Nonprofit Board Crisis

Nonprofit Board-Executive Power #NonprofitBoards

The following blog about "types" of nonprofit boards gave me great pause.  The author attempts to provide an explanation for why nonprofit boards may struggle with their Executives and of course produce no or bad outcomes.  

Yes, boards on occasion struggle with achieving a balance of power with their executives.  While we like to describe the ideal relationship between the nonprofit board and the executive as a partnership, most know that that isn't always how it plays out.  Boards/board members put in an average of 30-40 hours of work a year while executives put-in a minimum of 40 hours a year.  Board members have one job, executives have a different job.  Both are a nonprofit's leader: the executive paid and the board volunteer.  The board of course is the nonprofit's "owner" albeit surrogate on behalf of the taxpayer.  So it stands to reason that this group of volunteers may not always see eye-to-eye and maybe that's OK - a healthy tension created by the construct.  But the power is clear - it is legally in the hands of the board and it's on the board to "work-out" how to balance powers.

But this blog author takes the discussion of power dynamics to another place.  The author offers that there are differing types of boards and that the differences, not communicated, are what results in a tension and sometimes, disruption between the board and executive.  I would agree that poor communications always produces bad results.  But I have to object to the author's classifications of boards.  I pose that there is only one "authentic" board and that board has that fiduciary duty of care to minimize risk and ensure success.  That a board may choose to exercise its duty using different approaches does not make it a different type of board.  Yes, some boards may choose to play a more advisory role to their exec but this does not diminish their fiduciary duty.  And some boards may be more active as fundraisers.  And other boards may exercise their responsibility by developing, overseeing and evaluating policy to inform an exec of how all should go in the pursuit of mission.  This approach is most often referred to as a corporate governance model.  

In my experience, all nonprofit boards use all of these approaches, to a lesser and greater extent to fulfill their fiduciary duty.  All achieve varying results.  And, all have varying degrees of positive and negative relationships with their execs.  They are all nonprofit boards - not different types of boards.  I believe this an important distinction from the author most importantly because I don't want to say it's OK not to do the one thing boards are obligated to do: fulfill their fiduciary duty.  Again, there are not a wide variety of boards: just boards that go through stages executing their job in varying ways.  

NonProfit Business Council

Various Types of Nonprofit Boards

Tuesday, March 29, 2016 at 9:05 by Allison Campbell

 

by: Lauren DeIorio, Nonprofit Business Council Chair and Fund Development Director, Public Education Foundation of Marion County

Why do organizations need boards of directors?  A board takes on many roles for the organization, but the main reason to have a board is that it strengthens and helps to define the organization.  Whether they are taking on some of the duties of the organization, such as overseeing finances, or just influencing potential donors to join your mission, without a board much of what is accomplished by the organization would never become a reality.

For a nonprofit organization, a board of directors can play a huge role in that organization’s success.  However, there are many types of boards that have very different ways to oversee an organization.  For the vast majority of nonprofit boards, they fall most commonly into two types of boards: a traditional board or an advisory board.  A traditional board will oversee an organization’s operations by establishing committees such as a finance or programs committees.  The traditional board delegates the responsibility of management and operations to the Executive Director or CEO.  The Executive Director or CEO will report back to the board on a regular basis so that the board can monitor the progress of the strategic plan.  With an advisory board, the organization’s Executive Director or CEO calls all the shots.  The board, which is usually selected because of their standing in the community, has no authority within the organization.  Their only job is to “rubber-stamp” what is brought to them from the Executive Director or CEO.

Still there is a few times where different types of boards are organized based on the needs of the organization. For example, there are some nonprofits whose main focus is on fundraising for their cause, so they will form a board that utilizes its members’ connections or community influences to help solicit funding.  These boards are called Fundraising Boards.  While the board of directors may determine that the fundraising aspects are actually handled by a committee out of their board, they may actually appoint a fundraising board a part from their own.  Some of the other types of boards and/or committees are: policy boards, collective boards, working boards, as well as executive boards.  Some nonprofits create a mix of the various types of boards and/or committees in order to function.

Which one works best depends on how well the nonprofit organization’s Executive Director or CEO can work with the board.  This is why with whatever type of board that is created, it is important to clearly communicate the roles and responsibilities of both parties.  Otherwise you are guaranteed to have a power struggle play out between your board and the Executive Director, which in the long run could cripple the nonprofit organization’s mission.

Nonprofit Board Values and Sustainability #NonprofitBoards

Retail has proven a successful sustainability choice for the likes of Goodwill and the Salvation Army and quite a number of nonprofits.  Usually in the guise of a thrift store, unwanted items donated by community citizens get prettied-up and put on a rack or shelf and sold for low to moderate prices - certainly prices lower than when the items were new.  The profit margins are low but so are the operating expenses often kept low through volunteers or trainees.  The model works.  

