Board retention in good and bad times

One thing I have been thinking about a lot in the recent weeks and keep meaning to write about is board member retention during these difficult economic times.  The Wall Street Journal article below was a kick in the stomach reminder that we need to be focusing some significant attention on our boards.  In times this dire, it is essential to keep key stakeholders engaged.  With the pressing economic concerns for both the organizations and the individual board members, a delicate balance must be maintained between being honest about situations and being overly negative or pessimistic. 

It is a necessity to remember to celebrate successes no matter how small.  Even in good times this is something many nonprofits forget to do.  By nature we are problem solvers and excellent at crisis management, once something has been achieved we often make the mistake of moving onto the next task before congratulating ourselves on our accomplishments. 

Our boards need to know that they are important to us in every way possible - as a workforce, as information resources, as access to networks and as funding sources.   There are plenty of reasons for board members to be concerned - if we are conscious of this during our interactions we will find a proper balance.  But the MOST important thing is to keep them engaged!

Believe it or not most board members join a board for some reason other than to write a check - a deep connection to the mission/cause, a desire to make a difference in his or her community, social-standing/prestige, or a slew of others reasons.  Hopefully during the recruitment process and the individual's time on the board the reasons that drew the person to the board are clear.  Our job as staff leadership is to make sure that we take time to address these reasons with positive reinforcement during these times (and all others). 

In times like these we have to fight the impulse to hunker down and have a small group make the tough decisions.  A healthy process must be maintained.  We need to work with our board leadership to ensure that each board member has a chance to be heard and be part of key decisions -- especially organizations that are truly at risk or on the brink.  After all very few people join a board if they don't want to take responsibility for the organization's well-being. 

Healthy board management is going to be very important the in the months ahead.

From the WALL STREET JOURNAL

GETTING PERSONAL: Charity Board Members Insure Against Risk

NEW YORK (Dow Jones)--Even at charities, boards of directors are watching their backs.

In an environment ripe for investment- and employment-related lawsuits, a number of nonprofits are increasing their directors and officers coverage - or D&O - while insurance companies say they have seen an uptick in the number and severity of claims.

"Individual directors are now more concerned about making sure insurance is in place to protect them and their organization," says Michael Schraer, a vice president and not-for-profit product manager at Chubb Group of Insurance Cos.

Several prominent charities have been caught up in recent investment frauds, including the alleged $50 billion Ponzi scheme run by Bernard Madoff, and most are struggling with shrinking endowments because of the market decline.

Charity board members can be held personally liable for mismanagement of investments or employment mishaps, among other things. An individual's umbrella insurance policy won't necessarily cover these claims.

"If a board member is sued, it means their house, their retirement savings, their investments that could ultimately come into play," says Scott Simmonds, an independent insurance consultant who advises nonprofits on D&O insurance.

This kind of insurance "pays for poor decisions," he adds.

Coverage, which can start at around $1,200 a year for organizations with fewer than 25 employees, varies by plan and carrier but D&O policies typically cover claims over misused funds or mismanaged assets.

Policies also address employment issues such as wrongful termination, discrimination and harassment - important at a time when many hard-pressed charities are being forced to trim jobs and other costs. More than 90% of claims against boards of directors involve some type of employment dispute, according to the Alliance of Nonprofits for Insurance Risk Retention Group.

Know the Rules

Most states have volunteer immunity laws that protect board members from personal liability when acting in good faith. However, coverage is limited and these laws may not protect against federal civil rights and anti-discrimination laws. What's more, volunteers will likely have to pay fees to defend themselves.

Nonprofits usually say they will indemnify board members, or pay for legal costs. However, nonprofits may not be permitted to indemnify board members against all types of actions and may require the board member to pay legal fees first and then get a reimbursement.

And if the nonprofit doesn't have enough money to cover the claims or has gone out of business, the individual could be held accountable.

"Foundations that go out of business because they had all their assets invested in Madoff will not likely be able to pay for defense costs," says A.Q "Skip" Orza, a vice president at RLI Corp., an insurance company in Peoria, Ill.

D&O insurance policies can serve as additional coverage - typically at least $1 million of coverage per year - or pay claims on behalf of the nonprofit so the organization doesn't have to dip into its funds.

Sizing up your policy

D&O insurance can differ from other types of liability insurance and policies should be reviewed annually.

It typically covers lawsuits filed while the policy is in force, regardless of when the wrongful act occurred. And limits are aggregate, not per occurrence: Unlike an automobile policy that pays up to a certain amount each time you get into an accident, D&O insurance will only pay up to a set limit for all of your claims that year.

Since contracts can span 30-60 pages, board members should carefully read the terms and conditions to determine what is deemed a wrongful act and what is excluded from coverage - such as bodily injury or sexual abuse.

Board members should also keep tabs on the financial strength of insurance providers using ratings issued by companies such as A.M. Best Co.; Moody's Investors Service, a unit of Moody's Corp.; and Standard & Poors, a unit of McGraw-Hill Cos.

MARCH 10, 2009, 3:31 P.M. ET

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