New approaches to governance in CEE

Marilyn Wyatt

Civil society in Central and Eastern Europe (CEE) has achieved remarkable success over the past decade. Yet notably absent among its achievements is an appreciation of the importance of boards and the governance function. Boards may exist as a registration requirement or as a source of social prestige, but the ways in which they strengthen accountability and promote organizational effectiveness are often untested and misunderstood.

This inattention to governance may not be obvious at first glance, since many NGO leaders have begun to wake up to their ‘accountability deficit’ in recent years. Codes of ethics have been adopted or drafted by groups in Bulgaria, the Czech Republic, Estonia, Latvia and Moldova, and more organizations publish annual reports. Yet even as the vocabulary of accountability has entered the NGO vernacular, governance, understood as the work of governing bodies or boards, is rarely included in the discussion. This is in sharp contrast to the region’s business sector, where the recent wave of corporate scandals was quickly attributed to lax and incompetent boards.

In business the buck is said to stop with the board of directors. But for CEE NGOs, the buck for full accountability continues to look for a home. Several recent projects in CEE aim to address this critical shortcoming by deepening understanding of the relation between accountability, good governance and boards. This is long overdue.

Challenges to governance

Discussions about governance in CEE usually hit two main obstacles: a tradition of strong executive leadership and the lack of expectations for boards.

The leadership obstacle stems from the fact that NGOs can be limited, in a sense, by their own CEO’s success. The more effective a CEO has been in founding and building an organization, the harder it can be for them to recognize the importance of developing an independent governing body. A basic tenet of good governance is that management and governance must be separate. A voting CEO on the board presents conflicts of interest in core areas of board responsibility such as CEO evaluation and compensation, hiring and firing, and assessment of activities in which the CEO is directly involved. Best practice is therefore for the board not to include staff so that it can exercise independent oversight and protect the public trust. But all too often CEE CEOs vote on boards, serve as chairs, direct or dominate board activities, or otherwise stand in the way of an internal system of checks and balances. To these CEOs, yielding decision-making power to a board might seem like surrendering authority precisely when their abilities are at their peak. Yet such a step is necessary if full accountability is to be realized.

The second obstacle is contextual. CEE NGOs are often lax in governance not out of indifference or hostility to boards but simply because clear expectations about boards have never emerged in the surrounding community. Laws may say next to nothing about governance or the purpose of governing bodies; board-like entities served a mainly decorative function in the past; the public has no idea what boards are for; and terms like ‘governance’ are next to impossible to translate into the local language. This vacuum of expectations means that NGOs experience little day-to-day pressure for engaged, high-performing boards.

In the face of these trends, three efforts to strengthen the performance of boards in CEE take the local context as their starting point. What is notable about them is that, rather than attempting to apply general prescriptions to a particular context, they move from the distinctive local experience to a more general governance framework.

Documenting governance practices

The first is a project to gather concrete data about attitudes towards governance and NGO board behaviour. Knowledge of board perceptions and practices has been largely anecdotal, so Washington-based BoardSource launched a project in 2001 to document NGO governance practices. With funding from the Mott and Alcoa Foundations, a pilot phase began in Hungary in cooperation with the Civil Society Development Foundation Hungary (CSDFH).[1] A second phase was completed in Ukraine this year with the Centre for Policy Studies.[2]

NGOs from both countries were asked about topics such as board composition, activities, meeting frequency and relationships with CEOs. The 4,000 responses offer rich data about the way NGOs are governed, with interesting connections between boards and organization type, mission, annual budget and other variables emerging – eg in both countries women hold only 40 per cent of board positions, with the highest proportion in social service and health organizations and among the lowest in business associations. Board chairs are usually female in rural Hungary but overwhelmingly male in the capital.

