10 Big Reasons Your Executive Director Needs a Contract

True Story #1: An entire executive committee threatened to resign, fed up with the performance of the Executive Director. I walked them back from the ledge with a simple question: “Have you ever given her a performance review?”

Uh. No.

Wow.

True Story #2: “Your board just fired you? What did your contract say about termination?”

Uh. What contract?

Wow.

My friend Kevin Cathcart is a long time (lifer?) E.D. and a man with a mission when it comes to contracts. My two stories are emblematic of the dozens he has heard through the years. (Full disclosure: Kevin is an attorney and may have a dispositional fondness for contracts.)

So how exactly does a nonprofit organization benefit from Executive Director contracts?

MYTH BUSTERS: EXECUTIVE DIRECTOR CONTRACTS

Let’s start with the four main myths:

• E.D.’s are lucky to have their jobs and thus don’t need contracts.
• E.D.’s should be treated like all other staff — they are at will employees.
• This is a nonprofit. We’re like family. Contracts break the familial bond.
• We’ve never done this with any previous E.D. so we should not set a precedent.

JOAN GARRY: MYTH BUSTER

These reasons are nonsense. First of all, while E.D’s are certainly lucky to have the opportunity to do meaningful work, they can also have the right to basic employment agreements. These are not mutually exclusive.

It’s important to remember that Executive Directors are NOT like all other staff. They are leaders, outward facing. The resignation or termination of an institutional leader is an entirely different kettle of fish as it relates to the stability and the credibility of the organization.

As for nonprofits being “like family,” I’m sorry. It’s just not true. We do have a unique bond that comes from the shared experience of trying to move mountains. But change at the top is a huge thing for an organization and there must be real structure and stability in that kind of change.

Most importantly though, good ideas are worth doing — regardless of whether or not they have been done before.

So why are E.D. contracts such a good idea? Here are ten reasons.

TEN REALLY GOOD REASONS EXECUTIVE DIRECTORS NEED CONTRACTS

1. Industry Standard. If you have more than 5 employees and a budget over $500K, it is the right and responsible thing for a board to do and has become the industry standard in the nonprofit world.
2. Succession Planning. A contract includes notice provisions. This precludes your leader from leaving too quickly (for whatever reason) and leaving you leader-less with no clear plan. VERY destabilizing. Risky. (For more on this, here are the 5 keys to effective succession planning.)
3. Feedback. Contracts set a schedule for an annual review. All employees are at their best with regular (this means on time) feedback and clear goals for the coming year.
4. Risk Management. Contracts minimize the possibility of litigation. Maybe you think the reverse is true. Wrong. Ambiguity leads to litigation faster than differing interpretations of a legal document.
5. Dispute Processes. Contracts define a process for hammering out disagreements. Wouldn’t it make all the sense in the world to have that process in place BEFORE there are disagreements?
6. Recruitment. Contracts help attract the best possible candidates for the leadership role. Let’s say you want to leave a large corporate job and step into the unknown. A contract is a security blanket and an illustration of trust.
7. Clarity. Contracts clearly define the role and expectations.A solid contract goes further than a simple job description.
8. Stability. Transitions hurt organizations, regardless of the caliber of the leader. The work is too important – there needs to be an intentional transfer of power.
9. Retention. Contracts honor the leader and build trust with the board. A contract does not diminish trust in any way. In fact, the details in a contract keep things clear and clarity builds trust. Trust drives retention – remember: good Executive Directors get good job offers.
10. Maturity. Contracts are evidence of a grownup leadership in a grownup organization. A grownup organization values its leadership and creates real mechanisms for accountability.

Here’s one more piece of compassionate truth telling:

Boards Are Terrible Employers.

This is a general statement and there are plenty of exceptions.

But it is my firm belief that this part of the board’s responsibility falls by the wayside far too often. Yes, board members are busy and volunteers. But this one — the management and supervision of your senior executive  is one of the most important roles you have.

And a contract with your senior executive makes that job easier, not harder.

Sold? I really hope so. At the very least, consider circulating this article before the next executive committee or board meeting and have a real conversation about it.