Nonprofit Board Crisis

Nonprofit Regulation

A few weeks ago the NY State Legislature was working on a bill to increase regulation of nonprofits.  Basically the bill was designed to reduce the amount of fraud being inflicted upon nonprofits, mostly in my opinion, by a flurry of State Legislators.  Well, it should come as no surprise then that the accountants in the State are endorsing this effort.  Afterall, with regulation comes larger needs for documentation and who more appropriate than the accountants to help.  Did I say self-serving?  Never thought of the word.

Anyway, here's the press release from the Accounting Society:

NY CPAs applaud state Legislature’s approval of Non-Profit Reform

NEW YORK – (June 27, 2013) The New York
State Society of Certified Public Accountants (NYSSCPA) has endorsed the
decision of the state Legislature to enact a new non-profit governance reform
bill to prevent fraud and improve public trust

Statement from NYSSCPA President J. Michael Kirkland:

"The passage of the Nonprofit Revitalization Act brings a 21^st century
refresh to the rules and regulations that govern not-for-profit organizations in
New York State.

This legislation allows this vital sector to operate more efficiently, improve
operational transparency and increase accountability to the public. Most
notably, the revenue threshold limits that trigger required audits have been
raised to be more in line with the current size and scope of organizations that
require such oversight and provide relief to smaller organizations.

This proposal is a welcomed step for all of the state’s nonprofits, many of which for years have experienced the frustration of navigating a system governed by archaic rules and regulations that drain resources from mission-critical programs, especially those providing critical social services to New Yorkers hardest hit by the recent recession.

The NYSSCPA looks forward to working with legislators and state officials in the future to further improve not-for-profit organization laws."

The Nonprofit Revitalization Act of 2013 – which was approved by both the New York State Assembly and Senate on Friday, June 21 - is now awaiting N.Y. Governor Andrew Cuomo’s signature to become law. The bill represents the largest overhaul of New York nonprofit law since 1970.

Many of the NYSSCPA’s 29,000 members provide services within the state’s nonprofit sector as auditors hired by these organizations, professional staff members, or through volunteer service on their boards of directors.

All Nonprofit Governance Is Not Equal

I was just reading a New York Times article on Jimmy Wales (Wikipedia).  By the end of the article my takeaway was a reminder that all nonprofit governance is not equal nor does it perhaps ever match the readily available and widely distributed literature on nonprofit governance.  Based on observation and research, what we do know is that boards behave differently, exercise their fiduciary responsibility differently, in different stages of development.  We also know that boards with founder and entrepreneurial execs behave differently than when they have manager executives.  But a relatively new thinking offers that boards may also behave differently when they transfer parts of their governance, specifically the non-fiduciary matters, to the community.  This type of governance is described as community-engagement governance. 

According to Judy Freiworth (one of the developers of this framework): "Community-Engagement Governance™ is an expanded approach to governance, built on participatory principles, that moves beyond the board of directors as the sole locus of governance. It is a framework in which responsibility for governance is shared across the organization, including the organization’s key stakeholders: its constituents and community, staff, and the board. Community-Engagement Governance™ is based on established principles of participatory democracy, self-determination, genuine partnership, and community-level decision making.

The Community-Engagement Governance™ framework helps organizations and networks become more responsive to their constituents’ and communities’ needs and to become more adaptive to the changing environment. Because no one governance model can fit all organizations, the framework was designed as an approach, rather than a model. This means it can be adapted to each organization’s unique needs and circumstances.

The Jimmy Wales article suggests that maybe Wikipedia is governed using the community-engagement governance model.  While there is nothing in the article that speaks to the role of the Wikipedia board, there is plenty that highlights the role of the Wikipedia community in effectively "setting policy", safeguarding mission, and ensuring a set of values are maintained.  And, this framework appears to be working.

 

Nonprofit Boards: There's Only So Much To Go Around

Too much of a good thing? Too much ego? 

Today's story in the Wall Street Journal tells about what is happening with dedicated scratch-off and lottery games around the country.  Like dedicated license plates and birth certificates, scratch-off and lottery games are created for the purpose of allowing a percent of the income to go to a specific cause or charity instead of all the proceeds going into the state coffers. 

There are a number of marketing strategy questions involved of course -- questions that go beyond those introduced by license plates and birth certificates.  One big question: is there enough demand.  The demand in this case of course should theoretically be bigger than that who just buy a license plate because they identify with or passionate about the cause.  In the case of scratch-offs or lottery, the incentives around winning or just taking a chance may equal or exceed the passion motive.

In Texas, the introduction of the lottery games resulted in a new pool of revenues for those nonprofits serving veterans.  But the new pool has not proven large enough to support all the nonprofits, new and old, who would hope to benefit from the games.  Demand is exceeding resources.  This of course is not news to the world of philanthropy where Foundations live knowing that there are always more nonprofits wanting to be grantees than the amount of grant funds available.

But wait, does the story end here?  I suggest not.  Why for instance is there not more collaboration among  these, for instance, Veterans groups?  Is it necessary to have a nonprofit for each element of a Veteran's needs?  The overheads alone are compounded by this need.  I suppose though that if the answer is yes, founders and boards see the need to have a free-standing nonprofit to address each and every Veteran need (and this is not specific to Veterans) then each founder and board has to accept that such proliferation can only eventually diminish the amount available to each from pools of resources that can only get so big.

