Nonprofit Board Crisis

Governance: Duty of Loyalty

An interesting lesson arises from California where public pension fund trustees could be criminally liable if they approve a contract that provides them a personal benefit.

From June 2008 Governing we learn that "public employees, retired employees and even management appointees on public pension boards could be liable if they approve a contract that provides them a personal benefit.  The inherent conflict arises because fiduciaries are responsible for a duty of loyalty, which precludes them from putting themselves and their personal financial interest ahead of those of the plan and the trust.....  Public officials establishing such trusts should build conflict-of interest safeguards into their founding documents."

The duty of loyalty and conflicts of interest clauses are sometimes but not often referred to by nonprofit boards, but here's an example as to why the conversation should occur more regular -- at least once a year if not when the duty is plainly violated.

For more about the article go to governing.com/xtras (Pension Board Dilemnna).

NY Nonprofit Laws Set Limits on Pay

Once upon a time, not that long ago, in a land called New York, the New York Stock Exchange sat as a nonprofit organization paying the typical salaries one might expect from people dealing with businesses and people who make a lot of money speculating on the value of businesses and people.  In fact, the then nonprofit Stock Exchange paid well -- the CEO earned $23 million a year -- that's "well".

That once upon a time ended and now the New York Stock Exchange's is a for-profit.  The reasons are varied and appropriate and the New York Stock Exchange pays the typical salaries one might expect from people dealing with businesses and people who make a lot of money speculating on the value of businesses and people but actually, not as much money as it paid when it was a nonprofit.

Eliot Spitzer, NY's former Attorney General, brought six counts against the formerly high paid nonprofit exec, but a ruling, noted in the New York Times, threw out four of the six.  Since at least 2004, NY's Attorney General's Office has argued that the pay was "unreasonable under New York's nonprofit laws", and that full disclosure to the board was lacking.

Unreasonable by law?  Should there be laws governing how much a nonprofit exec can earn?  Shouldn't nonprofit salaries be competitive with their counterparts in the for-profit sector? 

I can not argue they shouldn't be competitive.  What do you think?

NY City Councilman's Aides Rip Off 3 Nonprofits for $145,000

Two New York City Councilman's Aides ripped off 3 nonprofits for $145,000.

According to the New York Times, the aides actually "controlled" three nonprofits and redirected funds to themselves.

How can this happen?  I understand how the Aides could get away with transferring money from the Councilman's budget (although I have previously discussed how crazy this practice is) but where was the rest of the board of the 3 nonprofits?  What does "control" actually mean?  And where are the nonprofit's auditors?  Don't they have some responsibility here?

IRS where are you?  New York citizens, where are you?

Community Action Agency Double Bills and Loses Money

This story is just toooo incredible.

The New Haven, CT Community Action Agency has been found to have double-billed the Area Agency on Aging of South Central CT for its Meals on Wheels program for at least three years, and possibly more than a decade.  Yes, possibly more than a decade.  As one state representative said: "If they took in twice as much money as they should have, they should have run a surplus.  Where did the money go?"

I believe that these are certainly some of the questions to be answered in addition to wondering why the Area Agency didn't wonder why their annual bills were more than they originally contracted for and why the State didn't wonder the same.  And one would think that auditors and the state might have been curious about how so much money could be coming in for at least 1/2 the expenses. 

The Area Agency says it has put CAA on notice that it would hold CAA responsible for repaying the funds.  The state has asked the Area Agency to repay.  And of course, something happened to the surplus and that could be on the board if not the auditors.  Whew, what a mess! One body after another has failed its responsibility.  And right now, the taxpayer is the biggest loser.

To see the story, go here.

Nonprofit Board Leadership In Question

Some of you may have caught Francie Ostrower's commentary in the May 29, 2008 Chronicle of Philanthropy where Francie, a very bright and thoughtful Urban Institute Senior Research Associate, summarized her findings from her National Survey of Nonprofit Governance.

In brief, Francie says that nonprofit boards really don't do what it takes to support their execs & leaders.  Francie then goes on to give some sugggestions - most of which are ok, like thinking twice about making the exec a voting member (I should hope they think twice) and institutionalizing a process for the board to regularly monitor its own performance.

Basically, this is not rocket science but it's good to have the evidence in plain writing. 

I did not find the actual survey but here's a link to the Urban Institute.

Nonprofit Gone Upscale: Threatening Mission?

Planned Parent has announced an effort to "build a broader network of suburban clinics and posh health centers. 

According to the Wall Street Journal, two elegant new health centers have been built and at least five more are on the way.  Centers include "muted lighting, hardwood floors, airy waiting rooms in colors selected by marketing experts -- plus, walls designed to withstand a car's impact should an antiabortion protest turn violent.  Planned Parenthood has also opened more than two-dozen quick-service "express centeres," many in suburban shopping malls."

