Nonprofit Board Crisis

Nonprofit Board Duties #NonprofitBoards

Good people won't do bad things?  Good people will do their job overseeing a nonprofit.  And if they stray from their duties, there can be consequences.  

This was one of my takeaways from the following Grand Rapids Business Journal (Michigan) article.  Yes, generally I believe, good folks take-on the role of serving as nonprofit board members.  Of course, we know that this is not always the case and there are plenty of examples of individuals who have sought to personally gain from the nonprofit.  But yes, more often than not, it's good people who govern nonprofits.  And, yes, there are legal consequences if these good people fail.  As I regularly illustrate, the fiduciary duties of a nonprofit board member carry weight severally and wholly (individually and as a group).  The following article is again a helpful reminder of these duties.  Even more helpful perhaps is the list of some (not exhaustive) questions members of a nonprofit board can ask in fulfilling their fiduciary duty.  There are so many more but this is a helpful starter list.

The importance of nonprofit hospital board members

June 29, 2016

| By Lody Zwarensteyn

 

 

Lody Zwarensteyn.

Trustees are very important. In allowing the merger between Butterworth and Blodgett hospitals that created Spectrum Health to proceed, federal Judge David McKeague ruled that the Federal Trade Commission was correct in determining that the merger would constitute a monopoly, but he ruled that the merging organizations were governed by good people, and good people, he ruled, won’t do bad things.

Hence the good names of the trustees were critical to one of the most important developments in the West Michigan health care scene.

Being recruited for and serving on the board of a nonprofit a hospital or health system is an honor. Some think it is equated to simply contributing large sums to the hospital, but the position comes with certain responsibilities. Legally, trustees are accountable for the hospital’s actions. Board members must be informed and actively participate in governance.

Board members are entrusted with overseeing the fulfillment of the hospital’s mission. They must be focused on the hospital’s performance and see that its interests are pursued faithfully.

The relationship between a board member and the hospital is a legal one, and board members have an obligation to monitor and oversee not only the organization’s financial dealings, but its ability to meet legal and regulatory standards.

People often assume that boards of nonprofit institutions are there to represent both the institution to the community and the community to the institution. However, the community voice is not a part of Michigan law. In fact, is the case of West Michigan’s largest health system, it is difficult to even determine who is on the board, in case people are wondering.

A trustee has a duty of care, which isto participate in decision-making. Decisions must be informed, meaning that the trustee has made an effort to become familiar with the facts. To do this, trustees must require management to provide enough information to let them make independent decisions. If information is invalid or incomplete, they need to ask questions. Sometimes, they must seek independent advice.

The duty of care requires that board members act in good faith to assure that information and reporting systems exist, and the reporting system is adequate to assure the board of appropriate information regarding compliance with applicable laws will come to its attention in a timely manner as a matter of ordinary operations.

Board members also have a duty of loyalty, setting aside their own interests and putting the hospital first. They also have a duty of obedience,to be faithful to the institution’s stated mission and not to act or use its resources in incompatible ways or purposes.

As long as the trustees’ decisions are made on an independent and informed basis, in good faith and in the best interests of the corporation, they are not subject to challenge. However, if a board member breaches any of these duties or otherwise harms the hospital, he or she may be personally liable for failing to comply.

Members of the hospital can sue a trustee on the organization’s behalf because of a breach of duty. Donors also may sue, claiming misuse of gifts or assets. The government can sue board members for violating state or federal laws.

Note that the board member’s responsibility is a one-sided relationship. The trustee owes allegiance to the hospital, not to the community it serves. Lacking a legal responsibility to be representative of the community served, the board member should still take up his or her community’s best interests if the hospital is running roughshod over local interests. After all, the nonprofit hospital does not pay taxes because it is expected to serve the community’s best interests.

Some items hospital trustees might want to discuss:

• Do we continually remember that we are serving the mission of a nonprofit organization, and that it is different from a for-profit corporation?

• Do we have ways to be truly informed? Does that information come from administrators, employees, friends in the community, the news media, or people on the street?

• Are we authorizing the removal of valuable property from the tax rolls through our expansions?

• Are our employment practices fair and open?

• Are we paying fair wages?

• Do we hold our administrators, who make multimillion-dollar wages, accountable for their decisions — such as multimillion-dollar cost overruns in construction projects?

• Do we hold anyone accountable if our reputation declines in the community’s eyes?

• Do we assure that capital expansions are truly needed and that they will be used to boost cost-effectiveness and efficiency?

• Are our charges as low as they can be, while still allowing a modest margin?

• Do we encourage working together with other institutions that provide similar or complementary services so as to minimize costly duplication?

Nonprofit Board's One Employee #NonprofitBoards

Regularly I hear from disgruntled employees who are frustrated with their CEO/Executive Director.  They don't think the boss knows their job or does their job badly or doesn't treat them well or any number of other scenarios I am sure you can imagine.  The following question by these employees: the Board doesn't seem to know or understand and can I do something about this?  

Well, the first rule of thumb: a nonprofit board has only one employee - the CEO/Executive Director.  This means of course that the board's judgement about how well everything is going happens through the eyes of their employee, the CEO.  How frustrating is this to a disgruntled employee?  Very of course.  The bottom line: the board is not a recourse to resolving operational and programmatic problems.  And of course, as I always ask first: did the employee go talk with the "boss"?  And if the answer is "of course but that didn't work" it becomes clearer what the remaining options appear to be.

