News - Durham Region and Beyond
Tom Little's Executive Director Newsletter - December 2011
Ripped from the Headlines
Charities ahead of curve on Board independence
The Story
“From passive to vigilant”. That was the title of a recent article in one of Toronto’s newspapers highlighting changes in governance practices among Canadian businesses. It described how an increasing number of Boards elect Chairs who are independent of management. It noted that presidents as employees can no longer sit on audit and compensation committees. It said that the days when Boards didn’t get any written materials prior to their meetings are a thing of the past. It even noted that a 2010 survey showed directors of large corporate boards spend 227 hours per year on their committee and Board responsibilities.
The Skinny
This is one area where the non-profit sector, especially charities, has been way ahead of the curve. Charity law requires that Executive Directors and other members of the management team be excluded from their Boards, and many non-profits follow the same rule, although they don’t have to.
But that’s not to say that things are perfect on the non-profit side relative to Board independence. Areas of governance where Executive Directors continue to play a role include in recruiting Board members. Many charity and non-profit Boards still defer to their staff to help them find prospective Board members, a practice which at least some Executive Directors are uncomfortable with, and which I don’t recommend either. Of all the duties that Boards should fulfill on their own, this one leads the list.
The number of hours spent on corporate Board responsibilities is interesting. My estimate is that volunteer Boards probably spend 10 hours per month on the job, whereas this suggests that at least large corporate Boards require twice as much time commitment. Of course, corporate Directors are often paid sizable amounts to give that time, unlike their non-profit counterparts.
Additional member rights are a concern (to some)
The Story
The new Ontario Not-for-Profit Corporations Act includes additional rights for members of the non-profits. On top of their traditional role of choosing the Directors of the corporation, receiving financial statements and approving auditors, members can now put forth “proposals” and have them discussed at annual meetings.
Some observers see these extra member rights as problematic. They foresee groups highjacking an organization by mobilizing a relatively small number of people to vote out the existing Board and replace it with one more sympathetic to their point of view, or by trying to move the organization to take action not in its best interest.
The Skinny
There doesn’t seem to be anything particularly Machiavellian about increased membership rights. In the new Act they are offset by an increased capacity of the Board to discipline wayward members, on the understanding that the circumstances and the process for so doing are set out in the organization’s by-laws.
More to the point for most non-profits, and something that doesn’t relate to the new Act, is the lack of engagement of the membership in the affairs of the organization. A malaise of indifference tends to engulf most such organizations, with members being more than willing to acquiesce to the work of the Board and employees. For the most part, the only time they get involved is when a major change is proposed that they don’t agree with. Then they leap into action.
Personally, I am not bothered by a membership that is small in size and/or only shows up once a year, as long as the Board and staff work together to ensure a quality organization. I sometimes think that those non-profits that have a very small membership, and by small I mean only as large as the number of Directors, represent the preferred model. Boards of such organizations have the final say, because they have no higher authority to account to.
A new category of Directors and managers - “Ineligible”
If you work in senior management for a charity, you and your Directors may soon need to be screened to determine whether you are “ineligible” to play those roles, at least in the eyes of the Canada Revenue Agency. And if you are “ineligible”, and you continue in your position, CRA may revoke the charitable status of your organization.
Being deemed “ineligible” appears to relate to things like having been convicted of a “relevant criminal offense” such as tax evasion, theft or fraud. At least so says the latest Federal budget, as reported by Carters Professional Corporation, a law firm whose resource materials I refer to often.
I will have more to say about this in the January newsletter. Suffice to say the concept is intended to weed out those people who are serial users of charities for personal benefit. But in attempting to achieve this result, CRA appears to be casting a very wide net. And the burden of determining eligibility will fall to you and your organization.
If you just can’t wait to know more, go to the Carters website at www.charitylaw.ca and look for its November/December Charity Law Update.
Ripped from CMCS
Two, two, two gifts in one
There is still time to get those Board members on your list the perfect Christmas gift.
For some it is my new book: Tom Little's BIG Ideas for Non-Profit Boards. What better way to spend the holidays than snuggled up in front of the fire, reading about Board planning, delegation or policies in case of emergencies? Whew! Do you feel it getting hot in here?
