Nonprofit Board Crisis

Nonprofit Governance Matters

While I'm figuring most folks who work in nonprofits actually do know the following New York Times note, let's review:

Scrutiny of the N.F.L.’s domestic abuse policy this fall has brought attention to the little-known fact that the league (annual revenue: $10 billion and rising) is a tax-exempt nonprofit organization.

In 1966, when the N.F.L. agreed to merge with the competing American Football League, Congress gave it certain antitrust exemptions.

Lawmakers also confirmed that it was entitled to the same benefits as trade groups and chambers of commerce not organized for profit. (The teams, however, do pay taxes.)

According to the N.F.L.’s most recent tax form, Commissioner Roger Goodell was paid $44.2 million in 2012, making him among the best-paid executives in the country.

The nonprofit’s two largest donations to charity went to the N.F.L. Foundation ($690,000) and the N.F.L. Alumni Association ($450,000). At the same time, it gave $11,500 to the March of Dimes.

This month, Senator Cory A. Booker, Democrat of New Jersey, introduced a bill that would ban major professional sports groups from claiming status as tax-exempt nonprofits.

My question: accepting that the NFL is what it is, a nonprofit, what then should good governance, faithfulness to mission look like?  It strikes me that the question we should be asking is not whether it acceptable that the NFL is a nonprofit, the question should be: how well is the NFL living up to its tax status.  And, if we go another layer, what exactly should the NFL be doing to live up to its nonprofit status?  And how do we know it's not if it's not?  These are the important questions to be asked rather than quibbling over the reality that the NFL is indeed a nonprofit.  And, if we need to ask these questions we should be asking them of the NFL board of directors, the folks who are looking out for the public's interest in overseeing the NFL.  

The NFL boar would do well by letting the public know what their tax free dollars our buying in terms of outcomes and impact.  Perhaps, knowing and understanding actually is the right solution over this concern of tax status.

And, that $44 million for the CEO -- again a misguied question that is really for the IRS and the NFL board to answer.  CEO salary, as big as it may seem to the general public, may be right for the market.  I might argue that if it cost me $44 million to raise $10 billion, I've got a really good deal.

Nonprofit Governance Matters

The Fall 2014 Utne Reader included an article titled "Why B Corps Matter".  If you have not been following B Corporations are certified businesses focused not only on generating capital but committeed to helping alleviate poverty, build stronger comnunities, and, restore the environment.  Those leading the movement are focused on creating a new sector.  If successful, B Corporations will become the 4th leg in what is currently a three-legged stool that defines the institutional structures of the US: public, non-profit and for-profit sectors.

In the article, the author, Ryan Honeyman, author of The B Corp Handbook, offers an analysis of the limitations with the current institutional structure model.  He cites that:

Governments and nonprofits, moreover are necessary yet insufficient to address society's greatest challenges.  Government budgets are already constrained and are likely to be more constrained in the future, and nonprofits, for all the great work that they do, are structurally limited in their ability to attract and retain talent, to rapidly grow to meet demand, and to adapt to new challenges, because they are heavily dependent on charitable funding.

I do not quiblle with the basic tenets of Mr. Honeyman's arguments about the need for a fourth sector but I would like to offer that one primary distinction between the nonprofit sector and a B Corp sector is ownership.  Nonprofits are effectively "owned" by the public while acknowledging that a small group of folks (a board) sit to look-out for this public.  Nonprofits are not privately owned institutions (although admittedly there are some founders and executives who think and act otherwise).  It is this ownership which I believe which is an important distinction from what B Corps can be.  B Corps may indeed prove to be powerful institutions that do good while also doing well for their shareholders and directors.  Nonprofits -- they just do good.

Nonproift Board Gains Exec As Consultant

After six years as its executive, Dale Franzen is stepping down from her position. According to the LA Times, MS. Franzen "will move into a consulting role as “strategic advisor” to Chui L. Tsang, Santa Monica College’s president. Franzen said that will include helping search for her successor and continuing to work with the college administration and Broad Stage’s separate nonprofit board on longer-range planning. (Los Angeles Times Publisher Austin Beutner chairs the board.)"  Note that the wo institutions are tied together although I don't have all the details.

My question: is this succession planning?

Nonprofit and Advisory

The University of California campus is in the process of establishing a nonprofit board "that is independent from the university, to help find funding and commercial applications for its research.  

