Nonprofit Board Crisis

Nonprofit Board Duty of Care #NonprofitBoards

I'm conflicted about the following Tennessean story which is about a Habitat for Humanity in Tennessee selling off some of its land holdings to generate a healthy sum of funds.  I'm assuming that the new funds and/or earnings from the invested new funds will provide ongoing support to pay for program (i.e. building houses).  My conflict: if the original purpose of the now sold land was for building house, won't there be a lot few houses now and subsequently, the call to question the board's fulfillment of its duty of care?  What's your thoughts?

 

 

Quarry operator buys 183 acres off Whites Creek Pike

Getahn Ward, [email protected] 6:29 p.m. CST December 28, 2015

Rogers Group once planned to expand mining operations across Knight Road

A dump truck waits to be loaded at the Rogers Group quarry off Whites Creek Pike.(Photo: George Walker IV / File / The Tennessean.com)

Story Highlights

• Habitat for Humanity sold property, where homes were once planned, for $1.83 million.
• Last month, Metro Council passed an ordinance that created buffer zones to prevent concrete and asphalt plants within 1,000 feet of a residential structure and 2,000 feet from a park.

Rogers Group Inc. has paid $1.83 million for land the company considered as part of a previously planned expansion of its mining operations off Whites Creek Pike.

The Nashville-based provider of crushed stone, sand and gravel, asphalt and highway construction bought the property from Habitat for Humanity of Greater Nashville.

The roughly 183 acres on Gynnwood Drive and Trinity Hills Parkway is adjacent to 60 acres of vacant land Rogers Group already owned across Knight Road from its current rock quarry and asphalt plant.

Rogers Group Chief Executive Jerry Geraghty said the purchased land expands the buffer to that existing quarry. "We have no immediate plans for expansion," he said, referring to the company nixing its previous plans to relocate the quarry operations, including the asphalt plant, underground across the street.

 

When Rogers Group's pursuit of the roughly 183 acres became publicly known more than a year and a half ago, the company had said the planned relocation of its mining operations would significantly reduce noise, dust and odor and help Metro achieve its goal of more green space.

Geraghty said the previous plan was to donate most of the land the company bought from Habitat for Humanity to the community for a park. That overall plan also would've included building a tunnel below Knight Road to access the limestone on the other side.

Neighborhood groups such as Haynes Manor Neighborhood Association were skeptical about Rogers Group's claims about the potential positive results of taking the operation underground. They feared the planned expansion would extend the quarry’s life beyond the 25 years the company claimed was left and also hurt property values.

"When their life span runs out in their current location, we would like for them to relocate, but not in this area," said Joyce George, secretary of the Haynes Manor Neighborhood Association.

George, however, credited Rogers Group for planting trees, bushes and painting equipment among recent aesthetic improvements at its current quarry property.

 

Nonprofit Board Chairs #NonprofitBoards

Ensconced in the Music section of the New York Times is, for me, a most interesting piece about Carnegie Hall's current search for a new board Chair.

You may recall that this past year the music nonprofit faced some big challenges with its board chair.  I would pose that the problems were not singularly with the Chair but the whole board and now the board is attempting to recover.  What is most curious is that it is actually "advertising" for its next board chair.  The board has opted not to take a more traditional and I would argue, reasonable chair replacement strategy which generally involves "raising up" a seated board member. It has chosen instead not to look for someone who has served for enough of a time to fully understand the culture of the board as well as the institution.  I suppose the feeling that the possibility of filling the seat with an outsider moves along the thinking that the board would be better off with radical change although filling the seat with an outsider does not guarantee change.

Anyway, some of the points to note for the type of person being sought:

        someone with a passion for the arts and a love of music, can generate substantial revenue and can work with a diverse set of stakeholders.

And, regarding the role/responsibilities:

      Also, the chair will work in partnership with the executive and artistic director to achieve the mission of the organization and make sure board resolutions are carried out, communicate         concerns between the board and staff, be a trusted advisor to the executive and artistic director as he or she implements Carnegie Hall's strategic plan.

