Nonprofit Board Crisis

Nonprofit News: Is this REALLY a good business plan?

Well, three-cheers for the brave recovering reporters who want the news show to go on, but is being an un-endowed nonprofit really the best approach especially given, in this case, the state of public television.

From the Hartford Courant,

A Denver public television station is planning a nonprofit investigative news operation with a Web site and on-air program.  KBDI-TV said this week it will launch the project when it raises an initial $400,000.  ...KBDI's president and CEO, says the project will ask for tax-deductible donations from community members, corporations and foundations — similar to the donor base for public television.

The operation will be called Colorado Public News. The editor-in-chief is Ann Imse, who was a reporter for the now-closed Rocky Mountain News.

So, what am I missing here?

Nonprofit Board Composition

The Taxation of Exempts (subscription required) is a thoughtful journal that recruits professionals, generally accountants and attorneys, to provide a snapshot on some aspect of nonprofit law and compliance.  The magazine may be a bit esoteric for some folks, those who like their nonprofit literature more along the applied vein, but some of this thinking can be really helpful, particularly for educating boards.

In the November/December 2009 issue an article titled "Selecting the Board of A Public Charity" caught my attention.  The article, by Maryam K. Ansari (an attorney practicing in the San Francisco area) provides an interesting framework for thinking about recruiting nonprofit board members.  As this is a long article and does not appear available free on-line, I'll just offer some of what I think are highlights.

The article starts off noting that:

A strong board is crucial to the viability of a charitable tax-exempt entity.  The board of directors is at once the ear, the brain, and the face of the organization.  It is the organization's primary decision maker along with the CEO and other officers.  A well-selected board can generate both "brand" recognition and donations.  Most importantly, it can amplify the achievement of the entity's exempt purposes.  At the outset, an effort generally should be made to select a governing board with members who will further the exempt purposes of the organization while at the same time minimizing the possibility of conflicts of interest.

Pretty good descriptor, although I for one don't generally think about "selecting" and "conflict of interest minimization" in the same breadth.  The author goes on to state that:

It is important that possible conflicts of interest be considered and that board members generally be educated regarding which transactions are permissible and which ones raise red flags for the IRs or state attorneys offices.  Once initial board members have been selected, they must be well-educated on the issues that may affect the organization's tax exempt status.

Hm, again.  Not where I naturally go but a good point.  The article's summary states:

The improper selection of a board of directors can jeopardize an organization's tax exemption, while the proper selection of a board can strengthen the organization's exempt status, credibility, and mission.  An impartial board demonstrates to the IRS a genuine desire to further the organization's mission and partially negates any suppositions of private gain.

In addition to the selection of board members, their education on the issues affecting tax exemption should never be overlooked, and the necessity for enacting a strong conflict of interest policy for the board can be a crucial step in avoiding future complications.  Further...substantiation is of critical importance when dealing with the IRS, and organizations that are exempt from taxes are not exempt from the burdens thereof.

So, there you have it --- food for thought for all ED's and Board Chairs.

Nonprofit "Owners" Earn $7 Million Over Past 5 Years

In an LA Times story that has everyone riled up and all the nonprofit press chatting (see Chronicle of Philanthropy and Nonprofit Professionals Forum among others), we learn that:

Edward Dawson started his business from scratch in 1978. He and his wife, Marcia, built it into a $63-million-a-year enterprise with offices throughout California.

The couple, who earned more than $7 million in salary and deferred compensation in the last five years, now own a villa overlooking the beach in Palos Verdes and other real estate worth millions of dollars.

This is one of those classic stories where two individuals (a married couple) have found a way to profit off of their nonprofit work, the "business" referred to in the article, which is an organization that works with the developmentally disabled.

As I consistently state, it's up to a nonprofit's board to set salaries and it's up to the donors or customers, in this case the state as contractor, to determine what the salary should be and if someone will pay that rate.  The article goes on to note:

(The Dawson's) financial practices were unusual enough to prompt an investigation by the state attorney general in 2000 into whether SVS' board of directors was placing the Dawsons' personal gain above the nonprofit's public mission.

But after the investigation ended in 2004 with a confidential settlement -- obtained last month by The Times through the Public Records Act -- the board gave them raises.

Bottom line, if it's anything in this story that galls me, it's this last point.  The board gave them raises even after an investigation that provided them reasons to believe that maybe the pay schedule they were using was not the best for a number of reasons. 

Essentially, what's going on with this situation is a failure of governance.  This is a board that doesn't understand that this nonprofit is their business, not the Dawsons. 