If there are human resource policies, following the protocol (usually appeals processes) is important.  Given that not proving successful, the next step could include asking other staff to join-in and request the CEO's attention and maybe recruiting another senior manager to support a complaint can prove helpful.  And as indicated below, going public through the press can certainly be an option but you will note in this Philadelphia Inquirer story, the board effectively stood by their executive and at least opted not to discuss the situation about one of their number "two's" publicly.  I would applaud that stance as board members fulfilling their duty of obedience.  Going to the press of course is not really good for the institution as donors may become upset as might others who are important to the institution. I do not recommend this approach for resolving issues.

Now I should raise one last situation where maybe the board really should get involved.  Under the category of "whistleblowing" when a staff person goes around the exec to the board and says the exec is performing illegally or unethically or is perhaps violating agency policy, the employee, being clear that this is what is happening, should formally go, I believe, to the Board Chair and cite the problem.  Whistleblowing is even protected by the law so while the staffer may be fired, they will have grounds, if they can prove their claim, to get compensated for the time they weren't employed but should have been (N.B. I am not an attorney and one should be consulted on these types of matters).  Meanwhile, it is probably best if employees work together to communicate to the board around these types of issues.  There is safety as well as more accuracy in numbers.

But bottom line - staff don't have open access to the board. The board has only one employee and that is the exec.

 

Temple provost removed; college has $22 million shortfall in scholarship aid

Updated: JUNE 29, 2016 — 1:08 AM EDT

by Susan Snyder, Staff Writer

Temple University on Tuesday announced the sudden departure of its provost, Hai-Lung Dai, saying he "has been relieved of his administrative responsibilities effective immediately."

The announcement came on the same day that the university acknowledged that it had exceeded its financial aid budget for its merit scholarship program for 2016-17 by $22 million and had already taken steps to balance the budget.

Several sources with ties to the university said that president Neil D. Theobald was unhappy with the shortfall and that a rift had developed between him and Dai, who had been provost for four years.

But it was unclear whether that was the reason or a reason for Dai's removal. The university declined to comment on relieving Dai of his duties, citing personnel matters.

In a statement, university officials emphasized that all aid promised to students would be covered and that the university had funds to adjust its proposed 2016-17 budget and cover the over-allocation of aid.

Reached by phone, Dai deferred to his lawyer, Patricia Pierce, for comment.

"Dr. Dai is saddened by this decision," Pierce said in a statement. "We view it as rash and completely unjustified."

Pierce cited Dai's accomplishments at Temple.

"Dr. Dai is especially proud of the world-renowned faculty he has helped attract," she wrote. "In addition, student applications have doubled at a time when other institutions are facing decreases in enrollment. Temple's attraction of international students has also nearly doubled under Dr. Dai's leadership."

The university, she said, also has moved into the top 100 for research expenditures in National Science Foundation rankings, and has improved in U.S. News and World Report rankings since Dai took over.

Theobald, who has led Temple for 31/2 years, could not be reached for comment. Neither could Patrick O'Connor, chairman of the board of trustees.

Dai on Monday acknowledged that financial aid expenses were larger than anticipated, but said that was because the university had attracted a lot of talented students with need.

"We have found a way to adjust it and the situation is under control," he said.

The university said in a statement that the over-allocation of financial aid occurred because of an increase in students who qualified for financial aid under its merit scholarship program.

Temple saw a 17 percent increase in incoming freshmen with GPAs over 3.6 and a 29 percent increase in students with reading and math SAT scores over 1,300. The number of students with those GPAs rose from 2,204 to 2,573 and the number with the higher SAT scores rose from 797 to 1,028, the university said.

"This unanticipated growth has directly led to a projected expense of $22 million more than budgeted for financial aid in the 2016-17 academic year," the university said. "The university administration, under President Theobald's leadership and with support of the Board of Trustees, quickly addressed the matter, and prepared a revised budget for 2016-17 that recognizes this higher financial aid spending amount and balances the 2016-17 budget."

The university, which operates on a more than $1.34 billion budget, has budgeted nearly $112 million for financial aid for 2016-17. That includes both merit aid and aid based on need.

Several trustees and top administrative officials who were contacted declined to comment on the provost.

Joseph W. "Chip" Marshall III, who was appointed this month as head of the board of trustees' academic affairs committee, said he was looking into the financial aid issue.

Chief U.S. Circuit Judge Theodore A. McKee, who recently left the board and had been head of the academic affairs committee, said he was aware of a shortfall in financial aid.

"There was an issue ... and some steps were being taken," he said.

Dai, 62, a chemist, had served as provost since February 2013 and had been interim provost since summer 2012.

A native of Taiwan, he came to the United States in 1976 and earned his doctorate in chemistry at the University of California, then did postdoctoral work at the Massachusetts Institute of Technology. Dai arrived in Philadelphia in 1984 and for 22 years taught in the chemistry department at the University of Pennsylvania and chaired it.

In 2007, Temple hired him as dean of its College of Science and Technology.

 

 Temple did not name an interim provost, but said a successor would be named soon.

[email protected]

215-854-4693@ssnyderinq

www.philly.com/campusinq

Nonprofit Board Duty of Care & D&O Insurance #NonprofitBoards

Talk about a life lesson in fulfilling one's duty of care AND addressing personal risks, the NC New Schools board is a case example that couldn't be better.  Simple lessons: one of the first questions a nonprofit board member should ask: do you have Directors & Officer's Insurance?  Another question each year: has our D&O Insurance been paid?

Of course, the board should have been asking a lot more questions to understand first, how the organization was doing that it was heading for bankruptcy and then, as bankruptcy was at the door, understanding "what next".  And, as the News Observer article notes, the folks where served as board members should have known better.

