Nonprofit Board Crisis

Fraud? #NonprofitBoards

In this week's blog, Dr. Fram discusses fraud in nonprofits.  He offers some interesting stats on the level of fraud in nonprofits - stats that should give every nonprofit board a bit of pause assuming they are accurate.  I don't doubt that they are but the bigger question asked by Dr. Fram and one which I concur, is what precisely can a nonprofit board do to prevent these incidences?  Asking questions - being focused is pretty much the answer and of course, taking action once found.  Dr. Fram's latest blog follows.

 

THE POSSIBILITY OF FRAUD – A NONPROFIT BOARD ALERT

The Possibility Of Fraud – A Nonprofit Board Alert

By: Eugene Fram              Free Digital Image

“According to a Washington Post analysis of the filings from 2008-2012 … of more than 1,000 nonprofit organizations, … there was a ‘significant diversion’ of nonprofit assets, disclosing losses attributed to theft, investment frauds, embezzlement and other unauthorized uses of funds.” The top 20 organizations in the Post’s analysis had a combined potential total loss of more than a half-billion dollars. *

One estimate, by Harvard University’s Hauser Center for Nonprofit Organizations, suggests that fraud losses among U.S. nonprofits are approximately $40 billion a year. **

Vigilant nonprofit boards might prevent many of these losses. Here’s how:

• Have an audit committee charged with reviewing the overall results of a yearly independent audit conducted by an outside auditor.

• Carefully oversee executive compensations, pension benefits and other finance activities.

• Assure new hires are well vetted for honesty by searching background.

• Meet with external auditors at specified times, including an executive session without management present.  Involve the Board in the development of Form 990.

• Ask the auditors:
1. Have they perceived any fraud problems?
2. Are internal controls adequate, e.g., those handling financial matters must take at least two weeks vacation per year so their duties can be temporarily assigned to others?
3. Are financial records accurate? To what extent were material mistakes located or was there an increase in non-material mistakes?
4. Do the proper managers or officers properly authorize activities and expenditures?
5. Do all assets reported actually exist?
6. Is the organization performing any activities that might endanger its tax-exempt status? For example, provide misinformation on the IRS Form 990.
7. Is the organization paying its payroll taxes, sales taxes and license fees on time? ***

Trust But Verify

Some directors argue boards can do little to prevent fraud. I argue that every director should know enough about finances to raise issues about questionable activities. At the least, everyone in the organization should be alerted to the fact that board members are paying attention to the possibility of fraud. That knowledge, in itself may deter some people from trying to steal.

* Joe Stephens & Mary Pat Flaherty (2013) “Inside the hidden world of thefts, scams and phantom purchases at the nation’s nonprofits,” Washington Post, October 23rd.

**Janet Greenlee, Mary Fischer, Teresa Gordon & Elizabeth King, “An investigation of the fraud in nonprofit organizations: occurrence & deterrents, “ Working Paper#35 hauser-center@harvard.edu.

***More actionable details can be found: Eugene Fram & Bruce Oliver (2010) “Want to avoid fraud? Look to your board,” Nonprofit World, September-October.
Eugene Fram (2013) “Preventing and managing leadership crises in nonprofit organizations, “ in Handbook of Research on Crisis Leadership in Organizations, Andrew J. DuBrin, editor, London, Edward Elgar International Publishing.

Difference Between Management and Trustees #NonprofitBoards

While I generally believe the distinction to be quite clear, there are quite a number of circumstances where nonprofit ED's act like they are board and exec and rarer circumstances when Board act like they are board and exec.  Is there a difference?  Absolutely! The following Star Tribune story does an excellent job at pointing out what are the differences and expectations of each position as well as how in the case of the Otto Bremer Trust, the line was severely crossed likely to the detriment of all.  So, in your time off to celebrate or remember whoever is the focus of this federal holiday, perhaps instead you might ruminate over how the lines of authority and responsibility appear in your nonprofit.

Schafer: Otto Bremer trustees ripped out the brakes, hit the gas and crashed

OCTOBER 9, 2021 — 10:21AM

 

 

 Lee Schafer @LEEASCHAFER

Ignore the debate between Bremer Financial Corp. and the Otto Bremer Trust over whether the bank could be sold. That's a sideshow.

There are hedge funds involved in the fight. While rarely a good thing in any business story, they are a distraction, too.

By themselves, many of the details arising at the hearing in St. Paul on the state of Minnesota's push to remove the Otto Bremer Trust's trustees mean little.

And while the whole battle looks simply like a bunch of rich people fighting over money, it's about more than money, or status, or even the future of a big bank.

There's a principle at stake. A bedrock, we-need-to-care-about-this principle.

Excellence requires oversight.

Seven years ago, the three trustees now fighting to keep their jobs started chipping away at the oversight that produced excellence at the Otto Bremer Trust.

