Nonprofit Board Crisis

Nonprofit History

As the US Congress sorts out the IRS messiness with 501(c)4s, the Wall Street Journal has done us all the favor of trying to better understand the history behind these types of nonprofits.  Even if you are not particularly a history buff, the Journal's analysis provides a bit of an understanding of what is now proving a distraction for a bunch of folks who appear more willing to be distracted than get the necessary work of the People done.  Have a good weekend.

PS -- the more I think about the actions taken by the IRS, the more I am thinking that the only wrong is that the Agency didn't do similar "screening" of the left-of-center although it's not evident they didn't.  The real lesson: enforcement is at best difficult especially when there are so many who don't want to be regulated or limited in pursuing their goals.

Nonprofits: Crime of Choice

A NY State Senator, currently facing charges for soliciting bucks as bribes and trumping travel expenses is now being charged with diverting state money to a nonprofit which essentially served as a sort-of personal piggy-bank.  The more interesting part of this NY Times story is the rest of the story which cites:  "pilfering from nonprofit agencies is the crime of choice for corrupt New York lawmakers."  The story highlights another recent action by another state lawmaker.

What we have here I believe are two BIG questions.  My same-old: where the heck is the board (although I'm guessing we know the answer).  The second: it shouldn't be that hard to take away the ease of State lawmaker's access to diverting funds to pet nonprofits.  Rocket-science this is not.

But, back to the board question: are there really that many "friends of lawmakers" so willing to be complicit with their friend to turn their heads away when their nonprofit is being pillaged?  And then, wouldn't such complicity make these folks equally responsible for misdeeds and subsequently, should they to not be held accountable for the misuse of funds?  This of course would be another answer to the problem: hold these board members accountable -- just as they would be were they stealing from their own businesses which is the standard they should be held to.  NY AG, perhaps it's time to step in and use these "victim" boards as examples to stem the tide of legislators seeing nonprofits as their personal piggy-banks.

Nonprofit Tax Exempt Status cont.

Ruth Marcus in the Washington Post today says that the real scandal with the IRS' targeting right of center nonprofits is that the IRS hasn't been doing its job monitoring all 501(c)4s and letting them get away with huge violations.  Anecdotally this may indeed be the case but I for one certainly don't have enough evidence to support this claim. 

Meanwhile, another area where one might question the IRS' effectiveness: churches -- really big ones in particular -- you know those corporate (and yes, perhaps the Roman Catholic Church should be included) who do all kinds of things political and pay really huge salaries to the chief ministers and if not in cash, certainly in life style. 

Ah, but perhaps this, not unlike the 501(c)4 situation is more of a public policy question, not the question as much about a governmental agency not functioning very well.  And the public policy question: who should be tax-exempt and for what purposes and with what restrictions.  Perhaps it is time to re-open this can of worms.

P.S. Nonprofit boards -- maybe now's the time to start adding these questions to your agenda and forming an opinion and a strategy for what to say to your legislators.

Nonprofits Get Special Review

Well, I knew the IRS was stepping up its scrutiny on nonprofits but selectively targeting the right-of-center groups?  And to what end one wonders.

Well, the embarassment to the IRS is just really getting going but is there something this McCarthy-era type enforcement should be raising for nonprofit Boards?

Seems to me like maybe not so much doing something different but more like performing fiduciary duties the way they should be performed is a fine way to proceed.  Right or Left or Center (Theory of Change and Values), every nonprofit board and board member is responsible for ensuring their work is consistent with the laws but most importantly, pursuing mission.  Being results focused; getting quantiative and qualitative information on a periodic basis; following by-laws and ensuring that work is not counter to local, state and federal laws; ensuring no conflicts of interests by members...pursuing mission.  At least if and when some errant part of the "system" goes awry, there's will be nothing to be found.

Nonprofit Governance: Why Values Matter

Pretty much one of the first activities I propose in a strategic planning process and a visit to the nonprofit's Theory of Change, Mission and Values.  Board members generally say OK to doing a Theory of Change (target audience and "problem to be solved"; preferred intervention; expected results) exercise and mission but also say: we have to do values too?

As a reinforcement to the importance of an organization's values, take a look at this New York Times article where the whole story (mergers where the Roman Catholic Church is the dominant "winner" is rooted in values.  Clearly, in this case example, different values would produce a whole different outcome. 

Nonprofits: Changing One Person at a Time; Not the World

When a nonprofit board sits down to ask "what have we accomplished" how often is it that the answer is "we have changed individuals but our community remains pretty much the same". 