 

High-profile New Schools’ board, officers unprotected after insurance policy goes unpaid

After NC New Schools files for bankruptcy, directors learn their insurance lapsed

Expert says extremely rare for nonprofits to lack directors and officers policy

CEO and other officers more exposed than board of directors

 

The officers of NC New Schools, including CEO Tony Habit, are more exposed to liability under state law than the board of directors, and an insurance policy that would have protected them against lawsuits or legal claims was allowed to lapse. Chris Seward [email protected]

BY JOSEPH NEFF

[email protected]

After the nonprofit NC New Schools suddenly collapsed in April, its high-profile board of directors learned that the unpleasant news went beyond a bankruptcy filing.

The board’s insurance policy had lapsed, leaving the directors unprotected against lawsuits or legal claims.

It is extremely unusual for nonprofits to lack directors and officers insurance, commonly known as D&O insurance, according to UNC law professor Thomas Hazen, an expert on nonprofits.

“My basic advice is never serve on a board that doesn’t have insurance,” Hazen said. “Not even a neighborhood association.”

The organization’s top officers were also left unprotected.

NC New Schools made North Carolina the nation’s leader in early colleges, which provide college-level classes for high school students. The organization won $11 million in grants from Bill and Melinda Gates, more than $35 million in federal grants and more from North Carolina’s biggest businesses.

In April, New Schools abruptly shut down, giving its 80 employees less than 24 hours notice that their jobs had evaporated. It filed for bankruptcy, showing debts of $1.5 million more than its assets.

Bankruptcy trustee J.P. Cournoyer said the $1 million D&O policy lapsed sometime in 2015.

The board of directors includes a group of heavy hitters. The chairman was Jeffrey Corbett, a senior Duke Energy executive. Others include former BlueCross BlueShield executive Bob Greczyn, former Wake County manager and state senator Richard Stevens, two senior executives at the pharmaceutical giant GSK and others.

Corbett did not return calls about the lack of insurance.

“It’s not what I expected,” said board member Burley Mitchell, a former chief justice of the state Supreme Court. “I guess there were a lot of things I didn’t know.”

Mitchell, who said he had little interaction with NC New Schools over the past three years, said state law protects nonprofit board members more than those who sit on the boards of for-profit corporations.

Hazen agreed, saying state law grants nonprofit board members almost complete immunity from liability. But directors would be liable for legal fees, which are typically covered by insurance.

The court-appointed bankruptcy trustee will investigate NC New Schools’ finances and can seek to recover funds disbursed by the organization.

The News & Observer has reported how chief executive officer Tony Habit knew at least as early as June 2015 that New Schools could face a $2.1 million deficit. In the months before the collapse, emails showed that Habit told his staff to delay the disbursement of federal funds in violation of federal regulations.

When the N&O asked Habit about the lapsed insurance policy, he replied by email, “It was not my decision.” He said another employee allowed it to lapse.

Habit then sent an email saying he had replied by mistake and asked the newspaper to delete his original email.

Hazen, the law professor, said it seemed strange that the insurance policy was allowed to lapse as financial difficulties loomed. Officers, such as Habit and his senior staff, are more exposed to liability under state law than the board of directors.

“The insurance is primarily there to protect him,” Hazen said.

Joseph Neff: 919-829-4516 , @josephcneff

Read more here: http://www.newsobserver.com/news/local/education/article85962707.html#storylink=cpy

 

Nonprofit Board Oversight #nonprofitboards

From the New York Daily News we learn that: 

The executive director of a Queens nonprofit organization that provides services for developmentally disabled persons was charged Monday with embezzling Medicaid funds to hire housekeepers to clean her home and care for her kids.

Yolanda Vitulli allegedly paid more than $60,000 in Tender Care Human Services funds to at least three housekeepers who were actually caring for Vitulli's four children — ranging in age from 5 to 26 — cooking their meals, doing laundry, and cleaning her Merrick, L.I., home, according to a complaint unsealed in Brooklyn Federal Court.

Vitulli's oldest child, a son, is autistic.

One housekeeper told the FBI that although she interviewed for a job at Tender Care in Jamaica, she never worked there and actually moved into Vitulli's basement.

Another employee told the feds that she was required to care for Vitulli's father, too, and authorized to drive an SUV owned by the nonprofit to commute to work.

Vitulli, 52, was released on $200,000 bail. Her defense lawyer Paul Martin declined to comment on the disturbing charges.

 

You will note that this is a federal case.  According to the Chicago Tribune, Tinder Care Human Services "received roughly $3 million a year in federal and state Medicaid funding".  And, Ms. Vitulli "helped run the organization between January 2001 and May 2016."

 So, over a 16-year period, the executive managed to steal about $3500 a year.  This of course is not a huge theft and one which could easily be kept below the radar of a board finance committee especially considering an annual budget of at least $3 million.  So today's question is not: where was the board? but instead, what could the board have done to prevent this theft in addition to activities that may or may not have been sanctioned (like permitting the use of a vehicle to support the Exec)?  I think you will find an article from Blue Avocado helpful.  Here's the link: http://www.blueavocado.org/content/nonprofit-embezzlement-more-common-and-more-preventable-you-think.

 

Nonprofit Board Meeting Planning #NonprofitBoards

Want some advice around planning a nonprofit board meeting?  The following piece from the National Council of Nonprofits may prove helpful.  And, as I advise my clients,there are some additional pointers.

