Nonprofit Board Crisis

Nonprofit Board Accountability

Just how accountable is a nonprofit for overseeing what is done by another organization on its behalf?

The Minnesota Attorney General thinks the answer is "fully accountable".  Many of you may be aware that the big chain "privately owned" thrift store "Savers" acquires its product offerings, clothes and other goods, from charities who have received these items initially as donations as well as directly when it promises then to make a contribution to the charity identified by the donor.  The charities in turn "sell" these items to Savers who then puts them on its shelves.  This arrangement reduces can need by charities to be in both the collection and distribution business while still being able to raise funds.  In many locations, Savers has been a very effective fundraising vehicle for the likes of some pretty big and small charities.

But in Minnesota it appears that Savers has not fulfilled its contract or at least misrepresented its contract by keeping more of its income over dispersing it back to the charitable sources.  The Minnesota AG is holding the charities equally responsible for Savers' failngs because donor's intent is not being honored (my minimalist interpretation).

So, a good lesson: when a nonprofit makes a deal with another organization, it retains its obligation to protect the interests of the donor as well as its own reputation.  From a governance perspective, nonprofit boards should establish poicy that is clear about the types of arrangements staff will make, what oversight should include, and what types of benefits and when lines are crossed.  

For the full story, here's a link to the New York Times.

Nonprofit CEO Value

"What’s a CEO Really Worth? Too Many Companies Simply Don’t Know" asks a Wall Street Journal article citing that:

The pay that CEOs and other executives receive is not aligned well with company performance, primarily because companies and boards lack the tools to accurately measure how much success executives are actually having in their jobs, a new study concludes.

And the article concludes with the following:

One key metric the report focused upon is “economic profit,” which is the net operating profit after taxes minus invested capital. In other words, profits, after accounting for what’s been reinvested in the business.

A sustainable and viable business model must eventually provide consistent positive economic profit and a return on invested capital greater than its cost of capital. Without a reasonable expectation of positive economic profit then no amount of sales or earnings growth will create sustainable shareholder value.

Clearly the idea of economic profit is not specifically pertinent to nonprofits while the idea of no loss is at minimum, meaningful.  But "no loss" certainly does not do much to singularly indicate the value of a CEO.  But maintaining a "sustainable and vialable business model" comes closer to being able to put a "price tag" on the nonprofit CEO and to date, the comparable market value, essentially what other nonprofits have determined is the value of their CEO, serves to at minimum set a parameter.  

But then perhaps the nonprofit board can also put a value on a nonprofit "positive economic profit" to mean "positive outcomes toward mission".  A board that might go through the process of actually determine what positive outcomes toward mission would look like (llikely through strategic planning and results based accountability measures) has likely come a lot closer to next being able to put a value on the CEO who effectively does all the work necessary to ensure desired outcomes.

So, have we gained some wisdom through the insights of the for-profit sector?  Possibly, but there is much work to be done by nonprofit boards to put these concepts into practice.

 

 

Nonprofit Board Member Interests

I recently received an unsolicited invitation to review a survey from a software/tech group that included information about what prospective board members are seeking in considering joining a nonprofit board.  I took a look and believe that there are learnings to consider from the survey from Software Advice which surveyed 1,545 respondents "who have either served on a board of directors or been tasked with recruiting new board members".  Here's the highlights and I presume all are welcome to take a look at the details.

Top Benefits of Board Service

 

 

Top Factors to Consider Before Joining a Board

Most Beneficial Skills/Experience for Board Service

 

What's your thoughts about the findings and analysis? Accurate?  I'm not 100% certain but would be interested learning other's experience.  Also, feel free to chat with the source:  [email protected].  

 

Nonprofit Family Not Community Owned

When the following type story comes to light I reach two conclusions: organizations like the following are lacking in good governance (oversight) and the nonprofit is not owned by the community (as it would be were there a board giving careful oversight) but by a family.  In my opinion neither is an acceptable reality and both are indicative of where a board has failed to fulfill its fiduciary duty.  Lessons learned.

BALTIMORE — Two sisters have been charged in separate indictments with embezzling from nonprofit organizations, including one founded by one of the women.

Forty-eight-year-old Sharon Harrison and 46-year-old Kimberly Harrison, both of Rosedale, were indicted Tuesday by a federal grand jury in Baltimore.

A two-count indictment alleges that Kimberly Harrison founded and operated Between Friends, which provided services to foster children and their families. Prosecutors say she embezzled over $100,000 from the organization and used the money to pay her rent and buy a luxury car.

