Nonprofit Board Crisis

Nonprofit Boards and Fundraising

Many consultants (not including me) preach that nonprofit boards have a responsibility, nay, an obligation to raise funds. These consultants subscribe to the old paradigm that board members should be recruited and judged based on their giving or getting.  

I recenty chatted with a nonprofit executive who believes that while she recognizes it is absolutely great, enhancing even, when board members join-in and support her particularly to make "asks" of institutions and individuals and place strategic "calls of introduction" should they have these, she most values her board members for two characteristics: their passion and understanding for and of the mission and their 'intelligence" which enables her to build strategy and success.

Her board does not "meddle" into details of day-to-day operations unless she asks and a couple have that kind of expertise but respond when asked.  Her board partners with her on strategy to provide insights about opportunities and direction.  Her board asks probing questions about finance and outcomes toward mission.  And sometimes, a few have a connection that can open a door to money.  A few give what they have.  The give and get work is not a demand but is welcomed as any gift.

Bad board or good board?  Useful board or useless board?  Going against the collective wisdom of consultants?  Yes, absolutely!  So who's correct?

Please share your thinking.

Nonprofit Board Dysfunction

Dr. Eugene Fram has put forth the following offering to help nonprofit boards gain recognize and understand why they might not be effective.  While I tend to agree that Dr. Fram introduces fairly accurate descriptions of behaviors that nonprofit board members, execs and consultants have likely all witnessed, it does not sit well with me that we should label all nonprofit boards as being at universally being at various levels of dysfunction.  I would pose instead that we acknowledge these descriptions as having some degree of accuracy while recognize these degrees of accuracy shift given board stages of development and compositions and a variety of additional variables that may also change at many junctures.  I also believe that acknowledging is not enough.  We must develop bodies of evidence that provide working solutions, both short-term and long term.  That said, here's Dr. Fram's thoughts.

Article and studies from a Google search on “ Dysfunctions in Nonprofit Boards & Organizations,” yields 445,000 items in .32 of a second. These items show dysfunctions on charter school boards, church boards, healthcare boards, trade associations, etc.

Rick Moyers, a well-known nonprofit commentator and nonprofit researcher, concluded:

A decade’s worth of research suggests that board performance is at best uneven and at worst highly dysfunctional. ….. The experiences of serving on a board—unless it is high functioning, superbly led, supported by a skilled staff and working in a true partnership with the executive – is quite the opposite of engaging.

These data and comments can lead one to conclude that all nonprofit boards are dysfunctional. I suggest that nonprofit boards can generate a range of dysfunctional behavioral outcomes, but the staff can muddle through and continue to adequately serve clients.

Mildly Dysfunctional: Board meeting attendance can be a problem, left unattended by the board chair and CEO. Agendas are not completed within the meeting time frame. Strategic planning takes place once a year with little reference to it between annual meeting retreats. Goals are established without measured outcomes.
On the other hand, budgets and finances are reasonably well handled. Incremental growth each year is modest. Board recruitment takes place largely based on board contacts and friendships, with a few recommendations by the CEO. Most everyone on the board is mildly or fully dedicated to the organization’s mission.

Moderately Dysfunctional: All of the above dysfunctions, plus one or more of the following ones:

• The board chair and/or the CEO receive heightened deference in board discussions.
• Important decisions are made without full participation by all board members. One of two directors set the tone for the discussions and the outcomes.
• Either the board chair or CEO has inadequate backgrounds to develop a robust board. Nearly all agenda topics center on operational issues.
• The board does not trust the CEO but is unwilling to take action to remove him or her.
• The mission is not clearly defined and “mission creep” can be a problem.
In this instance, the staff can be productive, if some managers are able to isolate staff from the board dysfunctions.

Highly Dysfunctional: Many of the following board behaviors are exhibited:

• The board is divided into unyielding factions, a la the current US congress.
• Board discussions go beyond civil discourse into personal barbs, often disguised as humor.
• Board committees are not functioning properly. Important decisions are often delayed for a year or more.
• Rumors about the board conflicts are reaching funders, who are asking questions about the rumors.
• It is becoming difficult to recruit talented board members or professional personnel.
• The board chair and other directors refuse to acknowledge the problems.

There is little that the staff can do in this situation, except to hope for a funding angel to cover the financial problems that will develop. However, I did observe one organization that recovered from such highly dysfunctional board behaviors and finally succeeded in recruiting more talented board members. It also adopted a new governance format. The change led to some directors to resign. (One was insisting that the directors should evaluate individual staff personnel!) However the mistrust between the board and staff, as a result of the dysfunctional board behaviors, continued for decades.