"Who" plans the agenda does matter.  A few weeks in advance of a pending board meeting, ask members what they want or need to see on the agenda.  Clearly, committees should be one source of agenda items.  Also, consider organizing the meeting into three buckets (mirroring BoardSource board matters) of fiduciary (compliance); strategic; and generative (a conversation about a big picture challenge or opportunity.  Also, make sure that members don't just listen: inform, explore, and include actionable items.  Also, the board chair doesn't HAVE to chair the meeting nor is Roberts Rules the only process for conducting business (think Consensus or Roberta's Rules).  This could be a job for the Vice Chair or one could even rotate that responsibility.  Finally, remember to include a Mission Moment - one story, outcome focused, that individually illustrates the good work that is being accomplished.  

Smooth sailing into your next board meeting

June 22, 2016 By Jennifer Chandler | Posted in:  Board

We know that when board meetings roll around there sometimes can be a bit of…tension in the air, right? The last thing we want is for volunteer board members to leave a meeting feeling frustrated that the agenda didn’t tackle important topics, or that “nothing got done,” or their time was wasted. Planning a smooth and effective board meeting takes time. Here are five ideas to fill the sails and send your nonprofit on its way!

1. Energize: As you plan the agenda, think how you can keep the energy level high throughout the meeting. For instance, pair a longer strategic discussion with a focused resolution that you’ve teed up and are confident will be approved. Then celebrate when the board passes the motion with a stretch break, or pass the cookie plate! Expressions of gratitude will create energy in the boardroom. When there has been a special accomplishment, or you know a board member will be attending his/her final meeting, include a resolution in the agenda expressing gratitude. Thanking outgoing board members for their service to the nonprofit is not only the right thing to do, but an expression of appreciation will energize the rest of the board and remind them about their own commitments to the nonprofit’s mission. Other ideas: experiment with the layout of the board room to encourage conversations; hold occasional meetings in different physical locations; find out what works and what doesn’t. At the end of each board meeting ask board members to share constructive comments on an index card, sharing “What were the highlights of the meeting? Any suggestions?”
2. Keep your eye on the ball: As you are planning the agenda, be clear about the goal(s) of the meeting – not just the motions you hope will be approved, but the underlying goals of engaging your board with the mission. Every board meeting ideally will remind each board member why the nonprofit makes a positive difference. Intentionally align agenda items with the organization’s strategic initiatives so board members see and feel momentum towards the mission. Some nonprofits use place cards at board meetings with names of board members facing out, and the mission typed on the side facing each board member. You’ve probably heard about nonprofits that share a “mission moment” with their boards each meeting. Why not take that concept one step further and ask different board members to share their personal mission moments, too? The rotating voices and fresh perspectives will help everyone keep their eyes on the ball.
3. Highlight follow-ups: Have you ever started planning for a future board meeting only to realize that no one followed up on an action step identified at the last board meeting? One way to highlight follow-ups (and raise the level of peer-to-peer accountability) is to be very clear in the meeting Minutes who made a commitment to do what before the next board meeting. In addition, a quick email, post-meeting, highlighting “next steps,” and who’s responsible, with a timetable, lowers the risk that board members will be offering an apology at the next meeting for not following through. New board members need a special kind of “follow-up.” Make sure someone (board chair? Chair of the board development committee?) checks-in with new board members after their first meeting to ask them how it went and demystify anything they didn’t understand.
4. Culture eats strategy: You are trying to encourage the board’s discussions to be at a strategic level, but they’re not going there. Hmmm. What are the most important matters facing the nonprofit? A challenging fundraising environment? Changes in government grants? Increased need in the community? Whatever the issues, make sure every meeting agenda touches on those issues and that there are opportunities for board members to continuously learn about big picture influences on the nonprofit’s mission. Involving the board in the most significant challenges the organization faces should be part of the culture of every board meeting, not just at an annual “strategic planning retreat.” Share “human interest” stories or news clippings that highlight issues the nonprofit is working to address. Board members can stay updated throughout the year on trends that impact charitable nonprofits through newsletters from state associations of nonprofits and the National Council of Nonprofits. Make it easy for them to sign-up by forwarding the newsletters you receive to your board members.
5. Watch the clock: Using timed agendas is great in theory, but we all know that some discussions just demand more time than we planned for. What’s the best way to ensure space for those discussions while also respecting your board members’ time? When an agenda topic is going long, don’t be shy about pressing the pause button to check-in with everyone: Can they stay in the meeting longer? Are there so many unknowns that the issue needs to go back to a committee for further exploration? Can someone clarify the most significant questions that the board absolutely needs to answer before it adjourns? Can the issue(s) be broken down into manageable chunks, some of which can be postponed to another meeting? Honoring the clock will encourage feelings of trust and respect since board members will be confident that you won’t allow meetings to drag on past their allotted time.

However you spend this summer, we hope you will stay connected to your state association of nonprofits, and the National Council of Nonprofits, for information that will help your nonprofit have smooth sailing along its way!

- See more at: https://www.councilofnonprofits.org/thought-leadership/smooth-sailing-your-next-board-meeting#sthash.TtlYtdij.dpuf

Nonprofits Fill the Void? #NonprofitBoards

There is a popular paradigm that the nonprofit sector fills the void between the lowest common denominator of needs addressed by the public sector and the profit-motivated offerings made to consumers who have the resources to pay.  We also know that while the public "owns" public services and via tax exemptions, effectively owns nonprofits, individuals own and subsequently benefit from for-profits.  So how exactly does this paradigm and these realities apply to for-profit medical schools?