But in more recent years "retailers" have had to make new choices.  If one watches the Antiques Road Show, sometimes donated items turn-out to be far more valuable than what would be earned if put on the shelf.  So smarter thrift store operators have started to "sift" through what comes through the bins and started using e-bay and other avenues to get higher prices that the retail operations might not generate.  And folks like Goodwill have also found positive revenue generating outcomes for not-so-good-conditioned items in the rag business (where there is real money to be made).  

But what should these vendors do when the choices aren't so clear?  The following This Week News article highlights what I believe to be one of those times when the choices really aren't crystal clear.  This Ohio nonprofit has a program where it distributes furniture to those without resources to make a purchase.  But, in the process, managers have begun to think that some of what they receive, presumably through donations, would be better off for the organization and the folks who might otherwise benefit from such items, if they also operated a retail store.  The managers are now making choices between what is given away and what is sold.  I assume the managers have established criteria for separating between their items.  The article suggests it will be a year before they can break even.  I do wonder though: is this the intent of the donors?  And how do the prospective recipients of free furniture feel knowing that they are now going to get the "leftover" furniture - the stuff that doesn't quite have the retail value of the stuff they won't receive.  A tricky business this is, no?  I suppose the same could be thought of when some folks pay a higher price for daycare or counseling than those who have lesser funds.  Does everyone believe they are getting a service of equal value?  

Partially the answers to these questions rest in good communications, aka, the message.  Other answers also rest in strategy.  For instance, Housing Works in New York City retails classy stuff donated by reasonably well-off people with the singular purpose of generating profits that will be used for mission.  There is every intent to sell goods to folks who have resources.  The bottom line: values matter in terms of goals and strategy.  

 

FURNITURE BANK OF CENTRAL OHIO

Nonprofit adds retail component

 Got any old bookcases or other furniture lying around? Donate it to the Furniture Bank of Central Ohio. The need in the community is so great that the nonprofit organization empties a full warehouse of donations every 48 hours.

Officials with the Furniture Bank of Central Ohio want to start selling sofas and coffee tables and recliners in order to keep giving away sofas and coffee tables and recliners.

It's called "social enterprise," and it's what nonprofit organizations have to do these days to survive, according to Steve Votaw, president of the Furniture Bank of Central Ohio.

"It's a new push in the nonprofit community," he said last week as work progressed on the social enterprise that will eventually assist this particular nonprofit to provide furniture to those in need.

A new thrift store, called Furniture With a Heart, will have a grand opening at 10 a.m. on Friday, April 15.

It's located in the former Rite Rug store and warehouse at 2165 Morse Road.

A ribbon-cutting ceremony will be followed by a short reception, after which the store will be open for business.

Those wishing to attend the ceremony must register onlineby April 12 or by calling 614-545-3833.

It was a year ago this week that officials with the Furniture Bank of Central Ohio visited a thrift store being operated in Cleveland to help that city's furniture bank with funding, according to Votaw. A committee of local board members studied similar operations around the country before deciding to settle on the model of the Cleveland Furniture Bank, he said.

After electing to go ahead with the thrift-store approach, Furniture Bank officials worked with NAI Ohio Equities to identify potential sites. The committee and personnel looked at a dozen possible spots before settling on the former carpet store.

"We fell in love with this location because it's in a commercial strip," Votaw said. "It serves our target market, which is folks who have an income level that they would buy thrift-store furniture."

Although the nonprofit organization is based on Yale Avenue in Franklinton, Votaw said a large percentage of clients live in the Northland area.

Kathy Welch will be the manager of Furniture With a Heart. She comes to the operation with a for-profit retail background.

"It's huge," she said of the new store, which was being stocked with furniture last week. "I'm not used to having so much space."

The store's hours will be 9 a.m. to 8 p.m. Monday through Friday and 9 a.m. to 6 p.m. on Saturday, Welch said. It will be closed on Sundays.

The store will initially have about a dozen employees, but that's expected to grow, she said. It will also be run by plenty of volunteers, according to Votaw, and offer volunteer opportunities for nearby residents.

At Furniture With a Heart, items too large for the normally small homes and apartments of clients and items that would fetch top dollar will be sold in order to extend the mission of the operation, according to Development Director Sarah Rooney.

That will involve less than 10 percent of the furniture donated to the furniture bank, she said.

The store will also carry some household items.

The Cleveland Furniture Bank thrift store brings in about $1 million a year, Votaw said.

"That's our goal, but not right away," he added.

For the first year of operation, officials hope Furniture With a Heart sales cover operating expenses, Votaw said.

"Then we hope that in year two, we can have a 20-percent margin," he said.

If Furniture With a Heart can begin generating $1 million a year like the thrift store in Cleveland, the Furniture Bank of Central Ohio could serve an additional 1,000 families, according to Votaw.

According to the organization's website, the The mission of the Furniture Bank of Central Ohio is to provide furniture to central Ohio families and people struggling with poverty and other "severe life challenges."

