Nonprofit Board Crisis

Nonprofits given five years to pass public benefit test

Yes, that's the headline: Charities (ok, they use different names) Given Five Years to Pass Benefit Test.

Well, it got your attention, no?

The article, in Third Sector.com UK centers around the UK's Charity Commission's declaration that the 250 Independent Schools will have five years to "to improve their public benefit to acceptable levels".  Effectively, free or reduced cost tuition and "indirect benefits such as allowing local maintained schools access to facilities could be enough to pass the public benefit test".

Now, let's imagine the IRS releasing such a dictate to Higher Education and nonprofit Hospitals.  Wouldn't that make for a different sector?

Nonprofit Politically Appointed Boards

Throughout the US there are nonprofit boards whose membership may include political appointees.  So what you say?  I believe there can be big "so whats" including:

• these members do not always place the interest of the nonprofit above the interests of, let's say, their political masters;
• limited "ownership" of the nonprofit mission -- it's often not these appointees' passion;
• limited commitment in time or money -- in my experience, these members rarely make a financial contribution, may not ask friends or associates for money, and may not even come to meetings often sending proxies which the by-laws have been designed to accomodate knowing the reality (also noting that often times the proxies may care more about mission which can turns out well for the nonprofit).

We also know, from a variety of examples, that some nonprofits have even been established just to serve the financial interests of a politician.  Take for example former Pennsylvania State Senator Fumo (whose exploits I've chronicled about in this blog).  But apparently, we don't always learn from our mistakes. 

There's currently a proposal, again in Pennsylvania, to reform the state gaming act.  What's this have to do with nonprofits you ask? According to the Philadelphia Inquirer,

...a 1 percent tax on table-game revenues would be established to go to the counties in which casinos are operating. But, in Philadelphia, the revenue from this tax would go to a nonprofit that would be created and run by people appointed by O'Brien, Sen. Larry Farnese, and City Council. The money could be used only in the neighborhoods proximate to the casinos.

Now of course, the good news is that it's conceivable that millions, even hundreds of millions could result from this tax.  The bad news is, that, again, as we have seen with Fumo as a prime example, nonprofits created by legislators and then governed by legislative appointees may just not be the best idea.  It's really not good governance and not consistent with the nature of nonprofits. 

Now, if the legislature wants to set up a special public entity to manage, there are issues, but it is then not pretending that the effort is really "owned" by those who passionately care about some cause.  On the other hand, don't such entities already exist?

Nonprofit Board Members Step In.

The District of Columbia has filed for takeover of two homes for the medically disabled.  The homes are operated by a nonprofit organization.

According to the Washington Post, "a federal court monitor and legal advocates for the mentally disabled have been raising concerns for years about the quality of care at IDI's homes".  There are a number of examples in the article describing how this takeover came to be.

What gets my attention, board members, who include lawyers with a reputation for fighting the City on a variety of matters, don't offer an apology or offer to review the situation or make a commitment to work with the city.  Instead board members say the City is incorrect and should stop their efforts to takeover the home.  Nothing in my training about building community support says that taking the offensive is a good strategy.  And yet, here are board members stepping in with just this approach. 

Good news however: board members are stepping in and speaking on behalf of the organization.  Maybe this is not such a prudent approach but assuming that all the board know and understand the situation, at least they are engaged.

Nonprofit Governance: good or bad?

Bad Governance or Good Governance? 

That is the question presented in the Philadelphia Inquirer story about one Foundation that has run out of money, has a really valuable art collection and has a strategy for saving itself, but must win a legal battle to essentially change the founder's will which imposes really strict guidelines about mission and use of the assets.

The Foundation's strategy for survival is intended to fulfill but modify the way it achieves its mission.  Unfortunately for those who thought up this solution along with some very influential and helpful foundations willing to support the strategy, there are actually some who think the strategy is not consistent with the founder's intent.  The courts will decide who is most right and what in this case is good or bad governance. 

Nonprofits and States License Plate Partnership

Around the US there are a number of states that offer "special interest" license plates.  Most of the time these license plates offer a unique design that let other drivers know the license plate owner cares about or supports a specific cause (like the environment or no child abuse).  These license plates successfully spread the word about a cause and raise money for the administrators of the cause and the state.

This fall the Supreme Court decided a case around one of these special interest license plates.  The plate in question says "Choose Life" and as the message suggests, is sponsored by an organization that "supports adoption and opposes abortion".  The state of Illinois took the position that "it wanted to take no position on the abortion issue".  The group argued "the state's refusal amounted to discrimination against their pro-life message".   The Supreme Court sided with Illinois, ruling, as reported by the Chicago Tribune, "the state was free to steer clear of the abortion controversy entirely".

So, why do I care, you might ask?  I think this case begs the question about the relationship between the state and any nonprofit, especially when that relationship could result in one or more nonprofits actually gaining a fund raising advantage as they do in the case of special license plates.  For sure, a nonprofit's message certainly gets a broader brush when the delivery method is a license plate.  But, on top of this I begin to wonder if the same principles apply when the state wants to deny nonprofit status (freedom from state and other taxes).  Could a state say no exemption to all organizations that are controversial be it around abortion or civil rights?  Or what if the state legislators didn't like dogs and cats and decided not to give exempt status to animal rights group.

I'm afraid I'm not thinking this latest Court decision really helps States to think about nonprofits and when and how they should or should not support them and their issues.  Thus, there are certainly way many more issues involved here and again, nonprofits best stay on their toes.  This type of decision could affect their core existence, especially as states are under such heavy budget pressure.

Nonprofit Executive Pay Ceiling?

There's a lively conversation going on in the health care discussion around "encouraging limits on the compensation of insurance executives, responding to charges that expanding health insurance coverage would enrich insurance companies". (see Wall Street Journal)

You know, at least once a week there's an article somewhere about how "extraordinary" some nonprofit CEO's salary is.  My position on these matters stands: it's up to the nonprofit's board to set the rate (based on a number of factors) and it's up to donors to support the organization knowing how much the board is paying its senior exec and how much of their contribution they perceive is supporting the mission.

But, just imagine if state or federal entities decided to set limits on nonprofit CEO pay.  What kind of world would that be?

Nonprofit: Mission Focused Even Against Itself

Nice reminder in the Dallas Texas Herald that if a nonprofit's mission is to protect the rights of individuals or groups to protest, it must act even if the protest is against itself.

That's the story in Gate City, Virginia where the ACLU Exec voiced his opinion against the use of Jesus' name in a public school setting and latter expressed support for students who organized to defend their rights by printing Jesus' name on t-shirts.

Anyway, the specifics are nowhere near as important to me as the idea that the organization stood by its mission.

I do wonder though -- does the Exec have clear policies around when to act in a manner that can affect the support of the organization as well as the implementation of mission?  And, what does the organization's policies say about when the board is informed and engaged around such matters?