Nonprofit Board Crisis

Nonprofit Mergers -- Not So Good?

Jeffrey Solomon, President of the Bronfman Philanthropies, thinks nonprofit mergers are not so good and he belives there are better answers to relieving the nonprofit sector of some of its woes.  I do not totally agree about mergers, but Mr. Solomon's "other" answers like shared services are good places to start, and, like mergers, an area where I and my collueges here at BWB Solutions have particular expertise.

Here's what he has to say from the Chronicle of Philanthropy.

What To Do When All The Money Is Gone?

What to do when all the money is gone?  That's the question the board of the Philadelphia Commercial Development Corporation must now answer after being told by the City that all of their grant/contract money is being re-directed to a City agency and another nonprofit.  The PCDC currently has 24 staff.

The article linked below provides no details about what exactly happened but does allude to "bad press" several years ago.  I doubt that that's the only contributor to such a serious outcome, particularly given the time distance between the events.

But talk about a sustainability planning nightmare!  And could the board of the PCDC have seen this coming?  It's hard to believe it was a surprise.  But the better question: if you were the board, what steps might you have taken to avoid this and what steps would you take now?

See the Philadelphia Inquirerer story here.

Family Foundation Without Governance

This story was just too incredibly unbelievable (or maybe not) to pass up.  There's seriously no governance at this Foundation.

Kentucky Senator's Salary From Foundation Exceeds Grants

Sen. Jim Bunning, Republican from Kentucky, collects an approximately $20,000 annual salary from his namesake foundation, more than the charity’s yearly grants payout, reports The Hill.

The Jim Bunning Foundation charges baseball-memorabilia companies for appearances by the senator, a Hall of Fame pitcher. Under Congressional ethics rules, Mr. Bunning is not allowed to charge for autographs himself, but the restriction does not apply to the charity.

The foundation has paid Senator Bunning, its only employee, $155,000 since 2001, according to financial disclosure forms. Internal Revenue Service documents and Senate filings show it donated $16,350 in 2008 and has never given more than $19,575 in a year.

Nonprofit Hospital adds another criteria for discriminating

A nonprofit Fresno, California hospital "barred a lesbian from visiting her girlfriend, who went into a seizure at a gay marriage march" according to the San Francisco Chronicle.  "The couple are not legal domestic partners, but the "girlfriend" has the legal authority to make medical decisions for her  "girlfriend", as well as power of attorney.

So now a nonprofit hospital gets to add sexual orientation along with income status as a criteria for discrimination?

Nonprofit Role in Newspapers to Grow

While not replacing for-profit newspapers, nonprofits took a step closer to being a primary source of investigative reporting - one of the important "losses" being felt with the economic decline of the commercial print-news media.

According to the New York Times, the A.P. is partnering with four investigative reporting nonprofits which will share their work and in turn, the A.P. will make that work available to newspaper outlets.  The nonprofits are primarily supported by foundations and donors.

My only head-scratcher is the business model.  Nonprofits go raise money and A.P. distributes for free the nonprofits' stories to their respective subscribers.  I guess this means that besides staying true to solid investigative reporting, the nonprofits must also continue to excell in fundraising.  On the other hand, why do the nonprofits not get something back from the A.P. who's continuing to basically "service" its subscribers?

As an after-thought -- as much as I hear about the decline of commercial newspapers, I don't hear the same for commercial magazines (e.g. Newsweek, Time).  Maybe the business model is different than newspapers but I do wonder...

Nonprofit Board Makes Hard Decisions

It's time to profile a good nonprofit board -- one that is thinking strategically about the welfare of its institution by being fully informed, engaging in constructive dialogue, weighing the options and making the hard decisions.

Our "model" board oversees Reed College in Portland, Oregon.  Here's the story from the New York Times:

When members of Reed’s board met in February and April to hammer out the budget, their priority was protecting the character of the college. Most of the members are alumni, with fond memories of earnest dialogue with professors in small groups, sometimes outside on the grass.

