Jani’s Journal Issue 35: Nonprofit (Business) Excellence
11/26/2024
Exploring the Standards for Excellence®️
What did I learn spending three days in Baltimore, MD with 30 nonprofit professionals from across the country at the Standards for Excellence Institute®️ Licensed Consultant training? Hotel gyms are a gross but necessary evil. My version of after-hours conference fun continues to include PJs and Netflix. And “the highest standards of ethics, effectiveness, and accountability in nonprofit governance, management, and operations” has more in common with leading business practices than you might think.
Fresh off an intense three-day training to become a Licensed Consultant for the Standards for Excellence Institute®️, I’m dedicating this issue of Jani’s Journal to highlighting the relevance of leading business research and practices to nonprofits’ “organizational governance, management, policies and procedures, and legal compliance at any stage of [their] lifecycle.”
“Impossible,” you say? Read on.
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Jani’s Jackpot!
If you only have time to read one article, Jani’s Jackpot promises the ultimate payout!
🔗 How to Design an Ethical Organization 🔗
This Harvard Business Review (HBR) article explores the foundation of building ethical organizations and is eerily reminiscent of some key concepts in the Standard for Excellence: An Ethics and Accountability Code for the Nonprofit Sector. Ethics and Accountability in corporate America may feel like an oxymoron, but Professional Responsibility was the first core required class for every Executive MBA student in my cohort at NYU School of Business. Believe it or not, many of the concepts taught at NYU around the fiduciary duties required of business executives and boards (the duties of care, loyalty, and disclosure) mirror the duties outlined by the Standards for Excellence®️ code for Leadership and Governance in nonprofits and the concepts outlined in this HBR article like:
Explicitly stated values that are clear, actionable, and emotionally resonant incorporated into a strong mission statement that connects directly to day-to-day practices, strategy, and policies ensure ethical values are deeply embedded in the organization. Mission, vision, and values are certainly near and dear to the hearts of most nonprofits.
Decision-making processes, particularly in times of crisis, that put ethical considerations top of mind to effectively promote ethical thinking (and acting). This is similar to the Standards for Excellence®️ code around administrative policies that include crisis and disaster planning.
Aligning financial and non-financial rewards or incentives with ethical outcomes to motivate behavior. This is similar to the Standards for Excellence®️ code recommending fundraising and resource development plans that do not compensate staff based on a percentage of funds raised.
Establishing descriptive cultural norms shapes employee behavior more strongly than policies alone. This is similar to the Standards for Excellence®️ code recommending thorough incorporation of mission, vision, and values into administrative procedures and processes.
Mission, Strategy, and Evaluation
“Nonprofits are founded for the public good and operate to accomplish a stated purpose through specific program activities. A nonprofit should have a well-defined mission, and its programs should effectively and efficiently work toward achieving that mission. Nonprofits have an obligation to ensure program effectiveness and to devote the resources of the organization to achieving its stated purpose.”—Standards for Excellence®️ Guiding Principle for Mission, Strategy, and Evaluation.
🔗 The Strategy-Analytics Revolution 🔗
This McKinsey & Company article highlights the transformative potential of advanced analytics in strategic decision-making, emphasizing its application in reducing bias, identifying growth opportunities, tracking trends, and understanding complex dynamics. For nonprofits, these insights are particularly relevant in aligning mission-driven strategies, optimizing resource allocation, and evaluating program effectiveness. Key takeaways include:
Using data-driven insights to calibrate strategic goals against real-world outcomes reduce bias in decision making and mitigates against overly optimistic assumptions or benchmarks.
Leveraging advanced algorithms (e.g., natural language processing) can unearth new growth opportunities in mission-aligned areas and prioritize initiatives based on higher-impact outcomes.
Using real-time AI tools analyzing public data can identify Early-Stage Trends, ensuring a nonprofit’s proactive responses to environmental or social changes.
Using simulations (e.g., agent-based modeling) to predict outcomes in systems with many interdependencies, such as donor networks or programmatic outreach can help a nonprofit anticipate complex dynamics to optimize their impact.