For others it is the best training on governance, Tom Little's Training for Non-Profit Boards. This gift represents the deluxe package, perhaps reserved for those Board members who voted in favour of you most recent compensation increase, and includes a copy of my book. That training is being conducted in partnership with Canadian service provider Bartimaeus Inc. Here’s more about the book and the training.
My new book
Tom Little’s BIG Ideas for Non-Profit Boards is one hundred and ninety-pages long, and contains thirty-six BIG Ideas in total. Thirteen are what I term The BIGGEST of the BIG, ideas my experience tells me are critical to any non-profit. Then come twenty-three BIG Ideas, more ways to enhance what exists at the Board level.
You don’t just get ideas either. The book contains all kinds of resources for implementing them. For example, BIG Ideas includes samples of strategic and Board yearly action plans, and of evaluation formats Boards can use to rate their own work. It also highlights a range of websites with helpful materials that can be downloaded for free.
Tom Little’s BIG Ideas is formatted as a work book, so it can be used on a continuous basis by the Directors. It is easy to read, and has a fun quality your Directors will appreciate.
When your Board members look under the tree, and find their very own copy of Tom Little’s BIG Ideas, they may just start thinking: Our Executive Director is sooo competent, s/he deserves a little Christmas gift too. How about a nice fat raise?
Cost is only $35 (that’s under a dollar an idea). Shipping and HST are extra. To order, send us an email, or use the order form on our website www.cmcs.on.ca. and forward it via snailmail. Cost of shipping is about $10-15 in Ontario, and about $5 more in other parts of Canada. Only 5% GST applies to books.
Governance training plus the book
You have both new and seasoned members sitting on your non-profit Board. They want more training, but you don’t know what! Well, now you have it. Bartimaeus Inc. and I are partnering to bring you the latest in Board knowledge for Canadian non-profits at a seminar to be held on Saturday February 4th at Bartimaeus’ offices in the southwest end of Toronto.
Using my BIG Ideas book (which participants get to keep), we will explore:
- The Board’s role
- Board models
- How to structure the Board and operate it effectively
- Planning
- Working with your Executive Director
- Recruiting new members
- Avoiding damaging problems
Those attending will walk away with resources they can use right away: Thirty-six BIG Ideas, sample plans, forms for evaluating the work of the Board and the Executive Director, and Internet addresses for great Canadian websites, to name a few.
The session will be held on Saturday, February 4, 2012 from 9:30 a.m. to 12:30 p.m. at Bartimaeus, 290 North Queen Street, Suite 111, Toronto ON (close to Sherway Gardens Shopping Centre). The fee is $99 plus HST (includes the book) = $111.87 (payable by VISA or MasterCard)
To register for Tom Little’s Training for Canadian Non-Profit Boards, please call Anne Bonfigli, at Bartimaeus Inc. (905.634.8903), email her at dbon@bartimaeus.com, or fax her at 289.288.2975 with the following information:
Organization:__________________________________________________________
Participant’s name:_____________________________________________________
Title:_________________________________________________________________
Address (with postal code):_______________________________________________
_____________________________________________________________________
Phone:________________________ Email:_______________________________
VISA/MC:__________________________________________ Exp. MM / YY
Registration confirmation will be emailed.
You can access a copy of the registration form, along with information about the training event and Bartimaeus at http://bartimaeus.com/Ontario/Trainingo.html.
Why Executive Directors Get Fired – Tales from the Crypt
Salary consistency and pay for performance
The Story
In the larger scheme of things, who cares how much non-profit Executive Directors make? Your union local maybe, and perhaps your ex, who still thinks you weren’t totally forthcoming when it came time to settle up. Regardless, the number is small.
Such is not the case with Ontario’s hospital CEOs (the “grand” term for Executive Directors), and out of that interest come recommendations that might impact all Executive Directors. While this interest is unlikely to result in a loss of jobs for hospital Executive Directors, or others for that matter, it puts them squarely in the spotlight, squirming a bit as their pay becomes very public and needing to defend their value to the organization.
All this because of a report commissioned by the Ontario Hospital Association that examined in detail the pay of hospital CEOs, and concluded that their compensation packages are reasonable compared with CEOs in other public sectors and the business community, bearing in mind that the top earners pull in about seven hundred thousand dollars a year.