Please let me and Dr. Fram know your thoughts.

Nonprofit Disagreers

Ok, so this may not be the perfect example of what happens rarely in the majority of nonprofits I've worked with over my past 35 years as a nonprofit consultant but...

Recently the Pope demoted one of his senior most Cardinals from head of one of the most important structures within the Roman Catholic Church to a structure significantly less prominent or a structure that doesn't have a similar level of authority and power.  Cardinals are the "senior advisors" to the Pope and often have positions akin to the US President's Cabinet.

Those who are watchers of what goes on over at the Church are suggesting that this move is just the beginning of steps to make it more possible to reshape the Church in a way that is more consistent with the Pope's values and goals.  You might note though that it is the Cardinals who elect the Pope but it is a majority rule system meaning that not every Cardinal has to vote in favor of the winning Pope.  However, Cardinals, like Cabinet members or like senior managers in a nonprofit, should generally be on-board with the chief executive in order for the chief executive to move forward his/her agenda.  What's going on in Rome now is rare though -- leaders tend not to remove their senior most people -- they learn to live with them.

Nonprofit chairs and execs often do not work to remove obstacles in their boards or administrations respectively.  I believe this a fatal flaw for chairs and execs with visions and goals and a set of values that differ from one or more of their team.  And yes, I apply this thought to chairs as much as chief execs.  I propose that board chairs who have one or more board members who stand as obstacles to a chair's vision should be "moved-on": counseled-off or not re-elected to extend their terms or whatever it takes to ensure that the "right folks" are on the bus (see Jim Collins' Good to Great Social Sector).   

Failure to do so  results in situations like President Obama has faced for the past seven years although acknowledgeably, not his team: no action.

 

Nonproift Sustainability

The basic paradigm about nonprofits is that these institutions, at least in the US' capitalist economy, fills the void between the for-profit sector and public sector.  All three institutions are driven by demand.

Although I might dispute its label as the "nation's first nonprofit supermarket" Philabundance in Philadelphia is trying to make it Fair & Square supermarket work while demonstrating the many challenges to sustainability every nonprofit faces.  Oh, and I might dispute the label as it is my understanding that food co-ops are nonprofits and there's a lot of those that have been around for a long time.  

But back to Fair and Square.  As the philie.com article indicates, nonprofit mission is not enough to make a sustainable entity and Fair & Square, now a year in business, has been learning to surve as a supermarket without profit.  Demand for what the supermarket puts on its shelves appears to be one challenge.  But selling food to a market without large means is another.  Effectively, Fair & Square is subsidized through philanthropy.  This of course is a model used by a variety of nonprofit revenue generating activities and the real question: how long can the store survive dependent on philanthropy?    Another question: does Philabundance, the "owner" have another strategy beyond philanthropy in mind.  Looking at the beginning of the article describing the food market industry, one does wonder.

I hope that philie.com goes back next year on the store's 2nd anniversary to share the lessons.  For the full story, go here.

Nonprofit Board Not Curious?

Insurance fraud might be one of those activities from which a nonprofit board might be reasonably innocent.  At the same time, one would think the board might be curious about the luxurios lifestyle of its management or staff (whichever they are).   According to Long Island News 12:

MELVILLE - A father and son from Melville are accused of pocketing money from a nonprofit group that helps people battling drug addiction.

According to Attorney General Eric Schneiderman, Alan Brand and his son, Jason Brand, abused Narco Freedom to pay for their own lavish lifestyles, including mansions in Florida and expensive cars.

Narco Freedom is a substance abuse agency that serves thousands of New Yorkers. It receives roughly $38 million in Medicaid funding.

The attorney general says the pair funneled cash from the nonprofit group to line their own pockets. He says Jason was cashing in on a bogus insurance claim of $3.5 million for one of his nonprofit's sites.

Jason's father is accused of taking taxpayer-funded Medicaid reimbursements to expand his car collection. A Corvette, Jaguar and Tesla were all seized by authorities Wednesday.

It is of course possible that the board would not see the "extra" funds on its reports but still....  And, of course, what about the checks and balances that should have been in place to prevent the possibilities of this action?  Fool the board once, shame on the fooler.  Fool the board twice, shame on the board.  This board now has to get the act together to put into prevention methods although I would imagine that the Attorney General will be more than happy to help.  Of course, if we were to not accept the premice that the board didn't have the least bit of curiosity about its staff's "extreme" well being, we might wonder something more.

