Nonprofit Board Crisis

What Relief Will Foundations and Nonprofits Get From Madoff's 150 years?

As you likely have heard by now, Bernie Madoff got 150 years for "screwing" a whole bunch of individuals and institutions, including some important foundations and nonprofits.  The Wall Street Journal offers a great read on this story including some details about some of the sources of prospective cash the Justice Department is trying to recoup (even more about Mrs. Madoff and all she gets to take with her).

Well anyway, Mr. Madoff's 150 years are pretty silly -- at the minimum, he isn't going to really serve 150 years -- maybe not even 10 (they'll probably let him out in maybe even 5 years because he will be sick after a period of not living in the style he's become accustomed to). 

A bigger question: what good is Mr. Madoff's imprisonment to the foundations and nonprofits who must now proceed without the levels of support previously afforded them?  Can't we have Mr. Madoff use his obviously special skills to earn these foundations and nonprofits some of their money back? 

And, perhaps more important, what lessons have these foundations and nonprofits (those that still remain) acquired from this experience?  How will they change their behavior -- will their boards become more fiduciarily responsible?

Final bid for Buffett lunch -- no chump change even in this economy

"Warren Buffett's charity lunch sold for $1.68 million, a 20 percent drop from the price paid in last year's auction" reports the San Francisco Business Times.  The name of the final bidder has not yet been announced and the proceeds will again go to the Glide Foundation, a San Francisco church with a huge ministry to the homeless.

As much as the press was poo-pooing the final bid as being a 20% drop from the previous year, I don't think of 1.68 million as chump change (which according to thefreedictionary.com means a "a trifling sum of money"). 

Critics need a better life -- kudos to Warren Buffett for his gift of time and wisdom and mega-kudos to the top bidder!

Who Should Evaluate Health Insurance Plans?

According to the New York Times, "Senator Jay Rockefeller has proposed creating a nonprofit organization to grade all plans offered on a national exchange based on such factors as adequacy of coverage, affordability, customer and health provider satisfaction, and transparency of procedures and decision-making."

The Editorial from the Times essentially focused on the evils of the health insurance industry, even in the wake of a possible universal plan.  Of course, they are evil -- but that aside, wouldn't it be the government's job to regulate and monitor especially if the industry is not serving the public?

Maybe Now Nonprofit Hospitals Will Be Nonprofit

From the Washington Post we are hearing of the huge economic challenges nonprofit and for-profit hospitals are facing given the economy and particularly the extraordinary number of new uninsured.  The challenges loom large and are projected to grow over the immediate if not long-range future. 

The good news: maybe this crisis in hospitals will spur action by the legislature to support universal health care etc.  Also, for nonprofits in particular, if I accept that hospitals are growing their debt while serving more folks without insurance, then at least nonprofits are being more nonprofit, albeit not necessarily great businesses although that was never my concern. 

The bad news: well, maybe there really won't be as much health care access as needed but of course this is back to the good news -- the government will have to eventually step in.

Small Boards Reason For Madoff Losses by Foundations?

A National Committee for Responsive Philanthropy report analyzed by New York Times’s Stephanie Strom concludes that the reason so many foundations lost money to Madoff is that they had really small "insular" boards.  The logic here, according to the National Committe's Exec is that these Foundations had small, homogenous boards where someone knew someone who trusted Bernie Madoff and that was enough for the board to say ok then, let's invest.

I suppose that yes, members of small boards are more inclined to follow another member's recommendations.  And, we know that folks who get together to give away certainly don't get together to have a bad time and maybe too, some don't have financial expertise (although unlikely given how these foundations tend to get started).

BUT, I absolutely much more agree with Hildy Gottlieb who in the same Times article  said, “What tends to happen is we tend to point fingers at individuals when in fact there is a failure of systems, regardless of size, organizations need to have systems in place that address what it does and needs to accomplish, including a sound investment policy.” 

Small size or not, I agree and believe this failure by foundations was about systems and policies and due dilligence -- none of which appear to have been in place enough to prevent this very ugly and sad outcome for all.

Nonprofit Operating Reserves Matter

A nonprofit's operating reserves matter so much they can mean the difference between the life and death of the nonprofit, especially in times like these. 

While maybe the news isn't really "news", but it is one important conclusion reached through an Urban Institute study of the 2006 tax records of 2,648 Washington area nonprofit groups.  Note, 2006 tax records! 