At the same time, the panel has a number of recommendations for making CEO salaries more equitable across Ontario’s 151 hospitals. Since each hospital has its own Board, and that Board approves CEO pay, many of those recommendations are aimed at the local hospital Boards:
- Ontario hospital boards of directors should use a standard Hospital Executive Compensation Framework to determine compensation for their senior hospital executives.
- All Ontario hospitals should implement within three years a pay-for-performance program for their CEOs, ranging from 10% to 30% of base pay. Performance pay should be linked to achieving provincial priorities, hospital strategic priorities and hospital performance improvement targets as set by the Quality Improvement Plan.
- Hospital boards should be responsible for approving the compensation policies that apply to the direct reports of the CEO.
The Skinny
The largest of our hospitals are huge, sophisticated institutions with many challenges, including the taxpayer’s insatiable appetite for more healthcare and the government’s attempts to control growth in spending. I don’t have a problem with hospital heads being well paid. I say this in spite of the fact I have never been clear on the extent to which one person can significantly impact an organization that employs thousands, but I will take it on faith that a single voice can make a substantial difference.
Most of you don’t work for hospitals or other MUSH organizations (municipalities, universities and colleges, school boards and hospitals), although there are probably days when it feels like you are mired in MUSH. This means that you are spared the flack that can come from organized labour, politicians and the media related to these high profile positions. Fortunately for you, none of these groups knows you exist, let alone how much you make. Well, maybe organized labour does, but only when you are in the middle of a dispute.
Regardless, a couple of these issues apply to all Executive Directors: How do you ensure you are paid appropriately? Should your comp package include incentives? And should your Board be responsible for the pay practices you utilize with your direct reports?
For all other non-profits, as for hospitals, Executive Director compensation is a Board responsibility, so it is up to the Directors to decide what your package should comprise. Generally you will be asked for input if not for guidance, and there are several ways you can help. You may lack an Executive Compensation Framework, but many sectors conduct periodic compensation surveys, so that is the place to start. Look for organizations that are similar in size (budget, staffing), and that offer similar services. Ontario publishes its Public Sector Salary Disclosure report once a year, another helpful source for comparison purposes. One issue that is harder to quantify is service quality, but you can suggest that your Board look to the meeting of standards and achieving of accreditation as an important indicator.
Remember too that Boards can develop a policy position related to Executive Director compensation. While most Boards will opt for paying their Executive Directors on a level with their peers who have similar responsibilities, a few Boards will aspire to be at the top of the scale, based on the premise that their organizations achieve superior performance. If I were you I would lobby for the top of the scale, bearing in mind that you might have to actually deliver on “superior” performance. Not that I think you CAN”T do it!
The issue of incentive pay is more contentious. If you and your Board are in favour, you should look for measurable indicators of positive change to base it on, indicators that also relate to the priorities of the organization. These are often set out in the strategic plan. Useful indicators could be data elements such as increases in the number of people served or the introduction of new services.
Whether Boards should approve the pay practices for the Executive Director’s senior management team is another issue that is open to debate. The answer lies in whether the Board feels it should, and has the capacity to, play a role in ensuring the strength in the senior management team. If it does, then approval of pay practices for other members of your team would be a logical part of that role. Otherwise it can simply delegate these duties to you.
All of this calls for the development of a compensation policy by the Board relative to the senior management team. The Board can focus only on the Executive Director, or can be more expansive, depending on the size of the organization and the preferences of the Board. At a minimum, the Board should address compensation issues relative to you as Executive Director, based on a rationale articulated in policy.
Finally, some Boards and Executive Directors find it helpful to use a third party to assist in researching pay practices and helping the Board make compensation decisions. Those third parties are often called consultants, and one of those consultants is called Tom. You or your Board can call Tom for help at the number noted below. I don’t think other consultants have phones.