They booted the executive director. They started calling themselves co-CEO. That means, while they might still call themselves trustees, too, there's no more line that divides the responsibilities — and necessary tension — between manager and overseer.

They'd chosen to be the managers of the foundation, not the overseers. There's no oversight now. There's no one to hold them accountable.

It's bad governance of breathtaking proportions.

Documents in the current litigation show the Bremer trustees and staff from the Attorney General's Office had a back-and-forth about governance during the past couple of years. The foundation is permitted by the original trust instrument to form a nonprofit corporation, with a traditional board of directors providing oversight. The Bremer trustees, it appears, simply don't want one.

Around the Twin Cities, executives at big companies and nonprofits, volunteers on the boards of nonprofits and foundation leaders have been muttering for years about the audacity of the transformation at the Bremer foundation, and opinion turned sharply against these trustees. The dispute over the ownership of Bremer Financial that erupted two years ago finally lit the powder keg.

That's got people thinking about what could happen if Bremer Financial — which supplies the money the trust gives away — did get sold. These three people at the foundation, accountable to no one but themselves, would no longer have the bank's pesky board getting in their way. They could potentially have a lot more financial weight to throw around the region, too.

The state's attorney general, Keith Ellison, isn't playing politics or catering to elite consensus by asking a judge to toss these trustees. Looking out for the public's interest at the Bremer foundation is part of the job.

Whether the state proves its case is up to the judge. Yet it's hard to imagine how the Otto Bremer Trust could've landed in court at all without the trustees first deciding it was just fine to be a co-CEO, investment manager and trustee.

The Otto Bremer Trust was well known before all this legal drama, having granted hundreds of millions of dollars in the Upper Midwest over the decades.

A spokesman for the Otto Bremer Trust as far back as 2014 argued to the Star Tribune that the trustees get paid so much because it's really a bank holding company, given its ownership stake in Bremer Financial Corp.

That's technically true. It's also absurd.

The Otto Bremer Trust is not a private corporation and it files the Form 990-PF tax return of a private foundation. The immigrant entrepreneur Otto Bremer created the foundation, calling it the Otto Bremer Foundation, in the 1940s.

For years, the foundation and the banking company were almost the same organization, but the laws changed in the 1960s and so did the structure. Today, the foundation owns by far the most shares in what's now called Bremer Financial Corp. Yet federal laws require that it doesn't control the company.

Last year, the nicely profitable Bremer Financial paid $73.4 million in dividends to the foundation. The foundation in turn gave away more than $71 million in grants and program-related investments, nearly $60 million of that in Minnesota.

The current trustees, Charlotte Johnson, Daniel Reardon and Brian Lipschultz, all got their positions from their dads. Lipschultz was the last of the current trustees to join the board, succeeding his father in 2012.

The first tax return to list the three of them as co-CEO was 2014's, after executive director Randi Roth was pushed out. In 2015, Lipschultz and Reardon were each making about $500,000 and had added "investment manager" to their positions listed in the tax return, while Johnson made more than $312,000.

There was nothing hidden about any of this happening at the foundation. A five-word internet search takes anyone to the foundation's 2015 tax return.

Imagine the board of directors of Target Corp. naming themselves co-CEOs and deciding to pay themselves $50 million a year. Of course, had this happened, the shareholders would see to it that Target promptly had a new board of directors.

A large foundation like Bremer has no shareholders. The Attorney General's Office plays that role — and is doing so in court now.

A few years ago, the then-president of the McKnight Foundation in Minneapolis, Kate Wolford, wrote to the Bremer trustees. Like others in her profession, she wrote, she believed the Bremer trustees must respond to mounting concerns about booting the foundation's executive and jacking up their own pay.

Otherwise, she added, "public trust and confidence in the entire sector is diminished."

The National Committee for Responsive Philanthropy also fired off a letter, this one to then Attorney General Lori Swanson, complaining that trustee compensation had increased more than 1,000% in a decade and these three had violated "many principles of good governance."

Whether it's a for-profit or nonprofit entity, those charged with oversight simply need to keep a watch on people looking after the money — and they must know to never put personal gain ahead of the organization's interest. That's governance.

One little episode out of court last week illustrates how screwed up the governance of the Bremer foundation has become. It came from the testimony of Sara Dziuk, CEO of Junior Achievement North, a nonprofit financially supported by the foundation.

She described "very difficult, very hostile" conversations with Lipschultz about, among other things, Junior Achievement deciding to celebrate the career of an executive who happens to serve on the Bremer Financial board. Ultimately, Junior Achievement took the extraordinary step of returning its most recent Bremer grant — $1.2 million.

News accounts of this episode accurately described Lipschultz as a trustee. But remember, it was really the foundation's co-CEO badgering that nonprofit executive.