The article also notes that the board has a search committee responsible for finding the right chair. 

I think that much more can be said about the characteristics of the type of person Carnegie Hall is seeking.  In particular, "work with stakeholders" is a pretty big bucket that hopefully includes some capacity to manage meetings and manage relationships, particularly, the board members.

Tomorrow, I will talk about board chair research recently completed by a team of the Governance Committee of the Alliance for Nonprofit Management.  Please stay tuned.

 

 

Nonprofit Role and Responsibility #Nonprofit Boards

Who's job is it to "preserve" the past?  In the US, this job is typically that owned by volunteers who form nonprofits as the "profit" for preserving the past does not "always" generate a profit.  But it could.

This question of both who's responsible and for what arises in the soon-to-be-released edited edition of Mein Kampf, Adolf Hitler's treatise on his values and beliefs.  I guess that the beauty of nonprofits is that there existence is sustained if there is a market - donors or sales - no matter how distasteful or anti-societal.  So, with this freedom, what becomes the responsibility of a nonprofit board when it knows that what it might do bears possible negative consequences?

Thus lies the question for those who are preparing to release Mein Kampf.  But is this not the same question for many similar types of actions?  For instance, the removal, justifiably so in my opinion, of statues representing the confederacy, may mean that these symbols of an era should be preserved as lessons versus the Taliban's approach of just wiping out such symbols that are counter to opinion.  

For the Mein Kampf story, check out the Philadelphia Inquirer.

Nonprofit Board Duty of Care #Nonprofit Boards

Most nonprofit boards, I believe, are aware of what's called D&O insurance - the insurance that, according to alianz offers

    liability cover for company managers to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties. Such policies cover the personal     liability of company directors and officers as individuals (Side A cover), but also the reimbursement of the insured company in case it has paid the claim of a third party on behalf of its     managers in order to protect them (Side B or Company Reimbursement Cover).

But, did you know there was insurance for a nonprofit when a donor failed to deliver on their promises?  I certainly did not and I would caution that it is likely the big institutions that need this insurance more than the average every-day nonprofit but the following Philadelphia Inquirer article caught my eye and may lead to nonprofit boards considering this as an important option within their duty of care.

   

What happens when a donor promises, but doesn't deliver

Jane M. Von Bergen, Inquirer Staff Writer

POSTED: MONDAY, DECEMBER 21, 2015, 12:33 PM

Imagine this nonprofit nightmare scenario. The deal is done -- a wealthy patron pledges millions of dollars to underwrite a new campus building. Cameras. Press releases. Ribbon cuttings. Contractors bring in backhoes and ... the donor goes bankrupt and the promised millions never materialize. Then what?

"We have what's called donation insurance, which is a coverage that if a donor pledges a donation and then doesn't fulfill that donation, we'll step up and fulfill it up to a certain limit of liability," James "Jamie" J. Maguire Jr., chairman of Philadelphia Insurance Companies told me during our Executive Q&A interview published in Sunday's Philadelphia Inquirer.

What amazed me about this company was the wide range, yet very specific set of insurance policies it sells. The entire ethos of the business is to think of everything that can go wrong and then try to convince business owners to hedge their bets with insurance. Churches can buy coverage for their stained glass windows. It's included in the same policy that protects them if someone slips and falls in the aisle en route to the altar for for Communion. Animal race tracks can buy "molestation" insurance in case some pervert gets weird in the bathroom.

Question: So explain to me how the donor policy works. How do you figure out what to charge for the insurance?

Answer: Well, every insurance policy has a deductible. So for commercial policies, they're generally $10,000 to $25,000 deductible. If it's above the deductible we're really careful about the limit. So we would offer maybe $100,000 limit for that coverage above a deductible.

Q: Then how much would that coverage cost?

A: Actuarially, we have to look at the losses over years on that coverage. Based on the losses we would charge for that coverage. When we first came out with the coverage we didn't charge for it. We just put it on. As we begin to get losses, which I'm not familiar with what the losses are or were; we would charge a premium. So it might be an extra $50 for that coverage based on the losses. But our actuary department tracks that. Our systems track that, and based on the experience of the coverage, we raise or lower the premium so that we have about a 10 percent to 15 percent margin on the product.