A four-count indictment alleges that Sharon Harrison worked as a bookkeeper for several nonprofits, including Between Friends. Prosecutors say she embezzled more than $1.3 million from the organizations.

From the Washington Post.  

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Nonprofit Board Accountability

When your most public work is hidden under a "cone of silence" I would pose you are not a model nonprofit.  Secrecy is an indicator that something's going on that would not produce positive results.  However, secrecy is apparently the modus operandi of FIFA, the governing organization of all things soccer. 

You have likely over the years heard of great conflict within FIFA.  The board, comprised of representatives of many soccer-playing countries appears to not impose honest and open processes for doing its business and particularly when it comes to how sites are selected for the World Cup event and then how vendors are selected and compensated.  Indeed, it appears that when money is involved, decisions go out the door.  And of course, in the World Cup, like every professional sport, money is involved.

The latest issue centers around a review of how bidding for the next World Cup was recently conducted.  Interestingly, one of the co-chairs of the board ethics committee wants to tell the story of the findings (as I understand it) and telling the story would not bode well for everyone else. Is this what good governance is all about?  

To learn a bit more, check-out the Philie Inquirer.

Nonpofit Solvency is Not Sustainability

As everyone who has anything to do with nonprofit boards recognizes, grant income is often a central focus.  From my observation, nonprofit boards are often very excited to learn that xyz foundation has made a commitment for this or that purpose.  Many board members wipe their brown with gratefullness at the news and then get on with the "business" of the day.  Boards tend to think of foundations in particular as their key to sustainability while putting aside the reality that foundations, in general, like to support figuring out if there's a need/problem and identifying solutions to a problem.  Foundations in particular are rarely "in it" forever.  The government tends to follow suit with grants although it's also true that the government also contracts for services it might otherwise provide and in this reality lays the difference between financial solvency (solving financial needs in the immediate) and sustainability (generating ongoing sources of support).

The reality of the difference between sovency and sustainability is excellently presented in  in the Wall Street Journal where Holman Jenkins describes what he believes to be the future challenge for Detroit: sustainability not solvency and the reality that charitable institutions in a community are not about "bailing out" (although they can be) as much as they are about building upon what is great.  In Detroit, bailing out has become charity's role.  Consequence: uncertainty about what's possible next.

While Mr. Jenkins' story is about a city in crisis, bailed-out for the moment by philanthropy, is it not true that many nonprofit boards live the same way as Detroit?  These boards look to their next handout from a foundation having not built a revenue generating or even donative model or endowment that sutains into the future?  A planful board should have its thinking hat on with a ten year sustainability plan that gets implemented NOW.  As all know, sustianability is never achieved overnight although a great one-time gift put aside to generate an income could certainly make this a reality.

Nonprofit Creativity

Not for nothing but the following story serves to remind all that nonprofits are about finding solutions where the for-profit sector and the public sector don't have enough incentive or demand.  The California cat cafe is just such an invention to say a lot of passion goes a long way.

OAKLAND, Calif. (AP) - Cat lovers in Northern California are pouncing at the chance of spending time with feline company at a new cat cafe in Oakland.

Cat Town Cafe is giving dozens of visitors a chance to mingle with furry friends while sipping coffee and nibbling on cat-themed cookies.

The cafe opened last month and has been full since opening day. It was inspired by the cat cafe craze in Japan, where many people live in cramped high-rise apartments that don't allow pets.

While making feline friends became popular therapy for lonely or anxious workers in Japan, the Oakland coffee shop puts the focus on the animals.

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The tuxedo, orange tabby and Siamese cats napping or stretching in the sun in Cat Town come from a local shelter and are available for adoption.

"Most of them have been at the shelter for four months or more. So as much as this is a super fun experience, it's really a mission-driven project to get the cats out of the shelter and into great homes," said Ann Dunn, founder of Cat Town Oakland, a nonprofit group that helps place cats least likely to be adopted from the Oakland Animal Shelter.

She said there were 14 adoptions in their first 12 days.

For a $10 donation to the organization, visitors get one hour of kitty company in the cafe, where they can play with felines, scratch their backs and watch them nap. Each person is given a designated window of time to make sure there are not too many people at once in the room painted with cartoon-like, bright murals of cats.

Cat naps are very popular at the cafe, but Christina Souza, who visited on a recent afternoon, didn't seem to mind.

