Nonprofit Board Crisis

Sign That Something May Not Be Right In Your Nonprofit

When the FBI shows up at your charter school and seizes your financial records, you can be pretty confident that "Something May Not Be Right In your Nonprofit".

Our case today is in Philadelphia where the FBI has seized the financial records of two charter schools.  According to the Inquirer, this is

"the latest in a string of investigations into possible financial mismanagement at city charters.....In recent months, several Philadelphia-area charter schools have come under investigation for fiscal wrongdoing.

Last month, two leaders of the Philadelphia Academy Charter School pleaded guilty in federal court to stealing funds from the school. In May, Brien N. Gardiner, founder of the school, committed suicide.

Allegations of financial mismanagement have also been leveled at New Media Technology Charter School, with campuses in the city's Germantown and Stenton neighborhoods, and Germantown Settlement Charter School, which closed in June.

In my judgement, if there was ever a need for good governance, it's at these Charter Schools.  Clearly someone is failing to provide oversight and I believe that all nonprofit oversight must begin with the board of directors.   

Nonprofit Exec's Salary: A Story About Nonprofit Governance.

In its story about New York's High Line Park (a former industrial rail line) New York Times' SERGE F. KOVALESKI focuses on the salary of the Executive and co-founder/development director.  And maybe this focus is appropriate as we learn that while the board has set a salary it believes is appropriate (for the work and results) and comparable (to similar positions), there are facts the suggest that maybe the board isn't all that objective.  Specifically:

At the outset, he and Mr. David formed a board with several other supporters, and they elected a chairman, who served in that position until early May this year.

Four of the original board members, along with the rest of the board, have been involved in approving Mr. Hammond’s compensation over the years. The Friends of the Highline said Mr. David and Mr. Hammond recused themselves from involvement in each other’s compensation. Gifford Miller, the former City Council speaker, who became friends with Mr. Hammond when the two were students at Princeton, sits on the board, too.

So, the board is the product of the exec but salaries are set without the two "in the room".  Is this great nonprofit governance?  Are these "hand picked" folks fulfilling their duty of care to the max?  Mr. Kovaleski certainly leads me to wonder whether the answer to these and other good governance questions is yes. And, this really is a good case study around what is good nonprofit governance.

Regarding salary though, even if the board is "suspect" the donors in the end will really place the deciding vote.

Nonprofit Governance: Transparency's the Key

A recent article in the Richmond Times Dispatch furthers an interesting discussion about what supports a responsible and responsive nonprofit board.  The "recipe includes picking the right people for the board, training them for oversight and making sure board members know not only how to find out how money is used, but how to ensure that it is used responsibly."  The article also offers a brief environmental scan describing or explaining some of the forces working toward a high performance state for nonprofit boards.

For sure, all of the incidents I chronicle in this blog point in particular to cases of poor oversight and large gaps in information.  BUT, this recipe may dumb down the one driver I believe really makes for a great nonprofit board: the individual and collective passion for the nonprofit's mission.  If the passion is there, the board's focus on desired results will be escalated and drive all discussions and subsequently, drive questions that in themselves, demand transparency.  I recognize that "picking the right people" may include this component, but not spelling this out may significantly reduce its importance. 

Colleges Say "Stop" Over Trademark Issues AND Concern For Students

As you likely know by now, Budweiser is pretty much dropping its "team-color" Bud "fan" cans campaign.  Bud distributed its beer in cans the team colors of a number of colleges located throughout the country.  The reception by college officials was poor to downright upset.  The issue: the colors of the cans may lead students to heavier drinking -- an apparent big problem on colleges.  But is this really the problem?  Or is the problem really the trademark issue -- I mean really, the colleges didn't give permission to use the school colors and as a consequence, aren't getting their share of the sales.  I do wonder that if Amheiser-Busch came back to each school and offered to share revenue, would the colleges back off their position against the fan-cans?  I mean really, isn't one of the central themes of college sports, college revenues?

The Wall Street Journal offers a good review of this matter.

Nonprofit Revenue Generating Venture: Inspirational

From Entrepreneur Magazine we can be a bit inspired by the relatively successful efforts of the Cistercian Abbey of Our Lady of Spring Bank in rural Sparta, Wisconsin.

According to the article, Father Bernard McCoy was challenged by how to keep the abbey going financially.  In his research he "went through so many pages that his printer ran out of toner."   He recognized the toner as way too expensive and that led him to search for alternatives which led him to create a vehicle for acquiring and distributing cheaper ink and toner as a middleman on-line.   The monk's venture now generates between $25,000 and $125,000 a year to charities in addition to income for the Abbey.

The article ends with a reminder about the first calling of many monks some 900 years ago: copying manuscripts and making their own paper and ink.