Q: That's what I was wondering. That's interesting.

A: Yeah. It's pretty heavy-duty. It's well above my ... that's why we have the actuaries, our math whizzes to figure that out.

Q: And tell me more about the abuse and molestation policy. How does that work?

A: The way policies are written they can file a claim 10 years later because it's on a current basis. So whoever was writing the insurance 10 years ago, the [company] was writing the insurance at that time is on the hook.

Q: Oh wow.

A: I mean you're only limited by the statute of limitations really.

Q: There's no getting out of the business.

A: There's no getting out of the business.

Q: Even if you get out of the business.

A: Yes, that's what known as a tail. It's an expensive line of business to write because you have to have reserves in the event that there's a claim made, you know 10 years from now. That type of business requires a little bit more of a reserve because of the risk factor and because of the severity of the types of claims. I mean the severity of that type of claim is going to be a lot greater than donation insurance.

Read more at http://www.philly.com/philly/blogs/jobs/INQ_Jobbing-What-happens-when-a-donor-promises-but-doesnt-deliver-CEO-Philadelphia-Insurance-Maguire.html#w62l6pPDzUfojX6A.99

Nonprofit Board Duty of Loyalty #Nonprofit Boards

Wreaths Across America places, sadly, more than 800,000 wreaths on headstones in the National Cemeteries.  It turns out though and according to the Wall Street Journal, that the supplier of these wreathes is a company with direct ties on the Wreathes Across America board of directors as well as the staff.  And maybe this would be ok except that the supplier makes a significant portion of its annual income from this sale.  Failure in fiduciary duty of loyalty aka conflict of interest?  Let's see: there's the rule about nonprofit board members not personally benefiting from the work of the nonprofit (or their decisions).  And then there's also that fiduciary duty of care where members must do what any other owner in a similar circumstance might do (like "bid-out" on a regular basis).  But Wreaths is fulfilling its mission so how much does it matter who's in control and who's benefiting?  You be the judge.

 

Wreaths Across America Has Family Ties to Its Supplier

The charity exclusively buys its military grave decorations from a closely linked Maine company

By

MICHAEL M. PHILLIPS

Dec. 21, 2015 6:26 p.m. ET

43 COMMENTS

Each Christmas, the charity Wreaths Across America places millions of dollars in decorations on military graves at Arlington National Cemetery and elsewhere, in what has become a national remembrance of the country’s fallen.

Tax filings, court documents and interviews, however, reveal a distinctly commercial aspect to the charity’s operations.

The charity buys its wreaths exclusively from a company owned by the same Maine family, the Worcesters, that started the nonprofit. Worcester family members and former company employees run the charity and have seats on its board.

The relationship has been vital to Worcester Wreath Co. Its sales to Wreaths Across America helped revive the Harrington, Maine, supplier, with $25 million in total orders, making up for the significant business it lost since a dispute with L.L. Bean, the outdoor specialty store.

Sales to the charity now make up 75% to 80% of Worcester Wreath’s revenue, according to Rob Worcester, co-owner of the operation’s parent company.

It is legal for charities to do business with related people or companies, said tax attorney Marcus Owens, former director of the Internal Revenue Service division overseeing tax-exempt organizations. Wreaths Across America discloses the purchases in its tax filings, along with the presence of Worcester-related parties on its board.

The overlap nonetheless raises questions about the close relationship between the two organizations.

Federal and state regulators “examine closely the details of those sorts of deals because there’s a huge potential for essentially the charity allowing its assets to be diverted to private use,” said Mr. Owens. If the deal benefits the related company to the detriment of the charity, the charity could lose its tax-exempt status, he said.

Wreaths Across America officials say purchases are approved by independent board members, and that family members and ex-company employees recuse themselves from procurement decisions.

“While some may question the close relationship between the two organizations, [Worcester Wreath Co.] has supplied wreaths at below-market prices and with the supply-chain flexibility that has enabled [Wreaths Across America] to grow,” said Wayne Hanson, a former federal criminal investigator who is chairman of the charity’s board.

