Nonprofit Board Crisis

Nonprofit Board Valued and Maybe Productive

I was reviewing the most current issue of my spouse's AARP The Magazine and right at the very last page found a "Special Report" titled "Many Voices, One Vision: 22 board members oversee AARP's course into the future". 

The article describes the job of AARP's all-volunteer board of directors

...who give their time and talents to overseeing the association, setting policy, and steering AARP into the future. To make decisions, the board relies on feedback from AARP members, analyze polling and other research, consult with professional staff, and deliberate intensively.

The article also notes that "board members come from all walks of life and all regions of the country.  Many have risen through AARP's volunteer ranks (note: AARP has 37.5 million members according to a February 2010 press release) working on local issues before joining the national board.

Even more interesting to me, "Although they are unpaid, the direcotrs typically devote at least 45 days a year to AARP business, for terms that run six years".  This amount of time is generally double of what I have found most board members of nonprofits (except those in the infancy or juvenile stages of development where many also volunteer to do the organization's work) put in but it includes "travel around the country to hear AARP's members' concerns and opinions firsthand as well, I imagine, the big AARP annual conference.

The one other major point in the article focuses on the Board's diversity which "helps promote understanding" for decisionmaking.

Not having a direct working relationship with the AARP board I cannot say that its roles, responsibilities, composition or structure are THE model for nonprofit governance knowing that there are many factors that determine the best model at a given time in the organization's life.  I also can not say for sure how well the board really works on the day-to-day in the areas of effectiveness or efficiency i.e., results. 

However, promoting a nonprofit's board as one of its key assets and providing a flavor for who these folks are and what they do with their time is an important step to providing a nonprofit's constituent with a value-added flavor of an often otherwise hidden body of people and work.

May 2011 be a year when your nonprofit board is productive and valued.

Nonprofits vs. Public vs. ForProfit Sectors

I frequently refer to the Independent Sector's definition of the differences between the three sectors: For Profit to pursue market opportunities; Public to provide that which satisfies the lowest common denominator of need (e.g. roads); and, Nonprofit to fill the void where For Profits have no incentive and the Public has no mandate.

There's a blog entry in the Christian Science Monitor that provides some helpful insight into the differences and the pluses/minuses of the three sectors using the future of the Fannie Mae and Freddie Mac housing investment organizations as a backdrop.  Nonprofit Boards would do well to read this blog and consider what exactly their nonprofit really does bring to the universe (small "u" but maybe big "u" too).  Thinking about the role of a nonprofit and its position in the community can be a helpful board exercise when revisiting theory of change and mission as well as making the case for the organization to funders and the public.

Nonprofits victims of Municipal Shortfalls

I've been regularly featuring municipal efforts to tax nonprofits with a goal of both highlighting creative methods (by cities) but more importantly, wanting to emphasize how much nonprofit boards need to be aware of their community's efforts and take active positions to preserve their nonprofit status.  And, of course, such board actions should not be limited to one nonprofit's effort at a time but to collaborative efforts.  For sure, if one nonprofit's tax exemption is threatened, all nonprofits potentially face the same risk.

Check out the Wall Street Journal for a good review of what municipalities are attempting.

Nonprofit Board Members Lack Duty of Loyalty

The duty of loyalty says that a nonprofit board member must, when acting as a nonprofit board member, make decisions that singularly benefit the nonprofit, rather than themselves or those they are close to (individuals or organizations).  This duty is an important principle to ensuring the success of a nonprofit. Apparently, this principle is not an obligation of those at FIFA, the soccer's world governing body.  Members have sold their votes for all levels of financial gain and even political gain for their own countries. Are such behaviors simply a questionable practice or does real harm come to the nonprofit?

I would argue that a failure to practice the duty of loyalty does damage to a nonprofit's ability to achieve its mission, given that trust is essential.  In addtition, fewer resources are available for the nonprofit.

Board Chairs must ensure that all board members understand this duty while all board members are responsible to ensure that this duty is fully observed. 

Go here to see the New York Times story.

Nonprofit Bad Governance: State AG Intervenes

I can't say that this is a sign of what's to come but the bad behavior of an Exec toward his board, e.g. firing them when confronted over hiring his daughter for a fairly good wage although we don't know that she wasn't worth every penny.

It appears from the Boston Globe article that the board and staff went to the Attorney General.  Following an investigation, the Attorney General ruled that the "nonprofit's governance structure did not assure an independent board that was free from management’s direction. Therefore, the governance structure did not comply with good governance standards for nonprofit charitable boards."

Without more details it's hard to say how such a case would end up at the AG's level were it not for the reporting of disgruntled board and staff.  But with more scrutiny via charity watchdogs and a slightly more attentive IRS with the newly revised 990's, it's possible that boards and execs alike should consider bad behavior more suspect to review and judgement in the coming years.