Nonprofit Arts Can Be Successful

Nonprofit arts can be successful cites the New York Times article with plenty of examples.  The key: understanding audience needs and wants.  New theory? Maybe for the arts but certainly not for good marketing management -- see the likes of Phil Kotler and Peter Drucker. 

Why does it take so long for some sectors to use the tools that have been available for so many years?

Nonprofit Investment Management

From the Wall Street Journal

Small nonprofit organizations are an underserved market. More often than not they are not the focus of many advisers, especially because the fees and dollar amounts tend to be lower. Therefore, they don't get the professional help that the need.  And....

Lack of sophistication among overseers can be challenging and is probably the biggest hurdle for nonprofits trying to manage their endowments. Some overseers don't understand that investment advisers can't control the markets, and they are disappointed with negative returns when the market is down. You can overcome this challenge by spending more time educating clients about expectations.

Really?

Nonprofit Boards and Success

It's graduation time (and even day) for lots of students.  At this time nonprofit boards are particularly reminded about the "numbers" -- graduates, scores, entry to the next tier in pursuit of academic excellence and development. 

But what about the remaining nonprofit sector boards?  What are you valuing as "success"?  How do you measure this?  Are you having this conversation every meeting?  Just a reminder: results matter and results are why you even have a board seat and come to a board meeting.

 

Nonprofit CEO Pay

The Huffington Post on Friday carried an article about the salary of Goodwill's CEO in comparison to the many persons-with-disabilities who work as employees.  The Post identified the disparity between the "top" and "bottom" worker to be really huge. 

I say "maybe".  Again and in-spite of the recent campaign launched by Charity Channel et al around the obsession of donors over over-head, the untrained and unknowing are focused on CEO salaries.  While I tend to agree that disparities in the Corporate sector are pretty real, unexplanable and unfair, this does not tend to be the case in the nonprofit sector.  That said, yes, by appearance, the distance between the Goodwill (national) CEO salary and the line worker may be such that concern may be raised.

While the communications worker at Goodwill basically said "these aren't related subjects", and this may be the case, as a prospective donor and perhaps Goodwill consumer, I might not be so satisfied.  Despite all that is said, donors in particular still tend to get bent-out-of-shape over salaries if not salary-disparities.  What to do?  For sure, this is a Board discussion that must include a review of the organization's theory of change and values.  Where these two elements then conflict with the reality, change must occur.  Where not, action in the form of public communication and particularly to donors, should be taken.

Nonprofit Board "Inactive"

This past week The Day (New London, CT newspaper), perhaps more in an effort to skewer a CT State agency than to skewer the Amistad America (the alleged focus of its story), has been questioning the investment of CT State money.  The big reason: the Amistad (ship built to educate about slavery) is going to be in a pirate movie.

Sadly, to the public, using the ship for purposes not easily recognized as mission, means that the nonprofit is violating the tenets of being a nonprofit AND thus, following the logic, mis-using State funds.  And to ensure all the issues are on the table, the article's author inserts: "The schooner, which was launched in 2000, originally sailed to ports around the country to tell the story of the Amistad captives who were freed in (New Haven, CT) in 1839.  But it hasn't done that for several years.  It is no longer based in New Haven, has no office or website and its board is inactive.  Really?

What the article does well: raise questions.  Clearly, the Amistad America board would do well to step-up and tell its side of the story.  One of its messages: the board is a good caretaker if it can find ways to generate funds (like having the board star in a movie) to ensure the pursuit of mission.  And, the board would also do well to ensure that the public knows about its work and how that's going. 

Nonprofit boards should heed the lesson The Day has been generous enough to teach: if you look on the surface like you are inactive: you are inactive.  The money will stop and mission will go out to sea.

Nonprofit Priorities

$170 Million: the three-year cost to refurbish St. Patrick's Cathedral (NYC) according to the Wall Street Journal.

Nonprofit Boards Not Talking Results

Results!  Results describe what happens after the money has been spent.  But for some reason, it appears that nonprofit boards and their staff just don't get how to tell about the results of their efforts. 

This is my take-away from a Wall Street Journal article where James Bovard slashes and burns the work of nonprofits that have been engaged with Americorps projects.  Mr. Bovard provides a list (compliments the Government Accountability Office) of projects he values of little use and impact.  Reviewing the list, there is no doubt to me that Mr. Bovard has specific "leanings" where his criticisms may be more political than much else but still, what the donor (government in this case) has not leaned is the so-what of what might otherwise appear, at least to the Mr. Bovards of the world, as lame and unproductive activities. 

Indeed, some of these activities on the surface may have actually had a less than "wow" impact BUT, all we are seeing in this list and Mr. Bovard's criticism are activities, not results.  Have the nonprofits just done a really bad job of describing the true results?  That's my theory.  It is further my theory that maybe the boards of these organizations have not asked the right questions.  Maybe they aren't asking about results as much as they are about activities.  That's my belief.