Nonprofit Board Crisis

Nonprofits and Overhead

In a Wall Street Journal posting titled the 'Third Rail' of Nonprofits, a Bridgespan rep was interviewed to discuss some thinking about the ever-so-onerous topic of overhead. 

Without reading more than the interview, I beleive that  Bridgespan missed the point.  In reality, there really isn't such a thing as overhead -- just, the cost of delivering service.  And the measure: total cost to total results.  If you don't like the results, don't give.  Results may reflect bad budgeting/spending on the part of the nonprofit but like any business, those decisions are up to the owners/board.  Bad decisions, poor results.  And, no, there is no perfect standard.  Some services cost more to deliver than others.  The successful board figures out what the reasonable costs are to achieve great results.

Nonprofit Boards: Leaders looking for A Leader

Consultants like me have frequently been reminding boards that they have but one employee: their exec. Nonprofit boards, at some point in the life of their nonprofit, will face the challenge of searching for a new employee.  Identifying the organization's needs is never simple, but for sure, many seek a leader with whom to share their responsibilities.

I found the thoughts behind the Christian Science Monitor article, Leadership: the Myth of the Maverick, filled with helpful thoughts which I think nonprofit boards might well consider and even embrace as they seek a partner on the day-to-day basis, or perhaps, seek a leader.

Nonprofit Boards: How prudent is prudence

You regularly hear the term "prudence" referring to the standard for measuring success in practicing the fiduciary duty of care.  Generally, this standard is interpreted as doing what any reasonable business person facing similar choices or situations would do.

The ponzi scheme perpetuated by Garfield Taylor in Washington, DC, or any other ponzi scheme, certainly challenges the question of when a board has been prudent.

The Washington Post story about Mr. Taylor being sued by one of his victims, the nonprofit Hilcrest Children's Center, raises the challenge of whether the board was truly prudent in its decision to invest a significant portion of its endowment, some $8 million, in what Mr. Taylor promised would be a sure-bet for preserving the endowment while generating a 20% return.

From the Post:

EC official Stephen L. Cohen said the case serves as a reminder to investors.  “There really isn’t any such thing as . . . an investment that has zero risk with a high reward,” Cohen said.

The Hillcrest board, whose members had no special experience managing institutional investments, identified potential investment advisers through personal acquaintances, the nonprofit group’s lawsuit said. One member of the board had invested with Taylor.

Prudent?

Nonprofit Boards Beware!

No, I guess I am not ready to stop talking about the Penn State sex abuse scandal.  There are just too many lessons to ignore.

According to the Philadelphia Inquirer, it has been suggested that the nonprofit at the center of the Penn State sex abuse scandal is trying to move its assets to another nonprofit. One might suggest that the board is basically "governing", likely in anticipation of a whole bunch of suits based on a premise that the board knew something and therefore has some culpability if not liability in the situation which in turn could mean no more assets for the nonprofit. 

Sandusky (the organization's founder and a Penn State coach) informed The Second Mile's board in November 2008 that he was under investigation. The charity said it subsequently barred him from activities involving children.

One of the victim's lawyers intends to charge The Second Mile with "failing to ban or restrict overnight activities between Sandusky and children" and failing to follow policies used by other organizations such as the Boy Scouts of America, such as the "Two-Deep" rule, which generally calls for two adult supervisors on all outings.

The lawsuit also suggests that The Second Mile was negligent both in the supervision of children and in the supervision of Sandusky, and claims that the charity failed to provide the victim "with any assistance in coping with the injuries sustained from sexual assaults."

So, nonprofit board members, how's your policies and, how have you been in observing these policies?

Nonprofit Becomes ForProfit Generating Big Issues and Fired CEO

The founder of a former nonprofit micro-finance organization, SKS Microfinance, resigned today and has been replaced by a current independent director who will serve as "interim non-executive chairman" (apparently titles can matter) according to the Wall Street Journal. 

While a founder's departure makes for interesting copy, this is not the only drama in the story.  Equally if not more important is the issue that this current for-profit which earns revenue by lending to the poor, was actually once a nonprofit.  Yes, this is the true meaning of blurring the lines between for-profit and nonprofit and so much so that consequences have included the development of legislation to set limits on how much interest can be earned when serving the poor.

Now let's check-in with the perceptual (what we see vs. what is) issues: did the founder resign or was he pushed out for having created heartaches for the company?  And, is lending to the poor for profit ok?  And, why didn't the board of the nonprofit anticipate there could be fall-out from converting to a for-profit?  Definitely more questions than answers.

Nonprofit Boards and the Human Factor

The former head of the FBI has been hired by the Penn State Board of Trustees to investigate what led up to the current situation with the football coaches. 