Leadership: Board, Staff, and Volunteers
“Nonprofits depend upon effective leadership to successfully enact their missions and programs. Effective leadership consists of a partnership between the board and management, each of which plays an essential role. Understanding and negotiating these shared and complex elements of leadership is essential to the organization’s success. A nonprofit’s employees and volunteers are fundamental to its ability to achieve its mission.
Board members are in a position of trust to ensure that resources are used to carry out the mission of the organization. An organization’s board leadership should consist of volunteers who are committed to the mission and who demonstrate an understanding of the community served. An effective nonprofit board should determine the mission of the organization, establish management policies and procedures, assure that adequate human and financial resources are available, and actively monitor the organization’s allocation of resources to effectively and efficiently fulfill its mission.
Nonprofits should also have executive leadership which carries out the day-to-day operations of the organization, ensures financial and organizational sustainability, and provides adequate information to the board of directors. An organization’s human resource policies should address both paid employees and volunteers and should be fair, establish clear expectations, and provide meaningful and effective performance evaluation.”—Standards for Excellence®️ Guiding Principle for Leadership: Board, Staff, and Volunteers.
🔗 How to Sabotage Your Board 🔗
This MIT Sloan Review article reads like a description of the most dysfunctional nonprofit boards. The best of the worst include: “I have a point that will only take a minute,” winging it without reading the prepared materials in advance of the meeting, and putting the most important decisions last on the agenda (i.e. rushing through them or tabling them altogether). Sound familiar? Turns out, nonprofit boards and executives share the same dysfunction as corporate boards and executives. Perhaps they share the same solutions, too:
Begin by assuming the dysfunction is unintentional, pointing out disruptive behavior when it occurs. This direct approach often discourages further sabotage, whether intentional or not.
Redirect and build alignment by interrupting off-track discussions and involving diverse viewpoints, including those of junior members. Form alliances with those committed to productive meetings while maintaining trust and avoiding further division.
Foster Cooperation through trust and accountability among members by understanding motivations behind behaviors and seeking allies, including the chair. Collaborate to resolve issues and maintain a positive working environment.
Confront leadership issues early and decisively, including addressing and replacing leadership when appropriate. Effective boards require timely, sound decisions, which depend on modeling constructive behavior, fostering a collaborative culture, and willingness to make hard decisions for the good of the organization and the people (not executives or board members) it serves.
Legal Compliance and Ethics
“Nonprofits enjoy the public’s trust, and therefore must comply with a diverse array of legal and regulatory requirements. Organizations should conduct periodic reviews to address regulatory and fiduciary concerns. One of leadership’s fundamental responsibilities is to ensure that the organization governs and operates in an ethical and legal manner. Fostering exemplary conduct is one of the most effective means of developing internal and external trust as well as preventing misconduct. Moreover, to honor the trust that the public has given them, nonprofits have an obligation to go beyond legal requirements and embrace the highest ethical practices. Nonprofit board, staff, and volunteers must act in the best interest of the organization, rather than in furtherance of personal interests or the interests of third parties. A nonprofit should have policies in place, and should routinely and systematically implement those policies, to prevent actual, potential, or perceived conflicts of interest. In this way, ethics and compliance reinforce each other.”—Standards for Excellence®️ Guiding Principle for Legal Compliance and Ethics.
🔗 Nonprofit Conflict of Interest: A 3-Dimensional View 🔗
This Blue Avocado article offers a comprehensive guide to preventing conflicts of interest in nonprofit organizations, emphasizing the need to address both financial and non-financial dimensions. Key strategies include:
Establishing clear policies that require disclosure of financial and non-financial relationships ensures transparency. Incorporating this information into board member rosters to highlight potential benefits and risks fosters trust and supports quick identification of potential conflicts and recusal to mitigate them.
Encouraging open disclosure and recording them in meeting minutes normalizes disclosures and ensures accountability. In addition to annual disclosure form completion, this includes board members declaring potential conflicts during meetings or resigning when personal relationships create issues.
