Nonprofit Board Crisis

Boy Scouts Prove Again They Are Not What They Appear To Be

A series of articles in the Seattle Post highlight the loss of integrity on the part of the Boy Scouts organization (yes, I'm sure that there are Boy Scouts who have integrity - maybe a lot more than the organization's leaders). 

It appears that the noble Scouts "have clearcut or otherwise conducted high-impact logging on tens of thousands of acres of forestland".  As the article further notes: "Dozens of councils have implemented long-range management plans with assistance from professional foresters to help better manage woodlands, records also show. But the investigation also revealed stewardship plans that often went ignored, and several plans identified past poor management and a heavy-handed logging tradition on Scout lands.  Money also often outweighed stewardship as the main goal -- or was cited among several objectives -- for conducting logging, records show."

When is America going to give up the idea that the Scouts are purists and an institution that America needs to preserve?  First they clearly are identified as hating gays; now, it's not so clear they don't hate forests too.  In my opinion, this is not an institution that deserves to keep its Federal Charter.  We can do better with values and training and it's time to move on.

You've Heard of Health Conversion Foundations...how about Newspaper Conversion Foundations?

An op-ed piece in the New York Times revisits the argument that many, including myself, have been posing about the future of the newspaper industry, but, with a twist.

While it appears inevitable that access to the news (in what used to be the newspaper industry) will be accomplished mainly through nonprofits, there has been no clearness about why or how the nonprofit news model will be sustainable.  As it stands, many, many nonprofits are asking the same question.

But, David Swensen, the author of “Pioneering Portfolio Management,” and the chief investment officer at Yale, and Michael Schmidt a financial analyst at Yale pose that an answer might be to endow newspapers.  I would like to suggest that that is indeed a good answer and offer that the way to endow the newspaper of the future would be to do what nonprofit healthcare institutions who wanted to be for-profit had to do (does make one wonder about this solution).  The for-profit newspapers could convert to be nonprofits and do this by establishing their current assets as endowments to thus pay for the newspaper's future. 

This just might work, huh?  And hey, the newspapers could still sell advertising.  At least we know they wouldn't violate the UBIT rules.

IRS Called Upon To Clarify Governance Requirements

According to the Chronicle of Philanthorpy (1-29-09), Marc Owens, a "prominent DC lawyer specializing in nonprofit issues" and the "former chief of the IRS' tax-exempt division" has called upon the Treasury Department to establish a "clear direction regarding the specific standards to which nonprofits will be held." 

I would interpret this as meaning that the IRS' "duty of care" is not defined enough and, be that so, then yes, I agree, the sector could conceivably be better off with better defined standards.

On the other hand, I certainly worry about a "one size fits all prescription".  Many "experts" have tried to establish a "one size fits all prescription" only to learn that there are a number of variables that affect the behavior of a board and these may not be all that successfully addressed with a one-size prescription.  At minimum, resources and stages of development certainly have their impact on the behavior of boards.  And, we know that many donors would not want their nonprofits restricted.  This is a very complicated proposal for sure.

But yes, clarifying the duty of care - that can help.

Mr. Owens's letter to the Treasury may be found here.  If you agree with Mr. Owens, you should send a letter too.  Perhaps at least we could get a dialogue going.

Executive Transition at its best.

According to the LA Times, "the longtime chief executive of the Jewish Federation of Greater Los Angeles announced Monday that he will resign at the end of the year.  John R. Fishel, 60, who has led the nonprofit agency for nearly 17 years and is credited by many with putting it on sound financial footing, said he wants to pursue other interests."

Hooray for Mr. Fishel who is serving as an example of good leadership - transferring the baton in a timely and orderly manner!

There has been a significant amount of conversation (stimulated in part by the Annie E Casey Foundation) about a huge transfer of leadership about to take place as well as ensuring that this transfer is completed in the best possible way.  Mr. Fishel is a living example of what the Foundation predicts will take place in huge numbers.

Let's hope that Mr. Fishel and his board has heard and is acting on the rest of the advice: succession planning must be just that -- planful.  There is much to do for Fishel and his board between now and the end of the year including getting all internal documentation of how business is done current. 

Best to you Mr. Fishel and best to the Board in preparing for and recruiting new staff leadership.

Maybe it is time for the Fed Bailout to Be Directed to Nonprofits

The story in the New York Times says it all: nonprofits are being victimized by the credit crunch.  Even the best of the nonprofits are having limited access to cash - cash they use well but cash that's way less available thanks to the greed on wall street and insensitivity of the banking community (which had its own greedy days).

Feds - the nonprofit sector needs you! The socialization of capitalist enterprises, oops, I mean the bailout, needs to complete the circle and ensure that all the true victims, those who were poor to begin with and the new poor, don't suffer more.  Nonprofits are the safety net and their safety net is slowly falling.  Feds, the nonprofit sector needs you!