The charity’s executive director, Karen Worcester, who is married to Worcester Wreath President Morrill Worcester, said next year the board will consider a proposal to seek bids from other suppliers for the 2017 Christmas season, a move she said the charity has been mulling since last year.

Some Maine wreath suppliers say they could sell wreaths to the charity for a dollar or two cheaper than the Worcester company. Potential suppliers have contacted the charity asking to bid, but it doesn’t accept such offers, Ms. Worcester said.

The exclusive relationship between the Worcester charity and company “has been a thorn in my side for a long time,” said Steve Gay, who recently sold his wreath company in Machias, Maine.

Added David Whitney, a Worcester rival who now supplies L.L. Bean: “There are plenty of wreath producers here in Downeast Maine who would love to participate in that growth.”

Worcester now charges the charity $8.50 a wreath, which after costs leaves $1.20 in profit, according to Rob Worcester, a son of Morrill and Karen. This year, the company sold 876,000 wreaths to the charity, suggesting a profit of $1.05 million. Worcester donated 25,000 additional wreaths, a deductible loss of about $183,000.

Wreaths Across America began as a family tradition in the early 1990s, when Morrill Worcester one year found himself with 5,000 surplus wreaths. Through his senator, he secured permission to place the wreaths on 10 acres of graves in Arlington National Cemetery in Virginia. Other local companies donated, too.

“The good Lord gave that to my family to do, and that’s the way I feel about it,” Mr. Worcester, now 66 years old, said in an interview.

In 2005, an Air Force photographer snapped a picture of green and red Worcester wreaths leaning against marble tombstones in the snow-covered cemetery. Mr. Worcester found himself inundated with requests from people who wanted to help.

Two years later, the Worcester family established the tax-exempt charity. Ms. Worcester, Morrill’s wife, became executive director. Their daughter and two daughters-in-law joined the board of directors, along with a former senior Worcester employee and his then-wife.

At a Worcester Wreath board meeting around the time of the charity’s founding in 2007, company officials proposed to supply balsam fir wreaths with red American-made bows for $9 each. Family members “refrained from the discussion of conflicts, terms of the contract and voting,” according to records the charity provided to The Wall Street Journal.

The board agreed Worcester Wreath would continue indefinitely as sole supplier unless outside board members determined it didn’t offer a “reasonable and fair price,” according to the records and Karen Worcester.

“We’ve looked at it and said on the surface it doesn’t look like there’s anybody who can compete with Morrill Worcester,” said board member Ron Sailor, a retired colonel in the Maine Air National Guard.

Ruth Stonesifer, a charity director whose son was killed in a helicopter crash while in the armed forces in Pakistan in 2001, said her “primary concern” is to pay tribute to veterans.

L.L. Bean in the late 2000s accounted for 90% of Worcester Wreath’s business. The retailer was ordering $6.7 million a year in wreaths, centerpieces and other decorations, according to court records. The companies got into a legal tussle during the 2008 slowdown over who was responsible for unsold inventory. (A judge later awarded Worcester Wreath more than $650,000.) The next year, L.L. Bean didn’t order any Christmas products, leaving the firm in dire straits, according to Rob Worcester.

Relief came in the form of Wreaths Across America. In 2009, the charity ordered $1.1 million in wreaths. The following year it bought $1.9 million. “It allowed us to get our feet back under us,” said Rob Worcester, whose wife is on the charity’s board.

In correspondence with a local banker, Morrill Worcester presented the charity as one of the company’s most promising markets.

In 2007, the charity placed 33,000 Worcester Wreath wreaths at gravesites. So far this season, it has placed 901,000. On Dec. 12, Wreaths Across America volunteers placed wreaths on all 241,000 eligible graves at Arlington, the charity said.

Civic groups including American Legion branches use the wreaths as fundraisers, and Congress regularly declares a Wreaths Across America Day. Trucking companies and Wal-Mart Stores Inc. donate vehicles, drivers and fuel, and two Wal-Mart employees sit on the charity’s board. Wal-Mart declined to comment on the relationship between the charity and the Worcester family business.

