Nonprofit Board Crisis

Nonprofits Face Firewall in Fidelity

Nonprofit Quarterly's Rick Cohen, a great grassroots nonprofit champion, recently interviewed Fidelity Charitable Gift Fund's CEO Sarah Libbey.  As you may know the Fidelity somehow convinced the IRS to allow it to set-up a foundation-like investment nonprofit to shelter all the individuals who might want to be charitable without all the hassle of having their charitable giving known by anyone (you know, like they would if they had their own foundation or gave through a community foundation).

The good news: the Fidelity Fund made oodles of money - a 20% increase in growth and 9% increase in distributions.  Uh, where did you say that 11% balance went?  Ok, so maybe this is a triple-bottom line scenario: win for the donors who have more to give away; more money to donees; and, uh, something to Fidelity (11%?).  Can that be?

Yes, Fidelity is now big player in the philanthropic world.  And yes, Fidelity clearly fills a market niche for donors that wasn't filled before its entry into the field (at least that's a fair conclusion based on the numbers of folks seeking to give through it).  And yes, Fidelity is not welcome into the foundation world as Rick points out.  And why should it be -- it doesn't really offer an added value due diligence to its donors (other than affirming nonprofit status and legal compliances)?  It is simply not a grantmaker -- it is a pass-through.  

Nonprofit Board Illustrates Good Governance

How many employees does a nonprofit board (actually, any board) have?  One!  The Executive Director.

I believe that a board is fulfilling its fiduciary duty of care care when it acts as though the nonprofit was its (members) own business.  Included in this responsibility is how that board supervises its exec.

It appears that the board of the Pierre Johnson Housing Development Corp. of the National Capital Area is indeed fulfilling its fiduciary duty in placing its exec on paid leave while conducting an investigation into allegations by County officials that the Exec forged a zoning document to secure $700,000 in public loans. 

I'm not so certain about naming a board member "interim exec" but that's a conversation for another post.  I'm more concerned that the board learned of this issue via a letter from a County official.  For sure, one of the indicators from my "7 Warning Signs That Something Might Not Be Right In Your Nonprofit" article is notice from funders, donors or regulators. Such a notice could suggest that the board really does have a challenge with its exec. The board should possibly rethink its policies and processes for pursuing loans.  On the other hand, I don't actually know what the industry says about these processes so I am out of my element on this point.

So, at this moment, the board is fulfilling its responsibility.  But, it will be facing more tests of its duties in the near future.  See the Washington Post article to learn more about this situation.

Nonprofit Hospitals: Should they Be?

In case you missed it, Slate Magazine did what I think was a great analysis of whether nonprofit hospitals should retain their tax exempt status.  This analysis was stimulated in part by a policy paper put out by Senator Grassley (hero of properly performing tax exempt organizations).  In this paper, Senator Grassley proposed to:

Modify the Requirements for Tax-Exempt Hospitals, which would require nonprofit hospitals to maintain minimal levels of charitable activity, limit aggressive collections, and restrict charges to the uninsured and indigent. The proposed penalties for noncompliance are severe: Hospitals that can't prove their "community benefit" will lose the tax benefits associated with nonprofit status.

Again, hooray for Senator Grassley and hooray for Slate Magazine for bringing this thinking forward.  Let's keep this conversation going.

Nonprofit Mission: To Give What's Due

I for one have not heard of SoundExchange.  Neither apparently have quite a few artists who could be its beneficiary.  According to the LA Times,

Congress created the nonprofit to collect royalties from digital music streams on Internet, satellite radio and cable television. So far, the group has distributed about $360 million to more than 45,000 artists and copyright holders.

But at any given time, about 25% of the money SoundExchange gets from on-line music services such as Pandora, XM Radio and Last.fm can't be distributed because the artists can't be tracked down. Currently, that amounts to about $50 million.

Here's a nonprofit with a simple and straight-forward mission that appears to be doing its job.  But of course, I got curious and went to Guidstar to see just how much it costs for this nonprofit to do its job as well as what happens with the non-distributed funds (in the short-term).  Here's some numbers according to the 2008 filing.