The 10-member board will advise the school's intellectual-property office on expediting licensing deals and industry-sponsored contracts for its research. The board will include executives, lawyers and investors from biopharmaceuticals, engineering, technology and finance. Their goal will be to guide the school in identifying "promising research" for investors and companies interested in licensing deals, school officials said.   .....Bringing in executives of this caliber and experience will help us achieve new heights for the university in terms of translating research for the benefit of society.  

The idea of collecting and using smart, business-saavy individuals is pretty universal.  These folks know stuff that academic researchers may not know, particularly about distribution, pricing, packaging and financing.  A group of advisors with no authority and just smarts makes sense.

But this plan discussed by the Wall Street Journal has me scratching my head a bit.  If generally the purpose of nonprofits is to fill the void between the for-profit sector (no incentive to be engaged) and the public sector (no public mandate), and a public University already fills this position, why then a another nonprofit that effectively produces nothing except advice to the nonprofit itself?  This "arm" of the University will have no authority and no products or services.  The smart folks gathered around the table could certainly be organized within the other structures already standing to fill the role (advisory) that is desired.  Why then is there a need for a "free-standing" nonprofit?  What void will this nonprofit be filling?

And then of course there is the duty of loyalty challenge that will arise when smart connected people are brought together without any product or service but the responsibility to vet research ideas for their revenue generating potential.  While the article notes that "rigorous" conflict-of-interest policies would be enforced among the board members and that no technologies could be directed to a specific company" I must ask: really?

In my opinion, great idea assembling advisors to fill a void within the University.  Bad idea to establish these advisors as a free-standing nonprofit: too purposeless and too fraught with potential conflicts of interest that will not prove "right" for the University and its researchers.

Nonprofit Board Versus Management

What step should a nonprofit board take when one of its directors speaks out publicly in support of the employees " who accepted significant pay cuts two years ago, were locked out this month after balking at a proposal that would further erode their take-home pay?"

This question is certainly a test for the board of the nonprofit that houses the Atlanta Symphony Orchestra.  According to the New York Times, 

The labor battle in Atlanta has not been only about pay and benefits, but also about the size of the ensemble itself, as the orchestra’s management and its parent organization try to cut its costs to end a string of persistent budget deficits. Mr. Spano lamented that “our brilliant and creative musicians, who need to be intimately involved in the creation of our path to the future, have been asked to leave the building — and Atlanta is left with a deafening silence.”

In speaking out publicly, if guardedly, about the lockout, Mr. Spano was breaking with tradition: Music directors typically remain silent when labor troubles erupt between their employers and the musicians they lead. ButMr. Spano has been actively trying to help salvage the coming season for the orchestra, which he has led to critical acclaim for the past 13 seasons.

Before the lockout, he and the orchestra’s principal guest conductor, Donald Runnicles, with whom he shares a close working relationship, wrote a letter asking the orchestra’s board and management to acknowledge the sacrifices the musicians had made and to “examine other ways and areas to establish sustainability.” Last week, Mr. Runnicles was quoted in The Guardian, criticizing the lockout as “a one-sided attempt to force the orchestra to its collective knees.” Mr. Spano is invested in the orchestra — in more ways than one. 

Mr. Spano even worked to raise money for the Orchestra.  “There was basically a movement to cancel our appearance,” he said, “at which point I marched in to one of our symphony board meetings and said this is not going to be canceled — there are people who think it should be canceled, I don’t agree with them, I’m putting $50,000 on the table right now. Who’s going to join me? I then started calling people all over the country, and we garnered the support for that engagement within a week.”

Some members of the orchestra board tried to raise enough money to end the lockout. Management has said that its deficit was $2 million in the 2014 fiscal year.

Ron Antinori, a relatively new board member, said that he had held an informal meeting to try to end the lockout, in which he asked other board members to write unsigned pledges on sheets of folded-up paper of how much they were willing to contribute. He said that the pledges topped $800,000 but that when he met with board leaders, they declined to end the lockout.

He resigned.

The orchestra’s management said that while it was thrilled to have donors and would be happy to accept $800,000 in gifts, such a donation would not resolve the short- or long-term problems.  

“We’ve been trying short-term fixes for more than a decade without success,” said Randy Donaldson, a spokesman for the orchestra’s management. “We need a long-term solution that will allow the A.S.O. to balance its artistic and financial goals.”

The orchestra’s parent organization, the Woodruff Arts Center, is a nonprofit that also houses the Alliance Theater and the High Museum of Art. When Moody’s Investors Service revised the outlook of the center’s credit rating last year to negative from stable, one of the factors it cited was “the fiscal imbalance of the center’s symphony division.”