Now the business, LaserMonks, "is an online retail business that sells toner, printer ribbons, and copier and fax supplies, as well as products from other monasteries". And this, is what I think may be best about this venture and representative about what needs to happen more between nonprofits.  That is, the creation of partnerships that can compensate for the losses so many are experiencing.   A good lesson for all.

Is Nonprofit Really An Answer for Failing For-Profit Newspaper?

The board of directors of the Nichi Bei Times has declared it's time to go away as a for-profit but return as a nonprofit.  While 63 years old and "the oldest Japanese American community newspaper" it has experienced a steady decline in subscriptions and advertising revenues, just like most for-profit newspapers in the US.  But the board thinks the answer for reviving the paper lays in creating a nonprofit "supported by donations, fundraisers and grants".

A novel idea this is not and yes, there are efforts being made to establish a nonprofit news media the long-range sustainability of which remains to be seen.  But the potential success from a for-profit conversion does have me scratching my head.  At minimum there's the simple question: if the paper couldn't succeed as a for-profit, what exactly are the facts that make the potential for success as a non-profit -- especially in these times when foundations and individual donors have so much less to offer and/or have so many competing philanthropic demands?  I'm just not seeing it but maybe the business plan says otherwise.  I wish these folks the best but I'd be looking to other strategies -- say for instance, a merger with the one other major competitor, or perhaps, a consolidation with other ethnic newspapers -- hardrer I'm sure but?

See more about this story in the San Francisco Chronicle.

Nonprofit Embezzlement Pays Off for Former Board Chair

The former chair of two nonprofit boards has received the equivalence of a "get out of jail free card".

The board chair in question had the legal case winnings of two charities he chairs deposited directly into his own personal account.  His penalty: he was removed as board chair and can't be a trustee of any other board (that's how it can work in this British system) and I imagine it must be enforceable but I'm not sure how unless the Charity Commission (the regulating agency) does a background check on every trustee.  Imagine how that might work in the US.

Anyway, the same Commission has ruled that it is not in the public's interest to pursue the stolen money.  Its report states that "the costs would be high and the prospects of successfully enforcing judgement against Dr Seray-Wurie were low. The money had been spent."  In addition, some of the money was actually spent for the charity, leaving how much was stolen in question.

No matter what, if this was the way these cases were generally handled, I'd think it would actually encourage a lot more no-consequence embezzlement.

For the story, see the article at ThirdSector UK.

Museum Exec makes $1 Million

There's a bit of a hub-bub going on in LA where the Exec of the Los Angeles County Museum of Art is being criticized for having an annual $1 million salary and benefits package.  According to the LA Times, "One reason the LACMA board of trustees decided to pay top dollar for a director is that it wanted somebody to raise the museum's profile."  While the hub-bub on the surface is about the size of the pay, a more central issue is that the Museum is making some program cuts and/or not filling some vacancies and this is of course what got someone to get the press' attention.  Plus, there's some public money involved (not a whole lot though).

Now, the article does note that a $1 million package is actually not that unusual in the "big" museum business.  It may be a bit high for the grandness of this museum but in reality, this is apparently the going rate for big fundraising types who run museums.  What I really scratch my head about is why this is indeed the going rate.  Why are execs like this considered so "valuable" and necessary to their trustees?  There are after all lots of other nonprofits where the exec has to proportionately raise lots and lots of money and they aren't paid this handsomely.  And, in these times, aren't the trustees raising any money?

Well, way more questions than answers but on the surface, it doesn't seem fair.  And yet, it is the "best" practice.

Chocolate Charity: On Mission?

Milton Hershey's (yes, the chocolate candy guy) school celebrates 100 years this week.  Mr. Hershey and his wife had no children and left their fortune to the school.  The school is worth about $7 billion (yes, billion).  It's a residential school on 10,000 acres including a farm and serves about 1500 kids (this year).  After graduating, the school will pay up to $77,000 in college tutition.

Who is served by the school has changed a bit since its founding.  Once, it was just white boys.  Now, its girls, boys and kids of color.  Is it doing enough -- giving 1500 students a chance at being successful?  That's the question to be answered by the current trustees -- and maybe -- into the future -- the school's graduates. 

See the story here.

Nonprofit Trustees and Accountability

A good reminder about nonprofit board accountability and responsibility is provided in the ThirdSector UK article about a private school board that chose neither to suspend (at least temporarily) its headmaster while allegations of sexual impropriety were being investigated nor limit his contact with students after his return to the school. 

While the now former headmaster was cleared of charges, the final paragraph from the Charity Commission (regulatory body) provides the lesson.

The inquiry report says there was subsequently a "marked and positive change in the attitude of the trustees", who are now "fully cooperative with the commission". They prevailed on the headmaster to leave the school later in September and have accepted a commission direction to hold a comprehensive governance review within six months of the closure of the inquiry in February.

What do you suspect the typical school board here in the "states" would do with this situation, or any nonprofit for that matter?  The reminder: boards are accountable for what happens next.