“If you look at this only as a financial transaction, that isn’t the right frame of reference,” said Tobin Slaven, a charity spokesman and former son-in-law of Karen and Morrill Worcester. The family members “live and breathe this mission to honor as many veterans as possible. That’s not reflected in cold hard numbers.”

—Jim Oberman contributed to this article.

Write to Michael M. Phillips at [email protected]

Nonprofit Governance Matters #Nonprofit Boards

Are there not more advantages to being a subsidiary organization that being a free-standing organization with an affiliated "name"?  Possibly is the answer that the Alzheimer's Association is going to learn as a result of its decision to place all its free-standing affiliates under its one roof.  A few groups are already raising their voices though and they are choosing not to go gently into the night.  They have determined that the pluses do not outweigh the negatives and their are big stakes riding on their decisions - big stakes for them and the national organization they are abandoning.  They are estimating that the work that will now be required of them and their boards does not outweigh staying a part of the family.  This is an important battle to watch as the implications are as big for the individual groups as the national as the donors and beneficiaries.  All could stand to lose, something.

 

Here's the Wall Street Journal story.

 

The Greater N.J. chapter of the Alzheimer’s Association breaks from national organization

 

By

MELANIE GRAYCE WEST

Dec. 21, 2015 7:31 p.m. ET

1 COMMENTS

The Greater New Jersey chapter of the Alzheimer’s Association has broken from the national parent organization, following similar moves by New York City and two California chapters, amid a reorganization that aims to centralize some 80 community-based chapters into a single, legal entity.

“We were really worried about the impact on autonomy and how that would affect the community and the type of programming we can provide to people in New Jersey,” saidRussell Rothman, the vice chairman of Alzheimer’s New Jersey, formerly known as the Greater New Jersey Chapter of the Alzheimer’s Association.

The national Alzheimer’s Association, founded in 1979, provides support to caregivers and people with Alzheimer’s disease. It is the biggest charity funder of Alzheimer’s research and has assets of $181 million.

There are an estimated 5.3 million Americans with Alzheimer’s disease and some 3.6 million received services from the association, according to an annual report.

The defections, which highlight decade-old tensions, began last month with the New York City chapter and continued on Friday with the Greater New Jersey chapter. Earlier this month, the Orange County and San Diego chapters in California disaffiliated.

ENLARGE

 

The four chapters were among those with the greatest assets and annual income. Each has changed its name.

Chapter leaders of the charities said the decision to break from the Chicago-based national office was driven by the need to preserve locally raised dollars and a desire to provide personal, hands-on support and programming for caregivers and people with Alzheimer’s disease.

Chapters contribute 40 cents of every $1 in unrestricted donations to the national office.

Over the past several years, the national leadership of the Alzheimer’s Association has rolled out a strategic plan designed to advance the organization’s common goals and unify its programming, said Stewart Putnam, chairman of the national board of directors for the Alzheimer’s Association.

In addition to the plan, national leaders decided to abandon a federation or umbrella-style organization—with each chapter its own independent legal organization—in favor of one national group. Local chapters would come under the national office’s financial structure, and local boards would move from fiduciary and oversight responsibilities into an advisory capacity.

Some 50 remaining independent chapters have until Jan. 15 to decide whether to join or stay independent.

Until the past year, the Orange County chapter didn’t question the structure of the organization and had a strong working relationship with the national staff, said Mike Lancaster, Orange County’s board chairman.

“But when it was then said, like a bulldozer, you will now be rolled into one organization,” he said, “our board felt very strongly that the community would be served in better fashion on our own.”

Stephen Casper, a co-chairman of the New York City chapter, said his organization was “best off” as a separate organization

The Alzheimer’s Association “brand is not unimportant, but not all-important either,” he said.

Mr. Putnam said the defections by the chapters weren’t entirely unexpected.

“I continue to believe that the vast majority of chapters and people involved in the organization will end up being excited about working together in a more unified fashion to deal with the issues that the disease is presenting us,” said Mr. Putnam.