Mr. Antinori said in an interview, “To me, the musicians really have the high ground,” but the arts center “holds the purse strings.”

Now, back to the question.  When the board is not in agreement with the board, what should should that board do.  I'm thinking it may be time for the management and orchestra to find a new home.

 

 

Nonprofit Board Dies

It is not without irony that I write this, but the Mount Moriah Cemetary Association is dead. Literally.

According to the Philadelphia Inquirer,the Association's "last officer died in 2004. The association's last employee abandoned the cemetery - where 5,000 veterans, including 23 recipients of the Medal of Honor, are buried - in 2011."

Unike many nonprofits which "pass away", Cemetary Association owned 200 acres of land and had $20,000 in "savings".  If you know anything about operating cemetaries, you will recognize that $20,000 does not buy enough to care for the property and address any new burials.  So, when such a nonprofit ends life as it was known, a court judge must decide "what next".  In the case of the Cemetary Association, what's next is a new caretaker in the form of a newly formed nonprofit.

Mount Moriah Cemetery Preservation Corp. is the a nonprofit organization, with a seven-member board, that will assume responsibility and report to the court twice a year on its progress in restoring the grounds.

Philadelphia and Yeadon have two seats each on the board of the preservation organization. Those four members elect the three additional members.

The first task is to raise money, Abernathy said: "We haven't set a goal yet, but it's going to be a significant amount."

The board also has to determine the extent of the cemetery's assets, for example, whether the association owns any additional real estate or has equipment that is stored off site.

I am a bit skeptical about the ability of a seven-member nonprofit board to get all that is needed done. Were I the judge I would have looked for another existing Cemetary Association to adopt Mount Moriah and ensure it gets the care it needs.  While not impossible, I don't believe a seven-member board has enough resources to do all that needs doing.  But perhaps I under-rate the members.

Nonprofit Board Fiduciary Duty of Care

A former top official of a Philadelphia nonprofit whose mission was to help the homeless has been accused of using a corporate credit card to embezzle $198,628 from the organization from 2005 to 2010.

According to a federal indictment issued Tuesday, Erica N. Brown, 38, of Glenolden, Delaware County, was the chief operating officer of SELF Inc., which provides services to the homeless and behaviorally challenged people.

Brown allegedly used a corporate American Express card to pay expenses for herself, including trips to the Caribbean, Cape May, and elsewhere; meals at the Four Seasons; purchases at Wawa; a gym membership; a personal trainer; and clothing, including five pair of Ugg boots.

Before she was fired, Brown wrote checks totaling $4,867 to SELF Inc. to reimburse her personal expenses, according to the indictment.  From the Philadelphia Inquirer.

 

Ok, so we know that the Board took action against an exec that was stealing.  Kudos for this.  But why did it take so long for the board to notice that it was losing at least $40K a year (more or less)?  According to the rest of the article, in the fiscal year ending June 30, 2011, the nonprofit received $1.18 million from the federal HUD and HHS in the form of "pass through" funding from the city and the state. In the fiscal year ending June 30, 2010, it received $1.08 million.  So, while $40K represents only about 4% of their total annual revenue, assuming no other sources of income, is this amount so insignificant that it would not make a "blip"?  And, why the payback of $5K?  What exactly was that supposed to represent?

So, again, good board for finally noticing and taking action (firing and collecting some money).  Bad board for taking so long.  Perhaps the board should start by retaining a new auditor (good task for the annual Audit Committee) followed by revisiting its financial reporting systems followed by asking its finance committee what processes and procedures should be put in place to ensure this type of foul play is not repeated in the future.

Nonprofit Founder-selected Board

The following describes the activities of Michele Raffin, a relatively affluent California woman who has converted her back yard into a domain of bird aviaries.  The aviaries have become the breeding ground for endangered species.  The full story can be found in the New York Times.

Ms. Raffin credits an epiphany she had when a green-naped pheasant pigeon died unexpectedly and its mate would not stop crying. As she called around trying to find a new mate, she discovered that a number of the birds in her care, including the green-naped pigeons, had seriously dwindled in number thanks to the effects of climate change, practices like poaching and habitat destruction. Hers was one of the most robust flocks in captivity, it turned out.

There was rich genetic diversity in her backyard, she realized, and it was crucial to the survival of the species. “I had the materials necessary to make an impact in a way I hadn’t really thought about before,” she said. “I had gathered knowledge from the experts, and I really knew these birds.”