There's no real board at the Otto Bremer Trust to look into this. There's no one to sigh, express disappointment and then tell the co-CEO that his letter of resignation is expected by the end of the day.

Management Companies "Cheating" Charter Schools? #NonprofitBoards

There's lot's of name-calling and finger-pointing going on in Tulsa, Oklahoma.  But an apparently less-informed charter school board may be at the root of the problem.  The answer: training.  When Connecticut launched its charter school movement one of the requirements was that all boards be oriented as to their fiduciary responsibilities in addition to considerations like structure, composition, term limits and the like.  My firm was contracted for this work which conducted both in group/multi-school trainings and individual school board trainings.  I am pleased to note that hardly any of the school boards took actions that were not in the best interest of the school.  Training does matter.

Meanwhile, take a look a this Tulsa World article where training was not a theme and note the results.

 

Andrea Eger

OKLAHOMA CITY — Epic Charter Schools’ new governing board chairman told lawmakers Monday that they had been “gaslighted” for years by Epic’s recently ousted founders, suggesting that they now would be open to legislation intended to prevent millions in taxpayer dollars from being paid to “grifters.”

Without naming them personally, Epic Chairman Paul Campbell accused David Chaney and Ben Harris, school co-founders and owners of the for-profit school management company Epic Youth Services, of being “prolific liars” and “bad actors” for taking a 10% cut of every school dollar based on false pretenses.

“Maybe 1% was reasonable — maybe,” said Campbell, speaking at a legislative interim study at the Oklahoma Capitol. “Over the past 10 years, these guys were paid millions for work the school was doing themselves anyway. It didn’t make sense, in my opinion.”

 

Rep. Sheila Dills, R-Tulsa, has been the architect of two previously enacted pieces of legislation to try to ramp up fiscal transparency and accountability requirements for charter schools amid a yearslong and still ongoing investigation into Epic by state and federal law enforcement.

 

Dills’ Monday morning interim study explored existing contracts between other statewide virtual charter schools and for-profit school management companies, commonly referred to as education management organizations, or EMOs, or charter management organizations, or CMOs.

 

 

At the conclusion of Campbell’s remarks, Ryan Walters, Gov. Kevin Stitt’s secretary of education and a 2022 candidate for state superintendent, greeted Campbell with a handshake and a big slap on the back.

 

Campbell declined to answer any questions, such as whether he has reported to law enforcement the examples of embezzlement in Epic’s previous finances that he told lawmakers he had seen since joining the school’s governing board.

By morning’s end, Dills said there is a clear case for requiring training in fiduciary responsibilities for all schools’ governing board members.

 

“I have already identified a partner in the state Senate to work together to get both chambers to understand how important board training is,” Dills said. “There has to be a way to ensure taxpayers that all public schools are paying a fair market value for goods and services.”

 

 

She called it “alarming” that several virtual charter schools’ representatives were unclear when she asked about the percentage of public school dollars they were paying their EMO or CMO.

For example, Audra Plummer, leader of Oklahoma Virtual Charter Academy, said her school of 3,200 students pays a national EMO called Stride K12 “up to 3% and no more than 12%” with the exact cut negotiated each year.

Stride K12 is also the EMO for a separate statewide virtual school, called Insight School of Oklahoma, which provides alternative education options for 900 students.

 

 

That school’s leader, Jennifer Wilkinson, said Stride K12 receives 3% of ISOK’s public school dollars.

 

 

Currently, traditional charter schools are not required to have governing board members complete training in fiscal oversight, which is required for members of Oklahoma’s local school boards. And Dills noted that while her successful legislation from two years ago, House Bill 1395, required training for virtual charter school board members, Epic Youth Services successfully lobbied to “grandfather in” or exempt, those schools’ existing governing board members and require training only for new board members added after the statute went into effect.

 

State Auditor and Inspector Cindy Byrd said many school board members may not realize they are personally liable. She suggested to lawmakers that required board member training include the Internal Revenue Services’ stringent rules for how nonprofit boards, which are in place at all of Oklahoma’s charter schools, spend funds.

 

Another suggestion from Byrd was that board training include examples of what not to do — similar to “scared straight” lessons high schoolers receive about the high-stakes consequences of drunken driving. These could include nonprofit board members being financially penalized by the federal government for not relying on “competitive consideration” even when bidding isn’t required in their spending decisions.

 

 

Campbell noted for lawmakers that severing all ties, including just such a management contract with Epic school founders, is already saving the school tens of millions of dollars this year. He said Epic has redirected a substantial portion of the savings to hiring more teachers so students can receive more individual attention.

 

 

He told lawmakers, a couple of whom described his choice of words as “extreme” and also “really enlightening” during the session, that he had personally seen evidence of embezzlement in Epic’s past finances.

