Nonprofit Board Crisis

Nonprofit Journalism Comes At A Cost

Back in September, a Slate author produced a nice piece on nonprofit journalism, a subject I've been following over the past year. 

If you've been following with me, I'm really dubious about the sustainability of nonprofit journalism.  The Slate author is equally dubious and adds another factor to consider.  Bottom line: I don't think we get a long-lasting sustainable model via nonprofits but I'd certainly welcome being proven wrong.

Here's the link.

Nonprofit Museum Sued for Failed Governance or Management

The California Science Museum is being sued for canceling a film promoting intelligent design.  This is a fact.

What is unclear is the actual reason for the cancellation.  The Museum simply states that the "client" didn't fulfill all the obligations of the contract - they didn't have a completed press release submitted in time.  Some say that the Museum canceled the film because of pressure from the Smithsonian.  The California Science Museum holds a privileged affiliate position with the Smithsonian and it's conceivable that it would be more responsive to Smithsonian interests (in this case, not promoting a less than scientifically supported theory about the origins of life).

Whatever the reason for the cancellation, I am drawn to consider this whole situation a failure of management and governance.  Without knowing all the facts, it strikes me that the Board of the Museum could simply have a policy that defines its position around intelligent design or a broader position that says what it won't do or will do from an exhibit perspective of course linking this policy to mission. 

Now, if the museum does indeed have such a policy I would suggest that what we have is a failure of management to stop this problem before it occurred.  Whoever up the chain of command accepted this contract needs to have a conversation about what was going on in his/her head.  Not accepting the contract might have caused a different set of problems, but at least the museum could stand tall and speak to mission or policy.

At this juncture, the museum board and management both look bad.  The museum looks like it has a policy without transparency.  And management looks like they failed in not following the policy.  Internally, this is a lose-lose situation. 

For more on the story, see the LA Times.

Nonprofit Charter Schools in Pensylvannia Need More Oversight

I'm confident that the number of nonprofit Charter Schools in Pennsylvania that have experienced fuzzy financial math or outright theft from the accounts or diversion of accounts for other purposes, both private and nonprofit, is few.  Unfortunately, one might not believe this if they review the number of incidents of financial malfeasance that has indeed occurred in Pennsylvania's charter schools.

One solution, as suggested in the Philadelphia Inquirer's story on this matter is to "close the loopholes that have enabled some charter operators to enrich themselves, and create a state office to oversee charter schools and investigate complaints of fraud and mismanagement".  And, this may be a correct step.

I would propose however that what is going on is just plain bad governance.  Governance of course is where the real oversight is "supposed" to occur.  In once instance where the board chair is the offender in cooperation with the school administration, the remainder of the board might have stepped in asking the right questions and stopping the problem.  However, where board members are more friends than "owners", stepping-in to correct one member's action can be challenging.

Then of course there's the simple matter of training in terms of what exactly good oversight looks like and how it's accomplished.  This is where I think "reform" might begin in Pennsylvania.  Good governance training can go a long way to ensure that nonprofit boards are accountable and smart about their service.  And, while I'm on the topic, all governance training should begin with the Board Chair.  Board Chairs can, it is my opinion, make or break a nonprofit.

Nonprofit Governance and the 990

With the introduction of the revised 990 tax return in '08 and the upcoming tax filing for many nonprofits who use a calendar year, there are sometimes questions about the role, if any, for the board around this activity.  I recently received the following query on this matter:

The President of my Board just mentioned that she had heard that there is a new
requirement for the 990 filing that has all board members literally sign off on
the filing. Does anyone know anything about this?

While I am not attorney, I do believe that the Board president of this nonprofit may be taking the IRS directive too literally.  I think on the other-hand that a practice of having each board member acknowledge they have read, understand and vouch for what has been stated in the 990 is a great idea.  But, in reality, the task of reviewing the 990 is generally delegated to a task force or committee (note thought, I am not a fan of standing committees) and the IRS does not actually prescribe who nor how many folks review and act on the 990.  The IRS does however presume that the Board does know and understand what's stated in the 990 and can hold individual members responsible should something have been stated that is erroneous or even false.  Hence, members can be rewarded for their due diligence and really, if the Board are the actual stand-in owners (for the public), then it's reasonable for them to have a formal process where they can discuss and perhaps act on the 990.