"I think it's fun. It's great. It's exciting," Souza said. "Why not have more venues where cats can let out their fun personalities?"

Cat cafes are now open in London, Vienna and Paris, and Cat Town's founders believe their coffee shop is the first of its kind in the United States. That may change soon - a half dozen cat cafes are set to open in the U.S. next year, most of them along the West Coast.

 

OLGA R. RODRIGUEZ

For the pictures and full article. 

Nonprofit Board Policy

Today's Wall Street Journal article on corporate branding as a source of revenue for children's musuems introduces some great nonprofit board policy questions.  Making policy to inform day-to-day decisions is part of a nonprofit board's fiduciary duty of care.  Policy also reduces the need for a nonprofit's management to need board action on every single decision.

According to the article, corporate branding can play a significant role in the sustainability of a nonprofit.  Children's museums offer particularly unique opportunities for corporations to "plant their seed" as you would for both the child and parent.  But there are policy questions a board should consider ahead of taking advantage of these opportunitites.

The most simple question: is there any "tainted" money source a board would not accept?  Usually tainted is derived from having a moral or political basis and may indeed counter the core values and mission of a nonprofit.  I imaging that a board's clearness about its values should serve as a fine reference for deciding whether to accept money from some sources.

As sustainability is the root for accepting branding money, a board might establish a policy about just how dependent the organization should be on branding.  Businesses tend to be fickle in their relationships; their bottom line income influences how long they may remain committed; and, sometimes they make decisions that result in not having an interest or desire in the relationship - like moving the factory to another state or country.  I'm not saying that all businesses are unreliable but history might suggest...

Then there is the question of mission.  Is the "what" a corporation want to brand compatible with the nonprofit's mission and program goals?  The New Balance example in the article appears to be an example of consistency for the museum but I can imagine where such examples are otherwise.

So, a nonprofit board's policy work is complicated but can certainly make a difference for the nonprofit's future.

Nonprofit Governance and CEO Compliance

There's a slowly growing movement afoot whereby pastors of churches are using their pulpits to support political candidates.  Legally, this action violates the law and could, should the IRS (the enforcing agency) so choose, result in a church losing its tax exempt status.  The law harks back to the late 1950's when it is hypothesized that then Senator Lindon Johnson "wanted to stifle nonprofit groups that were backing his opponent".  For whatever reason, Congress approved the proposal as law (Washington Post).

Putting aside the legal issues, I do question the protocol of a church pastor picking political sides and urging the congregation to follow suit.  While indvividuals are selected for the spiritual leadership skills, does this mean that these skills translate equally to political leadership?  And, would it not be in the hands of the church body to determine if it wants its paid leader to lead in this way?  I believe that a church pastor, like all nonprofit executives, work for their board and while asked to play a leadership role in paving the way for the church to grow and prosper (perhaps), are not asked to take on other types of leadership roles such as influencing the members on who they should vote.  

The central question goes back to understanding the pastor's job description.  Does teaching right and wrong inherently include teaching about who is right and wrong?  The question of violation of the law is clearly in the hands, for this particular issue, of the IRS.  The question of whether a pastor is exceeding their role in advocating for one candidate over another is in the hands of the members and their leadership body to answer.  Unless the church's lay leadership has asked the paid leader, aka the pastor, to advise about political candidates, were I the Church I would contest the IRS' ruling that a church should lose its tax exemption while dismissing the pastor in question on the grounds that that pastor had not been authorized to exceed their responsibilities in this way.

Nonprofit Executive Term Limits

Why don't CEO's have term limits like boards?  Really, why don't they?  

And, why am I asking?   Because the Wall Street Journal noted today that the Anti-Defamation League has announced a replacement for its longtime national director who is leaving after almost a half century working for the Jewish nonprofit.  The New York-based organization on Thursday said Jonathan Greenblatt will take the helm when 74-year-old Abraham Foxman steps down in July 2015.

If I'm doing my math correctly, Abraham Foxman was hired as CEO when he was around 26 or 27.  The world has certainly changed in the years Mr. Foxman has been at the helm.  And maybe there are some nonprofits where keeping the same director for fifty years makes sense.  But would you keep the same board?  Or is there not a double standard?  That is, regularly turning over a board matters more than regularly turning over the executive?  Anyway, I'm thinking ten years would be a good number but maybe 15 would be ok.  How many years does it take to leave an imprint, a legacy as you would while creating an institution that can also bend and flow into the future?