Nonprofit Board Crisis

Nonprofit Board Behavior

I am going to take the following thoughts out of the context of a Christian Science Monitor article because I believe there is enough "here" to add some framing wisdom for a Board Chair and board members who at times may struggle to get through a meeting and/or reach decisions.

If you are part of a group, does it seem hard to get things done – and done rightly? Setting public policy, governing a nonprofit agency, serving on a jury, running a household, or sitting on a planning board, all demand unity of thought and action. But effective teamwork sometimes can seem like a pipe dream, as divergent opinions and personalities elbow one another, delaying action and forestalling progress.

Everyone on a team wants the best outcome. Each one wants to see good prevail. Just as a beam of light can be broken down into the fundamental colors of the spectrum, goodness can be further delineated as progress, unity, harmony, order, logic, helpfulness, aid, justice, integrity and so on. What member of a team would not want to see such qualities of good manifested?

 

Nonprofits and avoiding UBIT

UBIT, unrelated business income taxes, is one of those acronyms that generally provides a bit of nervousness when used in nonprofit circles.  A UBIT is in fact specific to nonprofits and is applied when a nonprofit generates substantive levels of revenue from non-mission related activities.  It is also fact that not many nonprofits have generated non-mission related revenues to the degree that the issue comes into play.  The real problem is not the paying of taxes as much as getting to a scale where the nonprofit might lose its tax exempt status.  That of course is an even rarer incident and there are solutions (like spinning off the enterprise).

Meanwhile however, there are actually nonprofits that have some really deep pockets (lots of cash) and have figured out how to avoid the UBIT by making off-shore investments.  Yes, I know, many would welcome this situation (to have this level of resources) but doing anything to avoid taxes can sometimes bring unwanted attention. 

Apparently, the Boys & Girls Club, an institution which has some pretty close ties to the Federal Government, has been very clever with its investments in addition to doing a few other things that tend to irk stalwart Senators like Senator Grassley. 

You can read the details at The Nonprofit Quarterly but more importantly a good lesson is that it isn't easy to have your cake and eat it too -- not as a nonprofit; not as a nonprofit with close economic ties to the government; and, not in America.

Nonprofit Parents and Staff Knew Better than the Board

There are occasions when a nonprofit's consumers and staff know better about the management than the Board.  I'm not saying this is a regular event but I'm willing to suggest this happens enough to indicate that not all boards listen very well if at all and are probably not very good managers or surrogate owners themselves (yes, I've come to believe "surrogate owner" is the best description of the role and responsibility of the board).

Case in point is the Multi-Cultural Academy Charter School in North Philadelphia.  According to the Philadelphia Inquirer and State Ethics Commissions and Federal documents, the School rented properties owned by the founder and former chief executive officer, his wife, Maria, and a nonprofit organization he cofounded.  The president of the Multi-Cultural board, Tae-Ock Kauh, approved the lease even though the full board did not vote.

The CEO:

was paid $206,342 by Multi-Cultural for the year ended June 30, 2009, and an additional $69,550 that year for serving as executive director of the Indochinese-American Council. Thuy cofounded the council, which also employs his wife and owns Multi-Cultural's current building at 3821-23 N. Broad St.

The school pays the council $43,000 monthly rent for the former St. Stephens parish buildings, or more than $500,000 a year. The rent amounts to one-third of the school's $1.5 million budget, which comes from the Philadelphia School District, the state, and the federal government, the tax filing shows.

Thuy, who founded Multi-Cultural in 1998, was toppled by his handpicked board in the spring after a campaign by parents and staff, who said they were concerned money was being drained from the school to represent Thuy. Records showed the school had spent $222,000 on legal fees in the last 12 months.

Staff and parents also complained about a rodent infestation and charged that Thuy's temper and demeaning behavior had created a "toxic" climate at the school of 202 high school students.

And where was the board through all this?  Not being very good owners.

 

Nonprofit and 3 Reasons "Why Nonprofit"

Here's some thoughts from George Wein, the guy who started the Newport Jazz Festival and Folks Festivals and why he has taken the festivals, which have had very rocky finanical roads, to nonprofit status (as reported in the Wall Street Journal).

• To shield the festivals from the financial ups and downs of corporate funding
• The only way to perpetuate the festivals was to go nonprofit
• Nonprofit status will allow the board that oversees the events to accept tax-deductible contributions from music lovers and corporate sponsors.

Do I think Mr. Wein correct?  Does nonprofit status shield from the financial ups and downs of corporate funding (ok, I know the answer to that).  And can nonprofit status ensure the lifelong status of an organization (possibly).  And can nonprofit status allow the board (assuming they do) go after more than corporate money (sure).

My question -- is nonprofit status more than just money?

What's your thought?

Nonprofits Boards Might Become People Who Seek Results

If Scott M. Stringer, the Manhattan Borough Chief has his way, nonprofits will have to prove their worthiness and not their ability to cater to politicians, in order to gain city support.  Wow, what a unique idea! 

Well, from the reactions coming in, you would think this was a unique idea which will occur if City Council members lose the right to distribute funds based on, well, whatever, and the pool of funds is instead distributed in a manner that is "transparent, equitable and free of political favoritism".  And just as a reminder, there have been some pretty shady, and particularly large council member family benefits that have resulted from the current way of doing business.

Now,the big question: would nonprofit boards then change?  Would the new boards be folks who care passionately about the nonprofit's mission and become focused on results?

Check out the New York Times for the complete story.