According to the Washington Post, a shortage in general practitioners, particularly in rural America, has laid the groundwork for the development of new for-profit medical schools.  What was once and pretty much remains the domain of the nonprofit sector is being re-examined to better meet a demand.  Perhaps this is just capitalism at its best recognizing first that the end beneficiaries, the consumer, may not care THAT much about whether their physician was trained by a for-profit or non-profit institution as they care about whether that individual can meet their individual health needs.  I would pose the same may be a reality for what are now nearly 25% of all hospitals.  Once upon a time it might have mattered that hospitals were nonprofits.

One reality: governance and ownership doesn't appear to matter.  At the same time, standards may.  There is some experience that nonprofits face more regulation or compliance challenges and this theoretically raises the bar in terms of quality.   So, one conclusion: just having a nonprofit status is not necessarily enough of a credential to satisfy all consumers.  I would offer that nonprofit boards should be mindful of this reality and recognize that they need to expect more in the way of meeting consumer needs and expectations rather than rest singularly on the satisfaction that nonprofit status may just not be meaningful enough when let's say, a for-profit enters their market.

Here's the Washington Post article on this topic.

New for-profit medical schools springing up across US

By Rebecca Boone | AP June 22 at 12:33 AM

BOISE, Idaho — For-profit medical schools are starting to pop up around the country, promising to create new family doctors for underserved rural regions.

Rural states like Idaho need more general practitioners, with the baby boom generation aging and expanded insurance coverage under the Affordable Care Act making health care more accessible. But critics of the new schools question whether companies can properly train the nation’s next crop of doctors.

“On face value, it looks like a pretty good deal” because for-profit schools promise to bring benefits without relying on taxpayer dollars, said Dr. Ted Epperly, who runs a family practice residency program in Boise, where a new for-profit school plans to start accepting students in 2018. “But it’s a little bit like Wal-Mart moving into a small community with mom-and-pop shops — it damages the existing workforce producers.”

Proponents contend challenges the new schools face are surmountable, and any stigma about for-profit medical training is born of fear, not fact. Dr. Robert Hasty, dean of the newly created Idaho College of Osteopathic Medicine, notes for-profit hospitals also were once stigmatized but now make up about a quarter of all U.S. hospitals.

“We have such a need for doctors, and if we have to make this investment, it’s worthwhile,” Hasty said.

 

Thirty-one new medical schools opened in the country between 2002 and 2014, according to an article in the New England Journal of Medicine. Most were nonprofit or public.

For decades, for-profit medical schools were relegated to foreign shores, with U.S.-based companies like DeVry launching medical schools in the Caribbean. But that changed in 2007 when Rocky Vista University College of Osteopathic Medicine opened in Parker, Colorado.

Several for-profit medical schools have opened in the years since, including California Northstate University School of Medicine and the Burrell College of Osteopathic Medicine in New Mexico. Rocky Vista recently announced plans to expand into Utah.

Justin Rose was part of the first group of students to graduate from Rocky Vista in Colorado. Though the Idaho native applied to several schools in the West, he wasn’t accepted to any state-run programs.

“The for-profit part never played a part in it,” Rose said of his decision to attend Rocky Vista. “The biggest concern was I’m going to a new med school that had no background affiliation or anything.”

In retrospect, he said, it was the best choice because the school was under pressure to prove its first crop of graduates would succeed.

“It made them especially motivated,” he said.

 

After completing an emergency medicine residency and an ultrasound fellowship at the University of Kentucky, Rose is preparing to begin his career as a doctor in Boise. He said the job will allow him to continue chipping away at his $350,000 in student loan debt.

That’s nearly double the average debt carried by medical school graduates, according to the Association of American Medical Colleges. And because Rose attended a for-profit program, he’s not eligible for many federal loan-forgiveness programs.

Even with the high debt load, the for-profit med school was worth it, Rose said.

Opening state programs is costly, and for-profit schools are a good answer for America’s rural health care shortage, Rose said. His one concern is that the number of schools will grow faster than the number of residency programs.

Like their public and nonprofit counterparts, for-profit med schools face pressure to ensure their graduates get the valuable residency positions. At least 98 percent of grads from an osteopathic school must be placed in a residency or equivalent program or the school risks losing accreditation, Hasty said.

Medical schools must make their residency placement numbers available to the public. That accountability — and the fact that would-be doctors must pass medical board exams and meet state requirements before they can start practicing — should help hopeful medical school students make good choices about where to attend, said Claudia Goldin, a Harvard economics professor who has studied for-profit education models.

 

“If they’re not providing the requisite training and hands-on work, then it’s going to be public information that these students didn’t pass those exams,” Goldin said. “It’s sort of a good thing to have some external review.”

The differences between for- and nonprofit schools aren’t always apparent, Goldin said. Salaries for staff at nonprofits and public schools often are higher than for-profits, for instance. And regulators have stepped in to stop some nonprofit schools from taking steps deemed undesirable, such as when Yale was told to stop plans for an online physician’s assistant school.

“I’ve always tried to think about for-profits without the jaundiced view of them that we all now seem to have,” she said. “I always try to enter this with the notion that there are good training programs all over the place, and the nonprofits have some pretty lousy places.”

The for-profit schools are not without risk. Dade Medical College in Florida abruptly closed last year amid major financial troubles, its 2,000 health care students arriving on campus to find doors locked. The school received more than $100 million in taxpayer-funded Pell grants and student loans since it opened in 1999, according to the Miami Herald.

Investors are looking for a return on their investment, said Hasty, dean of the new Idaho school. But the ultimate goal is to create safe, competent physicians.

He sees Idaho, Montana and other rural states in the region as the epicenter of a nationwide family physician shortage.