Rooney said Furniture Bank of Central Ohio officials originally hoped to have the thrift shop open by the first of the year, but then discovered that furniture sales were not permitted in the zoning for the former flooring store.

Northland Community Council development committee members voted 16-1 in December to recommend approval of a variance to permit the resale operation.

Nonprofit Board Strategic Planning #NonprofitBoards

The Concord Leadership Group via Associations Now has completed their 2016 survey of 1000 CEOs, board members and others to provide some lessons about nonprofit strategic planning, CEO succession planning and other nonprofit matters.  I would pose that 1000 responses is certainly worth a heads-up.

I must observe that the survey authors have a pretty negative feeling about the nonprofit sector (read their forward) and even their interpretation of the survey responses was pretty negative - more negative than even I generally believe.   For instance, one result is I that 70% of nonprofits having strategic plans.  This is great news!  

And maybe it's just good marketing on the author's part,but I found the points for "why" strategic planning pretty good.  

Specifically, for those who do strategic plans, they are:

• More likely to collaborate with other nonprofits 
• More likely to have boards “open to taking calculated risks” 
• More likely to evaluate its CEO annually 
• More likely to have a process for measuring leadership effectiveness 

These would indeed be great resulting outcomes from planning, presuming of course, these are actually results from strategic planning processes versus just values and beliefs shared in the survey.  

WHAT GETS A BOARD TO SUPPORT STRATEGIC PLANNING?

BY MARK ATHITAKIS / MAR 28, 2016

A new study suggests that strategic planning remains a struggle for boards. A clearer picture of life without a strategic plan may help.

We don’t seem to be getting much better, as organizations, at strategic thinking.

That’s one of the main takeaways from the Concord Leadership Group’s “Nonprofit Sector Leadership Report,” a study by the nonprofit consultancy of more than 1,000 CEOs, board members, and other leaders. Some of the results echo familiar points: Nonprofits are weak at succession planning, for instance (only 77 percent have one, pretty good compared to other surveys), as well as CEO evaluation (only 61 percent of boards do it annually).

It’s not surprising, either, to see that so many organizations are weak at strategic planning as well. According to the survey, 29 percent reported not having a strategic plan, and 19 percent of those that said they do have a plan said it’s not written down.

Which must make those quarterly board-meeting prep sessions rife with intrigue.

“Problems are best expressed as real threats rather than specific solutions.

But one thing the survey does a good job of highlighting—in a way that isn’t often done—is finding the correlations between strategic planning and other measures of success for an organization. Those with a written strategic plan were:

• More likely to collaborate with other nonprofits (83 vs. 76 percent)
• More likely to have boards “open to taking calculated risks” (65 vs. 51 percent)
• More likely to evaluate its CEO annually (36 vs. 21 percent)
• More likely to have a process for measuring leadership effectiveness (75 vs. 50 percent)

It seems almost commonsensical, then, to put in the time to put together a strategic plan. So why do we resist it?

Partly, to put it simply, because it’s hard. “Many board members, at least in my experience, in their day jobs they’re not necessarily used to being in roles that require them to think or act or work strategically,” Jolene Knapp, CAE, told me in January. And many boards, uncomfortable with the rigorous process of environmental scanning and self-contemplation that goes into a useful strategic plan, wind up with ones that mostly ratify what they’re already doing (or not doing). So much so that I proposed killing the term “strategic plan” and replacing it with something that hinted more strongly at the forward-looking nature of the document. (I still like “futures committee” as a term for the task force charged with this work.)

The advice of the Concord Leadership Group survey is to boil down the strategic-planning process to four straightforward questions:

1. What are we doing, and why are we doing it? This is effectively the mission statement, with a nod toward the changing environment in the industry.
2. How are we going to get it done? This lays out the goals and objectives for the span of the strategic plan.
3. How will we fund it? This can mean dues, nondues revenue, and donations. But as the study points out, this can also identify partners and collaborations that can support a nonprofit’s work.
4. Who will we tell about it? That is, how will the goals be communicated to the staff who will implement it, the volunteer leaders who will hone and expand it, and the public who will support it? (The last particularly meaningful for associations that do government-relations work.)

Beth Gazley and Katha Kissman, authors of the bookTransformational Governance, based on their research on association leaders, echo that rough outline, and point out some of the ways they can encourage boards to actually begin to do the work that goes into it. In many cases, highlighting the perils of doing nothing can do the trick. So can getting the board to look squarely at the problems it faces. “Problems are best expressed as real threats rather than specific solutions (which come later),” they write. “Some boards and CEOs in our study reported member dissatisfaction, apathetic board members, missed opportunities, and other real threats to their association’s future.”

Strategic planning is never going to be easy, if it’s done well. But clarifying the stakes of not doing it, talking through the benefits of the process, and making the process as painless as possible can help make that essential work happen.

What do you do to get your boards engaged in the strategic-planning process, and how do you make that process effective and meaningful? Share your experiences in the comments.