Trends in the Non-Profit Sector
Out of tragedy comes … a non-profit
The Story
A recent media theme has been teen suicide. These are tragic stories that seldom have a silver lining. But every once in while that changes. Hence the story of the Jack Project, named for a young man named Jack Windeler who killed himself at age eighteen while at university. The Jack Project is an outreach program attached to Kids Help Line, a favourite charity of mine. The Project aims to speak to 22 high schools and 12 post-secondary schools in its first year, beginning a conversation about how teenagers and young adults are really feeling. The presumption is the talking leads to understanding, empathy and solutions, and prevents suicide in this vulnerable group. The Jack Project is led by Jack’s father Eric, who left his job after his son’s death to raise money for mental health awareness, creating a pot of almost $1 million.
The Skinny
The non-profit sector is often criticized for being made up of many small organizations and for being fragmented in its attempts to serve the broader public. And those criticisms are well founded.
But then comes something like the Jack Project, and you realize that the weakness of the sector is also its strength. Out of one family’s terrible loss comes an offsetting benefit, because a father can immediately create a small non-profit initiative, raise money, and begin to address a particular problem in a new, innovative way.
Our country, and our world, would be poorer, much poorer, without non-profits.
Helpful Resources
DeafBlind Ontario among winners of 2011 Voluntary Sector Reporting Awards
The Story
Thanks to Roxanna Spruyt-Rocks of DeafBlind Ontario Services for advising that her organization was among the winners of $5,000 in the fourth annual Voluntary Sector Reporting Awards.
I spoke to the VSRAs in my June newsletter, noting that they are awarded by the CA-Queens Centre for Governance, an initiative funded by the Institute of Chartered Accountants of Ontario. The Centre’s goal is to “improve corporate governance in Canada through a variety of research and teaching programs”. One of its initiatives is a “competition to provide boards with meaningful feedback on their annual reports and encourage excellence in reporting.”
The reports submitted are evaluated on criteria set out by the Centre for Governance:
- Include a strong introduction, with a table of contents, to significantly help orient the reader to the activities of the organization. An executive summary is a “must have.”
- State clearly the organization’s mission and relate the activities back to the mission throughout the report.
- Give a clear statement of performance objectives and targets and describe how they link to the mission.
- Disclose your organization’s risks, issues and challenges in the context of the mission.
- Tell the reader how your organization governs itself and how that governance structure reflects the mission of the organization.
- Have management (e.g. the executive director) discuss the financial information in light of the organization’s mission, vision, and values; link that discussion to present operations, risks, and future plans; all should be written in a concise “discussion and analysis” section of the report.
- Post the annual report and the audited financial statements (if not included in the annual report) on your website in an easy to find area (e.g.“About us”).
- Decide on your primary audience and write the annual report for them using plain language appropriate to that audience. Use other means to communicate your message to other stakeholders.
- Balance carefully the “too much information” approach versus “lack of content” approach to arrive at a happy medium in the annual report. Ensure that one person edits the report so that it is internally consistent both with regards to content and to writing style.
- Avoid committee reports in favour of one broad-based board report that tells the organization’s story in a compelling and integrative manner. The committee reports can be posted to the website if they are considered important disclosures.
DeafBlind Ontario Services won in the Total revenues from over $1 million to $10 million category, tied with the United Way of Kingston, Frontenac, Lennox & Addington. Other winners were:
- National and international organizations headquartered in Ontario: World Vision Canada
- Total revenues over $10 million: Canadian Paraplegic Association Ontario
- Total Revenues up to $1 million: Hospice King-Aurora
Congratulations to all those selected.
The Skinny
High quality annual reports are one aspect of transparency and information-sharing that are becoming increasingly important to donors and other members of the broader community. The existence of such reports, if widespread, would reduce the public’s need for oversight provided by organizations like Charity Intelligence Canada, referenced in my November newsletter. They would also cut down on the fodder available to investigative journalists like Kevin Donovan of the Toronto Star, who rags on charities at every opportunity.
Participating in awards programs such as this, Donner or AON Hewitt, are very healthy for non-profits, and I recommend you consider so doing as one means of enhancing your organization’s operation, reputation and morale. I especially like AON Hewitt’s best employer competition because it focuses on employee engagement, which for non-profits that are service providers is critical to being effective.
2011 Newsletters
If you enjoy our newsletters, here are the ones we did in 2011. CMCS Executive Director Newsletters - Consolidated - 2011.pdf. We have others from previous years as well. Contact us for free copies.