Almost overnight, Ms. Raffin began taking Pandemonium in a more professional, conservation-minded direction. There would be fewer, if any, softhearted rescues and willy-nilly adoptions, and tours were banned during sensitive breeding periods. She established a nonprofit organization with a board of directors, scientific advisers, a low six-figure budget, academic apprentices, 63 highly specialized volunteers and one full-time staff member. (Ms. Raffin doesn’t take a salary.)

The aviary now receives birds from some of the country’s most respected zoos for breeding and lifetime care. And Ms. Raffin hopes to establish satellite operations in warmer places like Puerto Rico, where she grew up, not just for breeding and mentoring, but because spreading out the collection serves as insurance against disease and natural disaster.

Now, while I do indeed appreciate exotic birds, the part of the story that peaked my attention was the conversion of Ms. Raffin's activities from her own personal focus to that of a nonprofit.  And, more than just the conversion, her creation of a board plus scientific advisors plus a staff person.  I would pose that many nonprofits develop this way.  A founder attracts some select folks to "govern" and a nonprofit is born.  Of course, founder organizations have lots of challenges including understanding or understanding at what point the "picked" board becomes true owners and the nonprofit achieves a life of its own.  Given the history, when do you think Pandemonium will gain its own wings?

Nonprofit Board Challenge

The ALS Ice Bucket Challenge has introduced to the ALS board a challenge: more money that it dreamed of.  Now, the board must, in accordance with its fiduciary duty of care, determine by policy or strategy, what it must do with its newfound wealth.

I believe that the Wall Street Journal did a fine job describing the choices unexpected prosperity introduces.  

As far as challenges go, too much cash is a good one to have. But small organizations that land big money face a host of pitfalls, say charity watchdogs and management researchers. Those who ramp up hiring too quickly or spend the new funds without a clear strategy can risk their long-term financial health. And a rush of capital brings new stakeholders and higher scrutiny, ratcheting up expectations and putting a premium on communication and transparency. That is especially true when negative news can travel just as fast as ice-bucket challenges.

In August, Facebook FB -0.13% feeds were filled with people dumping buckets of ice water over their heads, and challenging others to do the same, or else donate to an ALS charity. Many people did both. The level of participation in the Ice Bucket Challenge has been staggering to charity watchers, not least the ALS Association itself, which didn't originate the challenge, but was the chief beneficiary of its popularity.

"It just became craziness. Good craziness, but craziness," said Barbara Newhouse, president and chief executive of the ALS Association since June, of the flood of financing. Revenues last fiscal year for the ALS Association's national office and its 38 affiliated chapters around the country were $64 million, far less than this summer's haul.

Such a large influx of cash can easily overwhelm an organization, said Ken Berger, president and CEO of Charity Navigator, which rates charities on their financial health, accountability and transparency. The jump in wealth often casts a brighter spotlight on the organization and tests the experience of the management, he said.

It can also bring conflicting opinions about how to spend it. Poetry Magazine in 2002 received some $200 million from an heiress to the Eli Lilly pharmaceutical fortune. At the time the literary magazine had an annual budget of less than $500,000. Several years after the gift, the Poetry Foundation, which was set up to help manage the donation, faced board discord over the future of the organization, such as investment in a new website, with several trustees resigning.

Today the foundation has an annual operating budget of more than $9 million and the group's $21.5 million new headquarters opened in Chicago in 2011. Caren Skoulas, its chief financial officer, said that the group's board and staff have been committed to using the gift to bringing poetry to a wide audience, including a website that now reaches 36 million visitors a year.

Management experts recommend taking time to create a strategic plan before rushing into spending or hiring, especially for groups that don't face the urgent time clock of a disaster-relief charity.  

The ALS Association's goal is to spend the money carefully, not just quickly. "The possibility of spending $100 million by end of January [the firm's end of fiscal year] is slim to none," said Carrie Munk, the group's chief communications and marketing officer.

Because the annual budget, which includes staffing, requires approval from the group's 23-member board, the ALS Association has relied on a handful of temps and a crew of volunteers from a senior center to help handle call volume and donations. Some of the nonprofit's 54 staffers have been pulling 14-hour days and working on weekends, according to Ms. Munk and Ms. Newhouse, who count themselves among those ranks.