Campbell said the circumstances were ripe for fraud because Epic Youth Services “exerted total control” and operated in silos to the point that the school’s superintendent, Bart Banfield — who has been retained — had never seen the school’s bank account, and Doug Scott, the school’s longtime board chair and Campbell’s predecessor, was kept in the dark or misled before Oklahoma’s state auditor and inspector issued a scathing investigative audit on Epic in October 2020. EYS was then ousted in May.

 

“These were con men. They gaslit a bunch of people,” Campbell said. He added that moving forward will require lawmakers who had become “big fans” of Harris and Chaney to also reassess the situation, because “they have gaslit a lot of people in the Capitol, and it’s time to stop.”

He related an anecdote from the day he was named Epic’s new board chairman in May, when he said he was confronted by “a very prominent businessman” he declined to name and told there was no way Epic Charter Schools could survive without Harris and Chaney.

 

 

 

“Well, here it is. The school’s open,” he said.

As previously reported by the Tulsa World, it is known from public campaign reports that Epic’s founders and their backers poured at least hundreds of thousands of dollars into efforts to influence state elections over the last decade.

 

The influence continued through last session, when a recommendation from Harris that would have allowed Epic to select its own auditor found its way into a bill that passed the Senate floor.

The day after Byrd released an audit highly critical of Epic’s handling of tens of millions of taxpayer dollars, Harris and his wife, Elizabeth VanAcker, each gave maximum campaign donations of $2,800 allowed per election cycle to the bill’s author, state Sen. Paul Rosino, R-Oklahoma City.

 

Harris and Chaney released a statement through their attorney Monday afternoon, telling the Tulsa World: “The opinions of Paul Campbell are in direct conflict with the truth. We will not engage in the same type of name calling that Mr. Campbell did today for purposes of political grandstanding.”

 

 

 

<&rule>

Sex Abuse Cases And Fiduciary Duty #NonprofitBoards

One of the factors that continues to plague me about the Boy Scouts of America sexual abuse cases is that no board members or staff have been brought to trial.  In my opinion, charging the corporation (which has been accomplished) does not hold accountable the real individuals who spent a lot of energy "ignoring" or filing sexual abuse incidences placing the Boy Scouts' interest above that of the boy scouts.  

An article in the Baptist News helps illustrate what is the bottom line of fiduciary duty, by board members, and how this duty should be translated into action for survivors of BSA abuse.  In the Baptist News article, great effort was made to help readers understand clearly what is meant by fiduciary duty as applied to the Southern Baptist Convention Executive Committee (aka board of directors) and in particular as it relates to apparently hidden data regarding incidences of sex abuse, particularly among the varied Baptist Corporations (there are 12 including the SBC and the SBC is the sole member of the 11 which means it has ultimate control of board decisions).  What's at hand at the moment is the claim by the SBC that records that document incidences appear to be unavailable which in turn makes it extremely difficult to hold the SBC and its Executive Committee members accountable.  Ironic when one considers that the Convention is about faith.

One line in the Baptist News article that also caught my attention was the following about staff:

    Staff of a nonprofit organization — particularly the CEO and top officials — may be held to the same standards. For example, if the     president of a nonprofit was aware of allegations of sexual abuse and either ignored them or sought to bury them, that executive     could be held liable for bringing harm on the nonprofit, for not being a good fiduciary.

As sobering a situation as this may be for the exec committee, consider the implications for the staff who basically are the handlers of information for all having to do with the organization.  Sobering.

Please do take a look at the Baptist News article to learn about precisely how fiduciary duty can be applied.

What Could/Should the Board Have Done Differently? #NonprofitBoards

  The big question that I believe should be asked from the following Madison Leader Gazette: what might/should the board have done differently?  One suggestion: get another auditor.  Two: have governance committee do an annual assessment regarding members' conflicts of interest.  Other suggestions?  Oh, and this CEO/Board must have some great connections: all the bad stuff has gone on for a while and no one has really done anything.

Please read - this is a doozy with no accountability and major use of the organization for personal gain and....the list goes on.  An excellent case study in what should not happen at a nonprofit. 

he CEO of one of the city’s largest nonprofit shelters stashed kin on the payroll and funneled millions of dollars into companies he has financial stakes in — alleged glaring conflicts of interest that the city claims it’s now cracking down on.

The Post examined 2,000 pages of tax returns, contracting disclosures and legal documents involving CORE Services Group and found a web of companies with extensive ties to the nonprofit’s CEO, Jack Brown.

Experts told The Post that the set-up appears to serve little purpose other than placing Brown at the center of lucrative transactions.