None of the options were appealing. Admitting more students would raise the student-faculty ratio, a measure of academic quality and, at Reed, a sign of the importance of interaction with professors. Raising tuition and fees would add to pressure on already-struggling families. Cutting spending could make it harder to recruit faculty members and could limit student resources.

Dipping further into the endowment, which provides about 20 percent of Reed’s budget, could imperil the college’s long-term survival. Last year, the endowment fell by nearly 25 percent, to $357 million, from $470 million. At a meeting with the budget committee of Reed’s board, Mr. Diver said he was reluctant to tap more of the fund: “I’m not proposing that.”

Members of the board did not push back at the time. But afterward, Daniel Greenberg, a Los Angeles businessman who is the group’s chairman, said he was not sure that the endowment should be off limits. “If we need to basically depend on the endowment, let’s increase the take rate,” he said, referring to the percentage of the endowment spent by the college every year. “We should do it if it will protect the character of the college.”

Instead, the board has approved increases in tuition and fees that bring the total cost of a year at Reed to $49,950. The college will have nearly 400 new first-year and transfer students in the fall, up from 355 last year.

Reed has increased its financial aid budget by 7.8 percent. It aims to use part of the $200 million it hopes to raise in a capital campaign, announced this spring, for financial aid in future years.

The college has cut 5 percent of its spending except on personnel. It has avoided layoffs — unlike some other institutions — though it is not filling vacancies.

Like the board, I understand that the board and staff are not in control of a number of factors that could affect their decision.  But the board is clearly doing the best they can with what they know and they are certainly exhibiting the best of board commitment and behavior.

 

Nonprofit Exec: chairman of the board, lawyer and landlord

I'm willing to go out on a limb and say this is not "best practice" in nonprofit governance and management and certainly challenges the ability of these characters to prudently fulfill their duties of care, loyalty and obedience.  Here's the case from theLA Times and the San Francisco Chronicle:

An LA drug treatment center's chief operating officer, Albert Senella, earned $428,057 in 2007 while its chief executive, Scott Taylor, made $330,732 for working 32 hours a week, the Los Angeles Times reported Thursday.

Taylor, who is also chairman of the board of directors, also earned $237,956 as legal counsel aside from his salary.

The two executives and two board members also own stakes in six real estate properties leased to the center as its headquarters and treatment sites. In 2007, the four men collected rent of more than $2.27 million.

So......what do you think -- outrageous or what?  I mean really, the Exec is the Chair of the board and the organization's lawyer and landlord?  So much for checks and balances among a number of related issues.

Oh, and I haven't commented on the salaries.  Of course, I do believe that a nonprofit board must set a salary they believe is competitive and attracts people who can produce the organization's desired outcomes.  Now, whether this board, given who the chair is, can have an honest, straitforward conversation about exec salaries is certainly another question.

Nonprofit Exec and President Living Well off Nonprofit

Another embezzlement story comes out of New York via the New York Times where a nonprofit's Board President and Exec have been identified as taking from the coffers and spending the money on high end clothing and meals AND possibly, political contributions to relatives.  Quite a tangled web to sort out but with the two highest ranking folks in the organization doing the stealing, it may be easier to understand how governance and management processes and systems may have failed (assuming they were in place to begin).

Sad to say, in an unrelated but similar story of nonprofit abuse, with some facts remaining to be uncovered, a New York City councilman has created a non-profit (although only in name -- not IRS approved) that "has netted more than $100,000 in city money by leasing space at one price from Bronx landlords and then subleasing it at a far higher price to three nonprofit groups whose rents were later reimbursed by the city.  AND IT HASN'T CONDUCTED ANY SERVICES!  The nonprofit groups that subleased the space from the Councilman's nonprofits at inflated rates were all affiliated with the Councilman. The Councilman helped secure government contracts for them and financed them with city funds he controlled, and each of them paid at least one of his relatives either salaries or consulting fees.  See the story here.