Whew!  The former head of the FBI?  I'm a bit incredulous that it would require someone with this experience to identify where systems and policies and processes failed.  Is it really possible that a group of trustees this experienced and saavy didn't have decent governing governing policies and processes in place?  Isn't it possible (read "likely") that what failed here is not the policies, processes and systems but the people whose loyalties were more to individuals than to the school or its polices & procedures.

I guess we will wait and see, but it strikes me that what we really have here is a board of trustees and people down the line that didn't want to believe and that's what failed.  It doesn't take a fancy and expensive investigation to figure this out. 

This is of course the challenge to good governance: the human factor.

Nonprofits Need To Learn?

Nonprofits just aren't doing it right says the folks in Silicon Valley (the new business tycoons).  According to the Christian Science Monitor, Silicon Valley entrepreneurs are "frustrated with slow and inefficient non-profits".  Not to worry though, they can be fixed.

The Silicon Valley entrepreneurs "are bringing about fresh approaches to solving vexing social issues, such as helping the poor and reimagining how students are educated. And they aren't just bringing money. Social entrepreneurs are bringing their business skills – everything from marketing to operations, along with their enthusiasm and business drive – to transform many nonprofits into savvy, goal-focused businesses.

 And, to top it off, "donors are demanding more research and metrics before funding projects."  And then, there's the nonprofits that should just do what they do best (you remember, the Jim Collins among others principle).

So, as the cycle comes back around again, can business and business ways provide the solution to "saving" the nonprofit community and thus saving the world?  Hmmm.....

Nonprofit Board Chairs

How often do you hear of a contest to fill the seat of a nonprofit board chair?

To be honest, I dont' hear this happening very often.  But when it does happen, that is, when a Board Chair seat is contested, I believe this to be a marvelous occasion.  Think about it -- two or more board members believe, and other board members agree as well, that their are two or more board members qualified or at least have the potential to be qualified to be the volunteer leaders of their nonprofit.  In this case it's not about privilege or default or any of the reasons that tend to be more about filling-in the blank than really setting a standard that gets the best person to lead the organization given its stage of development and other needs.

If boards are initially recruiting with the goal of identifying folks who might be Chair, this effort should result in lots of contested races in the end.  A goal? I don't believe it's necessary to have all board members qualified to be chair but many, absolutely.  This is what will contribute to a vibrant and sustainable board.

 

Nonprofit Crisis Management

While I stated I was done talking about the Penn State situation, the news has not (with seemingly weird comparisons of Sandusky (the accused) to Michael Jackson being the gossip talk of last evening). 

So I figured that one more reference but one with a more upbeat framing might be worth a nod.  The May/June issue of www.thecro.com has an article titled Profiles in Damage Control and how more appropriate a subject when thinking of Penn State among others.

Thoughts I thought worth highlighting include:

Great CEO's have almost a sixth sense for sizing people up and assessing their ability to succeed.  They have a nose for trouble and how to avid the big mistakes.  Almost always, the copule their instincts with contingency plans to manage problems and minimize damage when adverse events occur.  Smart execs know it is not a question of whether or not organizations they lead will experience a problem or crisis; it is a question of being ready when it happens.

Crisis management is the process of planning for risk.  Reputation management is the science and art of advancing and protecting the most valuable asset of the organization: its reputational legacy and future.

Good executives delegate, when appropriate, to competent, ethical people and they know that if they trust incompetents, they threaten the whole organization.  An entirely risk-free organization can never be possible, so the better a corporate leader's management of risk, the more successful his or her career trajectory.

Boards have become more careful about rubber stamping or answering to their CEO's every whim.  Boards are more apt to hold the CEO accountable.

Nonprofit Board Policy Enforcement

There's a legal case brewing in New Jersey where nurses have sued the hospital claiming that physicians threatened their jobs if the nurses did not perform during abortions.  The hospital claims that the nurses have made false claims.

I suppose it's possible that the nurses "misinterpreted" what they were asked but it's an awful lot of misinterpretation to go public and sue.  What really happened will come out in the courts hopefully.  But I am struck at the similarity between this situation and the Penn State sex abuse scandal. 

What on earth could be the similarity you say?  The similarities are plentiful.  This is partially or conceivably a whistleblowing case.  It is also a case where maybe the policies around the federal laws on this matter are not so clear and the hospital maybe isn't so steadfast in its exercise of the policies -- I don't want to second guess that.

But maybe all big nonprofit institutions are really challenged in making and enforcing (if they do) sound policy that policy that protects consumers, employees and the institution.  Maybe we have a bigger institutional challenge that deserves more attention by all nonprofit boards.  After all, policy making is pretty much the core job a board has and if these policies can't be or aren't enforced then, after the correct heads role, the policies might need some examination to be consistent with mission.