So, what do you think the board should do next?  Consult its liability insurance company; review policies and procedures; hire a new finance team?

Nonprofit Boards' Gender Diversity

The annual "Women on Boards" is out and the dissapointing findings about Philadelphia area publicly traded companies and nonprofit boards include learning that:

Nearly four in 10 - 39 percent - of top executive positions at 18 area colleges are held by women. Yet women make up only 14 percent of executive ranks at public companies.

At public companies, females fill 12 percent of the board seats, but they more than double that - at 26 percent - at 17 of the region's health care systems.

All of the nonprofits examined by the forum have women on boards and among the top executives. By contrast, there are 21 public companies among the region's top 100 that have no women in any top spot.

In discussing the findings, the organizer noted:

You wonder what it would take to have organizations wake up to the fact that they need the talent and perspective women bring. Women constitute half the workforce. It continues to be frustrating and a bit shocking."

Schick, who serves on several nonprofit boards, says there's no difference in the skills needed to lead large organizations - profit or nonprofit.

In both cases, she said, "you have to have vision and articulate it, and then you have to organize a team and execute it.

"You look at some nonprofit boards that don't pay attention to the finances of [their organization] and that's a mistake," she said. "And you look at for-profit [firms] that don't pay as close attention to their mission, and that's a mistake as well."

The lesson from this Philly.com article should be clear: there is more to be lost than gained when excluding "difference" on board.  But, difference is not the singular factor that makes an effective board.  A nonprofit has needs and the best board member uses their lens for perspective while honing their skills and experience to ensure that the fiduciary and strategic needs are addressed effectively.

 

 

Nonprofit Board Community Engagement

An analysis of data from more than 2,500 annual general meetings held at Russell 3000 companies between January 1 and June 30, 2014, shows a fundamental shift in the types of resolutions shareholders submitted to a vote. It also shows that activist investors have become more sophisticated in their use of technology and social media to agitate for corporate change outside of the AGM and that senior management is increasingly likely to implement precatory shareholder proposals on corporate governance that have received majority support.

The complete report, Proxy Voting Analytics (2010-2014), will be released in the fall. To receive a complimentary copy when it becomes available, please register for free at www.conference-board.org/directornotes.

Why should I introduce this topic?  Shareholders, sort-of insider-outsiders can get a company to change its behaviors and practices and according to this report, have successfully done so.  The shareholder structure in for-profit corporations enables such intervention by the community.

Community engagement in nonprofit governance is for most nonprofits, not a real concept.  And why does this matter?  Given that nonprofits do not have, by their nature, an "ownership" structure outside of a board which in-turn is a proxy owner for the public, the reality becomes that for most nonprofits, there are few if many ways for the public, should it care, to say to a nonprofit: hey, we don't like what you are doing or hey, do more or less of that.  There are a couple of exceptions of course.  The so-called, walking with your feet approach by donors who, if unmoved or unexcited or just plain unconnected (with the institution, its board, or its executive/development director) can just not give money.  Also, the IRS or State, if and when improprieties or illegalities occur, can step-in and demand change.  And, employees, disgruntled over bad behaviors, can call on whistleblowing laws for protection and can scream loudly (although they can still lose their jobs).  We know, for better or worse, that the public has taken stands on nonrpofit executive compensation, going public and likely withholding their donative support.  Again, right or wrong (wrong measurement in my judgement), but often without better references, the public has used the compensation bar as a tool to assess donative worthiness.  And, finally, nonprofits sometimes reach-out to their respective communities during strategic planning and ask for input through focus groups or surveys.

But all of these "community engagement" methods are consequential rather that structured vehicles for intentional input.  In the absence of an institutionally designed method for the public to lend their voice to the decisionmaking facing nonprofit boards, should not nonprofits be more intentional in regularly reaching out for input?  Should nonprofit boards consider adopting a new form of governance (called Engagement Governance) toward being more community-owned and directed?  What do nonprofits really lose from the absence of shareholders?  Does the insullation matter?  Does the community really care particularly as long as they are getting the services they want or need?

What's your thinking?

 

 

Nonprofit Board Committees

Nonprofit board committees have their positives and not-so-positives. On the positive side, board committees and task forces (shorter term) can be very effective and efficient sources of board "homework" analyzing and sorting out all of the data and issues helpful for a board to consider when decision-making time comes.  Finance committees can be very helpful in analyzing the fiscal "facts" of a nonprofit and ensuring that they are complete, accurate, and timely for board consumption enabling an often not-so-finance literate board to fulfill one of its fiduciary duties.  Strategic planning committees can be really helpful in completing the prep work that again can guide the board through the many aspects involved in mapping an organization's future.  And, a goverance committee can help a board keep current in filling its seats, keeping bylaws that reflect actual behavior, and support the board with all its developmental needs.  Board committees may also be effective "testing" grounds for introducing prospective board members to the board and developing these indiviuals as prospective members.