Nonprofit Board Decision Making #NonprofitBoards

Better Boards Australasia recently released a free publication titled "Practical Strategies for Better Board Decisions" (Copyright March 2016, betterboards.net).  This 13-page page e-book written by Raphael Goldsworthy offers 17 strategies "that can help you and your board make better decisions".  Ten of the strategies are for boards as a whole and the remaining seven are specific to individual members.

I felt underwhelmed by the offering.  I do however think that the issue of making a diverse board to capture otherwise lost or neglected lenses can't be under-emphasized.  I also very much agree that strategies should be reviewed throughout the year.  And certainly, good process always matter.  Beyond this, well.....

But perhaps you can glean some bits of wisdom that may spark some action on the part of the board leadership and the paid leadership.   Here's the seven strategies directed toward individual members:

• Be clear on your roles and responsibilities as a director.
• Acknowledge your biases and work to balance them.
• Understand that you are dealing with uncertainty - interesting item from ISO 31000 (2009) that identifies three types of situations in which we all make decisions: 1. Outcomes are known (certainty); 2) Outcomes are unknown, but probabilities are known (risk); and, 3) Outcomes are unknown and probabilities are unknown (Uncertainty).   
• Reframe - flip the situation or issue around in order to reframe it.
• Be mindful (yup) - means paying attention in a particular way; on purpose, in the present moment, and non-judgmentally.
• Use a decision-making process and framework. 
• Practice strategic decision-making every-day.

For the whole board:

• Build diversity - offers different ways of thinking particularly from different backgrounds (unique lenses).
• Cultivate trusted board advisors - people who have the courage to provide honest feedback and don't necessarily hold the same worldview or set of opinions or are willing to play devil's advocate.
• Leverage sub-committees and external advisors.
• Improve reporting to the board.
• Adopt a structured test-and-learn approach.
• Document and track your decisions over time.
• Conduct continuous reviews versus only an annual review.
• See opportunity as much as risk-adverse.
• Make tough people choices.
• Be decisive.

Yes, the e-book provides a bit of description for each strategy.  And yes, you too can get this for free by going to the website I inserted at the beginning of this blog.  I would welcome your own insights about "what's so special" about this e-book and more importantly, how your board members made use of this advice.

Nonprofit Board Removal #NonprofitBoards

At least twice a month I receive inquiries about how to remove a member from the nonprofit board.  Yup, at least twice a month.  So, I listened extra close to the following Marketplace (American Public Media) article titled: How to oust a corporate board member.

Now once again I must insert that no, this article was not specifically about removing members from nonprofit boards.  And, yes, there is certainly a difference in both the process and structure.  The most outstanding difference: the corporate board is actually accountable to shareholders.  The nonprofit board is accountable to, well, that's not always clear.  I generally pose though that the nonprofit board, as the surrogate owner for the public (taxpayer) is accountable to the public which turns to the IRS or State Attorney Generals to look out for their (the public's) best interests  And this is generally correct but when the task to be done involves replacing an errant or nonproductive board member, the responsibility generally falls to the board, maybe a governance committee.  Nonprofit boards are generically expected to be self-regulating when it comes to good governance except of course when the violations of one or the collective is actually illegal.  

So can the public or at least "stakeholders" step-in?  I assert: absolutely!  Yes, I offer, constituents in particular, and there have been more recent examples of this, can indeed step-in and challenge board behavior.  And certainly members of the community can get themselves elected to one or more seats and in time take over a board.  Does this happen? Yes.  Very often? No. Why?  Because generally constituents and the public in-general don't view themselves in the same way shareholders do when it comes to good governance.  And, maybe they just aren't passionate enough to challenge a nonprofit's status quo.  But this is why this Marketplace article is helpful.  This article illustrates that no one really has to accept the status quo.

How to oust a corporate board member

By Tracey Samuelson

When it comes to running a company, the CEO is typically in charge day to day, but the buck is supposed to stop with its board of directors. So if you want to force change at a company, that’s a good place to start -- or at least that's the thinking of a hedge fund called Starboard, which owns a nearly 2 percent stake in Yahoo, and wants to replace the entire board of directors.

But how do you actually replace a board or a board member and what if they don’t want to go?

"The board reports to the shareholders of the organization,” said Josh Crist, a managing director of Crist Kolder Associates, which helps fill roughly 20 to 30 seats on the boards of public companies each year. “Board members can be replaced by those shareholders.”

“There are a number of different ways that you can replace a board member,” said Cindy Schipani, a business law professor at the University of Michigan’s Ross School of Business. “One may be the CEO has a private meeting and asks the member to resign.”

If the board member’s term is up, the company can decline to nominate them again.

If a shareholder wants to replace a member of the board, they may stage a proxy fight, putting the change up for a shareholder vote.

“[Shareholders] can vote either for management’s nominees or you can vote for some insurgent’s nominees,” said John Coffee, a law professor at Columbia. “[It’s] really kind of a miniature political campaign.”