First, the CEO is paid $340,000 (now, compare this to the Boys & Girls Club CEO running 4,300 franchises).

Total salaries were around $3 million.

There's an outside legal services provider that was paid $1.5 million and a PR firm was paid $300,000.

HM....

 

Nonprofit CEO Pay Is Not A Measure Of Performance

Well, now that ACORN has bit the dust it's time for the Federal Legislature to look for another high profile nonprofit to rip apart.  Now let's be clear, I am only shedding a few tears for the demise of ACORN.  Those tears are shed because the work ACORN has done was important and made a real difference in the lives of the majority of folks who do not have a voice in America.  At the same time, ACORN's board and management screwed up to such an extent that there really was no going back.  Starting over was the only card left and thankfully, that's exactly what's going on with what was ACORN.

But now there's a new target: the venerable, main stream, 4,300 unit strong basic every-day service provider to nearly 5 million kids, the Boys & Girls Clubs of America.  This is an institution with a service reputation equaling the Girl Scouts.   But the Clubs are in line for getting a good chunk of Federal change ($4.8 million over a five-year period -- which by some standards is not THAT huge but it's big enough) and that my friends may cost them way more than they bargained for.

Now the problem is the one that donors everywhere can't get over (and is chronicled well in Dan Pallotta's Uncharitable).  So the stats again -- a franchise with 4,300 units (up from 1,800 12 years earlier) serving 5 million kids and a $107 million annual budget.  So what's wrong: my gosh, the CEO is getting paid just under $1 million a year.  The CEO "got a base salary of $360,774, a bonus of $150,000 and other compensation of $83,152, for a total of $593,926. She also received $385,500 in deferred compensation, most of which went to a retirement plan, and $9,165 in nontaxable benefits (according to the Philadelphia Inquirer).

And oh my, the Clubs spent "$4.3 million on travel, $1.6 million on conferences, conventions and meetings, and $544,000 in lobbying fees."  For sure the lobbying fees were a great investment as they got $41 million in grants in '08 and another $44 million in '09.  And yes, sadly, the Clubs posted a $13.6 million loss in 2008.

Come-on senators and congressmen and people everywhere!  First, I'm willing to bet that the fancy corporate board members of the Clubs are each making way more than $1 million a year in salary alone, not to mention their bonus and retirement contribution. And I'm also willing to bet that running an operation the size of the Boys and Girls Clubs is at least comparably challenging and complicated as any of the Board's corporations -- 4,300 franchises?  You may get where I'm going by now.  Knock-it off with this myopic focus on CEO salaries for nonprofits and let's focus on outcomes.  Worth is not measured by comparison between CEOs in the nonprofit sector except to note they are all paid below market, particularly when thinking about corporate CEOs, not to mention all the people paid way more for way less responsibilities and way less social impact.

Evidence suggests that the Clubs CEO has done an amazing job.  The Clubs perform, and are growing.  The Government gets its money's worth when it invests.  That's what the senators and congressman need to assess. Outcomes!!!

Nonprofit Embezzlement Doesn't Always Pay

There's potential for a happier ending in a case where a nonprofit's bookkeeper handled both deposits and payables and managed to steal $150,000 over a five-year period. And it's possible that even more money was taken. The bookkeeper was at the nonprofit for 30 years. 

The Board, fully cognizant now that it must change its ways and provide better oversight (I mean really, it took 5 years before the loss was noticed), is suing for 3 times the amount lost.  This is actually allowed by state law, which, under certain circumstances, provides for triple damages. The law deems certain types of conduct to be egregious enough that compensatory damages aren’t enough. 

So, justice may result, along with a nonprofit board gaining a fuller appreciation of what it means to provide fiduciary oversight.

Nonprofit may not be able to save sinking ship

Ok, for the record, I love historical experiences -- I've been to lots of parks around the US experiencing history.  Some places have buildings and other items that recreate their history.  Other places are just that: places where history took place.