“It’s not a donation — I mean, I’d love for them to donate lots of money for our scholarships,” Hasty said. “This is really part of a social mission.”

Nonprofit Transparency #NonprofitBoards

Ok, I'm just not understanding the reason any nonprofit can justify not identifying its donors.  The true "owners" of nonprofits are the public.  Nonprofit boards are merely surrogate owners albeit, with the full fiduciary duties of any corporation's owners but without the personal benefits.  The benefits are supposed to be that of the public's.  So how does any nonprofit justify that it is not accountable to the public, including not identifying who provides financial support?  I'm afraid the subtleties of the law just don't work for me.  So what if the donors are the Koch brothers or Diane Keaton?  Clearly though, the so-what matters to some donors who perhaps feel they will lose "something" if all know who they support.  Clearly, providing support for this or that nonprofit is a statement of values and intent and such a statement does little more, in my opinion, to make it clear that the donor that supports the ACLU may not be the donor that supports the Klu Klux Klan, or visa versa.  And for that matter, what other reality would anyone expect?  

I propose a movement that nonprofit boards, and many already do, should just unabashedly publish their list of supporters.  If supporters are uneasy about demonstrating they are supporters, they need to rethink who they are supporting.  Otherwise, let's move-on to more serious issues, like pursuing missions.

Here's the LA Times article with the story.

Nonprofit backed by Koch brothers won't have to reveal its donors to Atty. Gen. Kamala Harris

John Myers Contact Reporter

 

A federal judge has ruled that a nonprofit backed by conservative billionaires David and Charles Koch does not have to reveal its donors to Atty. Gen. Kamala Harris in a case that pitted state law governing charities against 1st Amendment rights.

U.S. District Judge Manuel Real, in a ruling issued Thursday, found that the Americans For Prosperity Foundation, a 501(c)(3) charity organization, can ignore Harris' demand to turn over the names and addresses of those who have donated more than $5,000.

Such disclosure, Real wrote, "chills the exercise of [the group]'s 1st Amendment freedoms to speak anonymously and to engage in expressive association."

David Beltran, a spokesman for Harris, said the attorney general will now take the case to the the 9th Circuit Court of Appeals.

The lawsuit was filed by the Arlington, Va.-based nonprofit in December 2014, after Harris' office demanded the group submit its donor list or risk losing its state-sanctioned ability to raise money in California.

U.S. Supreme Court is asked to shield major donors in California

The attorney general said that long-standing state law requires charities to submit donor information, and that officials ensure that the information isn't disclosed to the public. But in his ruling, Real cast doubt on the state Department of Justice's ability to not publish the donor list by mistake.

"The attorney general's current approach to confidentiality obviously and profoundly risks disclosure," he wrote.

The judge also pointed out that the Americans For Prosperity Foundation had routinely made annual charity filings with the state since the early 2000s and was never asked for the donor list from its IRS Form 990 until March 2013.

Both the group and its sister organization, Americans For Prosperity, have long ties to billionaire industrialists David and Charles Koch. David Koch is chairman of the foundation's board. Americans For Prosperity has played a major role in advocating for conservative causes in state and national politics, while the foundation — which filed the lawsuit against Harris — has more restrictions on how it spends money in relation to politics. Its donors' contributions, though, are tax-free.

Critics have said the Koch brothers' support of these and other groups highlights the problem of opaque laws governing donor disclosure by politically minded nonprofits.

Derek Shaffer, an attorney for the Americans for Prosperity Foundation, released a statement on behalf of the organization praising the court for its ruling.

“The Foundation is gratified that Judge Real has vindicated its First Amendment right to resist the California Attorney General’s demand that all charities disclose the names and addresses of all of their major donors nationwide. We hope this important victory will enable Americans, even in the face of governmental overreach, to retain their freedom, privacy and security as they support charities of their choosing.”

Beltran, the spokesman for the attorney general, said the filing of IRS donor forms "is a long-standing requirement that has helped attorneys general for more than a decade protect taxpayers against fraud."

In court, state lawyers argued that the donor documents allow investigators to track improper loans and unfair business practices by nonprofits. But attorneys for the Americans For Prosperity Foundation countered that donors feared for their safety if their identities were somehow revealed. Judge Real agreed.

"Once AFP's donor information is disclosed, it cannot be clawed back," he wrote in his ruling.

 

[email protected]

Nonprofit Board Compensation #NonprofitBoards

Should a nonprofit board member even be compensated for their "service" to the nonprofit?  And if yes, at what rate - above market, at market or below market?  And what exactly are reasonable expenses a board member should be compensated for getting to board meetings (that aren't local to that member) and/or events?

These are just a few of the questions - both ethical and legal being asked about the Hershey School board which in 2013 was actually told by the Pennsylvania State attorney general to dial-back the spending.  Now, it is worth noting that the Hershey Trust that owns the school has about $12 billion dollars in assets.  This is not your ordinary nonprofit: its existence came from chocolate.  So perhaps it's not surprising, albeit disappointing, that individuals with the duty of ensuring that mission is accomplished, haven't found a way to financially benefit from their "contribution".   And yes, I would have thought that the state attorney general and even the IRS could very simply find the board members in violation of the duty of loyalty - putting their own interests ahead of that of the school.  But for a reason I can't discern, this board has been given a small slap on the hand and permitted to continue with what I would pose is a flagrant violation of their fiduciary duty and harmful to the school (at least in the long run.

Just so you are clear about the specifics, from the Philadelphia Inquirer we learn:

Eight directors ran up an $18,000 tab for a weekend board meeting last June at New York's Waldorf-Astoria hotel, according to internal records obtained by the Inquirer.