While proxy fights used to be rare, Coffee said activist investors, often hedge funds, are turning to them more frequently. However, the process is difficult and expensive.

The challenger has to track down a list of shareholders, prepare a proxy statement, clear it with the Securities and Exchange Commission, and mail it shareholders.

“Most shareholders are not going to read this long complicated proxy statement,” Coffee explained. “That’s why you’re going to depend more on fight letters, newspaper ads, and the work of the proxy solicitors [which] are well-known financial firms that specialize representing one side or the other in proxy contests.”

Coffee said the price tag can reach several million dollars, sometimes more.

Follow Tracey Samuelson at @tdsamuelson. 

Nonprofit Mergers #NonprofitBoards

The following Philie Inquirer article is a good and insightful piece about some of what can happen between nonprofits who think they can achieve higher levels of efficiency and effectiveness through a merger.  It's not always a simple process of just saying "I Do".  One lesson, nonprofit mergers, especially when one or both parties have tangible (like cash or buildings or endowments) assets needs state approval.  And another lesson: a merger will likely mean, for both parties, significant change at all levels: program, governance, management and operations, and, sustainability.  Consultation with stakeholders (customers and donors) is an important part of the process.  And a final lesson: mergers are agreements between the owners, aka, the boards of each nonprofits.  Both boards have to conduct their due diligence and all members must reach an agreement that the outcome is in the interest of both organizations.  

Mergers can be an excellent way to ensure great outcomes for the community but, for most nonprofits, this is neither a quick nor easy process.

To merge or not? Alzheimer's groups disagree

Updated: MARCH 23, 2016 — 3:01 AM EDT

 

by Stacey Burling, Staff Writer

Dissension over a new direction for the Alzheimer's Association has left the Philadelphia-based chapter, one of the nonprofit group's largest, with an even bigger territory.

 

Wendy Campbell, chief executive officer of the Delaware Valley chapter, is now temporarily in charge of all of New Jersey in addition to Southeastern Pennsylvania and Delaware. Her staff will be competing - in a friendly way, she says - with former allies.

Six of 81 local affiliates - based in North Jersey; New York City; Austin, Texas; San Diego; Los Angeles; and Orange County, Calif. - declared their independence recently rather than merge fully with the national group. Leaders of the Alzheimer's Association, headquartered in Chicago, said the merger was needed to make the group more effective as baby boomers age, boosting demand for services and treatment.

Twenty-seven local chapters were already part of the national organization. Forty-eight affiliated chapters, including Delaware Valley, decided to go forward with the merger.

"We need to be a larger organization," Campbell said. She believes a unified national group will have more success lobbying Congress for more money for Alzheimer's, which still lags other major diseases such as cancer. She also thinks stronger national ties will lead to better sharing of good ideas and more uniform services.

"We're one of the fastest-growing charities at this point," Campbell added, "but we're not growing fast enough to keep up with the number of families that are going to be impacted as people age."

The association's total revenue in fiscal 2015 was $321 million, including funds from local chapters. It spent $32.5 million in research programs.

The Philadelphia board, which studied the change for months, had concerns about the pace of the merger and the amount of input from local leaders. Nonetheless, it voted to approve the merger last month. Campbell said changes were made to the merger agreement that allow for more local input.

While the Delaware Valley board will no longer be a "fiduciary board," it will continue in an advisory capacity. Campbell said there were no plans to change staff.

The local chapter, which will soon seek court approval for the merger, must turn over about $2 million in assets to the national organization. It will still be able to use 60 percent of funds raised locally for local programs.

Campbell said her chapter, which mounts the nation's biggest and most lucrative fund-raising walk for Alzheimer's, "always saw ourselves as part of a broader mission."

Her group also would have had to give up the Alzheimer's Association's national help line number (800-272-3900), which brings in 12,000 calls a year to the chapter, and all of the association's marketing materials.

The Greater New Jersey chapter decided that was worth the risk. Its board voted in December to leave the Alzheimer's Association. Ken Zaentz, president and CEO of what is now known as Alzheimer's New Jersey, said his board concluded that "the people of New Jersey would be better served by a local organization with a local board." They thought that a New Jersey-based group would be better at assessing local needs and tailoring programs to fit.

 

Zaentz said the board was particularly concerned that the national organization would end the local group's respite and wellness program, which teaches caregivers about the value of taking a break, and gives $1,000 "scholarships" to about 300 caregivers a year so they can sample respite services.

Zaentz said his group, which has a new website - www.alznj.org - imbued with a slightly different shade of purple than the Alzheimer's Association's, will now serve all of New Jersey.

The national group asked Campbell, whose territory already included South Jersey, to begin covering North Jersey the day after the Greater New Jersey chapter seceded. She said she quickly moved some staff to the Marlton office and plans to open an office in Totowa, Passaic County, on April 1. The Alzheimer's Association is hiring five staffers for the state.

