A major donor won’t let our nonprofit board fire an underperforming CEO

Here’s the story:

"Our charity’s CEO is no longer able to perform effectively, and should retire. Our organization has only one major annual donor, who also sits on our Board. The major donor has threatened to stop her donations if the CEO is removed, so the board is doing nothing. The senior staff person who could have been promoted into the CEO role has given up and quit. As a board member, I am worried about the future of this organization! How can I change this situation?" 

And here’s my take:

I can understand why you’re worried: you have performance concerns with your CEO, attrition among senior staff, a tenuous revenue stream, and a board that’s being held hostage by a donor. Nevertheless, I think there is a viable path forward for the organization that will strengthen your governance over the long term. 

Avoid overlap between board roles and major donors

Before I get into solutions, this is a good opportunity to share one of my most controversial nonprofit opinions: the primary role of the board is governance, not fundraising! Don’t use the board to steward prospects. Don’t use board appointments as a token of appreciation for a major gift. And do not recruit directors solely for their access to wealth. These common practices lead to blurred boundaries and tricky power dynamics that can easily compromise the integrity and effectiveness of both governance and fund development. Save yourself the headache and keep major donors and board roles separate. 

Addressing donor influence over board decisions

But since you’re already in the overlap zone between board director and major donor, you can at least take solace in knowing that you’re not alone. This type of governance dilemma is more common than you think, and many boards find themselves in the awkward situation of being held ‘hostage’ by an influential individual. Sometimes these individuals are driven by ego, sometimes it’s the result of good intentions exercised in a problematic way, but it’s always harmful to the organization. 

This situation needs to be addressed outright to ensure that the governance remains effective and independent. While the board has a fair amount of procedural power at its disposal - they could easily outvote the donor or even remove them from the board - starting with a direct and honest conversation is often a better place to begin.

One-on-one or at the board table, talk to this donor/director about the bigger issues at play and ask them to reconsider their position. Stress that while it’s okay to oppose the removal of the CEO, it’s problematic to leverage their annual gift against the board. Would it be okay for another major donor to impose their vision on the organization? Is this an ethical way to fulfill their responsibility as a director? Are they contributing to a strong governance culture that will support the organization over the long term? 

With a focus on the shared objective of advancing the organization’s core purpose, this conversation may or may not sway the donor’s perspective, but it will establish an important boundary for the board. Ultimately, like any other donor, they can choose to do what they want with their charitable gifts (and I’m sure you’re well aware of the dangers of relying on a single major donor!). The reality is that there is always a risk of losing supporters when making a big, potentially controversial decision - although this is also an opportunity to attract new supporters who are better aligned with your vision. It’s the board’s job to weigh the options and do what’s best for the organization, with or without the support of your major donor.

Does that mean terminating the CEO against the donor's wishes (which the board surely can do, even if the donor/director votes against it)? There’s more than major gift revenue on the line here; the organization will take some additional hits, including loss of institutional knowledge, loss of a major donor relationship, and presumably, loss of a board director. Add on to that the organizational disruption and significant costs that can come with terminating and replacing a senior employee (since your internal candidate left). Unless there is something very, very wrong with your CEO’s performance, this option does seem like a lose-lose scenario. 

So if removal isn’t viable, and the status quo is untenable, how can the board address the CEO’s performance in a thoughtful way?

Managing CEO performance fairly and effectively

Nonprofit CEOs can and do underperform; this is a reality we don’t talk about enough in the sector, and it leaves many organizations without the leadership they need. When evaluating CEO performance, it’s crucial to separate subjective perceptions from objective evidence. It’s a red flag for me when you say that the CEO ‘should retire’; ageism and other biases can cloud judgments and detract from the real issues at hand. 

I’m curious about the nature of those performance issues that leave you concerned. I’m wondering if your board has shared clear expectations and performance targets for the CEO? Has a performance evaluation taken place recently? If not, the board should develop this infrastructure - it’s essential to nonprofit governance and foundational to a strong board/CEO relationship.

Regardless, I recommend taking the time to document your performance concerns clearly and specifically, with appropriate evidence and some mid to long-term risk analysis. With documentation supporting your concerns, the board can have a meaningful conversation about the CEO’s performance. Are these 'fireable offenses' or opportunities for management and growth? I suspect in most cases, you’ll find it’s the latter.  

If so, you can advocate for the board to develop a performance improvement plan with the CEO  (external expertise may be helpful here if your board doesn’t have a lot of experience in HR). This approach will allow the board to articulate performance concerns in a formal and constructive manner with some measurable, time-bound criteria for monitoring. It will also allow the CEO to shed some light on what constraints they might be facing in their role. To that end, a performance improvement plan should also include a commitment from the board to provide the CEO with additional resources and support, if needed. 

The performance improvement plan may or may not strengthen the CEO’s performance, but it provides the CEO with the opportunity to address your concerns, and it avoids a showdown with the major donor. If serious performance issues persist, you will likely find more support around removing the CEO. Whether or not the major donor ever comes around to the idea, at least they will have been a part of a fair, transparent process leading up to that decision. And in the meantime, the organization can work on diversifying revenue streams to reduce dependence on this donor.

Resolving this complex situation will require some diplomacy and conflict management, clear HR processes, and a commitment to transparent, ethical decision making. But by addressing the donor’s undue influence and creating a constructive plan to manage CEO performance, the board can turn this challenge into an opportunity to build essential infrastructure that will strengthen governance over the long-term.

 Big Takeaways:

• Boards are for governance, not fundraising. Mixing major gifts with board membership gets messy, easily and often. Save your organization the risk and avoid this practice!
• An executive performance management system is essential to nonprofit governance and foundational to a strong board/CEO relationship.
• Boards should always do what’s best for an organization, even at the risk of upsetting supporters. Any big governance decision that might drive donors away can also attract new ones.