Whew!  What to do?  I can certainly relay these stories and maybe they serve as wake-up calls to the public sector to set more rigid standards for accountability.  I don't know that private donors/foundations would be wiser and would ask more and different questions about what was going on in these nonprofits -- program, management and governance.  I would like to think that foundations in particular would know the difference between a nonprofit that is operating honestly, effectively and efficiently from one that is not.  Maybe it's harder for the public sector to know the difference, especially when that public sector includes politicians who may themselves not be fully accountable, never mind honest.

"Extreme" Nonprofit Succession Planning

Merce Cunningham has set a new bar for nonprofit succession planning.

Mr. Cunningham is 90 years old, a choreographer and founding director of the Merce Cunningham Dance Company.  And, according to the San Francisco Chronicle, Mr. Cunningham has given attention to his legacy and the future of his work. He has established the Cunningham Dance Foundation, a Trust that:

Once the company closes (sometime in the next couple of years), dancers, musicians and staff will be compensated and resources will be available for career transitions.

The trust will hold all rights to the choreography, which will be documented in digital form for future artists, students, scholars and audiences. Cunningham pieces will be studied or performed using videos of the original choreography, sound recordings, lighting plots, decor and costume design, as well as production notes and interviews with dancers and artistic staff.

To help finance the future, "An $8 million capital campaign is being launched in support of Cunningham's "Living Legacy Plan," with lead gifts including $1 million from the Andrew W. Mellon Foundation and $1 million from the Doris Duke Charitable Foundation."

All in all, this whole plan is pretty forward thinking and as noted in the article: "It offers a new model for dance companies and other artist-led organizations transitioning to a post-founder existence."

The article and planning does make me wonder a bit about what role his board has played in all this but maybe it's enough to know that for sure, the Trust will definitely have governance beyond Mr. Cunningham.  It appears that Mr. Cunningham has had his hand in planning that too.

Nonprofit Embezzlement -- Follow-up

The New York Times printed a follow-up story to two big national nonprofit embezzlement events of earlier this year: ACORN and Points of Light.

The ACORN story is pretty sensational with just under $1 million being stolen by a senior staff member (and brother to the founder and chief organizer) and then being covered up (from, apparently, MOST of the Board) by the exec with the cooperation of an affiliated shared services organization.  To top it off, the staff member wasn't even removed from his job 'till just last month (this theft was learned of in 2008).

The aftermath of the story? 

The executive director of New York Acorn, Bertha Lewis, who has been named director of an interim management committee set up to run the national group’s day-to-day operations, said Dale Rathke was paid about $38,000 a year but that none of that money was used to pay back Acorn.

Instead, she said, the Rathke family has paid Acorn $30,000 a year in restitution since 2001, or a total of $210,000.

A donor has offered to give Acorn the rest of what the Rathkes owe, and an agreement to that effect should be finalized in coming days, Ms. Lewis said.

“Now that this is under our watch, we are putting financial auditors in place, legal counsel in place, a strong management team in place to make sure this organization moves forward for another 38 years,” she said. “I will not allow and the board will not allow something like this to happen again.”

But the fact that most of the handful of people who did not disclose the fraud when they learned of it eight years ago still work for Acorn or its affiliates concerns many of the group’s financial supporters.

One funder said that his foundation will take a look at their future with ACORN after the dust has settled.

Meanwhile, over at Points of Light Foundation - well, things are basically back to normal after some effort to sell fake trips was identified and quashed.  Seems like they are not so friendly to embezzlement at this organization.

Thanks to the NY Times for following up on these stories. It's perfectly clear to me that the Boards still have a lot of work to do to ensure embezzlement is less possible in the future in addition to cleaning up its internal communications and the way it relates to and oversees its executive.  I would suggest there's likely other areas of organizational management and operations that warrant some attention at both the governance and management levels.