Both Campbell and Zaentz said there was plenty of work for two Alzheimer's organizations in New Jersey.

"Unfortunately, this is a disease that affects thousands of people, and I think that no one organization can provide everything," Zaentz said. "There is certainly room for different focuses."

Whether there's plenty of money for both remains to be seen. The two groups will be competing for donor dollars.

The Alzheimer's Association was established in 1980 and had become a "loose federation" of independent chapters, said Chris Binkley, vice chair of the national group's board. He said the merger was needed to make the association operate more effectively on the service and research fronts.

Kate Meyer, an association spokeswoman, said most other top national health charity organizations have "single unified structures." One of them, the American Cancer Society, consolidated 13 separate divisions in 2013.

Binkley said the "Mission Forward" initiative did not stem from financial distress. "We're making these changes at a period when the association has never been stronger," he said. However, the group's leadership felt it needed to step up because the disease was outpacing its efforts.

The goal is to complete the mergers by July 1.

[email protected]

215-854-4944

@StaceyABurling

Nonprofit Board Risk Management #NonprofitBoards

One of the primary ways to describe a nonprofit board's fiduciary duty is to use the language: risk management.  Of course risk management can be thought of in a number of forms (e.g. just ensuring that cash flow is positive) but there can be so much more, like good policy.  The following article from the Nonprofit Quarterly provides a solid understanding of what boards should be considering.

 

Nonprofit Risk Management Report a Must-Read for Nonprofit Boards and Execs

By RUTH MCCAMBRIDGE | 23 hours ago

March 15, 2016; Politico New York

In an insightful report from SeaChange Capital Partners and Oliver Wyman entitled “Risk Management for Nonprofits,” the full force of the array of financial risks faced by government-funded nonprofits is laid out in detailed but excruciatingly simple terms, followed by recommendations for risk management by boards. The report was done in the wake of the meltdown at FEGS, the largest social service agency in New York but most readers even from nonprofits that are not government funded will find the report disturbingly resonant. To provide a taste of the quality of this report, we have excerpted just one section about the structural challenges faced by many nonprofits. The authors say that many trustees do not understand all of the conditions inherent in overseeing a nonprofit and its budget.

• Tackling the hardest problems: Nonprofits address economically intractable and politically unappealing problems. This is true even though charities arose long before government social programs and have helped shape the public agenda.
• Cost-minus funding: Most nonprofit funding, especially in health and human services, comes in the form of government contracts or restricted grants that virtually guarantee a deficit. Government contracts also create working capital needs because funding arrives after expenses are paid. These funds are also subject to unpredictable delays in payment.
• One-way bets: Nonprofits face contingent liabilities that can swamp them financially. These include claw-backs for disallowed expenses, after-the-fact audits, and unilateral retroactive rate reductions.
• Zero-sum philanthropy: The total supply of philanthropy is largely fixed. Large organizations working in difficult issue areas will always be overwhelmingly reliant on government funding.
• Cost disease: Nonprofits provide face-to-face, labor-intensive services that do not get more productive from technology. The real cost of these services has risen substantially over time and is likely to do so in the future.
• Recruiting and retention: Nonprofits face structural challenges in recruiting and retaining high-quality staff in finance, accounting, technology, and back-office functions. Factors driving this situation include the small size of many organizations, the challenge in providing career development, and competition from higher-paying for-profits.
• Gales of creative destruction: Nonprofits operate in a dynamic environment. Challenges include demographics, funding fashions, political priorities, and real estate costs. The weak financial position of many nonprofits can make it difficult to respond.

It is no surprise that many nonprofits are always living close to the edge.

Clara Miller described the odd financial realities of many nonprofits a decade ago in “The Looking Glass World of Nonprofit Money: Living in For-Profits’ Shadow Universe,” and many of her points are emphasized in this report.

The report goes on to make recommendations on risk management derived from other government-funded nonprofits that suffer from similar conditions. These would tend to apply to larger organizations but can be adapted for use by smaller ones very easily.

As with anything else except fundraising, risk management can become a board obsession, but as the authors point out, once a large government-funded nonprofit becomes financially distressed, it can quickly move into a death spiral, as FEGS did.

Again, this report should be read in its original form because it will gain nothing from our translation. And pass it on!—Ruth McCambridge

Nonprofit Board Matters #NonprofitBoards

There's a new law in town - in China that is.  China is "loosening-up" the rules around charities - at least letting more exist.  While there was nothing in the following Wall Street Journal article about governance, that would certainly be one of the questions that rises to the top of my "so what" list when China adopts this type of policy.  Were I a synic I of course might ask: why? Have conditions gotten so bad that the government needs more on-the ground partners to make up for the public and for-profit sectors.  Oh wait, we aren't talking about the US, are we?  And look, in the table included in the article, the US is the number 2 country in charity - uh, after Myanmar (yup, really - how's that for information)?  Oh, and did I mention that China will be cutting down if not remove the "outsider" nonprofits?  I would this actually a good thing giving plenty of space for internal nonprofits to grow and prosper (and not, according to the article, lose out because they won't learn from the outsiders (we know there are ways so I'm not worried on that score).