 

That said, here's what the IRS says:

B. Form 990. Although not required to do so by the Internal Revenue Code, some

organizations provide copies of the IRS Form 990 to its governing body and other

internal governance or management officials, either prior to or after it is filed with the

Internal Revenue Service. Practices differ widely as to who sees the form, when they

see it, and the extent of their input, review, or approval. Some, especially smaller

organizations, may provide a copy of the Form 990 to the full board for review or

approval before it is filed. Others provide a copy of the form to a portion of the

governing body, or to a committee or top management officials, before it is filed. Still

others provide a copy to the board, a committee or top management officials, but not

until after it is filed. Organizations that file Form 990 will find that Part VI, Section A,

Line 10 asks whether the organization provides a copy of Form 990 to its governing

body, and requires the organization to explain any process of review by its directors or management.

Happy tax year ending to all!

Nonprofit Mission

These holidays strike me as a perfect time for revisiting mission.  Of course, I'm probably more likely to think that every day is a good time to revisit mission but let's just say that these end-of-year time-offs and celebrations/moral-spiritual reflections are an especially good opportunity to dig a little deeper in visiting mission.

In wrapping up the year for myself, I have been doing some catch-up reading and found within the Taxation of Exempts (July/August 2009 -- a strictly subscription available journal) an article prepared by Attorneys James M. Matthews and Sarah Gohl Isabel from the firm of Bryan Cave LLP.  And, no, I don't know anything about these folks except that they wrote this article for the journal titled: Adopting More Good Policies is Good Policy.

The article focuses on the job boards of 501 (c) nonprofits (although the authors refer to these as EO's -- exempt organizations) have in adopting policies that more currently address the 2008 redesigned 990's.  Apparently there are quite a few policies that a number of types of nonprofits (like hospitals) must adopt to ensure compliance.

The policy that caught my attention is one that I don't think nonprofit boards think much about as policy but are more likely to visit, at least during strategic planning processes.  Now, what gets interesting to me in this article is the description by these authors of what they believe the IRS wants to have included in the mission.  Note, I'm not agreeing, just offering for your consideration.  Here's what they have to say:

Every nonrpofit should have a mission statement articulating its purpose and the reason for its existence. 

A mission statement defines "why" an EO exists, and its every activity can be measured against that statement.  I DO AGREE.

Nonprofit board members and staff should be able to verbally express this mission.  I DO AGREE.

A clearly articulated mission statement should be consistent with the nonprofit's articles and bylaws and serve as a guide for its work by (1) focusing its energy and clarifying its purpose; (2) attracting people and resources and motivating people (e.g., board, staff, donors, and volunteers) to the EO's cause; and (3) informing the public about the EO's guiding principles, values and activities.  SURE.

A well-drafted mission statement should be one sentence with a clear, concise, precise, and hopefully inspiring message (I AGREE).

It should incorporate three statements: the nonprofit's beliefs and values (a "value statement"); what the nonprofit seeks to accomplish (a "purpose statement"); and what, where, and for whom the nonprofit's activities and programs will be undertaken to accomplish its mission (a "business statement").  (MAYBE but I'm not do not ret8totally like the labels (purpose and business in particularly) but put those aside, this works).

Whatever the language though, this is a perfect time for nonprofit boards to visit their mission statement and be sure they know who they want to serve and what results they want to achieve as a result of their efforts.  This is indeed what a mission should reflect and inform.

Nonprofit Obituary

The New York Times offered a kind-of obituary today on the Boys Choir of Harlem.  Within the obit were some lessons about nonprofit founders, succession planning and nonprofit governance.  Of course, these items are all intertwined.

According to the article, the Choir technically informally ceased operations in 2007.  The Choir had 9 years of performances -- all acclaimed and life-changing for both the performers and the audiences.  But despite what it could do exceedingly well programmatically, it was not able to perform quite as well administratively or at the governance level.  It would require a lot of interviews to understand the turn of events that resulted in a choir that could no longer stay in its founding building or pay its payroll taxes never mind address legal, essentially personnel, issues.  Alumni have been successful in organizing a performance of former choir members this month.  But that performance was also used to officially announce the death of the choir. 

There's reason to believe that there's a market willing to support a Boys Choir of Harlem.  So why did it have to end?  Was the failure to thrive all about an exec who was charismatic and inspirational but not a strong administrator?  Or does the choir's demise rest more squarely on the shoulders of the board of directors which did not provide the best oversight or apparently failed to plan?

We would all benefit from a student project that would include interviews with each board member to better understand the experience of the Boys Choir of Harlem.  Such a project would obviously not replace the Choir but it could serve to provide us with insights about how and why a nonprofit board's path leads to similar endings.

Nonprofit Board May Win This Year's "Worst Award"

The Stevens Institute of Technology Board of Directors is composed of some pretty bright and well connected folks. Unfortunately, these pretty bright and well connected folks appear to have very little capacity in the prudence area.  Recall please that prudence is pretty much the standard for assessing whether a nonprofit board is making the best decisions, in a fiduciary manner, for the organization.