This is a board that, I believe, has over-valued the contributions of its executive staff.  But have they really?  Just this week we learned how much some private university presidents are making.  Maybe the Dawsons' contributions to the developmental disabilities community are worth the big bucks they are making.  Maybe.

Nonprofit Exec Compensation: Again

Most folks around the world are in a deep economic slump.  There are exceptions of course -- the rich mostly.  But would you have guessed that one of these exceptions is NONPROFIT private university presidents.  Yup.  It definitely pays to be one of these folks, particularly during bad times.

In a report from the Chronicle of Higher Education we learn that the highest paid president has a pay package valued at just under $1.6 million (yes, that was million).  The next highest paid only makes about $1.5 milion.  Now of course, this is not the norm.  Only 23 of the 415 universities in the survey make this kind of money.  The actual median pay for the whole group is about $360,000 (which means that 1/2 earn more than this amount and 1/2 earn less). 

Now of course, as I always say, this is primarily a matter for one group of people -- the trustees (board of directors).  The New York Times asked the Chronicle of Higher Education's editor:

"Why is university presidents’ pay going up so much?" 

"I think the answer you’d get from the governing boards that set these salaries is that it’s a market and it’s increasingly hard to find these people.”

However, presidential pay is a matter for quite a few other people, who in one way or another "influence" the trustees, that is the donors, the faculty and the students/parents. 

Now, remind me: why are private universities tax exempt?

Nonprofits Vs. Public Transportation

The New York legislature has just passed a Metropolitan Transportation "rescue" bill that will impose a tax on nonprofit organizations among others, including taxi drivers.  Taxi drivers of course would be the first to complain, although I find it difficult to be totally sympathetic when I believe that the benefits of public transportation far outweigh the benefits of taxis and private vehicles (which will also feel a tax increase). 

But taxing nonprofits does raise concerns for me.  According to the New York Times, "a single rate for the payroll tax in all 12 counties served by the authority — a tax of 34 cents for every $100 of payroll" will be applied retroactively.  Private schools in particular, who note that this tax does not apply to public schools, are currently the most vociferous over this tax.

So, I am honestly not concerned about private schools having to pay a tax when public schools do not.  After all, it is a choice for the public to not use the schools that they "own" (public that is).  What does concern me though is the idea that the public sector has found a rather clever way to tax nonprofits.  This should raise eyebrows -- if the public sector can tax nonprofits for this purpose, why not for other purposes?  And at what point then does being nonprofit provide the benefits that tax-exempt status is supposed to offer? 

Understand, I very much support public transportation.  But I don't support going through the back door to tax nonprofits -- especially during these times when it's hard enough to raise money to achieve mission.  And, I worry that this will become a trend, not a one-time incident.

Nonprofit Dies For All the Right Reasons except Mission Accomplished

Thanks to Don Greisman for providing the story and analysis about a nonprofit hunger program in Texas that died as a result (in my opinion) of all the activities we associate with bad governance and management and perhaps, a public that did not commit to keeping the services alive. 

Take a look at the story here.  You be the judge.

Nonprofit Exec's Salaries: Reason Hospitals Aren't Charitable?

Thought for today from the Philadelphia Inquirer about a student protest (yes, really) at Independence Blue Cross:

Independence Blue Cross proved an easy villain, for its immensity, its proximity, and Frick's heart-stopping $2.7 million salary. The nonprofit giant often acts like a for-profit, wielding its monopolistic power to dictate prices and contracts.

There's another article in today's New York Times, which, while focused on legislator corruption, also talks about the salaries nonprofit health care administrators are making.  And it's here where I'm conflicted.  Clearly, the higher the executive's salaries, the higher the cost to the consumer or the government (depending on who is paying) thus contributing to further inaccessibility.

But, I've consistently argued in this blog that it's up to the nonprofit board (who determines worth/value) and the donor (who does the same) as to whether these salaries are acceptable.  I do not get to complain about a salary just because I think it's unfair, or because so few people make this kind of money, or for any of a number of other reasons.  On the other hand, some argue this kind of salary has an impact on the cost of care, which ultimately affects whether people get health care, but does it really? 

Maybe an exec's salary is just an easy target but one which is really just an itty bitty slice of the costs of health care, and perhaps those making the highest salaries do so because they are excellent at what they do, attracting talent and donors and implementing efficenices, bringing benefits to thier institutions (and those they serve)far in excess of their salaries.