So, what about a law that fully supports the development and growth of nonprofits in the US?  Oh, you say, we have that........that's why nonprofits are doing so well.

 

 

1:45 pm HKT
Mar 16, 2016

ECONOMY & BUSINESS

The Good — And Bad — About China’s New Charity Law

Good news for civic-minded Chinese citizens: The country has a new law that promises to expand, rather than restrict, the space for them to act.

The bad news? The law could encounter resistance from local government officials, and maybe even from some of the nonprofit groups it’s intended to help.

The National People’s Congress, China’s rubber-stamp legislature, voted 2,636 to 131 in favor of a new Charity Law on Wednesday, the final day of the country’s annual legislative session. It was the only major piece of legislation passed at this year’s meeting.

NPC spokeswoman Fu Ying said earlier this month that the importance of the law “cannot be underestimated.” After Wednesday’s vote, the Communist Party’s flagship newspaper echoed that observation in a Twitter post showing an image of the law in book form laid atop a copy of the U.S. Constitution.

The enthusiasm is understandable in a country that has struggled to produce much charity — and that needs it even more now with its high-powered economy quickly losing steam.

If fully implemented, the law could be a rare ray of light for a Chinese civil society that has operated under a cloud of detentions, investigations and intimidation since Chinese President Xi Jinping came to power in 2012.

Experts say the law does several things that, theoretically at least, could uncork an expansion of civil society. It smooths the way for nonprofit groups to legally register and raise funds, but it also makes it legal for groups to exist even without registering. At the same time, it encourages more giving by improving tax incentives and making it easier for the wealthy to establish charitable trusts.

Crucially, according to Edward Cunningham, a scholar at Harvard University who runs an ongoing project looking at Chinese philanthropy, the law doesn’t limit the number of nonprofit groups that can work in any one area — a tactic some governments use to keep civil society fragmented.

“From the philanthropy side and public policy side, it’s very well written,” Mr. Cunningham said, referring to a draft of the law made public in October. Experts said they didn’t expect major changes in the final version, the text of which wasn’t immediately available.

Yet, the law could run into resistance, particularly from local government officials who don’t understand or are suspicious of charitable activities, scholars say. At the most basic level, many local tax authorities don’t understand how to process donations and tax deductions, according to Mr. Cunningham. With Mr. Xi pressing an aggressive anticorruption campaign, many local officials are also afraid to be seen as being too cozy with wealthy donors.

“There’s this assumption, these days, that when there are intimate partnerships between private wealth and local government, there necessarily must be something nefarious going on” he says, adding that the central government will need to do a lot of work to reassure officials at lower levels.

Although there are exceptions, local governments also tend to have chilly relationships with public-interest organizations. That could undermine implementation of the Charity Law, says Anthony Spires, a civil society scholar at the Chinese University of Hong Kong.

In January, Mr. Spires collected opinions on the law from representatives of more than 50 public-interest groups from around China. Many of the groups said officials were either ignorant or actively suspicious of their activities. Most said they didn’t plan to register despite the law.

“Some people don’t believe the government will ever be supportive because of fear,” Mr. Spires says. Grassroots organizations were also worried that the law was unclear on newer forms of fundraising, such as crowd-funding through social media. “If this had come out 10 years ago, everyone would be jumping up and down saying this is the best thing since sliced bread, or whatever the Chinese equivalent would be. But now it’s 10 years in the making, and probably 7 or 8 years too late.”

Another problem, according to Mr. Cunningham, is a proposed law that would put foreign nonprofits under the jurisdiction of the police and could effectively force most to leave the country. If that happens, Chinese public-interest groups will lose a source of new ideas and benchmarks.

“There’s a scenario where you squeeze the foreign groups out, and you co-opt some of the local groups, and then you might actually get a shrinking of civil society,” he said.

–Josh Chin. Follow him on Twitter @joshchin.

Sign up for CRT’s daily newsletter to get the latest headlines by email.

Nonprofit Governance Differences #NonprofitBoards

"Is the distinction beginning to blur between for-profit and nonprofit healthcare organizations?"  This is Christopher Cheney's question in an article originally published in HealthLeaders Magazine.  The author's conclusion: only subtle differences exist.

According to the Michael Wiechart, president and CEO of Capella, a privately held company that operates 10 acute care and specialty hospital facilities in five states, "For-profits and nonprofits have a nearly identical mission under ground rules designed to foster and support value-based care, Wiechart continues. "Neither for-profits nor nonprofits have the luxury of ignoring sustainability or patient-care excellence. We're all dealing with the same environment and the same challenges. And it's about who can do it better. Being able to make a sustainable bottom line is necessary for reinvestment and growth for everyone, regardless of your tax status."