All 10 spent $362,000 in travel, meals and hotels over the last 21/2 years, including at least 60 limousine rides, often from the Philadelphia and Baltimore airports.

Then there was the $6.9 million that board members were paid for their service over the last three years, an unusually lucrative perk for a board overseeing a school for poor children.

Board members earned $1.8 million in fiscal 2013, the year before the agreement, and $1.9 million the first year afterward, tax returns show.

The highest-paid were Philadelphia-area money manager James Nevels, who received $1.7 million over the last three years, and Robert Cavanaugh, a former trust board chairman and a Los Angeles resident, who earned slightly more than $1 million.

Directors such as Nevels and Cavanaugh earned such compensation because they sat on the Hershey Co. chocolate company's board as well as that of the trust's bank.

Directors travel to attend six Hershey Trust board meetings, most often lodging at the trust-owned luxury Hershey Hotel. The board also holds an annual retreat and other events such as the one at the Waldorf in New York.

Records show that the trust paid about $650 a night and two of the board members stayed four nights at the Waldorf, running up tabs of almost $2,600 each.

our directors who lived outside Pennsylvania or New York - former chairman Cavanaugh; Joseph Senser, of Minneapolis; and Joan Steel and Robert Heist, both of the Chicago area - accounted for nearly all the airfare expenses.

They billed the charity about $113,000 in airline tickets and change-seat fees over 2½ years, including 40 airline seat upgrades or choice seats in 2014. The records describe flights with the notation "air" and do not say whether those tickets were first-class.

Limos were a favored mode of transportation for directors who flew into the Philadelphia or Baltimore airports and needed rides to Hershey. Records show that limo costs ranged from $250 to $500 a trip, and the total bill for limos came to about $20,000.

Cavanaugh, who helped his son obtain a $13,000 summer internship in 2015 with one of the trust's asset managers, had the highest expenses over the period: $82,520.

So, in my opinion, just plain wrong.  And, what I have just outlined as the abuses doesn't even fully describe the questionable nature of services in the pursuit of mission.  Those quoted in the article suggest that not only is the governance structure broken, but the whole Trust should be re-examined from a mission and service perspective.  You think?

Nonprofit Board Manual #NonprofitBoards

Pretty much every nonprofit organizational consultant, including me, has something to say about nonprofit boards.  Actually, a large part of my practice is focused on helping boards be effective and efficient.  So, it is with great interest I pick-up and review what other consultants and researchers have to say.  I am particularly interested in the fact-based data otherwise known as evidence that has demonstrated this or that element about how boards can and do function and the correlated "so-what".  Of course, most of what is written is not based on research or evidence.  Most of what is written, not unlike this blog, is based on experience - often sound and reasonable - but not necessarily proven or demonstrated through research.  But what the heck: there is so little that has actually been researched about nonprofit governance, a kernel of thought may indeed provide an insight that could lead to higher levels of performance and outcomes.

I today found an article by one consultant who labels herself (or someone labels her) the Nonprofit Prophet.  Out of curiosity I checked and learned that outside of a religious reference, most of the on-line dictionaries offer that prophets are "persons gifted with profound moral insight and exceptional powers of expression" or are the "chief spokesperson of a movement or cause".  So, I'm thinking I should be paying real attention to what this consultant has to say.   In her article in the Berkshire Eagle, the Nonprofit Prophet proposed that unlike in the traditional birth parent-child relationship where children do not come with "how to" manuals, nonprofit boards, whose "children" are the nonprofit, actually do have manuals.  

I would concur that at minimum, the IRS is very clear about their/the public's expectations of what is expected of nonprofit boards.  The IRS has not written a manual per-se but the guidelines are clear as are those often proffered by some state Attorney General.  Beyond this, there is of course the generally unresearched instructive literature offered by the likes of a BoardSource - often held-up as best practice and just waiting to be proven incorrect.  And, waiting for evidence is pretty much where I believe the Sector to be.

With all that said, please note that I believe that what is being described by the Nonprofit Prophet as a nonprofit board manual is certainly consistent with what many governance advisers recommend. Fulfilling fiduciary (legal/compliance) duties is effectively (we think but have not necessarily proven) accomplished by "setting direction, ensuring resources and providing oversight" or in other words: policy, planning and evaluation.  We are learning though that advocacy, which in my mind includes "ensuring resources", is an equally important role and responsibility.  

A manual? Maybe not so much as basic guidelines.  But I believe there to be so much more to be learned and known about what affects how a board should pursue its fiduciary responsibilities.  We do know additionally, that we must do more to learn about how structure, history and culture affect carrying-out these responsibilities in addition to examining stages of development and most importantly, personalities and leadership.  

So, bottom line - the manual has yet to be developed.  We are at the beginning.  But in the meantime, here's what many have to say as reflected in the Nonprofit Prophet's offering.

 

Natasha Dresner | The Nonprofit Prophet: Some kids do come with a manual

The Berkshire Eagle

POSTED:   06/16/2016 01:52:35 PM EDT | UPDATED:   ABOUT 18 HOURS AGO

PITTSFIELD >> "What exactly are our roles and responsibilities?" That's probably one of the most frequently asked questions I get from the boards that I work with.

If you have ever worked with and/or served on a board, I bet you too have asked that question before. Why is it so popular? Perhaps it's because of the complexity of the board's job, the ever-changing best practices in governance, confusion between paid staff and board roles, as well as the legal requirements that vary from state-to-state and change constantly. Whatever the reason for the question it is one that must be answered as clearly and emphatically as possible. The job of the board is too important not to.

