Leadership

What’s My Cue To Exit?

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David Dombrowsky, Executive Director of Center for Arts Management and Technology, retweeted an article from Inc magazine about exit strategies for non-profit entrepreneurs asking, “Can you think of arts examples?” Since the Inc piece is about entrepreneurs using their exits strategically to help their organizations grow/transition, my assumption is that Dombrowsky is asking if anyone can think of a person who has done so in the arts. I can’t.

I have covered the topic of succession planning or the lack thereof a number of times on this blog. Most arts organizations haven’t addressed the absence of a succession plan much less examined if that plan considers how to leverage the departure of the founder/executive director to their benefit. I will be honest and say that outside of signs of mental instability it never occurred to me that the departure of the founder could be cause of increased confidence. At best, a well executed transition could maintain existing confidence that might grow as a successor proved their mettle. At worst, a poorly handled transition (or complete absence of a plan) could be cause for alarm and unease.

Says Susi Soza in the Inc piece,

This leads up to the second reason why exits are so important: They signal to the market that an organization has reached a certain level of financial sustainability and scale. Exits are, by definition, big, and for a company founder to achieve an exit—whether by acquisition, a mezzanine round, or an IPO—that means it has achieved significant milestones in terms of revenue, profit, and market validation.

[…]

In the non-profit social entrepreneurship space the word exit appears like a misnomer. How can you have an exit for an organization with no owners?….

Non-profit social entrepreneurs would benefit from exits just as much as their for-profit peers. I believe more non-profit exits would actually attract additional capital to the non-profit space as it does in the for-profit space. Donors are persistently frustrated by fragmentation and duplication in the non-profit market, and I believe exits – whether by acquisition, merger, or even just closing down shop – would bring some welcome consolidation and efficiency that would provoke additional philanthropic investment.

Exits are also important for organizational realignment and revitalization. In the for-profit world, exits are often accompanied by changes in leadership team and business strategy. Unless businesses build exits into their lifecycles, non-profits rarely have catalytic events to spur these types of transitions. Furthermore, succession planning and transition beyond the founding social entrepreneur are often neglected because there are no unambiguous end points in sight. What if non-profit social entrepreneurs could aim toward an exit that came with a $50,000 bonus to do with what they wished?

While her observations are mainly directed at the social rather than arts sector, there is still a lot that is applicable. The comments about donors being frustrated by duplication of effort especially resonated with me. Partially because I am meeting this weekend to discuss governance of our booking consortium after we absorb our sister organization. But also because the idea that there are too many non-profit arts organizations conducting similar operations in the same geographic area is more frequently discussed these days.

I recognized her point that there are not too many widely recognized milestones against which non-profits and their supporters can measure organizational growth. With that in mind, a clear plan for recognizing transitional moments can be valuable. I also like the idea of working toward a $50,000 bonus. Something like putting $5,000 away annually for 10 years, but not adding to it if the leader stays past the agreed period might provide an incentive to move along.

Of course, that only works if everyone has been working toward grooming a successor. If they haven’t it becomes too easy to fall into the trap of deciding the current leader is the only one qualified to direct the course of the organization and extending their tenure and bonus.

But briefly back to Dombrowsky’s question. Are there any arts leaders who have done this? Even if it is only a handful, their example provides a template.

Info You Can Use: So You Wanna Join A Board?

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I believe I have covered the subject of considerations to make when joining a non-profit board before, but Emily Chan did a terrific entry on the topic on Non-Profit Law Blog this week. She links to the BoardSource page on this topic at the end, but she reminds us of additional things to think about.

Among her suggestions are to research on the organization you have been asked to join by reviewing the financials, bylaws, ensuring they have board liability and evaluating the personality dynamics on the board and their work process. Chan also mentions one of the areas I think is often overlooked–education. People who are familiar with boards on a basic level will know there are fiduciary and legal responsibilities to attend but may not really push to receive a thorough education in these areas and about the organization in general.

Education: Will you have the tools necessary to succeed at this organization?

Incoming directors at an organization may have different educational needs for creating the right environment to thrive on the board. Factors such as past board experience or work experience in the nonprofit sector can be useful in quickly adapting to a director role and executing those responsibilities. Likewise, an organization’s investment in or opportunity for board development and mentorship may be an important factor of an ideal work environment for individuals who are first-time directors or new to the nonprofit sector. For those seeking board education, a few topics to consider are:

* Orientation: What information will be covered? What are you expected to take away? What type of resources will be provided? Will you need more help or information after this?
* Training programs: Are they offered? If so, do they address the skills and areas you need the most help with? Are they pre-scheduled or provided as needed? Will you need more training and education down the road?
* Job description: What is being asked of you? Are your responsibilities and duties understandable and realistic? Can you fulfill this role?

I also really like Chan’s comments on how to evaluate the personality dynamics of the board, but I didn’t feel I could copy that much of her entry and offer so little original insight of my own. Obviously, the article can also serve as a guide for the materials, information and education non profits should be prepared to present to a potential board member so that a well informed decision is made.

Duelling Boards

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A nod to Non-Profit Law Blog for their link to a very extreme situation addressing the question of who owns a non-profit. In a story that appeared in the Star-Tribune (MN) and Non-Profit Quarterly. The founder of a non-profit that works with former inmates was frustrated with what he saw as a lack of responsiveness from his board. He formed a second board with a former member of the first board. This second board voted to dissolve the first board and install themselves as the governing body. According to both articles, the founder ended up fired and being lead away by police in the presence of both board presidents, each claiming they were in charge.

The short answer about who is in charge is always the board. They bear the responsibility of the governance of the organization. But given that organizational founders are generally the ones who institute the formation of a board asking the initial members to serve, does a founder have an ability to choose his/her own board? There is a point where the ability to select board members passes from the founder’s hands. My suspicion is that absent a provision giving the founder or executive director the power to make appointments, this occurs once bylaws have been completed and properly filed.

The next logical question is, when a board is not living up to its responsibilities, what recourse do people have in replacing them? Presumably the board can be sued for not meeting their responsibilities and a court could dissolve the board and order the formation of a new one. I have never heard of this happening, though I am sure it has, so I can’t be certain. It may not be the board as a whole which is dissolved and only those whom have been proven to be remiss in their duties who are removed from the board. But basis of this would be whether members attended the required meetings and were diligent in their review and handling of organizational matters. If it were not essential or required that the members return calls or attend the organizational events, it might be difficult to have the board dismissed. If they were moving forward with the strategic plan and operating budget at a rate a court found reasonable, again it could be difficult to unseat them.

If the allegations of mismanagement originate from within the organization, as it did in this case, then there is also the stress of having the board and staff in a confrontational stance complicating the situation as well. As I mentioned, I am sure there have been times when boards have been dissolved because they failed in their duties, but I wonder how many of those instigated by staff. If anyone on staff is going to do it, it would be the founder given how much they have invested in the organization. Staff members may have provided materials to support the case against the board, but it has to take a lot of moxie for a staff to declare a company is ill-served by its board and initiate legal proceedings.

Reflecting on Civic Reflection

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Six years ago I wrote on the practice of Civic Reflection, a process which is supposed to help non-profits and civic groups.

“Imagine getting together with other civically engaged people and talking about your values and the choices you make in serving your community.”

It still sounds interesting though I haven’t come across another mention of it in the last six years. I wonder if it can be adapted to communities based on the internet. I renew my inquiry for more information from anyone who has engaged in this practice.