But, "organizational culture at for-profits a subtly different flavor than the one at their nonprofit counterparts, says Yvette Doran, FACMPE, chief operating officer at Saint Thomas Medical Partners in Nashville, which is affiliated with Ascension Health, a nonprofit based in St. Louis that owns 131 hospitals in 24 states and the District of Columbia. When I think of the differences, culture is at the top of my list. While quality care is a priority for both, the culture at for-profits is business-driven. The culture at nonprofits is service-driven," she says."

Back to Wiechart, "Both of us share the mission of delivering the highest-possible quality of care. And both of us must make a sustainable bottom line in order to achieve the mission and to expand care for the future. We are both held accountable on our quality of care, our ability to be good stewards of the operations, and to make our organizations great places to work for both employees and physicians. While each operates by some slightly different rules and regulations based on our business or tax structure, both of us have all of the same basic goals and challenges."

For-profits and nonprofits have a nearly identical mission under ground rules designed to foster and support value-based care, Wiechart continues. "Neither for-profits nor nonprofits have the luxury of ignoring sustainability or patient-care excellence. We're all dealing with the same environment and the same challenges. And it's about who can do it better. Being able to make a sustainable bottom line is necessary for reinvestment and growth for everyone, regardless of your tax status.

In an interview with HealthLeaders, Santerre explains that  for-profit boards and their executive leadership teams, which invariably have monetary performance incentives built into compensation packages, face a measure of financial pressure that is absent at nonprofits. "Theoretically, there is a residual claimant, and that residual claimant wants to maximize profit," he says, referring to for-profit shareholders.

But, Rexford Santerre, PhD, a professor of finance and healthcare management at the University of ConnecticutIn contrast, says "nonprofit boards and their executive leadership theoretically have an "incentive not to compromise quality," noting a nonprofit is required to distribute earnings back into the organization or into its service-area communities. Nonprofits can reinvest earnings in facilities, lower charges to patients, or offer community benefits.  In contrast, one of the prime benefits of operating as a for-profit is the opportunity to bank positive operating margin after taxes. "You can take on risks, but you can also gain the rewards as a for-profit," he says.

Health care is not the only industry in which there are both nonprofits and for-profits.  According to the three-leg stool paradigm, nonprofits fill that void where there is little or no incentive for for-profits and no demand by the public.  While "ownership" as pointed out in the article is clearly distinct for non-profits, I pose that a more important distinction between for-profits and nonprofits is who gets served.  Nonprofits most often serve those who would otherwise not be served or not receive the same benefits as those who can pay.  Mission for the nonprofit is not just about delivering value, but about delivering value to a population that would otherwise be left suffering at the hands of those who "have".

Nonprofit Board Matters #NonprofitBoards

 

You may recall the story of Corinthian University.  Corinthian was a for-profit that pretty much failed to meet all the standards applied to a college.  Recognizing the situation and seeking to salvage the "good" amid "allegations of fraud and mismanagement, Education Department helped transfer Everest and a sister institution to Zenith Education Group, a nonprofit affiliate of a student-loan debt collection firm.  Zenith pledged to transform Everest, ending the school’s habit of admitting “anyone with a pulse” and churning out unprepared graduates deeply in debt."

"Zenith would differentiate itself from its past as a for-profit company, but it maintains some practices at odds with virtually all nonprofit schools. Instead of having an independent and unpaid board of directors, Zenith shares its board with its parent company, Education Credit Management Corp., and pays its board members as much as $142,000 a year for a job that requires fewer than 20 hours each week. .....Zenith’s current board structure is working well.   The Education Department’s Mitchell disagreed. As for Zenith’s continued lack of an independent board, he said: “I’m personally disappointed that they haven’t moved more quickly on this.”

Not singular to education, I believe that even when there is an incentive by for-profits to take-on services and products traditionally delivered by nonprofits, success is not guaranteed.  And more importantly, one of the elements that helps assure success, yes, despite all the challenges, is an independent board of directors that cares passionately about the mission (aka, understands and is passionate about the theory of change).  I would pose that while the issues are huge for Zenith, a solution is a board that cares and of course has the capacity and authority to fulfill its fiduciary duties.  Clearly, Zenith's board does not meet this criteria.  If it did, I suggest that the outcomes would be quite different.

By the way, on the issue of pay for directors, yes, it is the tradition of nonprofit boards to be uncompensated.  Is pay a draw to get "better qualified" board members?  No, my observational evidence rests in the many institutions where members are unpaid.  Would pay serve as an incentive to attract better qualified people and get better results especially given a rather large number of nonprofit boards that are challenged in achieving top performance?  Again, I would suggest that lack of pay does not appear to be directly related to performance. Perhaps research would reveal otherwise but clearly, in Zenith's case, pay has not delivered a better performing board.

For more information on the plight of the Zenith, see the Washington Post article here.