As I was reminded more recently however, committees might find ways to not to be at least perceived as helpful appendages of a nonprofit.  One experience in particular reminds me that committees could get to a place where their mind is distinctly different from that of the board.  In one instance, the committee actually had radically differing opinions than the full board's.  Committee members believed that the board was "behind the times" and while understanding its mandate to do a specific prep-work task, the belief by committee members was that it was to develop proposals it knew the board would not like as a step toward driving the board on the "correct" path.  There of course is some merit to a committee's providing "leading" or "pushing" guidance as such support may bring the board in the end to a stronger place.  But we also recognize that change can be hard and that a committee's failure to do what it has been asked does not ensure that a board will have its needs met.

Solutions?  A nonprofit board must be clear about its requests.  A committee must understand that it is an arm of the board, not the board and compliance actually matters.  A committee could consider giving the board what it wants AND provide alternatives that show why the committee's offering does indeed answer the board's needs.  A board must be prepared to have healthy debate  and be willing also to end a committee's assignment and even the committee if it, the board, does not believe that the committee is still acting in the board's best interest.

This subject should remind us that board life is both transactional and relational.  Process matters as much as outcome.  

Nonprofit Board: No Contingency Planning

Would I suggest that contingency planning, in the event of property loss or other catastrophes would be a core board fiduciary responsibility?  I believe so and so begins the head scratching in trying to determine, from afar, what went wrong over at a wolf sanctuary in Colorado.

Here's what has happened according to the Wall Street Journal:

A Colorado wolf sanctuary filed for bankruptcy, blaming the devastation from the High Park wildfire that scorched roughly a third of the 162-acre property where its 30 wolves roam.

Sanctuary officials had to leave the nonprofit’s LaPorte, Colo., property for nearly a month after the fire broke out in June 2012, said W.O.L.F. Sanctuary (Wolves Offered Life & Friendship) executive director Shelley J. Coldiron.

The fire—one of the worst in the state’s history—burned about 87,000 acres and destroyed more than 250 homes. The sanctuary lost several sheds and storage facilities to the blaze and is still fighting an insurer to pay for $60,000 to cover the damage. The property has also flooded; some of the fire-scorched earth no longer absorbs water.

“When you’re a nonprofit like us…and you have huge cost increases to address these problems, it really is impacting,” Ms. Coldiron told Bankruptcy Beat.

Sanctuary officials want to relocate, perhaps to a spot that would allow the public to visit. Its current location down a private road has made it tougher to get donations.

The nonprofit’s bankruptcy could also help officials figure out how much money to pay its former executive director and co-founder who once owned the sanctuary’s land.

Founded in 1994, the sanctuary cares for up to 30 wolves. The animals are often left homeless when a breeder shuts down or when people who bought them as pets realize they can’t care for them. A typical animal shelter won’t take them, and the animals don’t have the skills to survive in the wild, Ms. Coldiron explained.

The wolves that are taken in live at the sanctuary until they die, typically in their late teens. The nonprofit’s five employees sometimes take them to schools, churches or rotary clubs when they lecture on why wolves make terrible pets.

The nonprofit spends the roughly $250,000 in donations it gets every year on property maintenance, vet costs and food. Local grocery stores and Wal-Mart donate meat or damaged packages of dog food, and hunters sometimes drop off venison, Ms. Coldiron said.

Gray wolves in the wild, meanwhile, are making a comeback after being classified as endangered in 1978 and have recently been taken off some watch lists. The latest population estimate for the gray wolf is 5,385.

Write to Katy Stech at [email protected]. Follow her on Twitter at @KatyStech.

So, do you believe that the board just plain failed to do effective contingency planning?  Either way, what might the board have done different?  And most importantly, why does the board have to pay anything to the former exec, co-funder and former property owner?  I'm certainly missing something all the way around.

Nonprofit Board Whistleblowing

It is clearly a sign to a nonprofit board that it may be in trouble when two board members file a whistleblowing complaint.  I presume that this is a) rare and b) comes only after a herculean effort on the part of the board members to make the appropriate change.  And to be honest, I had understood whistleblowing action to be about protecting the welfare of paid staff who so chose to whisleblow because they believe the actions/inaction of their managers and perhaps the board is producing harmful results for the organization and/or nonprofit's customers/community.