Among the alleged questionable practices revealed by the documents:

• Brown created a string of for-profit companies that have received millions of dollars to provide key services at CORE’s shelters, documents show.
• A firm in which Brown holds a substantial stake received more than $3 million in rent over two years from his non-profit, according to tax filings.
• At least three family members of Brown or members of the CORE’s various boards are employed by the nonprofit or related entities, according to records.

City officials have now revealed that last month, they ordered CORE Services to shutter the for-profits companies Brown had established to provide services.

“Any time a provider doesn’t comply with our oversight efforts, we take corrective action, including requiring restructuring as necessary, ending business relationships in some cases, or in rare instances working with law enforcement to identify bad actors,” said Department of Homeless Services spokesman Isaac McGinn.

City Department of Investigation spokeswoman Diane Struzzi added, “DOI is aware of concerns surrounding CORE and declines further comment.”

Questions about CORE’s financial set-up come as the nonprofit has scored more than $800 million in city contracts since 2014, primarily to operate homeless shelters across the city.

The Post first began inquiring about CORE and Brown in February after learning the nonprofit operated the shelter in Brooklyn’s Gowanus neighborhood where accused subway ripper Rigoberto Lopez allegedly stayed before the A-train stabbing spree in February. The crime spree left two dead and two others badly injured.

Brown made at least $501,000 from CORE and its affiliated nonprofits in 2019 alone, according to the group’s tax returns from that year, which are the most recently available.

Brown’s CORE Services Group operated the shelter where “A-Train Ripper” Rigoberto Lopez was staying.

Facebook

Brown got another more than half a million dollars from his related for-profit subsidiaries, the New York Times said in a report published Sunday.

His brother, Curtis, was paid $140,000 the same year, the documents show.

The brother of a member of the nonprofit’s board of directors, Gordon Jackson, made at least $190,000 as CORE’s head of community affairs.

Additionally, records reveal that another tightly linked nonprofit controlled by Brown employs Mallory Jones, whose husband sits on the subsidiary organization’s board and made $174,000 that year.

Previously, Brown was a top executive at a private prison operator, Correctional Services Corp, enmeshed in an early 2000s Albany bribery scandal. The company was fined $300,000.

He later scored a contract from the federal government to operate a halfway house near the Navy Yard in Brooklyn. The site was exposed in newspaper reports in the early 2010s as offering shoddy services.

I have only posted a small part of the article but please go here if you want the rest of the story.

Job of Nonprofit CEO? #NonprofitBoards

Dr. Fram's latest blog discusses CEO/Board expectations.  As always, some parts I like, some not-so-much.

 

NONPROFIT BOARDS HIRE AND CEOS MUST ACT!

By: Eugene Fram

Whenever the time is ripe to select a new nonprofit CEO, I think of the old joke that says “…every person looks for the perfect spouse… meanwhile, they get married.” By the same token, nonprofit directors seek perfection in a new ED/CEO– and find that they must “settle” for less. But there are certain definitive attributes that are essential to his/her success in running the organization. With the pressures of increasingly slim budgets, fund development challenges and the difficulty of recruiting high quality employees, the 21^st century ED/CEO must be action oriented and come equipped with at least a modicum of the following abilities: *

• Visionary: It’s all about the organization’s future. The ED/elect should bring or at least begin to cultivate a deep concept of where the nonprofit is, should be and what the trajectory should look like. He/she can do that by immersing himself in the mission field—reading widely and remaining in contact with regional and national leaders in the field. A state-of-the-art CEO should be available for consultation with colleagues with similar issues. Included in his span of vision are potential disruptions that might affect the organization– and how to help the board focus on and implement appropriate change.
• Board Enabler: The new chief understands the limits of his/h operational responsibilities and the governance overview role required by the board. To build trusting relationships with the board, she/h realizes that transparency is key.
• Fundraiser: The optimal fundraising relationship is a partnership between the CEO and the board. Board members must be alert to outside funding opportunities and the CEO, alert to funding opportunities from sources related to the mission field. Once an opportunity is identified, the CEO and the board work closely together to develop a proposal and to meet with the donor(s). If the organization has a development director, the person filling the position must be brought into the discussion at an early stage.  Humm
• Communicator: To be organizationally successful, the Board and CEO must be in a position to interact with a variety of stakeholders: government officials, donors, vendors, clients and their surrogates, foundations, etc. One area in which many nonprofit CEOs need improvement is communications with the business community. It goes beyond simply joining the Rotary or Chamber groups. Nonprofit CEOs must have rudimentary knowledge of many businesses so they can interact intelligently with business leaders they encounter in development efforts. This information can be about specific organizations they are approaching or general knowledge acquired from perusing publications like Business Week or The Wall Street Journal.
• Spokesperson: Although some suggest that the volunteer president must be the spokesperson for the nonprofit, I suggest that the Executive Director/CEO must hold this position for several reasons.

