustees” also should volunteer in service to, not exercising authority over, the CEO.

These notions added great credence to John Carver’s Policy Governance model. For critics grumbling that a singular model cannot attend to an organization’s uniqueness, Dayton articulated brilliantly how failing to recognize that “governance is governance” is itself detrimental to success and sustainability.

Is Association Governance
Different?

“Associations” are formed when people join together to advance common interests, be they business or social. This article focuses particularly on trade and business associations, in which members may be individuals, organizations, or both. Many of the dynamics addressed are also common in other membership organizations (e.g., clubs, guilds, fraternities/sororities, homeowner associations).

The job of an association board is no different than that of a charity or an equity corporation: to define and ensure the achievement of Ends reflecting owners’ needs/interests, and to ensure that the organization conducts itself appropriately in producing these outputs.

Different industry sectors often exhibit common patterns or nuances that may foster or impede successful governance. Challenges pronounced in association boardrooms are not exclusive to the sector but occur with sufficient frequency to merit exploration as to cause and effect. These include:

  1. The “We are an association,
    not a business” conundrum.
  2. Owner representation
    and board size.
  3. Volunteer engagement
    on committees.
  4. Board chairs/presidents empowered as pseudo-CEOs.
  5. Officer candidates “running
    for election.”
  6. Tradition valued more than progress.

    Challenge 1: The “We Are an Association, Not a Business!” Conundrum

    In associations that resist adaptation of management and governance best practices, this refrain is often cited as a reason “not to change.” Yet as associations are entities in which people invest certain resources and expect return on that investment, associations are businesses.

    Resistance to “acting like a business” is primarily typical to long-standing volunteer-driven associations, in which paid employees historically worked in administrative roles at the behest of volunteer leaders with little or no relevant business experience.

    Though board members today have a better general understanding of their fiduciary duties, the sentiment behind the refrain remains surprisingly prevalent in associations, with sound business practices often overshadowed by organizational tradition.

    Challenge 2: Owner
    Representation and Board Size

    While identification, understanding, and linking with the “ownership” is challenging in many nonprofit sectors, it is less so for most associations. Typically elected by the membership, association boards recognize, at least conceptually, the membership as the primary “ownership” on whose behalf they serve.

    Unfortunately, however, board structures and size often obscure this otherwise simple matter. Among nonprofits, the larger the board, the more likely it belongs to an association! Board Leadership and other publications have featured numerous articles about board size (most recommending between seven and twelve as the “sweet spot”). In associations, board sizes expand with good intentions that range from securing “representation” for affiliate, chapter, and special interest groups, to offering more leadership opportunities without “pushing out” colleagues via term limits, or even “to ensure we have enough board members to staff committees.”

    That board members appointed or elected to represent specific membership segments perceive their role as advocating and voting for that segment is understandable, but it contradicts and blurs their fiduciary duty of loyalty to the interests of all members. Instead of the owner-representative hat (“what will best serve our collective, long-term needs?”), constituency-based board members tend to wear that of customers (“what do I, or those just like me, want?”).

    In Race for Relevance,3 Coerver and Byers compellingly suggest how a five-member governing board can serve an association membership far better than the larger, more cumbersome structures that are prevalent. Their rationale is substantive, ranging from the basic: “Large boards are cumbersome … slow …” to the consequential: “The larger a board gets, the less engaged the individual director tends to be.” They note that as boards get large (the teens and beyond), true governing authority typically becomes vested in a group of approximately five people: the executive committee. Thus, they propose the efficiency and authenticity (no charades) of a five-member board.

    The “linkage” component of the board’s job is to take into account the needs and interests of the ownership. Smaller boards can do so quite effectively, as representation is characterized by the diversity of interests genuinely sought and considered by a board, not how many board members are voting.

    Challenge 3: Volunteer Engagement on Committees

    Volunteer engagement is vital to vibrant associations, which are venues for members to learn from and support the growth and success of peers. In many instances, boards appropriately expect their association executives to actively engage and recognize member voluntarism.

    CEOs with authority over volunteer committees don’t find this a problem, but the “governance creep” challenge arises when boards make staff support of committee activities a higher priority than efficiently serving the membership as a whole. Another problem is that association boards often “impose” committee structures mirroring management positions, with oversight/approval authority over key staff functions (e.g., membership, education, human resources/personnel, finance, facilities, government affairs).

    When management must take direction and/or seek approvals from subsets of the board, one-voice leadership and accountability for performance are nullified, taking a back seat to “ensuring that x, y, and z were part of the decision.”

    Education committees are a prime example. As conferences/education are vital programs for most associations, a time-honored tradition for many is to assign members to a committee that will design the program and pick speakers. If the president or board appoints the group, and the educational programs are hugely successful, all is well.

    If, however, there are conflicts in planning, or disappointments in outcomes, authority gets muddied. “Group-think” often emerges, and rather than criteria-based decisions (e.g., past speaker ratings, new programming needs), they become based on “who knows whom?” While accountability for performance evaporates, blame does not! Even when a board explicitly delegates authority over the education program to a committee rather than to the CEO, a weak program bodes poorly for the CEO and his/her job security.

    Kenneth Dayton wondered, in Governance Is Governance: ”Why is it that so many corporate directors grow horns when they become trustees?”… doing things “they would never think of doing as [corporate] directors, interfering with management’s role and making decisions or requests that no corporate director would think of making?”