If you thought it was bad then, what do you think it looks like today?  You can do the math -- not a lot of hope for the future of the nonprofit sector at this rate.

Reducing the Tax Break for Donations

There's a proposal floating around in Washington that would "limit the value of the tax break for itemized deductions, including donations to charity, to 28 percent for families making more than $250,000".  Foundations in particular have been actively objecting to this proposal.  They maintain that the wealthy will give less if they get less of a tax break.

There's a good article in the San Francisco Chronicle presenting the argument that tax deductions are not the primary motivator for donations by the wealthy.  And quoting the recent Bank of America study on high net worth individuals, "Overall, high net worth households reported they believe there would be very little change in their giving if there were no tax deductions for donations."

Kind of says it all, doesn't it?  Come-on Foundations, you have way more important things to do than lobby against this proposal. 

Nonprofit governance: haphazard and badly managed

"Most charities (nonprofits) do NOT measure governors' (trustees') performance" according to a chief executives body Acevo (Association of Chief Executives of Voluntary Organisations) survey of 200 trustees.  This survey followed a previous month's New Philanthropy Capital report Board Matters, which described "charity governance as haphazard and badly managed."

So all is not well in Great Britain's nonprofit land.  But, does this sound so different from the US' nonprofit land?  I think not.  Folks just appear to be more willing to talk about how not-so-well nonprofit boards are doing.

P.S. I just started subscribing to this daily "paper" that reports on what's going on with Great Britain's charities (nonprofit) community.  Here's the link and the source for today's blog.

Warren Buffet's Charity Lunch

Have you ever dreamed of you and seven friends having lunch with Warren Buffett? 

If you have the best ebay bid (this week) you just may be able to have your dream come true.  Yes, it may cost you, but maybe your friends can pool their funds.  Last year's lunch cost the best bidder $2.11 million.  But hey, it's for a good cause -- the Glide Foundation.

The San Francisco Chronicle article on this topic was actually much more focused on speculating the possibilities of this year's charity lunch raising any where near what it did last year.  That's a sad but perhaps realistic thought.

Foundation Exec Shares His Thinking About Nonprofit Mergers

Emmet Carson, orriginally of Minneapolis Foundation fame and now the CEO and President of the Silicon Valley Community Foundation (a pretty large foundation) has put forth his thinking about nonprofit mergers with a simple message: no need to rush (to save some nonprofits); the marketplace will take care of the situation.

As Mr. Carson postulates in the San Francisco Chronicle:

 As financially strapped nonprofit organizations are no longer able to sustain their operations, they will cease to exist and those that are stronger can expand to serve other areas and constituencies. To the extent that stronger nonprofits are reluctant to expand services or may not be sensitive to the cultural needs within specific communities, private and government funders can be helpful in providing financial incentives at far less cost than it would take to support widespread mergers. Funders also can help nonprofits close their doors in an orderly fashion with dignity and respect. There is no blame to place on organizations that must close due to the dramatic economic changes that are reshaping the global economy.

Allowing the market to work will be faster and more cost-effective than promoting mergers. In the long run, it will result in a healthier nonprofit system, one that can deliver effective services and be sustained with fewer resources.

This is certainly a practical, sobering and fair approach to the current environment.  Mr. Carson makes a sound point that is reasonable: the market will certainly enable the "strong" to survive and the "weak" to fail.  Donative monies may certainly be redistributed following the strong. 

But I do hope that Mr. Carson is not rulling out the possibility of identifying and supporting and encouraging some mergers or partnerships where the failure of a nonprofit will leave a different kind of gap that the strong and bigger nonprofit won't really ever fill.  In particular, there are for instance some really innovative folks out there doing really creative projects and having amazing results but time and money and media have left them undiscovered.  And, we also know that some really big nonprofits may be able to fill some gaps and deliver basic services but may not ever fully understand cultural nuances or be community "owned and driven", although I suppose that market forces should influence the nonprofit's decisions about what, how and why they deliver services.  But market forces don't presume to be inclusive nor engage community members in making these decisions (the "so what of" which can be discussed another day).

Bottom line, I see the facilitation of mergers and partnerships as one more tool to ensure that there exist nonprofits that can respond well to the variety of market needs.  And, we must remember that the fundamental purpose of the nonprofit sector is to fill the void where businesses have no incentive to offer goods and services and the government perceives no mandate.