Even before the Ice Bucket Challenge went viral, the association's board had planned to meet in Denver in October to plan for next fiscal year. But given the extra work the group now faces allocating the funds, it set up an extra teleconference on Monday to get a head start formulating a plan. Out of last year's budget, 32% went to education and public policy, 28% to research, 19% to patient services and 21% to fundraising and administration, a breakdown lauded by charity watchdog groups.

Meanwhile, it is important to let donors know what's going on, said Thad Calabrese, assistant professor of public and nonprofit financial management at New York University's Robert F. Wagner Graduate School of Public Service. Press releases and direct outreach will help maintain ties with contributors and spur them to keep giving, he said.

Once the ice-bucket effort started picking up steam, the group very quickly created an ice-bucket information site on its main website, with lots of details and press releases. It also deployed its social-media manager to help defuse false information about its operations on Facebook and other sites, since there were various rumors circulating around about the group's operations.

Many donors were outraged after the Sept. 11 attacks, when the American Red Cross received over a billion dollars in donations for immediate disaster relief but diverted some funds for future reserves and other operational needs.

A Red Cross representative said all of the 9/11 funds have been spent, including $700 million in the first year, and provided relief to more than 59,000 families. The group now is rated highly by Charity Navigator on "accountability and transparency."

Lessons to be remembered if your nonprofit board is so challenged.

Nonprofit Board Matters

 QuestBridge "has quietly become one of the biggest players in elite-college admissions. Almost 300 undergraduates at Stanford this year, or 4 percent of the student body, came through QuestBridge. The share at Amherst is 11 percent, and it’s 9 percent at Pomona. At Yale, the admissions office has changed its application to make it more like QuestBridge’s.

Founded by a married couple in Northern California — she an entrepreneur, he a doctor-turned-medical-investor — QuestBridge has figured out how to convince thousands of high-achieving, low-income students that they really can attend a top college. “It’s like a national admissions office,” said Catharine Bond Hill, the president of Vassar.

The growth of QuestBridge has broader lessons for higher education — and for closing the yawning achievement gap between rich and poor teenagers. That gap is one of the biggest reasons that moving up the economic ladder is so hard in the United States today, as I’ve written before. But QuestBridge’s efforts are innovative enough to deserve their own attention.

In addition to the hundreds of its students on college campuses today, hundreds more have graduated over the last decade. They’ve gone on to become professors, teachers, business people, doctors and many other things. Ms. Trickey, a senior at the University of Virginia who is also getting a master’s in education, plans to become an elementary-school teacher in a low-income area.

I coud not but be awed by the organization described in this New York Times piece about a nonprofit that is achieving results from its resources.  I thought to myself, two people are pulling off these outcomes?  So I went to QuestBridge's website to learn more and found that while the co-founders serve as board members and President and Chair of the organization, they are not alone.  They have recruited some heavy-hitting high achievers who clearly, at the very least, lend value to the work of the organization.  Board members include:

• a three-time All-American basketball player at Princeton University and graduated with honors in 1965 with a degree in American History. He was awarded a Rhodes Scholarship to Oxford University, where he earned a graduate degree after studying politics, philosophy, and economics. Bradley went on to be a star professional basketball player for the New York Knicks from 1967 to 1977.
•  a Managing Partner at Imagine K12, a company dedicated to incubating education technology start ups. Prior to Imagine K12, Brady was the CEO of QuestBridge for four years. Before QuestBridge, Brady spent eight years at Yahoo! Inc
•  the Chief Financial Officer and Senior Associate Dean of Administration at the Stanford Law School
• a Co-Founder of the corporation that produced the world's first synthetic life form and the first standard programmable cells
• a Professor of Environmental Science and President emeritus at Stanford University
•  Professor of Practice and Senior Lecturer at Stanford Law School
• a former Quest Scholar recipient who now has a B.A. in political science with an emphasis in international relations from Stanford University in 2002 and her JD from UCLA law school.  She was an associate editor for the UCLA Journal of International Law and Foreign Affairs and managing editor of the Chicano/Latino Law Review. She was the fundraising director for the Seventh Annual National Latina/o Law Student Conference held at UCLA in October 2003, volunteers with the Inland Empire Latino Lawyers' Association, and mentors aspiring law students of disadvantaged backgrounds.
• a McKinsey & Company Director focused on operational tranformation.

Bottom line: even if these board members just lend their names for credibility purposes, they comprise a board, a back-drop that contribute to making QuestBridge successful.  Would that the media would recognize that a nonprofit's board matters toward achieving its outcomes.