 

Nonprofit Success Very Market Driven

An article in the Wall Street Journal about the "opportunity" facing 9/11-related nonprofits who are coming up on a major anniversary should serve to remind all boards that a nonprofit may begin accidentally, but good market intelligence and planning ensures long-term survival, assuming of course a market demand. 

Nonprofit Board:Exec Relationships

Here's some thoughts on how to improve board performance as related to the exec offered by Eugene Fram (Policies vs. Paperclips).

• At least half of the board should be composed of people who really understand a director's responsibility and liability;
• Hire the best chief executive as possible, within the realistic compromises all organizations have to make;
• Provide maximum operating responsibility for the chief executive;
• Have well agreed upon outcome/impact expectations between the board and the chief executive, both qualitatively and quantitatively; and,
• Have fair and rigorous evaluation of outcomes/impacts.

Sounds right -- not so easy.

Nonprofit Board Chairs: Advice

Sanford (Sandy) Cloud Jr. is Board Chairman for CT Health (a conversion foundation -- what I consider among the progressive funders in the health care world). Sandy is a lawyer, the chairman and CEO of The Cloud Company, a former two-term State senator who sponsored legislation creating the State’s first Department of Housing, and a member of several boards of directors for corporations and organizations around the state and nation.  He also served as chair of the Aetna Foundation.

In the CT Health Foundation e-newsletter, Sanford offered his thoughts on Board Chairs:

The board chair primarily does three things. One, the chair helps set the tone for the organization and its work at the board level. Two, the chair has a major responsibility to be sure that the diverse talent sitting on the board is fully engaged. Three, the board chair must act as an ambassador for the foundation in the broader community, to talk about and engage others with respect to the work the foundation is doing.

Let me elaborate on point number 2. You want to be sure that you are inclusive when you reach out for thought and opinion on major subjects. Some people would prefer not to express their opinions in a broader setting. It’s important for a board chair to understand that and to make it so that a person who would otherwise be quiet will want to speak. With a little bit of encouragement, you’ll find that they provide great insight on issues.

What advice would you give someone chairing a board?

First, it’s important for the chair to have a deep understanding of the vision and mission of the organization. Second, the chair should make sure that the board is fully engaged in developing the strategic plan for the organization. Once the plan is created, the board needs to monitor the execution of that plan, and, in consultation with staff leadership, make the appropriate adjustments to the plan as the environment changes.

The third thing a board chair should focus on I already covered – be inclusive in your leadership. Give everyone the opportunity to provide their thinking and input in regards to advancing the mission and strategic plan of the organization.

What do you see as the difference between the executive director and the board chair?

The executive director, or staff president, is the driver and leader of the organization. The board chair, however, is the coach or mentor. The chair is the adviser and counselor who ensures that the president and staff stay focused on the important issues regarding the work of the foundation.

I must say, I was pretty good with Sanford's description of chair up to the exec-chair description.  Coach and mentor, yes.  But, what happened to the idea of shared leadership?  Isn't the Chair THE leader and doesn't the Chair and the rest of the Board have the final say about the organization's theory of change, vision and values and in particular, strategic direction and desired outcomes? 

 

Nonprofit Boards Don't know enough to Govern Well

In the most recent Conference Board Review (www.tcbreview.com) Roger Martin of the Rotman School of Management states: "Neither inside (management) nor outside (shareholder) directors can adequately represent shareholder interests."

Let's paraphrase and apply this statement singularly to nonprofit boards: "directors can not adequately represent the public's interest".  Martin, again paraphrasing, goes on to say, that the job of directors is to ensure that management does not use their preferential access to information to exploit the public.

But Martin says directors cannot really perform their job "owing to problems with capabilities, incentives, and selection".  One contributing problem:  "no matter how dedicated the individuals involved, they will be largely incapable of achieving what we have asked of them.  Independent directors can't know as much as management does about the operations of the firm ... management ... has the capacity to restrict access to infromation it doesn't want independent directors to see." 

The best an independent director can do is to bring to bring broad expertise and insight from other markets that management can utilize, if it so desires.  Towards the end of the article, Martin states: "good governance is something companies tend to have when they don't need it and lack when they do."

I fear that Martin may be correct in his statement.  While I believe that solid goals with solid stats and good illustrative narrative is a good solution, this only addresses the information gap, not the capability gap.  If Martin is correct, might we not ask: "what's the point with boards?" 

Of course the alternative is to ask: what do we need to do to ensure boards do best!  And, can we do a better job of recruiting and seating board members who are "shovel ready". 

Nonprofit Boards: Keeping their Tax Exemption

A bunch (like, 275,000 nationally) nonprofits recently lost their tax exemption status.  Yes, some can get it back.  Their boards will certainly have to change their future behavior and comply with IRS filing rules.

But, not filing in a timely and complete manner is not the only way to lose tax exempt status.  Check-out the editorial in the Washington Post that offers three other methods to lose exempt status.

I would caution that the third method, referred commonly as UBIT, really takes effort on the part of a nonprofit to generate enough unrelated business income through some revenue-generating activity to face the risk of losing tax-exempt status.  This does not make this means invalid, just unlikely.

Either way, the writer (who I think were basically promoting their legal services) was absolutely correct in their summary:

It is the duty of every officer, director, board member and employee of a nonprofit to be aware of any filing requirements and prohibited activities that could result in the loss of the organization’s tax-exempt status, and to insure that the organization is in full compliance with those requirements at all times.