Boards' job descriptions can differ somewhat due to the unique structures, histories, or cultures of their organizations. So. I'd like to offer the following list of roles and responsibilities that could apply to all.

I often compare organizations to children and their boards to parents. The organizations we serve are often as precious to us as our children. We often refer to them as "our babies". So, boards must take care of their organizations much like parents take care of their children by showing them the way, providing for them, and stepping aside — while still watching closely — to help them grow into responsible adults. The good news is that boards, unlike parents, do get a manual for their "children." Here it is.

According to the best practices recommended by many leading nonprofit governance organizations, there are 10 basic board responsibilities, which are organized around the three following board roles:

1. To Set Organizational Direction

2. To Ensure the Necessary Resources

3. To Provide Oversight

What do boards need to do perform each of these roles well?

ORGANIZATIONAL DIRECTION

 

 

• The board must determine the mission and vision of the organization — articulate an inspiring vision for the future, why the organization exists, what societal need(s) it is addressing, and how, as well as who, its primary constituents are. The board must also review its mission statement periodically, and rewrite it to keep it relevant.

• To ensure effective planning use the vision to guide the organization in a planning process to set goals and then support their implementation.

Failing to plan is planning to fail, so it's the board's job to make short-and long-term planning part of the organizational culture, and review progress regularly.

• Build a competent board: Having the right people on the bus is a great way to ensure that the organization is clear about its direction and can stay the course. The job is to create and maintain a competent board by recruiting strategically using job descriptions for board members, conducting regular board orientations and trainings, and, most importantly, performing periodic and thorough evaluations of the board's performance.

NECESSARY RESOURCES

• Select the chief executive/executive director. Every board that is looking to hire its top professional must carefully define (or redefine) the role, and develop a detailed job description to launch a search and hire the most qualified and suitable person for the job.

• Ensure adequate financial resources: If the famous phrase that "the buck stops with the board" is true, then the buck must also start with the board. It doesn't mean the board is solely responsible for bringing in those financial resources, or providing them personally.

Understanding the many ways the board can ensure adequate financial resources for its organization is a huge part of being able to do it — e.g. establishing healthy financial models, systems, and policies; stewarding donors; participating in fundraising planning, events, and activities; supporting the organization with a personal meaningful gift; advocating for the organization and its mission in the community; articulating your story about why you are involved with the organization and why you choose to provide philanthropic support; etc.

• Enhance the organization's public standing by articulately and consistently sharing with the public your organizational stories, facts, progress and aspirations along with those personal stories I mentioned in the previous section. Those are a sure way to exhibit commitment to transparency and accountability, build trust and credibility, and secure the support of your community.

PROVIDING OVERSIGHT

• Support and evaluate the chief executive: After investing so much time and energy into hiring the most suitable and qualified top professional for the organization, it is only logical that the board would also need to support him or her. Support comes in many shapes and forms, including but not limited to, setting clear goals and expectations, providing moral support, giving regular informal feedback and formal evaluations, as well as making coaching and professional development opportunities available.

• Monitor and strengthen programs and services: Determine which programs are consistent with the organization's mission, and monitor their effectiveness.

• Protect assets and provide financial oversight: Assisting in the development of the annual budget; putting proper financial systems and controls in place; recruiting a capable treasurer, and building a strong finance committee. The board is the one ultimately responsible for the organization's financial compliance.

• Ensure legal and ethical integrity: This is similar to protecting assets and providing financial oversight. The board must also ensure legal and ethical compliance by putting the necessary policies in place, reviewing and following organizational by-laws, recruiting board members with high ethical standards and the necessary legal expertise, and creating a culture of transparency and accountability.

These are the board roles and responsibilities that are applicable to most boards, even non-fiduciary ones if they are sufficiently empowered by their parent organizations. Discussing these roles, asking the right questions about them, challenging "but-we've-always-done-it-this-way" excuses, and enlisting help when necessary are the only ways for your board and you, as one of its members, to be the best you can be in supporting the people who benefit from your organization's services.

Going back to my original metaphor: It's not easy being a good parent, but it sure is worth it. So, to all of the lay leaders out there, thank you for your commitment, and let's do our best to become proud parents of our "babies".

Natasha Dresner is an Organizational Development Consultant and Mentor with the Harold Grinspoon Foundation in Agawam. She can be reached at [email protected]

 

Nonprofit Board Values #NonprofitBoards

Articles throughout the US today have noted how some self-identified Christian church leaders have been celebrating the deaths in Orlando citing specifically hateful and harmful sentiments against LGBT identified folks.  I am puzzling over two facts.  

One, the IRS has granted these institutions tax exempt status despite their deep-seated and very apparent harm-focused values.  I for one would not be adverse to having our Congress which seems to be willing to establish actions that control the IRS (see yesterday's post) establishing criteria that ensures that tax-exemption is reserved for institutions that "do no harm".  Make this the law and direct this action toward the pocketbooks.  Yes, folks will continue to find hate and do hateful acts but at least the federal government won't be in the position to provide support, through recognition and tax exemption status.  

The second: while we might vilify the speakers/leaders of hate, let's us remember that these folk are given a platform and may even be endorsed by their members/supporters.  They are not preaching to empty seats.  And, they are governed by folks who share their sentiments.  The so what?  The folks who serve on the boards of every nonprofit are informed by values and collectively create a common set of values to guide how the organization functions in the world.  Boards do well to regularly revisit their individual and collective values to ensure  that those who represent them (staff in particular) really do represent their beliefs.