Nonprofits Not Valued: Taxed Through the Driveway

Yes, I mean it literally!  The town of Mission, Kansas is levying a driveway tax to help offset the cost of road repairs.  According to Fox News, the town requires that any property holder in town pay a "use" tax , based on their (parking) property size and traffic quantity, including churches and I presume, other nonprofits that may own a building and a parking lot/space.

The churches are protesting the tax based on the idea that the state says the town can't impose such a tax on nonprofits. I might also argue, particularly for the churches, that such a tax restricts religious practice given that the tax is based essentially on a per capita use and as such should also be unconstitutional.

That said however I believe Mission, Kansas' effort to reap taxes from nonprofits is another example where the boards or church councils should have been on-guard and actively monitoring and advocating against such actions.  Clearly, as noted in the article, this was not something that could have taken place overnight.  Nonprofit boards must stand vigilant to guard their tax exemption status while at the same time constantly educating the public and policy makers on the types of benefits they are providing to the community. 

It is the easiness with which policymakers and citizens are willing to permit taxes of nonprofits that truly demonstrates how little they are valuing the contributions of those entities.

Nonprofit Board Commits To Pursuing Mission

Sometimes a nonprofit Board has to rethink whether it can still pursue its mission.  Demand for its offerings may have so declined that closing appears the only option.

That apparently was the case for the Altenhiem Estate in Oakland, California.  "The Altenheim was founded by San Francisco's most prominent German American families, the Sutros, Fleischhackers, Rosenbaums and others, as an upscale home for older German speakers to live out their days" according to the San Francisco Chronicle.   The Estate was closed by its "owner", the Excelsior German Center, when it basically ran out of Germans and couldn't compete with less costly residences in the area.

With some creative thinking and financing and a renewed commitment to the original mission, the Estate has now been re-inaugurated to serve a broader based range of folks while still making German cultural offerings available.

It's good to see a Board survive the struggle many nonprofits are being challenged with these days.

Nonprofit: A personal fundraising vehicle

Nonprofits aren't supposed to be about personal gain -- at least according to the IRS and the general public and donors and well, just about everyone. 

But, this is not what the former head of the Philadelphia Housing Agency and creator of the Pennsylvania Association of Public Service Agencies thought.  From his activity with this nonprofit, he was creating an extra source of income for him and his close-knit and small board (although the exact benefit to board members remains to be seen). 

Check-out the story in the Philadelphia Inquirer to get a glimpse of the playbook used for masking a nonprofit as a personal bank.  The good news is that it really didn't work.  The bad news is that it had a shot of actually working.  Hopefully there are lessons to be gleaned that charity watchdogs and others can share with those who really do want nonprofits focused on having positive outcomes community-wide, not just for a few individuals.

Nonprofit internal systems fail

According to the NY Times, the outgoing State Senate Majority Leader and his son has been indicted for pilfering some $500,000 from the nonprofit he founded. 

The indicted reportedly used the money for purpose ranging from the odd which:

included pony rides and a petting zoo for a family member’s birthday party to a $49,000 check the senator attempted to use as a down payment on a Bentley.

They also included, according to prosecutors, the elder Espada using Soundview’s corporate American Express card to pay for his personal expenses. Among the charges were more than $100,000 worth of meals for him and his family, window treatments for his home, and tickets to Broadway shows and sporting events.

For me the ability of anyone to steal at these levels is clearly an indicator of weak internal systems and oversight with few or no checks and balances.  Admittedly this theft took place over a 4 year period but it's hard for me to believe that someone didn't notice $500,000 missing from the accounts. 

While the thief must indeed be punished (ie. find a way to give back the money), the agency and all those who are responsible for monitoring and noticing such losses should also be held accountable, right up to the Board which is where the buck, or in this case, the loss, must stop.

Nonprofit Mission vs. Donor Interests

As a loyal coca-cola fan (despite a personal no meat, wheat and dairy diet) it is difficult for me to paint the company as one of the bad guys.  I can't say I think coke is really good for me but I'm hooked and that's all there is too it.  As a result though, I have had mixed feelings over the campaign that has been brewing around the US to levy a soda tax that would hopefully (according to the sponsors) reduce people like me's desire to acquire the drink.  In principle, I think the soda tax is probably a good idea.

Save the Children appears to have a similar conflict although perhaps not for the same reason.  According to the NY Times, Save the Children has been a strong supporter of the soda tax effort helping finance campaigns in a number of states, until today.  In October, Save announced it would no longer support tax-soda campaigns.

As it turns out, Save is in discussions with Coca-Cola over receiving a big grant to help with its work including efforts around childhood (and my) obesity (which soda has some impact on in case you are not seeing the connections).  Save also has big support from Pepsi.  Save says the two, Coke and Pepsi, grants and no longer working on a soda tax are not connected. 

Hm....mission vs. donor interest.  Do you think the mission and related outcomes really are better achieved by Save's giving up one focus in exchange for pursuing another competing focus?  Where does compromise begin and end? 

These are good end of the year moral, ethical and mission questions for all nonprofit boards to consider.