The disaffiliations by the four chapters follow several others over the past decade. Local Alzheimer’s Association chapters in Long Island, Wisconsin, Tennessee and Arkansas, among others, broke off years ago, with some disaffiliations going to arbitration.

WE WANT TO HEAR FROM YOU

Have something to say about an article in Greater New York? Email us, along with your contact information, at [email protected]. Letters will be edited for brevity and clarity. Please include your city and state.

The largest chapter in North Carolina, for example, separated from the national organization in 2009, but final arbitration wasn’t settled until 2011. That new organization, Alzheimers North Carolina, now serves the entire state.

Its executive director, Alice Watkins, said the name change initially confused donors, leading to fundraising challenges.

“Everything is turning around, but it has taken a while,” she said.

Still, she said, everyone agrees that breaking away was the right path. When asked if Alzheimer’s Association chapters have called to seek her guidance on going independent, Ms. Watkins laughed.

“There have been lots of phone calls,” she said.

Write to Melanie Grayce West at [email protected]

Nonprofit Board Accountability and Liability #Nonprofit Boards

As we know, a nonprofit board and its members, has fiduciary responsibilities as "surrogate owners" which effectively means that intentional and otherwise plain failures to be prudent (doing what others in the same situation would do) can be held responsible for what goes on by the nonprofit.

Ah, but wait for it.  In a case in New Jersey where the then mayor Senator Cory Booker served as board chair over an organization that was doing downright illegal "things", the case is being made that a public official, as a public official serving on the board, can't be held liable for his (in this case) actions.  WHAT!  So consider the many, many nonprofits where law actually requires public representative seats - Community Action Agencies and Federally Qualified Community Health Centers for example.  So the public folks won't be held liable but everyone else would be?  This is a very serious consideration with even more serious consequences.  One one hand, the non-public volunteers would then be sane if they refuse to serve given that some portion of the board doesn't have equal responsibility.  On the other hand, such a situation provides public sector representatives to have an unfair authority over the rest of the members.  This is not right and I can only hope that the Judge will see the issues caused by backing Sen. Booker's position.  Rise up nonprofits, send your cards and letters to your legislators; become friends of court.  Take action.  Or...don't accept public sector people on your board at any time in the future if this argument is accepted.  Everyone else looses.

 

Here's the Wall Street Journal article telling the story.

 

Citing a New Jersey law that protects elected leaders, Sen. Cory Booker (D., N.J.) says he can’t be sued over an alleged multimillion-dollar corruption scandal that unfolded at a nonprofit agency that once delivered water to customers throughout the state’s northern communities.

In court papers, lawyers for Sen. Booker urged a federal judge to drop the lawsuit over the Newark Watershed Conservation and Development Corp., which shut down nearly three years ago after a state report said it “recklessly and improperly spent millions of dollars of public funds” during Sen. Booker’s tenure as mayor of Newark.

Under the nonprofit’s rules, the mayor of Newark led the board of trustees. But Sen. Booker’s lawyers argued in court papers filed Friday that a New Jersey law shields public officials from lawsuits.

The law, New Jersey’s Tort Claims Act, is meant to keep people who are running for elected office from worrying that they will be held personally liable for the work they do as a public servant, they said in documents filed in U.S. Bankruptcy Court in Newark. Few people could afford to take on such a potentially expensive risk, they said.

“The consequence of a failure to uphold these immunities would dissuade an even wider swath of individuals from seeking to hold public office. This would impoverish our democracy, as the absence of immunity would pose the risk of narrowing the pool of people willing to serve the public to the super-rich or the judgment-proof.”

The Nov. 6 lawsuit against Sen. Booker also named other ex-board members. Most of the allegations focused on the agency’s former director, Linda Watkins-Brashear, who was accused of mismanagement and abusive spending.

Specifically, the lawsuit says Ms. Watkins-Brashear improperly awarded more than $2.5 million worth of no-bid contracts for consulting, landscaping and other services to people who had agency connections, including more than $332,000 in no-bid contracts to her ex-husband for interior-design work. That violated the nonprofit’s charter that restricts officers and employees from having “any interest, directly or indirectly, in any contract to supply goods or services,” the lawsuit said.