Implement safeguards for financial transactions such as using a competitive bidding process for major purchases to confirm fairness when board members stand to benefit. This practice ensures decisions are made in the organization’s best interest.
Recognize and address dual loyalties such as board members serving on multiple boards or representing an interested/affected group, creating potential conflicts. Designate processes to manage these dual loyalties constructively, balancing collaboration with transparency.
Finance and Operations
“Nonprofits should have sound financial and operational systems in place and should ensure that accurate records are kept. The organization’s financial and non-financial resources must be used in furtherance of tax-exempt purposes. Organizations should conduct periodic reviews to address accuracy and transparency of financial and operational reporting, and safeguards to protect the integrity of the reporting systems.”—Standards for Excellence®️ Guiding Principle for Finance and Operations.
🔗 Master Class in Crisis Communication 🔗
Key takeaway from one of my favorite courses in business school taught by one of my favorite professors (Helio Fred Garcia): every crisis is a business problem before it’s a legal problem. While the video below is entitled a master class on crisis communication, Prof. Garcia actually teaches how to re-build trust through effective crisis response to a business problem we likely could have prevented becoming a legal problem. It’s well worth the hour!
Resource Development
“The responsibility for resource development is shared by the board and staff. Nonprofit organizations depend on an array of sources of financial support. An organization’s resource development program should be maintained on a foundation of truthfulness and responsible stewardship. Its resource development policies should be consistent with its mission, compatible with its organizational capacity, and respectful of the interests of donors, prospective donors, and others providing resources to the organization.”—Standards for Excellence®️ Guiding Principle for Resource Development.
🔗 How Philanthropists Can Diversify Their Grantmaking Portfolios 🔗
This Harvard Business Review article highlights how nonprofits can leverage diversification strategies to optimize grant funding and align with funders’ evolving priorities. The article categorizes funding into three types—operations, growth, and risk—each playing a critical role in sustaining and advancing nonprofit missions:
Operations – Stabilizing and Sustaining:
Core operational funding is the foundation of a nonprofit's ability to meet its mission. Although securing operational support can be challenging, funders should prioritize this category to ensure long-term organizational stability.Growth – Scaling and Spreading:
Growth funding supports nonprofits in expanding or improving their services, often requiring strong leadership and infrastructure to handle challenges. This medium-risk investment can enable transformative projects, such as integrating social determinants of health into service delivery, helping organizations establish sustainable models while deepening community impact.Risk – Seeking Catalytic Change:
High-risk, high-reward funding targets systemic challenges and drives innovation. Catalytic grants can initiate scalable solutions or generate significant additional resources. Smaller-scale investments in nonprofit incubators and leadership programs also foster significant change, advancing mission-critical goals.
Public Awareness, Engagement, and Advocacy
“Nonprofits should represent the interests of the people they serve through public education and public policy advocacy, as well as by encouraging board members, staff, volunteers, and stakeholders to participate in the public affairs of the community. When appropriate to advance the organization’s mission, nonprofits should engage in promoting public participation in community affairs and elections. As such, they should communicate in an effective manner to educate, inform, and engage the public.”—Standards for Excellence®️ Guiding Principle for Public Awareness, Engagement, and Advocacy.
🔗 Federal Law Protects Nonprofit Advocacy and Lobbying 🔗
Yes, you read that right…nonprofits can (and should) lobby. I’ve shared this article in previous Journals but feel the need to re-share given this is one of the most common misunderstandings about a nonprofit’s 501(c)(3) status: lobbying does not risk your tax-exempt status when done and documented according to IRS requirements outlined below. Check out this article from the National Council of Nonprofits to learn more.
“Under the expenditure test, the extent of an organization’s lobbying activity will not jeopardize its tax-exempt status, provided its expenditures, related to such activity, do not normally exceed an amount specified in section 4911. This limit is generally based upon the size of the organization and may not exceed $1,000,000, as indicated in the table below.”—Measuring lobbying activity: Expenditure test. IRS.gov
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