That being said, let's talk about the S.S. United States, a luxury liner from when luxury liners were popular and pretty much the best way to get somewhere else beyond the US and before jet planes really took on the task.  Well, the S.S. United States, is sitting in a harbor in Philadelphia where it has been mothballed (deactivated and stored).  It is owned by Norwegian Cruise Lines (NCL).  The S.S. United States' claim to fame is that it "still holds the record for the fastest westbound crossing of the Atlantic, nearly 60 years after setting it" according to the Wall Street Journal.

Now, that's cool enough, that is, holding this record.  But, did you know it costs $800,000 a year just to keep the ship mothballed?  This of course is a small fee compared to what it will likely cost to make it and keep it a tourist destination which is what the S.S. United States Conservancy would like to do if it can keep NCL from selling the whole thing for scrap.  Basically, saving the ship entails raising a bunch of money first and buying it.

Back to where I started.  I love historical everything.  BUT, this is one historical item I'm thinking folks just need to let sink.  There's lots of photographs of the ship and the experiences others had on the ship.  There are parts that can be salvaged and preserved and housed in other museums so the ship's feats are not lost.  But frankly, I can think of a whole lot more useful uses of the money that is being spent now and would be needed to preserve this vessel for the future.  I say it's time to let it go and make new history which is effectively what will happen if it's scrapped.  It will serve the living and the future in the form of a new car or ship or even an airplane and the money that would have otherwise been used to preserve it can also be put to use to serve more pressing needs. 

A strong nonprofit sector really does depend in part on the ability of all of us to selectively determine where need is greates.

Nonprofit its not, but fills void left by self-interested for-profits

As a great example of a (hopefully) sustainable social venture, www.hellowallet.com offers independent financial advice that was traditionally offered by banks (totally self-interest) and other for-profits (financial adviosors, insurance agents etc) according to the San Francisco Chronicle.  A unique aspect of their business model is that, "unlike other Web sites offering financial advice, it receives no commision or other fees from banks."

What makes this venture sustainable?  Public and private support!  Yes, the city of San Francisco is partnering with HelloWallet.com and I'm assuming that means money. No matter, even in these times, once in the public "wallet" via the municipality, it is rare that an institution gets dropped.  And again, in these times, this kind of offering by the mayor is good politics and even more so good for citizen's economics -- at least in the immediate.  Long, long range -- that remains to be seen.

Nonprofit Saved by For-Profit Business

According to the Philadelphia Inquirer, the Rosebud Mining Company is "paying $250,000 for the Windber Coal Heritage Center, about 70 miles southeast of Pittsburgh, and will set up its own nonprofit to take control of the exhibits".  The Progress Fund, a sort-of collector of historical sites, was pretty much shutting down operation of the Windber Center and the Mining Company believes the story at the Center needs telling and buying and operating it is the one way to ensure this occurs.

It's not often that a for-profit takes over a nonprofit with the specific interest in pursuing that organization's mission.  Rosebud is to be commended for its commitment to the "story", as long as it also is committed to making sure the facts are correct.  According to the article, Rosebud was not involved in the mining accident the Center remembers.  But putting a happy face on coal mining would certainly be one explanation for this effort -- beyond telling the history of mining, of course. 

Nonprofit Board Strangleholds Organization

So here's the situation.  There's this nonprofit board.  And on this board, there's a variety of people who at one time or another, cared passionately about the people their organization serves.  But over the past few years, this board has lost its way.

Now, the board meetings are taken up with conversation about how they don't like this thing or that about the organization, its staff and sometimes, other board members.  The board doesn't spend any more time on decisions about the future of the organization but spends a lot of time thinking about how to get "better staff".  There's even been some complaints by former board members and staff to the authorities about the way business has been conducted and whether this decision or that was really legal.  And board members keep falling away leaving just a small group of like-minded people more or less minding the store.

And there's really not anything anyone can do.  If this situation became a really public matter, donors might not want to give anymore and all kinds of authorities might want to investigate and the only ones who would really be punished would be the clients.  At least for a while.

So what to do?  Maybe this is just one of those nonprofits going through one of those really bad periods in its life cycle when not so good things happen but eventually they turn around?  But maybe the short term losses that would incur with immediate and public action are really the only answer and yes, there will be tears but that too would stop for the better.  Maybe. 

Thoughts anyone?