Nonprofit Board Crisis

Nonprofit Sets Standards and Consults to Achieve Standards

In a New York Times article on how the American Museum of Natural History's food court has achieved a "green" standard, there was a reference to the green standard setter, the Green Restaurant Association. 

As noted in the Times article, the Association created the rating, awards the certification, AND, "as it turns out, specializes in consulting with restaurants to get them up to this standard".

First, let me be clear: I am very much committed to the Association's goals and standards.  We, America and the world, need what the Association has to offer and rating systems are an excellent way to raise all boats, uh, well, restaurants.  Certifications, as it turns out for other organizations that do certifying (think "Fair Trade), are excellent sources of revenue for nonprofits that would likely have an otherwise difficult time with sustainability. 

But, (yes, there is a but) would I really withhold certification from an organization I had spent lots of time (and charged lots of money) to try and make certifiable?  I am not so sure.  Yes, it is in the best interest to have as many groups as possible certified and paying their certification fee.  But the guidelines should be enough to help folks know what the standards are, and roughly how to achieve them.  Working to help folks achieve the standards -- I'm just not sure about that.

Nonprofit "Back-Door" Tax Blocked By State

The college tuition tax being proposed to fill a significant budget shortfall in Pittsburgh is again facing obstacles but this time by the state.  Whatever the logic, a state Representative is forwarding a bill through the State House to "outlaw local tuition taxes".

I remain mixed about the "back-door" approach to taxing nonprofits but I don't have a better option than that developed for Pittsburgh which hopes to approve a 1-percent tax on tuitions.  Assuming that the mayor doesn't pursue similar taxes for other services provided by nonprofits (like daily health care at a hospital), I think this 1-percent tax to be an excellent idea and one that does not affect the incomes of the colleges.

So what exactly is the stake in the ground the State has in this issue?  Meanwhile, nonprofits everywhere should be on-guard.

For more on the story, see, the Philadelphia Inquirer.

Nonprofit Schools to Get More Oversight

A proposal passing through the Pennsylvania legislature will overhaul the Charter-School Laws and "require additional oversight of charter-school administrators, board members, and charter-management companies and create an office in the State Department of Education to investigate allegations of fraud and mismanagement at charters."

I must say that Pennsylvania has certainly had more than its share of malfeasance within the governance and management of its Charter Schools over the past year (as I have pretty much chronicled).  Increased oversight will hopefully lessen these incidences.  On the other hand, one provision does have me scratching my head a bit.  That provision will "allow colleges and universities to approve charter schools".  And what exactly does this do?  I'm not so sure but back to oversight -- its an absolute must! 

See here for the story.

Nonprofit or Forprofit: That is the question.

 How exactly does Zeus (not the ancient God) justify being nonprofit?

Well, the IRS gave Zeus Energy Movement nonprofit status. According to the New York Times, "Zeus Energy Movement is a charity established last year by four engineers in Texas to develop devices to harness various forms of alternative energy, like a gadget that turns the energy from ocean waves into electricity".  So, doesn't that make this a moot conversation?

For some reason the New York Times doesn't think so.  Why?  Because, "the hope is that Zeus will develop products that will attract interest from major companies, which would buy the patents", ok, sounds like a reasonable sustainability strategy so far.  "But a pending application for a patent on the wave device makes it clear that Mr. Gray", one of the founders, "not Zeus, would hold the patent." According to one of the Zeus principles, “Who owns a patent is irrelevant until someone deems it of value."  Are we supposed to assume that as soon as someone deems it of value, Mr. Gray will turn it over to the nonprofit?  How likely is that?

What exactly makes Zeus a nonprofit: It doesn't appear to be their products -- these are supposed to be commercially interesting and ultimately viable.  And it doesn't appear to be the ownership structure -- it appears that the individuals involved in the venture hold the rights. 

No doubt there is more to this than the article lets on, can the IRS really of given tax exempt status to a group that will develop products the rights to which will lie in private hands?  If so, what exactly was the IRS thinking?

Nonprofits, Public Benefit and Fee-Charging

As I have occasionally noted in this blog, in England and Wales there exists a Charity Commission "that provides the best possible regulation of charities ... in order to increase charities' effectiveness and public confidence and trust".

A major focus of the Charity Commission is to assess the degree that charities provide a public benefit.  How well do you believe that US nonprofits would do with such a test -- especially Universities, Hospitals and Arts Institutions? 

Here's a copy of the Charity Commission's guidelines around public benefit and fee-charging.  You be the judge.  And, how good of an idea do you think it would be to have such an institution with such standards applied here in the US? 

Nonprofit Founder, Board and Staff Member Repays Undocumented/Unallowed Expenses

The LA Times story was that the famous (in the Charter School/Educational) founder, immediate past-chair of the board and current board & staff member (all the same person) re-paid $50,000 "after an internal review determined that expenses he had charged were undocumented or unjustified.  According to the article quoting the new Chair, "The disallowed costs related to missing receipts and 'isolated instances of expenses that were more extravagant than they needed to be for a nonprofit," such as lodging at higher-grade hotels.'" 