Well, I don't really understand the status of the whisleblowing complaint from the following article that describes two board members who used this tool against three other board members but that formal result not withstanding, the action alone appears to have generated the appropriate response from regulators.  Again, I may not fully understand whistleblowing but for sure, some action needed to be taken and by jove, apparantly concerned board members made the move.  

Oh, one last note.  I am not totally convinced that a full-out audit (annual) is the best tool for understanding a nonprofit's finances when that nonprofit has a particularly small budget (less than $500,000).  There are alternatives and what is true, is that a board that has no clue about the status of the nonprofit's finances (income and expense statement - what it is spending and "earning" and balance sheet -- what it "owns" and others own/debt) is failing in one of the most fundamental of fiduciary responsibilities.

Here's the story from the Brattleboro Reformer (Vermont).

Red flags existed for years at nonprofit charged with mismanagement

By LAURA KRANTZ

POSTED:   10/11/2014 03:00:00 AM EDT

WHITE RIVER JUNCTION -- The Upper Valley nonprofit accused of mismanaging government funds operated for years with little or no oversight, according to two of its board members.

Emerge Family Advocates received $54,915 from the state of Vermont last year, including $38,515 from the state Center for Crime Victim Services, according to the Finance and Management Department.

The executive director of the center, Judy Rex, said Emerge’s behavior had raised red flags for several years, but short staffing and turnover limited the center’s ability to monitor how grantees used its money. The center cut off Emerge’s funding in February after the organization for years balked at requests for audits.

"We let it slide too long, we’re definitely guilty of that," Rex said.

Emerge is a nonprofit that oversees supervised visits of children by their guardians in Vermont and New Hampshire. Earlier this week, Attorney General Bill Sorrell’s office filed a petition seeking to remove the board of directors, claiming it allowed the executive director to inflate her own salary, pad her expense report and mismanage money in numerous other ways.

In addition, board members Thomas Trunzo and Joanna Jaspersohn last month filed their own suit in Windsor County Superior Court against Emerge’s executive director Raymona Russell as well as two board members and a former board member.

In April, Trunzo and Jaspersohn sent a whistleblower letter to Vermont, New Hampshire and the U.S. Department of Justice’s Office on Violence Against Women, which all fund Emerge. That letter prompted Sorrell’s probe; the federal government is also considering an investigation, according to court documents.

The Trunzo and Jaspersohn complaint includes many of the allegations in Sorrell’s suit. The letter claims that Russell willfully refused to provide the board access to Emerge’s finances and says Russell’s friends on the board shielded her from accountability. Russell has "sole authority and unfettered discretion, without meaningful board oversight," to sign checks, disburse state and federal grants and pay employees, which include her daughter and grandson, the complaint alleges.

Among a host of other allegations, the complaint alleges the board raised Russell’s salary in 2010 from $50,000 to $65,000 despite the fact that she never had a performance evaluation. Federal tax documents from fiscal year 2012 show Russell made $79,209 and may have paid herself more, the complaint alleges.

The complaint is against Russell as well as Joseph Verdine, board president, Muriel Farrington, board secretary, and former board member William Boardman. It asks for ex-parte orders, temporary injunctive relief, declaratory judgment, injunctive relief and for payment of legal costs.

Emerge, founded in 1996, has never had an audit of its books, according to court documents.

"She does what she wants to do. The board enacts no kind of controls over the finances," said Jaspersohn, who lives in New Hampshire. She worked with Trunzo and was appointed to the board in February, but when she began asking questions, others on the board pressured her to step down, she said.

Meanwhile, Don Keelan, an Arlington accountant and expert in board governance and embezzlement, applauded the Attorney General’s Office for investigating this type of crime.

"I am so pleased to see that the Attorney General’s Office has finally stepped in because the problems that you write about in this organization are so prevalent throughout Vermont," Keelan said.

Many people who serve on boards in Vermont do not understand their legal obligations to watch out for the organization’s finances, he said. Board members often are not mentored, they do not understand finances and many organizations cannot afford to pay an accountant to look at its books, Keelan said.

"Good for the attorney general for doing it but they should be doing a lot more," Keelan said.

Rex said she plans to talk to the administration and the Legislature about the need for another employee to do more site visits and help organizations that begin slipping before things get out of control. She says the Center for Crime Victim Services has learned a lesson about organizations reluctant to undergo audits.

"If you haven’t done your audit in nine months then you’re not going to be a grant award from us," Rex said.