    The solution, as Policy Governance boards identify, is simpler governance structures, replacing most “standing committees” with more ad-hoc, short-term efforts convened to do governance rather than management tasks.

    To the extent collegiality and networking are held out as reasons for large boards and committee structures (whether board or CEO led), these should be seen as a by-product of, not a higher priority than, optimizing organizational performance.

    Challenge 4: Board Chairs/Presidents Empowered as Pseudo-CEOs

    For many decades, association presidents were those who, after ascending through a hierarchy of offices, substantially put their own businesses/careers aside for a year, and served as volunteer CEO. Bylaws often delegated “executive authority” to this position. The top-ranking executive employee reported to the president, and the “Executive Vice President” (EVP) title became common, more so in associations than any other sector.

    Recognizing that a “president” typically “runs the company,” shifting the top volunteer title from “President” to “Board Chair” (or Chief Governance Officer) has been a trend in the past ten to fifteen years, particularly for larger associations, with “EVP” increasingly transitioning to “CEO” or “President/CEO.”

    A title should reflect the role and authority of its holder. Dayton’s message nearly thirty years ago still resonates: “… the (full-time professional staff) executive is the CEO of the institution. It matters not what the actual title is … these professionals are the CEOs and they should consider themselves that, and should be so viewed by the entire board. A position description should clearly state that fact—and everyone on the board should accept that fact, particularly the chair.”

    Anytime a board president or chair is empowered to treat the executive as his/her subordinate, the organization is at risk of becoming the fiefdom of one person with inadequate checks and balances.

    Challenge 5: Officer Candidates “Running for Election”

    When a membership elects both board members and candidates “running for office,” new challenges arise. Significant disruption can occur when an elected officer arrives with his or her “agenda.” In associations, deference to these prerogatives is too often the norm, regardless of whether they reflect current association needs or contradict previously agreed-upon board initiatives.

    Many associations have annual “installation” events, at which the new president gets sworn in. It is common for the incoming president to be given the authority to determine the “theme” of that year’s (often expensive) installation party. The personal preferences can be extreme, such as one Realtor® association at which the incoming president literally directed the EVP to procure “a tiara and scepter” for her to wear and hold at her installation. Sadly, it was no joke!

    The ceremonial value of these traditions can be very engaging and beneficial. Boards might consider, however, if celebrating the profession’s achievements and contributions to society would produce greater membership engagement and benefit.

    Challenge 6: Tradition Valued More than Progress

    Boards should honor their organization’s heritage, while facing the challenge that yesterday’s solutions may not meet tomorrow’s needs. Governance is the act of steering an organization to a desired future. While a rearview mirror is integral to safe driving, it is for good reason that the windshield is much larger!

    Just as John Carver’s Boards That Make a Difference4 was groundbreaking for governance, Coerver and Byers’s books Road to Relevance5 and Race for Relevance provide similar wake-up calls and proposed solutions for associations. In the latter, they note six “marketplace realities” that have irrevocably altered the landscape and threatened the relevance of associations:

  7. Time. Today’s leaders struggle with work-life balance and want their volunteer time used more scrupulously. “Old model” associations are time intensive (board and committee meetings, advocacy work, attending conferences, etc.).
  8. Value expectations. In many professions, joining an association was “the right thing to do.” And not joining was a social faux pas. Today, return on investment is expected.
  9. Consolidation. Many industries are emerging with fewer, larger players, which often have the resources to effectively produce their own training programs, research, advocacy efforts, and so on.
  10. Generational differences. Today’s young professionals don’t value “membership” as did previous generations. They aspire for professional knowledge and success, but they “connect differently.”
  11. Competition. The emergence of smaller specialty associations, in-house programming by consolidated corporations, and online resources all compete for attention, attendance, volunteer time, and dues.
  12. Technology. Coerver and Byers assert that associations have been painfully slow to embrace technology. Such risk aversion inadvertently disenfranchises those more progressively adapting.

Conclusion

“Five radical changes” are proposed in Race for Relevance to meet these challenges. The latter four are:

  1. Empower the CEO and enhance staff.
  2. Rationalize the member market.
  3. Rationalize programs, services, and activities.
  4. Bridge the technology gap and build a framework for the future.

From the lens of most sectors, these are sensible business strategies, but why are they “radical?”

The answer lies in context. The biggest challenges for many associations are not external, but lie within the structures that are hurdles to their own competitiveness. Cognizant that sound governance creates an environment in which management can excel, Coerver and Byers emphatically convey that the first step in the sequence of change must be radical change #1: “Overhaul the Governance Model.”

Notes

1. http://www.asaecenter.org/files/FileDownloads/PublicPolicy/Associations-Matter-FINAL.pdf

2. http://www.independentsector.org/uploads/Accountability_Documents/governance_is_governance
.pdf

3. Harrison Coerver and Mary Byers, Race for Relevance: 5 Radical Changes for Associations (Washington, DC: ASAE, 2011).

4. John Carver, Boards That Make a Difference: A New Design for Leadership in Nonprofit and Public Organizations, 3rd ed. (San Francisco, CA: Jossey-Bass, 2006).

5. Harrison Coerver and Mary Byers, Road to Relevance: 5 Strategies for Competitive Associations (Washington, DC: ASAE, 2013).

Bill Charney can be contacted at
bill@bcharney.com