Expenses more extravagant than they needed to be for a nonprofit?  That's a good one.  There's a rule about this?  Oh, and this all came about because "the rapidly growing nonprofit transitioned from Barr's (the Founder's) ad hoc creation to a nonprofit run according to proper accounting standards".  Uh, ok, but what were they doing before? 

Well, be that as it may, I am way more struck by the idea that the founder has been the Board Chair 'till now, is still on the board AND is a staff member.  Hello?  There's one discretion but imagine the possibilities.

Nonprofit Backdoor Tax Postponed

Pittsburgh's planned effort to indirectly tax its major nonprofits, particularly universities, by putting a tax on tuitions have been temporarily put on hold.

There's not much more said in the Philadelphia Inquirer article except that while 5 of 9 of the Council members are ready to vote affirmatively for the plan, they would like to find "an alternative way to collect money from large, nonprofit, tax-exempt institutions, most notably the universities".

Huh?  Let's see.  One option is to "ask" universities to pay a bigger portion of a PILOT (payment in lieu of taxes) than they are currently paying.  Seems to me that the universities could conceivably be just fine with the 1% tax because in essence, they themselves don't directly pay the added tax, their students do.  So, why would the nonprofits voluntarily agree to pay-up more?  

The Council members should just go with this plan.  I may not totally approve of this back-door approach to taxing nonprofits and I do worry that the concept could expand to include a tax on nonprofit hospital and nursing home patients and, well, you get the picture.  But, factually, this is not a tax on the nonprofit but on the user of services.  And maybe that's ok, particularly if it means giving life to a city.

Nonprofit Says "No More" To Nonprofits

A couple of years ago, the beneficent NONPROFIT Harvard Law School offered to "give back" to the nonprofit sector.  Perhaps it had a moment of consciousness that it wasn't like your normal everyday economically challenged nonprofit.  Back then, the School said "it would waive tuition for third-year students who pledge to spend five years working for nonprofit organizations or for the government".

Well, the School is not going to continue its practice.  Twice as many students as budgeted applied to the program, meaning the school would have to spend about $6 million a year instead of $3.

"That" was just an experiment it says, and the experiment cannot continue because something terrible has happened.  Its endowment has slipped to a measly $26 billion.

Yes, the school has had to make other cuts as well, but this program was special -- it reinforced that Harvard was, well, nonprofit.

For the story, go here.

Board Chair Takes over Exec's Role

In a recent development at GM, the board chair, Ed Whitacre Jr., will serve as CEO while he and the board search for a permanent successor having just completed the firing of the 'till now chief executive, Fritz Henderson.  According to the Wall Street Journal,  Mr. Whitacre and GM’s newly appointed board believed Henderson wasn’t moving the company in the right direction.  Note, the US Government ousted GM's CEO Rick Wagoner shortly after this year’s bail-out in addition to seating Mr. Whitacre.  Perhaps humorously, the Journal suggested that Mr. Whitacre may follow former VP Cheney's action where, given the task to find a VP, he chose himself.

Whatever the outcome, it is not totally unusual in nonprofits for the board chair or some board member to take over, at least temporarily, when the exec moves on (willingly or unwillingly).  But if a board member does take on the role of exec, is it really in the best interest of the nonprofit? 

I'm not convinced that it is.  A long time ago, when I was younger, I was removed from my position of exec of a nonprofit.  Waiting in the wings was a board member, unemployed at the time and ready to step-in.  He and the organization both lasted about a year, giving the organization a sum total of 16 years of life.  Whether I should have been retained is of course not the subject for this discussion.  What is a better discussion is whether or not nonprofit board membership provides enough experience and skill to be an effective exec.  And yes, maybe there's some plausible conflict of interest questions too (duty of loyalty). 

On the question of whether board membership provides enough capacity/experience to be an effective exec -- no, I believe not.  Board members have a special set of skills and experience that do not instantly apply to the fundamental management skills needed for operating a nonprofit, nor even managing a board for that matter (Think: how many board chairs do you know that cause you to wonder what they did to qualify, other than time served?).

On the question of is there a conflict of interest -- I believe not necessarily -- possibly, but not necessarily.  After-all, isn't the board member stepping in to fill a gap?  On the other hand, we must understand what role if any the board member in question had in creating the situation that required a "stepping-in".

Nonprofits and Culture

In my consulting practice, I believe that one of the most significant ingredients that will ensure a  successful partnership or merger is culture.  Culture of course covers a number of behaviors within a nonprofit including the styles of the respective boards and senior managers.  And managing, in today's environment (yes, I know, it's always about "today's" environment) is particularly challenging, as you well know.

I found an insightful article about culture and its impact on the success of an organization in the latest Conference Board Review that may be worth a look-see.  Please be patient though: the story uses Lehman Brothers as the overt subject but believe me, the real subject is as the article's name suggests, Culture Crash.

And, should you not really want to know more about Lehman Brothers, allow me to share a part of the article's wrap-up that I think helps give the whole article meaning.

..a culture that is too strong can also end up too rigid and can shut out diversity, especially diversity of perspective.  It can cause people not to trust others who may be unlike them or who haven't shared their experiences--confusing the unfamiliar with incorrect.  A strong culture attracts people, both clients and employees (and board members and possible alliances).  It also repels them, and the more passionate and proud you are of the culture, the more likely in the end you are to blind yourself to other potentially valuable points of view.