Nonprofit Board Crisis

Nonprofit Board Bailout

The saying about "when the going get's tough, the tough get going" comes to mind when reading a Wall Street Journal article titled: Why Donors Flee when Arts Groups Fail."  I think the simple answer: everyone abandons a sinking ship.  

But the article notes that nonprofits often have two recourses.  The first is a deep-pocketed board member or other philanthropy source that bails-out  the organization.  The second is to merge with another organization such that the combined resources make for a stronger new organization.  

So, for some nonprofits, well-healed board members can really matter.  But shouldn't a strong board have seen failure coming well in advance of the need for a bailout?  Don't the financials tell some story that can be helpuf.  And if not the financials, what about, in the case of the arts, attendance records or the inability to get high-value artists or less obvious, the deteriorating facility or fewer activities?  There are many signs that should move a board to action long before the last hope is a well-healed board member.  If the last stretch depends on the few, I propose that the board has not been very awake or at least asking the right questions.

Nonprofit CEO Term Limits

Mr. William Rapfogel, who had led the NY Council on Jewish Poverty for 21 years, has been under investigation by state officials for allegedly conspiring with someone at the charity’s insurance broker to pad its premium payments, with the extra money funneled to Mr. Rapfogel or used for campaign contributions for the council’s political supporters.  His theft amounts to about $1 million.  He was fired by the Board back in August.

Let's assume that Mr. Rapfogel's cover-up was really effective and that the Board pretty much did everything they were on the surface, supposed to.  There remains one question: what should be different to avoid such situations?  I propose that one answer may be in CEO term limits.  WIth this much time, I propose that maybe boards get too confident and aren't as on watch as they might be in the first ten years of a CEO's tenure.  And maybe too long makes a CEO see opportunities not otherwise available.  

Maybe and maybe not but I certainly do wonder what a better answer might be...

Nonprofit Governance Advice: Not perfect fit for all

A recent posting and article about engagement governance generated a call from an associate who reminded me that while "ideals" are great and certainly thought-provoking, they do not inherently guide every nonprofit board in the way to do business. Principles about nonprofit governance, sometimes based on experience, other times based on research, and still other times based on theory (hopefully based on experience and research) abound.  But really, if you've seen one nonprofit board, you've seen one nonprofit board.  Yes, there are lots of opinions, like mine, about the way good governance can be effectively, but the nuances of specific nonprofit sectors, size, stage of development may not make even the best of advice perfect.  

So, when it comes to engagement governance, the jury is very much out when it might work as a framework and when it may not. Engagement governance is time consuming for the board and staff.  It also demands training and likley differences structurally and in decision-making process.  While the competing demands abound for nonprofit boards and execs, it may not be unreasonable to thing that engagement goverance is just too beyond what's doable.  I'm thinking for instance that museums and similar cultural institutions may not at all see this framework as feasible nor necessarily that the community would view its engagement in governance matters as that relevant to itself.  We know for instance that associations also have a range of member desires for when and how they should be integrated into the governance of their nonprofit.

Bottom line, there are few if any governance principles that may be universally applicable.  However, awareness and understanding may provide fodder for improving what does not work.

Nonprofit and Engagement Governance

I believe that when a nonprofit's board members also serve as the staff and management (and there are no paid employees) that board is in its infancy stage of development.  This stage is distinct from the maturity stage when the board is singularly focused on fulfilling the fiduciary functions as there is a paid management and staff.  Fiduciary functions involve policy, planning and evaluation and if members want to volunteer to fulfill service or other functions, they must take-off their board hat and be accountable to management.

A Christian Science Monitor article on a nonprofit called Books to Prisoners has a board that definitely, in my opinion, sits in the infancy stage of development with the consequence that this is a stage where struggle and opportunity are both the bottom line.  At the same time, this group has taken an extra step is providing new meaning to engagement governance.  Engagement governance emphasizes that an organization's direction and focus can be owned and furthered by the community or stakeholders, not just those officially on the board.  

Here's a description of the governance structure from the Christian Science Monitor article:

Olympia Books to Prisoners pays $50 a month to rent its basement in a residential area. It has a steady flow of used books dropped off at two donation bins.