1. If a volunteer becomes a president/CEO, he/s may acquire some liabilities that other directors don’t have. The executive director must be the CEO. Some nonprofits have given the chief operating the tittle of president/ceo and the senior board person, board chair.  This eliminates confusion that often surrounds the ED title when contacting business or government officials. Hmmmm
2. The volunteer president does not work in the organization daily and does not understand its nuances as well as the CEO.
3. In a crisis situation, the media may contact board members.   It should be clearly understood that the CEO is the only person to comment to the media.  HMMMM
4. In ceremonial situations, it may be appropriate for the president to be a spokesperson.
5. The CEO needs to become the “face” of the organization because volunteer presidents come and go, some annually.

• Team Builder: She/h needs to build a strong management team, some of whom, over time, may become capable of becoming an Executive Director. The CEO, as head of the management team, needs to be sure all staff are performing well with some being bench strength to move to higher positions.
• Tone Setter: The CEO needs to set an ethical tone where everybody feels free to express their suggestions for improving the organization. This tone, in various ways, must also be communicated to all stakeholders by the Executive Director..
• Performance Monitor: Hopefully the board has a rigorous and fair system for evaluating the CEO and the organization, and the values of this system are embedded in staff evaluations.

* http://nynmedia.com/news/lucky-13-what-should-we-expect-from-a-nonprofit-ceo

Internal affects External #NonprofitBoards

What happens when:

Among those who left Joppa over the spring and summer, according to employees: Joppa's director of client services, the chief operating officer, communications director, volunteer director, a case worker, the director of donor relations, a grant writer and an executive assistant. A board member and major donor who lives in Scottsdale, Arizona, Diana Clay, also resigned, as well as several volunteers. Clay could not be reached for comment.

Just one full-time employee remains other than founders Joe and Jacki Stevens, of Polk City.

Yup - the city starts raising questions and the press comes on scene.  The subject of the above Des Moines Register copy is the JOPPA homeless organization that has a plan to create a "tiny house" community near airport property.  While some money is requested the shelter really needs to ok from the city to proceed with its build.  The organization appears to do just fine raising money but the development permission is critical to the future plans.  But all these departures is shaking the confidence of Council members and a major donor and a board member.  Something is clearly not going right.

All this to say, all the best plans in the world don't make up for a well run organization that can demonstrate it's house is in order.  If I were JOPPA,  rumors need an all-out media campaign where board members pitch-in as spokes people to put the place in the best light.  Of course, all that may not be right also needs some address by the board.  High staff turnover is indicative of something not being right.

Good Governance and People Who Know How To Run A Business #NonprofitBoards

Advocates also point to a lack of professional experience on the current board when it comes to horse racing or general business experience.

“I think that the boards need to consist of professionals rather than volunteers, not political appointees, so that they have a real responsibility to the shareholders — in this case, the taxpayers of the State of California,” Echols-Hayes said. “They also need an audit committee on the board with people who are professional finance people — retired CFOs, CEOs, etc.”

Critics say positions on the fair board now are largely politically motivated, often given to major donors.

“Plus there is not one person on the board or in the 22nd DAA who understands horse racing, without which they would have gone dark during Covid, or horse shows that constitute some very large event revenue generators,” Echols-Hayes said.

The Orange County Fairgrounds has been operating with a major surplus even during the COVID-19 pandemic and local advocates say that the board is a model the 22nd DAA can look toward.

“The $35 million surplus was not an accident or luck. It’s the result of good governance and people who know how to run a business,” Echols-Hayes said.

Many nonprofits can gain some insight from the Coast News article regarding what to do about the financial failures of fairgrounds throughout Florida.  While proposals particularly about governance and oversight are being examined, one model is what is going on in California where both surplus and success are credited to "good governance and people who know how to run a business".  Feels like goo advice - yes?https://thecoastnews.com/potential-governance-change-likely-wont-solve-fairgrounds-money-woes/

Correlation between Exec Pay Processes and Giving? #NonprofitBoards

  In a recently released study by Arizona State University, a conclusion was reached that regulating CEO pay (through limiting participation by CEO's in the discussion about their pay among other elements) improves fundraising outcomes.  Whoa!

Now I might begin by quibbling that this so-called "best practice" now legislated in New York State is not in itself a "best practice".  This is a practice and it certainly is prudent (the standard for fiduciary accountability) and I certainly would recommend it because board's shouldn't be held captive to the exec while considering their pay but "best" is overstating what is more an experienced-based practice that could at some point be declared "best" following enough research.

 

That said, I find it hard to believe this practice required a legislative mandate and more interestingly, I am truly surprised re the impact on giving.  I don't totally even understand the correlation, cause and effect, between this legislation and giving.  Should we assume that prospective donors are really in-touch with how decisions about exec pay are made and therefore restrict their giving based on this knowledge (or lack there of).  I believe much more research is warranted on the cause and effect and then, only then, might we tout what is really a prudent practice, as a "best" practice that all boards should adopt.

