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

The Concept of Worth

How does a board know when the results are no longer worth the cost?

By Jim Hyatt September 25, 2013
One of the chief virtues of the Policy Governance model is its well-structured approach to defining, focusing on, and achieving an organization’s purpose. We call the resulting policies Ends and refer to them when we ask the questions “What benefit? For whom? And at what cost?” Boards and practitioners often have little difficulty with the concepts of what difference they are trying to make and for whom they are trying to make it. But they often stumble over the notion of the cost, or said another way, the worth of their achievements. This article suggests a strategy for conveying the concept of ends to boards through reference to the concept of worth.

Here is a simple way of addressing the question: Once a board is clear about the first two concepts, the next question to ask is, “For all the good we wish to do and for all the costs in terms of resources and time that they spend to accomplish those things, is it worth it?” Many boards are brought up short by this question. Some even get a little resentful when I ask it. “After all,” theysay, “we’ve been doing great things for our community for many years. We’re well respected, well run. How can you stand there and ask us if it’s worth it? Of course it is!”

A few of the board members do begin to get a glimmer of an idea, albeit reluctantly, of what I’m saying. I press on. Let’s say I’m addressing the board of a not-for-profit organization. “Your annual budget is about $8 million,” I say. “If your budget were $10 million, would the results you currently produce still be worth the higher cost? Would they still be worth it at $12 million? $15 million?” “At what point,” I continue, “would you say they are no longer worth it?” Lastly, and this is the key, I ask them, “How would you know? How would you know when you reached the point at which the results you produce were no longer worth their cost?”

While they’re mulling that one over (and looking at me dubiously), I give them something more to think about. I ask them, “Isn’t this one of the most fundamental questions a board, any board, in the exercise of its fiduciary duty to its ownership, to its community, should be asking?”

I find that it’s often instructive to compare and contrast practices in the for-profit sector with those in the notfor- profit or government community. If I were to ask the board of a for-profit enterprise this last question, they would be well within their rights to escort me summarily from the room. For-profit boards have no need of this question. They have something called a marketplace that answers it for them. In the harsh, competitive world of private enterprise, consumers make decisions everyday about the worth of a company’s product. Whether comparing prices on soap at the grocery or analyzing the fees and performance of two mutual funds, people are constantly making decisions about worth at the office, at home, and throughout their professional and personal lives. The boards and managements of the firms selling the soap brands or the mutual funds know quickly whether their products are worth it or not. If their brand is deemed inferior, they will rapidly lose market share, revenues, and profits; eventually, if they don’t respond quickly enough, they go out of business.

It’s no different in the professions. Accountants compete with other accountants, doctors with doctors, lawyers with lawyers, all on the basis of the comparative worth of their services. Many factors play a role in the worth assessment done by a consumer: reputation, special expertise, the expected results, and of course cost.

Worth, in the for-profit world, is a cost-benefit analysis. The irony is, the same people who make these decisions repeatedly in their daily lives (and do so almost unconsciously), once they come to sit on the board of a not-for-profit organization, suddenly lose the capacity to make these same assessments concerning the worth of the organization’s achievements. Somehow, this question seems to lose its potency once it is raised in a not-for-profit context. But should it?

Let’s take one example. Public school boards often command budgets of hundreds of millions of dollars,employ thousands of workers from teachers to administrators to school bus drivers, and labor under the watchful eye of the parents and other residents of their school districts. School board members are elected by their community and unselfishly volunteer their time. They come from all walks of life, but primarily they come from the same for-profit world we’ve just been discussing. Often well known and respected in their communities, they are bankers, homeowners, lawyers, teachers, and company owners. By any measure, one would think they are prime candidates for being fully competent to answer this question of worth.

Yet despite their experience and ability, these community representatives struggle with the question. Often, they admit that they hardly think about the worth of their district’s achievements, if ever. Their meetings and agendas are full of data: financial reports and budgets, graduation rates, union contracts, facilities management, test reports. They swim in oceans of data and discuss them at every meeting. But when asked the sorts of questions with which I opened this article, they look at me with dawning realization: they don’t know the answers and seldom ask such pivotal questions, if at all.

Another irony, I point out, is that parents in their community make this assessment constantly, as they do with most every aspect of their lives. This is why we have charter schools, private schools, school voucher programs, private tutors, and other private companies engaged in helping students learn. Parents look at their children and the schools they are in and have no trouble, with far less data than the school board has, making a judgment of worth and acting accordingly.

I pause a moment to let all this sink in. Is this not a fundamental question, one of the most fundamental a board should ask itself, and be able to answer? Does it not go to the heart of a board’s duty, to know that the organization it oversees actually produces results worth their cost? Most of the time, I’d be willing to bet, the question never even comes up. Yes, questions of cost often come up. School boards are concerned with the cost of programs, new buildings, equipment, salaries, and so forth. Costs of specific components of producing desired results do not equate to the worth of results. The difficulty and the solution lie in the question of benefits.

To assess their worth more accurately, organizations must meet the challenge of defining the benefit, difference, or change they wish to make purely in terms of results. Most school board members know, for example, that no matter how much they want to increase the graduation rate or standardized test performance, these are not the real issues. Producing young citizens capable of thinking and acting responsibly, with the knowledge they need to be successful in their lives, is the real issue. Graduation rate and test scores may be indicators of that result. On the other hand, they may be indicators that standards were dumbed down to produce a desired metric.

The challenge, then, is to define as clearly as we can the results we’re really after. What kind of “student thinking” do we mean? The board begins to define critical thinking as the standard to achieve. What kinds of knowledge are needed for success? The board may choose to define the areas of knowledge, from literacy skills to science and world awareness. As this definition of results proceeds, the board also gains the missing part of its worth equation and soon will be ready to take the next step in answering this fundamental question.

Once a board has a firm grasp of what it wants to produce, it can compare that to what it is producing. It can also compare itself to what other, similar organizations are producing.

This goes on in the for-profit sector all the time. Companies constantly look to see what their competitors are doing in product improvements, cost cutting, lower prices, more efficient delivery systems, and so on. They respond if they think it places them at a competitive disadvantage, which is another way of saying their product is worth less. Is there any reason a not-for-profit organization, with a board composed of people who largely come from the forprofit world, cannot do the same thing? Many nonprofits offer objections to this approach. “Our world is different,” they say; “it’s not the same as the world of for-profits!” But the chief obstacle I find is that they simply haven’t tried it. The fundamental question of their worth remains unanswered. There can be little doubt that, if they were forced to do so, just as the marketplace forces their for-profit counterparts to do so, the means could and would be found.

In the not-for-profit “marketplace,” we know organizations are not so forced. It becomes a matter of will once the importance of this question of worth is plain. The board must be the one to take the lead. It is central to their servant-leadership that they justify the costs of their existence by the results they produce for their community. By doing so, they will cause a profound shift in the perspective with which they approach the work of the board, and an even greater shift in the role nonprofits play in our communities and our society.

Jim Hyatt, an attorney, is a consultant and associate with Charney Associates. He can be contacted by e-mail at jim@bcharney.com, through their Web site www.bcharney.com, or by telephone at (303) 321-3190.