The Journal goes on to note: Despite some critiques to the contrary, Planned Parenthood insists it's not compromising its long-held focus on serving the poor with birth control, sexual-health care and abortions."  PP says it takes a loss of nearly $1 on each packet of birth-control pills distributed to poor women under a federal program.  But they make a profit of nearly $22 each month on pills sold to an adult who can afford the full price.  Profits are used to subsidize other operations including care for the poor and pursuing Planned Parenthood's political agenda".

Whew...this is a tough one.  Using good business and marketing strategies is pursuing market where it is -- shopping centers and malls, just like banks and other businesses.  Generating profits from those who can pay to offset costs for those who can't and pursue political strategies strikes me as a good strategy as well .

Nonprofits have tried in the past to serve two masters: those who have and those who don't.  Supposedly this is a nonprofit hosptal approach and look what that has led to -- having to pay for the service before dialysis or chemo. 

Planned Parenthood must be careful with this otherwise smart business effort.  One could argue that all sites should be upscale and that it's discriminatory not to pursue this effort.  On the other hand, I might lean toward making the upscale and 'burban sites for-profits with the license to do what it takes to serve their market.  Then the profits can be used to support the not-so-upscale sites and the political agendas.   

Charity Begins At Home

"Charity begins at home" is the basic lesson that U.S. Representative William Jefferson's family from New Orleans have demonstrated to America.

According to Friday's New York Times, some of Representative Jefferson's family members "pocketed grant money earmarked for charitable and educational programs." 

The proper lesson from this news: nonprofit best practice policies, systems and governance can prevent greed and theft.

Right Task For Nonprofit Board

The battle between the north and south continues a bit in Richmond as the American Civil War museum must consider accepting a $100,000 statue of Confederate President Jefferson Davis from the Sons of Confederate Veterans after having installed a statue of President Abraham Lincoln.

While the debate about the rights, wrongs, shoulds and should nots is interesting, what is more interesting to this blog is the response by Christy S. Coleman, president of the Civil War Center.  According to the Hartford Courant, Ms. Coleman said "her organization is approaching the donation as it would any other gift: Officials will examine whether it fits with the center's collections strategy and consider its future upkeep, among other issues.  The board of the nonprofit center will likely take up the matter in August.  If someone offers us a sword, we may turn it down becuase we have too many swords, or we'll turn something down if it's not authentic, obviously."

Kudos to Ms. Coleman and her board for understanding their role in establishing and enforcing policies which guide important politically charged decisions like the one they are facing.  This is what I believe good governance is about - establishing and enforcing policies that reflect clearly a defined mission and values.

Nonprofit Governance and Duty of Obedience

The Chronicle of Philanthropy recently (May 29) reported on the NAACP Board's selection of a new president.

According to the Chronicle, the newly selected president will be the "youngest president in the organization's nearly 100-year history". 

While the article does speak to the strengths of Benjamin Todd Jealous (the new president) it at the same time highlights a great degree of disgruntlement on the part of the board over this selection noting that the "new president will assume the job with something less than a mandate, as the trustee vote was 34 to 21 in favor of his appointment".

It's certainly true that within an organization, some decisions may not get 100% support.  But the spirit and responsibility of board members, once a decision has been made, is to support the decisions and try to find ways to make it work OR leave the organization.  This is how great organizations achieve greatness. 

That some NAACP board members have chosen to air the organization's laundry and express their dissatisfaction over the selection choice is not in my mind a show of commitment to greatness.  I would hope the Board Chair will speak to this failure while working to heal "wounds" and create a space where the newly selected president will be able to pursue the mission without distraction and with full support.

Historic Homes in Danger

I noted just recently that the Mark Twain House is in trouble -- it's board put the house out on a limb with some big time debt and who knows if a business plan. 

The New York Times noted Tuesday that the Mark Twain House isn't alone in its financial troubles.  The National Trust for Historic Preservation estimates there are between 9 and 10,000 historic home museums nationwide.  "Many are operating on a shoestring.... It's a complex financial situation out there for a lot of museums, and there's no question that house museums are facing some unique challenges these days.  In many ways the Twain House is like private homes throughout America where residents expanded during heady economic times or used home equity credit lines, subprime mortgages and private loans they now struggle to repay."

But historical houses are not private homes.  They (a large number) are owned and operated by nonprofit boards who's expertise, experience, knowledge and duty of care (acting prudently as though the business were there own) should guide their organizations away from risk and bad decisions. 

The Twain House is certainly a good case in point that demonstrates that boards need to be better prepared for tough decisions if they want to keep their houses from threat of foreclosure.  They need as well to find other ways to sustain their houses economically.  Perhaps group purchasing arrangements, management service organizations or group ownership would be helpful.