ASU research finds that rule on ethics boosts nonprofits' performance

Tempe campus

 

September 28, 2021

New York law leads to CEO pay cuts but more donations, revenue

An Arizona State University professor’s research has discovered that holding nonprofit organizations to best practices reduced CEOs’ pay and improved performance.

Ilona Babenka, an associate professor of finance in the W. P. Carey School of Business, looked at compensation data for 14,765 nonprofit organizations in New York state for the years 2009–17.

Babenka and her two co-authors wanted to see what happened after the state's Nonprofit Revitalization Act of 2013 was passed. Their paper, “Regulating CEO Pay: Evidence From the Nonprofit Revitalization Act,” has been posted on SSRN and will be submitted to a journal.

The researchers found that after the law went into effect, the compensation for CEOs of nonprofits declined, but the executives didn’t work any less. Other performance metrics — such as donations, revenue and volunteers — improved.

The Nonprofit Revitalization Act prohibits CEOs from participating in board or committee meetings in which their salary is discussed or voted on.

Babenka studies executive compensation and said that although many researchers look at the pay for CEOs of for-profit businesses, not as much attention has been paid to nonprofits.

“They’re very important to the economy, and they employ 10% of the workforce,” she said. “They also represent a lot of important sectors like child care, senior care and education.

 “These organizations are at least partly financed by public dollars through tax deductions and tax benefits, which is why it’s interesting to know how much their executives are being paid.”

Babenka said that there is a longstanding debate in finance on whether executives are overpaid or paid fairly, and whether reducing CEO pay would create turnover.

“Fortunately, there was legislation that allows to have a good empirical look at that,” she said.

The Nonprofit Revitalization Act created a natural experiment for the researchers to compare CEO pay before and after it went into effect.

“What we see is that pay dropped by 2% to 3% for CEOs, which is not a negligible amount,” she said, adding that the figure is probably an underestimate because some nonprofit boards already operated using best practices before the act was passed.

“The other key finding is, OK, the pay got reduced, but what happened to the performance metrics of the nonprofit? Do we see executives leaving the firm? Are they putting in the same effort, working the same hours?

“And what about the other metrics, like donor contributions, number of volunteers and revenue? Has that been affected?”

Essentially, no.

“In general, we don’t find any negative consequences, and we find some positive consequences,” Babenka said. “The CEOs worked a slightly longer hours, about 2%, or about one hour a week. It’s not a lot, but at least they don’t work less,” she said.

The research team found that, after the new law went into effect:

• The new requirements did not lead to more CEO turnover.
• Contributions and grants increased by nearly 4%. For the average nonprofit in the sample, that represented an increase of $525,000 in contributions per year.
• The number of nonprofit volunteers increased by approximately 2.4%.
• Revenue generation increased significantly, by approximately $15,000.

The researchers wrote: “These results suggest that the outside stakeholders generally had a better perception of N.Y. nonprofits following the act’s passage, with volunteers and donors willing to donate more of their time and money.”

All of the data on CEO pay, hours worked, donations, revenue and volunteers are publicly available on tax forms.

The law was not intended to curb CEO pay, but was meant to increase efficiency.

“At the time, New York was worried that they were losing business to other states with more favorable laws,” she said.

“So the law made it easier to register nonprofits in New York, and easier to classify the types. To make it palatable to legislators, it was, ‘And by the way, we’ll also implement good practices.’ ”

Babenka said it’s difficult to judge nonprofit CEOs on performance metrics.

“They can always say, ‘We had lower revenue, but we delivered more bowls of soup,’ ” she said.

“Because they have multiple objectives, it’s harder for their boards to determine whether performance is good or bad. But that is what makes the pay more interesting to study.”

Top image of New York City courtesy of Pixabay

Discoveries Tempe campus W. P. Carey School of Business Department of Finance Business Community service Research Corporation Faculty

Mary Beth Faller

Reporter , ASU News

480-727-4503 marybeth.faller@asu.edu

What's in a Name #NonprofitBoards

Forbes is decent enough folk that the magazine spends some energy focused on nonprofit management and governance.  And, for the most part, this coverage offers reasonable tidbits and insights.  Take for instance its latest advice column which speaks of the Advisory Board.  

First, the concept of an advisory group that is comprised of smart and experienced folks who can bring insights and expertise to support the many challenge faced by an executive is a reasonably smart idea, I believe.  After-all, for-profit businesses often recruit folks who know their field or the nuances of legal, accounting and other business responsibilities to provide "free" consulting and guidance particularly for early stage enterprises.  So yes, this is a good idea in general.  