Survey findings also pinpoint important variances from best practices in board composition. CEOs are voting board members in 90 per cent of Hungarian and Ukrainian NGOs, and serve as chair in 75 per cent of these. Staff are voting board members in about half of NGOs. Founders retain considerable influence: CEOs are founders of 70 per cent of Ukrainian NGOs and 40 per cent of Hungarian NGOs. Moreover, founders (often the CEOs) nominate and select new board members in about a third of Ukrainian charitable organizations (15 per cent of the total sector) and nearly two-thirds of Hungarian foundations (49 per cent of the total sector). These findings suggest that boards are often intertwined with management and thus riddled with potential conflicts of interest – a situation undermining good governance and full accountability.

By merely taking place, these surveys have already focused attention on the importance of boards. In follow-up interviews, respondents admitted they had never been asked to reflect on their boards but the survey had made them more aware of their purpose and value. The project also proved useful in developing strategies to strengthen boards and establish higher expectations. Trainers at CSDFH have already tested their conclusions in governance workshops (see p39). Based on survey results, Ukrainian researchers recommended that more robust efforts be made to clarify the legal framework for governance, inform the public about boards and establish institutions to promote good governance practices.

Forming a working group

A second effort at regional level is a working group formed in 2001 to address governance issues. Its members include outstanding NGO leaders with a common interest in boards and a commitment to improving their performance. Perhaps the only forum of its kind in the world, the group was formed out of dissatisfaction with received definitions of board responsibilities, eg ones that emphasize board’s legal obligations, which are meaningless in countries where the laws fail to mention boards at all. Exploring governance from the post-communist perspective, the group identified factors responsible for shaping poor board culture, eg the weak tradition of volunteerism, and concluded that the development of effective governing bodies would be easier if CEE NGOs had a set of locally generated governance guidelines that accommodated their specific challenges and historical experiences. With support from the Mott Foundation, the group is drafting guidelines that reaffirm certain ‘non-negotiables’ about governance while addressing region-specific issues ranging from staff on boards to the presence of multiple governing bodies within organizations. The group hopes to produce an easy-to-read manual that will provide a common framework for governance for organizations throughout CEE.

Engaging donors

The third effort involves the engagement of funders. Grantmakers have a unique opportunity to help NGOs strengthen their governance, yet they are often remiss in doing so because they fail to ask the right questions: is a high-performing NGO as accountable as it could be if the CEO is also the board chair? How often does the board meet? Who attends meetings? Does the board do more than listen to staff reports? Do board members have a job description, receive orientation, oversee the annual audit or take part in strategic planning? If such questions are not asked, then no matter how carefully funders assess grantees’ accountability, their job is only half done.

Funders should also be prepared to pose solutions if answers to these questions disappoint. Board development is woefully underfunded but the Trust for Civil Society in Central and Eastern Europe is taking a step in the right direction with a new initiative to develop its partner organizations’ boards. Trust partners[3] will be offered an opportunity for comprehensive board development as part of their involvement. The programme is an expression of the Trust’s commitment to work with its partners towards their excellence and institutional stability, and a fulfilment of its mission to develop the institutional capacity of the non-profit sector in target countries. As partners deepen their understanding of board functions, the Trust expects them to pass this understanding to their own grantees.

By making their expectations for engaged and competent boards clear, funders can step in where public pressure is lacking and foster the development of good governance. Along with region-specific approaches to governance, such measures represent important progress toward strengthening the vital contribution of boards to an accountable non-profit sector in CEE.

1 Levente Mura-Mészáros, Judith R Saidel, Balázs Sátor and Marilyn Wyatt (2002) Nonprofit Governance Practices in Hungary. Washington DC: BoardSource.
2 Volodymyr Hnat, Olena Houmenyuk, Marilyn Wyatt and Edward Zahkarchenko (2003) Nonprofit Governance Practices in Ukraine. Washington DC: BoardSource.
3 Indigenous organizations in seven countries receiving long-term grants for strategic programmes.

Marilyn Wyatt is a consultant specializing in governance based in Warsaw, Poland. She works with the Trust for Civil Society in Central and Eastern Europe and is a former director of training and consulting at BoardSource. She can be contacted at wyattm@earthlink.net


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