If it weren't for the Health Conversion Foundations....

Those Health Conversion Foundations (derived from a non-profit insurer or health care provider that converted to a for-profit) just keep going supporting the innovations that really make a difference for folks who otherwise might not receive health care. 

A case in point is noted in the Chicago Tribune where the Blue Cross Blue Shield of Tenessee Health Foundation funded a $1.8 million grant to expand the video medical care for rural patients work of the nonprofit Community Health Network Inc. The video medical care brings care not otherwise available to these patients via a sophisticated video network (actually sounds like something we've seen advertised on TV for a project in India).

Clearly, were it not for the health conversion foundations like this one, the money needed to establish services like this would not be available (for any number of reasons I'm thinking - most of them having to do with the lack of desire to invest - just like american manufacturing).  The good news: these services become available.  The bad news: the providers that should be making this type of investment, aren't.

Payment in Lieu of Taxes

Nice story about a nonprofit restaurant/art center in New London, Connecticut that has experienced the usual struggles accorded arts centers but has not only surpassed these struggles but even makes an unrequired tax payment to the City: in effect, the center is doing better than the city. 

Check it out: article.

"How can you spot a Ponzi scheme?"

Here's what I believe to be some useful words of wisdom for all the nonprofit investment committees that have to think about, well, their investments.  This is from The Week, January 30, 2009.

"How can you spot a Ponzi scheme?  By asking the right questions.  Among them: Is one of the "Big Four" accounting firms auditing your finances?  Madoff's auditor was a virtually unknown three-person accounting firm operating out of a strip mall.  Investors should also ask if the fund's assets are held by an independent third-party custodian who can verify that they actually exist.  Madoff had no custodian.  Finally, beware of any fund that produces steady returns regardless of whether the market is up or down.  No one is that consistent--even Warren Buffett hits rough patches.  Ultimately, the old cliche applies: If something sounds too good to be true, it probably is."

All Not So Healthy At Lung Association

Understanding and telling this story about the American Lung Association and its affiliate in Seattle makes my head hurt.

According to the Chicago Tribune and as I understand the story, the Seattle chapter of the Association sold or gave its assets (a building plus) to another foundation that had a bigger mission including raising funds for the Association chapter.  The national then sued saying that the chapter had essentially violated its charter by giving away its possessions, especially noting that the new foundation was headed by a guy who had been the chapter director.  It appears that the previous chapter director (now the other organization's director) did not leave on good ground but I gather this from the story alone and have no evidence otherwise.  I go there though because there were severance issues and these don't usually arise just because...

Meanwhile, a judge has changed her mind from saying that the Chapter had to stop doing business and now says they can keep going until the suit is over. The judge also indicated that the National is likely to win the suit.

Whew!  How confusing and how nasty for all sides.  Bottom line: this is about money, as I am assuming most suits are (vs. justice).  The National is obviously not going to make as much as it believes it should and it's renegade chapter ED has basically told the National that it isn't going to get what it wants.  Does this really have to be such a public dispute and will it really result in more money for everyone - not really I believe.  The National really has to do some thinking about its policies related to chapter relationships and controls.  Maybe it should actually retain ownership of its properties although that would have been even more disastrous for the Catholic Church - no?

Why is the Nonprofit Board Firing the Chief Fundraiser?

Pretty regularly I hear stories about Board members who take on the tasks of the nonprofit's executive director.  If we have learned anything about nonprofit boards - they are not the executive director (unless the nonprofit is really small) and the nonprofit I am about to speak about is not.

According to the Chicago Tribune, the "wife of impeached Illinois Gov. Rod Blagojevich was fired from her $100,000-a-year job as a Chicago homeless agency's chief fundraiser."  The story doesn't go into much detail other than to say the homeless shelter needs to raise a lot of money to maintain a new building, and that Patti Blagojevich is basically disapointed, thinking she could have made a difference.

Whether she could have made a difference or not, and whether she was fired for purely political reasons or perhaps even better, whether she was fired because she no longer retained the political capital she had when she was first signed-on, are not my concerns (although losing political capital would strike me as a good reason for discharge).

No, what is my concern is that the Board is cited as being responsible for the firing.  This is where I have an issue. Nonprofit Boards have one employee -- the CEO or Exec.  Nonprofit boards do not really have capacity to hire, supervise, evaluate and fire more than one employee.  CEO"s hire, supervise, evaluate and fire their employees.  Never should the twain meet, although certainly Board members may be able to inform the CEO, particularly when the topic is the chief fundraiser and that chief fundraiser works closely with Board members.

I am truly hoping that the Chicago shelter has used good process and that it was the CEO who did the firing, not the Board.  Nonprofit Boards really can't effectively supervise more than an Exec.  At least supervise well, that is...