This conclusion is the story now being reflected upon in Africa where much "charity" aid has been given but so little has changed.  I would offer that this story may be no different in many American cities and states as well where maybe the lives of individuals have been changed (and this is good) but so many more lives remain unchanged.  For instance, in Connecticut where as part of the team developing a report on Poverty, we learned that poverty over the past ten years has grown significantly in pretty much every one of Connecticut's 169 towns and cities.  The good work of the Community Action Agencies (CAP) serving every one of these towns has indeed had a favorable impact on many residents and likely played a primary part in keeping poverty at a level lower than it would have been without the CAPs.  But still, the results are facts: poverty has risen.

For one framing for nonprofit boards to consider about what to do different, check-out this Christian Science Monitor article.

Nonprofits, No Governance, Great Opportunity

Over the past few weeks the New York State Legislator has proven itself a den of iniquity.  At the center of corruption by many legislators: nonprofits.  Nonprofits have been used and abused as vehicles that provided these legislators opportunity for redirecting monies for personal gain.  And where were the boards-the gurardians of these nonprofits.  They were all close friends or allies who's eyes were wide shut.  For shame, for shame for shame. 

While the New York Governor and untainted legislators take steps to prevent continuation of lawmakers gone awry, perhaps the State can also consider steps it might take to help nonprofits ensure their boards are at least arms-length from their funders, especially if those funders are government. 

Nonprofit Board Member Un-cooperative

What to do when a board member is just not easy to get along with?  It's unlikely that the bylaws say much more than "a board member may be removed for cause".  And, even when a board has substantial "cause" like not showing up for a meeting for twelve months (way too long to have gone without addressing) or a more harmful conflict of interest action.

But what about when a member is just un-cooperative or difficult to do business with or whose style clashes with the way the majority perfers to do business?  There's a term in Quaker circles called "eldering" when a senior member speaks in private to a member who is not "playing by the rules -- not bad, just not stylistically behaving within the culture or norms".  Eldering can happen, I believe, informally when a senior member in the "know" reaches out and speaks kindly, gently and firmly about expectations.  Eldering can also happen more formally when the elders have met and discussed action.

On a nonprofit board, it's possible to elder a member, to "bring them in line" but I would for one not be comfortable doing so without the consent of the officers, perhaps even, with the authority of the officers.  It is also important I believe for the board to be clear, perhaps annually and perhaps even in writing, to state the cultural and behavioral norms so that every member is clear and understands -- perhaps during strategic planning for instance, one topic might, along with the discussion of values, include this discussion.  Hereafter, all incoming members might be instructed during their orientation as to what is expected of them, behaviorally or at least instructed as to how members conduct business with each other.

I'm sure there are other steps and approaches that might be used and I welcome hearing of these.

Nonprofit CEO "Withdraws" Half-a-million dollars

The wealthy founder and board chair of a nonprofit focused on youth group homes and activities is being charged with the theft of $500,000 over a three year period.  According to the Philadelphia Inquirer, the chair used the money for "gambling, strip clubs, divorce payments to his ex-wife and loan payments on his former residence."

The Exec told prosecutors that he "withdrew the money for loans he had made to the company and to reimburse himself for being underpaid in earlier years, according to the affidavit."

Of course the big question: where was the board during all this and equally important, where were the auditors? 

Oh, and a funny note at the end of the story: the Prosecutor is quoted as shaying that "none of the allegations against McCloy interfered with the work done by Susquehanna House employees."  Uh....

Board Chair: Duties of Care and Loyalty

Mayor Bloomberg's Foundation (NYC) has offered the 9/11 Museum a $15 Million loan to help address a number of financial challenges the organization has faced while tyring to complete the building.  Mr. Bloomberg serves as Chair of the Museum Board.

For me this offer, a way-below market loan, provides a great snapshot review of the duties of care.  First, the duty of care requires that a board member do everything they can to advance the mission of the organization. 

Next, the duty of loyalty, consistent with the duty of care requires that a board member put the organization ahead of their own interests  being "prudent" or otherwise making decisions that she or he would make as though the organization was their own business.   For example, a board member cannot support a decision for which that decision directly and financially benefits the board member).

So Mayor Bloomberg, as part of his duty of care and through his Foundation's loan, is pursuing a course that will advance the mission of the museum.  Mayor Bloomberg is also, I would suggest, being prudent in supporting the Foundation's loan.  He has nothing personally to gain from the Foundation's gift (not overtly at the very least).  And, while this is only a guess based on observations, the Mayor should have business-like confidence that the loan can be repaid based on projecting the market demand for a completed museum. 

A great example of duties of care and loyalty.  And, while we are at it, an interesting example, I'm guessing, of a Program Related Investment on the part of the Foundation.  That of course is a different blog.