But, for anyone who has red this blog you will know that I think it a bad idea to label this group of advisors a "board".  There is but one board and that board has fiduciary responsibility AND it's not about lending expertise unless it is to support its fiduciary tasks.  As many folks with whom I have consulted will attest, any other body labeled a board can often lead to confusion with roles and responsibilities and have, in some cases where I have consulted, led to really huge fights.

Bottom line, there's one board.  Any other structure can be called everything else but NOT a board.  

That said, here's the Forbes article which does offer some insights on the function of ANYTHING BUT THE BOARD!

Sep 27, 2021,07:00am EDT|40 views

Can Your Organization Benefit From An Associate Board?

Vipe Desai

Forbes Councils Member

Forbes Nonprofit Council

COUNCIL POST| Membership (fee-based)

Leadership

 

Vipe Desai is a leader with decades of marketing, branding and governance experience who has served on more than a dozen boards. 

 

GETTY

 

It is not easy to run a nonprofit business — that’s a common fact a lot of people are aware of. But it doesn’t mean that you can’t have a brilliant junior board or, as I like to refer to it, an associate board, that functions at a professional level to help drive your mission and programs.

An associate board may be new to some of you but, generally, it’s a body of individuals who support a nonprofit's official board and leadership. It's great for individuals who want to gain experience and expertise in board governance, project management, budgeting and fundraising but may not have all of the requirements in order to do so on the official board.

By being involved in the associate board these young and emerging leaders are able to gain the knowledge and experience that may be valuable in their career journey. An associate board is also a great development program for potential board members for your organization or to help them get onto other NPO boards. 

Does every single organization need an associate board? 

Maybe, maybe not, but an associate board is another way for nonprofits to bring a variety of talented young people together with a variety of skills around the common goal to serve the organization. 

MORE FOR YOU

Empathy Is The Most Important Leadership Skill According To Research

Why U.S. Talent Shortages Are At A 10-Year High

You Probably Need More Friends—Here’s How To Make Them

I serve as chairman of the board to a 45-year-young community-based organization that educates 100,000 children, teachers, parents and visitors annually through over 60 marine science and maritime history programs. The campus is well known for its ocean education center that offers in-depth marine science, maritime history and outdoor education programs.

 

Trying to put together a great associate board can be a challenging task, so here are a few tips that I’ve collected during my experience that other NPO leaders might find helpful:

1. Keep it local. By keeping your associate board members local, you can tap into the community with more potential for fundraising and advocacy.

2. Collaborate within your community. Many local businesses are interested in working closely with community NPOs while giving their employees an opportunity to support the community. Community-based collaboration offers nonprofit leaders a targeted and meaningful opportunity to further their missions.

3. Look for unique skill sets. This is good to remember when looking for a well-rounded associate board, ensuring that the people you choose for your board meet the expectations and skills you require. Do you need a financial expert? A social media manager? A marketer? All of these things need to be considered before you go out looking for a team.

4. Identify the requirements needed for board participation. Are they going to have to dedicate a lot of time to this? If so, do you have a good guide for them so they have a complete understanding of what's required of them? This helps so that you’re not wasting time with people who may join and then realize that it is not for them. Are they expected to attend events that are in the area? Do they need to donate some of their own money to the cause?

Now, if you can get a recruitment plan in place for your associate board, I’m confident your organization will be able to function at a higher level. I truly believe that many nonprofits could excel with a good associate board because of the combined experience and each individual's desire to be there. These boards are usually made up of passionate people driven toward a greater purpose. All of our associate board members for the Ocean Institute are so passionate about our environment and its sea life that they want to make a positive impact on it. They have helped spearhead successful fundraising initiatives, fresh partnerships, new events and programs that have helped us to reach new donors and more students. 

Associate board candidates offer much-needed skills for nonprofits that include branding, communications, digital marketing, marketing, social media, public relations, web and graphic design, strategic partnerships, technology and more. It does take a lot of hard work and patience when starting a new associate board, but once it's up and running, a talented volunteer board can create exponential value to any organization.

One great hidden resource you can leverage to find members for your associate board is the Private Directors Association, where I’m also a member. Here you can find a well-qualified and eager list of candidates to serve on your associate board, and many can also be bumped up to your actual governing board. 

If your organization is looking for new and exciting ways to boost and grow fundraising efforts and community engagement, an associate board might just be what you're looking for. Building out a team of passionate professionals who are connected to your mission will serve your organization well while also developing leaders to become productive members of your community.

Associate boards can be great investments.

The added value of building a non-governing associate board can serve to cultivate the next generation of talented leaders, build a pipeline for the organization’s governing board, bring additional expertise into the organization and improve the diversity of the organization’s leadership.

---

Forbes Nonprofit Council is an invitation-only organization for chief executives in successful nonprofit organizations. Do I qualify?