The Stevens Board doesn't pass the test for prudence.  The New York Times article, which tells the Stevens story, has a list that is essentially too long to review in today's blog, but believe me, this board fails in the category of best board.  I suppose, assuming the members were not very bright, one could argue that these folks just didn't know how to ask the basic questions that help assess how well or badly, particularly financially, an organization is doing. 

Could it be that these bright folks didn't ask for or didn't know how to read financial reports? 

Could it be they really believed that their president deserved a salary more than the president of Harvard, Princeton, MIT and Berkeley? 

Could it be that they really thought all was ok when two board members identified issues and then resigned?

Could it be that their best information about the school came from a State Attorney?

All this is certainly head scratching to understand the whys and wherefore's but do note: if you are a nonprofit board member and think you can't be individually and severally sued for, uh, imprudence, think again and take a look at this case.  It is a definite learning experience.

Nonprofit Tax Dropped

Well, the battle is over, at least temporarily.   The Pittsburgh mayor has withdrawn his proposal for a tuition tax to address his city's budget challenges.  Please appreciate how precedent-setting this proposal was to essentially tax area nonprofit institutions.

But, according to the Pittsburgh Post-Gazzette, "Mayor Luke Ravenstahl yesterday shelved the levy (tax) in favor of pledges of help from universities, tax-exempt organizations and the corporate community.  The  promised "help" will take the shape of a group appeal to the State for changes in the rules that govern the city's finances in addition to some promised increases in PILOT changes by some of the institutions.

The good news through all this was the coming together of nonprofits throughout the city -- even those who at least on the surface, would not be affected by the proposed tax.  Perhaps it was the anticipation that the passing of this tax would lead to additional taxes on nonprofits.

The bad news: Pittsburgh has not solved its fiscal challenges.  Nor have the many cities who saw this a reasonable approach to resolving their fiscal challenges.

Nonprofits and PILOTS

PILOT -- in the nonprofit and municipal world, PILOT means "payment in lieu of taxes".  Most often, we see a PILOT offered by universities and hospitals. 

A.J. Thompson of the Philadelphia Inquirer offers some PILOT-related suggestions after musing that:

(PILOT) payments are incredibly low when measured against their holdings, especially revenue-generating facilities on their expansive campuses. The city now gets next to nothing in these payments despite the large portion of city real estate owned by these universities and other large nonprofits.

He also notes:

We know that some of the larger nonprofits have large operating budgets and even have some enterprises that make a profit each year. Their executives earn for-profit-type salaries (because they do a good job and have made those institutions into economic engines for our city).

The universities, medical centers and other organizations contribute much to the vibrancy of our city and have helped develop areas that needed it. But they've done this while remaining largely exempt from paying for city services like any other business. Admittedly, since the city real-estate tax and assessment system is in a state that even Franz Kafka couldn't put into words, our city couldn't even dream of calculating a fair payment from these organizations - but I think we should challenge these entities, much like Pittsburgh did.

So, Mr. Thompson offers other equally interesting recommendations:

Let's get a few business and nonprofit leaders together to examine the needs of the city's threatened libraries, swimming pools and cultural institutions.

They can examine what some other cities are doing, calculate the needs we have and come up with a fair number for the next five years. Sunsetting the payments should dull the protests.

The money can be dedicated to funding just those "luxuries" we're told we can't have anymore, the ones that, to most of us, make Philadelphia home. Instead of calling them PILOTs, we can jazz up the acronym to FUN, for "funding underbudgeted necessities."

What do you think -- how likely the possibility in your city?

Nonprofit Boards: Imperfect Metrics

Eugene Fram (author of Policy vs. Paper Clips) sent me this nice piece to help boards think about metrics and more importantly pay attention to something other than day-to-day operations.

To me Mr. Fram offers two important lessons in this piece titled Using Imperfect Metrics Well.  First, Mr. Fram reinforces that it is really up to the nonprofit Board to determine what success is for a nonprofit AND, determine if success has been achieved.  Of course, and the bottom line to the article, some metrics, some measure of success, is necessary for effective governance.

Mr. Fram's second point and as he puts it: Using metrics, no matter how sophisticated, should never be divorced from the working relationship of the players.  Their level of shared understanding, interpersonal trust, and willingness to be vulnerable are as important as the measurement tools they employ.

Here's Mr. Fram's and his co-author Jerry Talley's pdf for the article. Download Metrics_finale.pdf-12-09