Many volunteers are students or graduates of Evergreen State College in Olympia. They come on Sunday afternoons and Monday nights to maintain the “library” by sorting and shelving. Others open letters and roam the basement to find any book that might resemble an inmate’s request. Up to five pounds of used paperbacks  –  a weight dictated by postage rates –  are wrapped and sent to each inmate. This usually translates into four to six books.

The organization is a nonhierarchical collective that makes decisions through consensus. It doesn’t believe in presidents, CEOs, bosses or anyone having more authority than others.

Members think this model is part of the group’s longevity. As volunteers come and go, the current ones have the power to decide together how things should be done. They say this has allowed Books to Prisoners to adapt to the waxing and waning of volunteer muscle, financial stability, and other conditions. Currently, half of the volunteers are key holders with the ability to unlock the basement and host volunteer shifts. They have more responsibility, but not more authority. Only the owner of the house, who gets to vet the key holders, has a larger say.

Yes, apparently this works -- efficient, perhaps not so much.  Engagement, for sure.

 

Nonprofit Board Background Screening

Just what steps should a board take in screening prospective nonprofit board members to provide confidence that members will serve in the best interest of the organization?  

In what I might label an effort to demonstrate how to badly exercise fiduciary duty, three board members of a Brooklyn volunteer ambulance corps have recently been arrested for stealing $325,000 of the organization's money.  

The corps says it is now on "life-support" but does this mean that the board, which clearly didn't have policies and procedures in place to prevent such an event, also did not have D&O or other liability insurance and that the members in question have no personal assets?  

But, putting these questions aside, should nonprofit boards consider doing background checks that include financial security as a part of screening process when recruiting prospective board members?  One does wonder.  To see this story, check the Wall Street Journal.

Nonprofit Board Merger

Yes, I know: the headline should read: Nonprofits Merge.  But wait: there's more.  In the case of the Jewish Guild Healthcare and Lighthouse International, two New York based organizations currently serving the blind and visually imparied, the organizations are merging AND so are the two boards.  When all is said and done, the board of the "merged" organization, Lighthouse Guild International, will consist of 40 individuals. Yes, 40!  And wait, there's more.  The 40 members of the new organization are the former members of the former two organizations.  

So how exactly will this work?  I'm seriously dubious about the size and composition but hey, usually after the first year of a merger, something usually changes.  In this case, let's hope its size and composition.

See the New York Times for the whole story.

Nonprofit Governance: Beyond the 15 in the Room?

Community-engagement governance -- a concept that the board of nonprofit does not have to govern alone and in fact, engageing the commnity can add value to everyone and the institution.  

Work? Yes.  Results? Very possible.  

Check-out the Nonprofit Quarterly article here.

Nonprofit Public Benefit

The legal case focused on the so-called tax-exempt benefits of a Booster Club serves as a good reminder that 501(c)3 organizations cannot operate singularly for the benefit of the board or its members.  The case effectively resulted in a Booster Club loosing its tax-exempt status as its fundraising efforts were found to singularly benefit the children of the parents raising the money.  

From the description of the case it is clear there was not a big effort involved in trying to "sneak around" the tax-exemption rules but the case does serve to remind all that "public benefit", when it comes to 501(C)3s means "public" benefit.  Hm...now about those universities......  Just kidding :). 

Nonprofit Penalty for Doing Harm

I am heartened to see an attempt by California legislators to "punish" the Boy Scouts for their discrimantory practices/values.  While the legislation is in "limbo" for the moment, in my view, the attempt is the correct answer to zero toleration of a nonprofits doing harm.  Way to go California.

For the story, see the LA Times. 

Nonprofit Governance: Doing No Harm

I'd like to propose that doing no harm be the lowest bar for evaluating a nonprofit's impact.  I further propose that nonprofit board's adoption of doing no harm as a core value would then force the board and its CEO to ask, before acting, questions that would not then result in, at minimum, public relations nightmares and at worse, actual harm to the public and/or customers.

I believe do no harm value could have guided Florida nonprofits that have ended up on the list of 50 Worse Charities to behave differently in their pursuit of contributions.  Maybe?

To learn more about the story, see the Nonprofit Quarterly.