The lawsuit also said Ms. Watkins-Brashear improperly spent the agency’s money, including at a 2010 conference where the agency paid for a dinner for 20 that cost $1,410 and included lobster, king crab, filet mignon, cognac and martinis.

Ms. Watkins-Brashear, through her lawyer, has denied wrongdoing.

Sen. Booker appointed Ms. Watkins-Brashear to the executive-director position shortly after he took office in July 2006. He served until October 2013, when he became a U.S. senator. In Friday’s court filing, Sen. Booker’s lawyers said it wasn’t “his duty to monitor directly the executive director.”

Last month’s lawsuit is the work of several court-appointed trustees who were put in charge of shutting down the agency after its work was transferred to the city of Newark. Any money recovered in the lawsuit would be used to pay the agency’s final bills.

Founded in 1973, the agency was paid by Newark to manage the city’s expansive fresh-water reservoirs in northern New Jersey and handle operations at a water-treatment facility. The agency took in more than $40 million in city money from 2008-11 under two service contracts, the lawsuit said.

The agency dissolved in March 2013, and several people who were appointed by a judge to wind up its affairs put it into bankruptcy Jan. 2.

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

Nonprofit Mission Converges with Revenue Generation #Nonprofit Boards

As a big Star Wars fan with a passion for nonprofits I couldn't help but make note of the following Washington Business Journal article that discusses the ultimate combination; mission and revenues!

The force is with Smithsonian as ‘Star Wars’ debuts this weekend

Dec 15, 2015, 2:57pm EST Updated Dec 15, 2015, 3:01pm EST

Sara GilgoreDigital ProducerWashington Business Journal

Friday’s release of “Star Wars: Episode VII — The Force Awakens” promises to draw big crowds to Greater Washington movie theaters this weekend, but a commercial cinema isn’t the only place to see the newest installment of the blockbuster series: Smithsonian’s Imax theaters are also showing the film.

The National Air and Space Museum’s Lockheed Martin Imax Theater in downtown D.C. and the Steven F. Udvar-Hazy Center’s Airbus Imax Theater in Chantilly — two of the three Smithsonian Imax theaters in the region — are among the pool of options for “Star Wars” fans to watch the movie on the big screen.

Both sites sold out for opening weekend within minutes, according to Zarth Bertsch, director of theaters for Smithsonian Enterprises, a division of the Smithsonian Institution. The organization also expects to sell out for the majority of the first week and remain close to capacity through New Year’s weekend, before tapering off somewhat in January.

The museum looks to bring in significant revenue as it continues to sell to occupancy. Tickets have been on sale for more than a month, at $15 a piece. Its cinemas are single-screen theaters, with fewer than 500 seats in each. With concessions, parking at the Chantilly location and retail sales, and multiple shows per day, the film will be “a considerable revenue source” for the museum, Bertsch said, for the end of the first fiscal quarter and the beginning of the second. He declined to reveal specifics.

This isn’t the first feature film Smithsonian has shown, but they typically supplement its documentaries, which are vetted by its curators and considered the museum’s “mission” films. It also offers “non-mission” programming, which includes feature-length movies that aim to bring in “those precious unrestricted dollars for the institution,” Bertsch said. The museum has shown “The Dark Knight Rises,” “Inception” and “Avengers,” among others.

But “Star Wars” is an exception — a feature-length film that also aligns with the museum’s programming.

“Science fiction [is] a big part of what inspires next-generation scientists and explorers, and it’s something that we think our public has a very strong interest in,” Bertsch said. “Those are a perfect convergence for us, because that is great content and a great revenue-generating opportunity.”

