Have you ever sat at a board meeting with a feeling that the Executive Director may be exhibiting unstable behavior or may be running the organization into operational or financial instability? I’ve learned to trust those feelings and to follow them up with requests for information. You may be surprised at how many times your suspicion leads to significant findings. But how do you follow up?
From my perspective, I have seen many times how the Executive Director’s management decisions creates instability which inevitably translates to financial problems. The auditors may not include these areas in their audit and may not address practices that can lead to financial instability.
However, there are two teams within the organization that are aware of many of the unwise decisions and activities and who have a wealth of unbiased information that you can request to start gaining a more comprehensive understanding. The finance team and the HR team come in close contact with management’s thought process and decisions and to what extent they stretch the legality or ethical comfort levels. Contact both of these teams to gather information directly from them. My favorite schedule is the following:
- Request a detailed list of personnel changes during the year: salary increases, bonuses, hirings, and terminations (including cause). Absent a logical reason, a very active list is likely to be a sign of problems. Were these salary increases approved by the board? Is the same person receiving more than one increase in the year? Who receives a bonus and why? Repeated bonuses for one person? Why are so many staff leaving at-will or being fired? Issues with the management style of the Executive Director will first show up with constant staff turnover. If management is creating a toxic environment, people will get sick, projects will fail, the best employees will quit and the organization will suffer tremendously.
- Ask for the Executive Director’s timesheets or ask about his/her absenteeism, whether recorded or not. We were recently working at an organization that had a Director who would be absent without letting anyone know, call in sick for weeks at a time, leave in the middle of the day without any notice and unable to attend scheduled meetings. Not even his closest assistants knew how or where to find him. He was creating an environment of uncertainty among his team.
- Ask about the rotation of financial service providers or HR service providers. If these two functions are outsourced, there may be reason for concern if the Executive Director switches companies regularly or out of the blue decides that the outsourced provider needs to be changed. These are positions that deal with a lot of legal and ethical requirements. Is the Director changing these providers because he does not want to hear “that cannot be done, its not legal (or ethical)”? If there was a recent change, reach out to the provider as part of your fiduciary duty and ask what prompted this change. You may be surprised with what you hear.
- Visit employee review websites like Glassdoor or Indeed to check out the reviews on this employer. I was very skeptical about this review process and how it may attract only disgruntled employees. But after seeing with my own eyes the situations that were described in the commentaries, I think they need to at least be considered.
Being on the outside of an organization, providing financial services and advice, I have been in the position at times of wishing a Board member would reach out to me to ask a few questions. My concerns may not rise to level of alerting the Board of potential fraud, but if I was a Board member, I would definitely like to hear about the reckless decisions and attitude of constantly pushing the legal and ethical limits that may lead the organization to a crisis.