Nonprofit Rogue Board Members #Nonprofit Boards

According to Taxation of Exempts magazine (November/December 2016), "A well intientioned but misdirected board member can disrupt the proper functioning of a non-profit organization and divert its staff from pursuing its mission.  This sort of behavior needs to be addressed early and with care in order to achieve the best outcome for the organization."  Referred to as "rogue directors" the article notes that these folks can put the CEO and other staff of the nonprofit in the uncomfortable position of having to confront a volunteer leader about changing behavior." "Rogue directors" are members who "do exceed his or her authority by making excessive or misdirected demands of the CEO and staff or requesting excessive amounts of information, particularly beyond what is needed to discharge their duty of care "reasonably".

Suggestions for "managing" a rogue director include:

a." Maintaining clear policies to set expectations specifically "delineating between board and staff authorities and responsibilities" (e.g. the board has one employee: the CEO or a staff person supports but does not report to a committee);

b. "Provide board orientation regarding areas of authority and expectations;

c "Enlist legal counsel and board leaders for help" to "redirect" the board member;

d. "Remove the board member" 

Of course, none of these options are guaranteed to produce positive outcomes but in exchange for doing nothing, I believe these are great suggestions.

James S. Wilson, a partner at Webster, Chamberlain and Bean in Washington, DC was the author of this article.  

In the following article Professor Eugene Fram (Eugene H. Fram is the J. Warren McClure Research Professor of Marketing at the College of Business, Rochester Institute of Technology. He can be reached at efram@ cob.rit.edu.)  makes an interesting proposal about how to fill board seats - a proposal I too have supported.  Please note though that I don't believe (nor does Professor Fram argue) that for nonprofits in particular these folks should be the only source of members.  And, while Professor Fram is referring more to for-profits, nonprofits should be mindful that the first criteria when recruiting anyone to fill a seat, is passion if not a whole lot of interest and commitment to the cause.  

Professor Fram proposes three sources:

The first is senior managers in midcareer. These executives have considerable experience but prefer employing their knowledge and experience in a less operational and more consultative manner. For example, a typical professional director in this class might be a person with 20-plus years of experience, including service at the senior executive level, who has worked for multinational companies and emerging businesses. Such an individual is not likely to have sufficient personal resources to be financially independent for the long term, so compensation would be an important issue. (A caveat here is that people could tend to favor supporting the status quo when they are highly motivated by compensation, especially if their selection was pushed through by the CEO and others with vested interests.) A professional director in this category might serve on five or six boards to fill a full-time work schedule, which would provide the financial resources necessary to maintain an executive lifestyle.

The second type of professional director could be developed from the ranks of executives 10 years senior to those in the first category. Thus, they would typically have 30-plus years of experience. Tired of senior management stresses yet having sufficient financial resources, individuals in this group might choose to serve on just three boards. The service could be viewed both as a career change and as a prelude to retirement.

The third category is former senior partners in national accounting firms with 30-plus years of experience in audit and internal-control functions. Although their career experiences will not be as broad as those of many other senior executives, individuals in this category would be ideal candidates to chair the corporate audit or compensation committees, probably on three or more boards. The number of board invitations likely to be accepted would depend on a person’s motivation for professional activity as well as the added time required to chair major board committees.

Candidates from these three categories, in addition to another group made up of retired senior managers, could greatly alleviate the growing shortage of qualified board directors. In fact, four professional directors, one from each category, could occupy the equivalent of some 13 to 15 board seats at several corporations. 

Professor Fram also suggests that "hen initially recruited, both the professional directors and the retired senior managers should have the necessary knowledge and experience to fulfill their duties. Boards should also take steps over time to ensure that all of those individuals build on their skills and knowledge base, perhaps through educational offerings and close involvement with current management issues. Fortunately, director education has become increasingly available.1 Columbia Executive Education at Columbia University’s Graduate School of Business, for example, now offers a course for directors on “improving financial integrity,”2 and several trade associations offer boot-camp courses for directors.3

Unfortunately, no data are readily available regarding the number of professional directors now serving on the boards of U.S. corporations. One reason might be that the business community lacks a universally accepted definition for such a position. But a Canadian search firm estimates there are 30 to 40 professional directors currently serving top companies in that country. The search firm defines professional directors as individuals who have left their professions “far earlier than the traditional retirement age in order to pursue board work as a vocation in itself.”4

The complete article can be found here.