Nonprofit Board Crisis

Nonprofit Board Departs #NonprofitBoards

The saying "When the going gets tough, the tough gets going" is supposed to mean that folks facing difficult situations will work harder but for the Second Chance Foundation, now cognizant of some pretty significant missteps by their founder/donor, have decided it's time to abandon ship and literally, get going.  Does this action mean they weren't at all aware of or responsible for what was going on with their money?  Are they not responsible believing that fleeing the scene makes them less responsible?  I would pose that this action to dissolve the organization may well not put an end to their responsibility.  They were present during the period of misspending or whatever category one might assign to what was going on and in my opinion, should be held equally responsible for ensuring that missing funds go to where they were initially intended.  Abandoning the ship doesn't mean someone doesn't have to pay.

From the Philadelphia Inquirer:

DA Seth Williams' nonprofit may be disbanded

Updated: AUGUST 31, 2016 — 1:08 AM EDT

by Chris Brennan, Staff Writer

Board members of a nonprofit founded by Philadelphia District Attorney Seth Williams will consider disbanding the charity when they meet in mid-September, according to two sources familiar with the discussion.

 

The Second Chance Foundation, started by Williams in 2011, received a subpoena for financial documents Aug. 22, an expansion of a federal investigation into Williams' personal and political finances that has been underway since last summer.

The discussion about disbanding the nonprofit started two weeks ago, before the subpoena but after Williams disclosed that he had taken $160,050 in previously unreported gifts from 2010 to 2015, the sources said.

 

In a conference call the same week the gifts were made public, a majority of the board's members agreed that the nonprofit should be disbanded and its assets given to other charities, the sources said.

Williams did not participate in that call and does not support the decision, according to the sources.

Williams, through a spokesman, declined to comment about the nonprofit Tuesday. Christopher Hall, a lawyer representing the nonprofit, also declined to comment.

The board's members did not respond Monday to requests for comment.

Two board members who resigned after Williams disclosed the gifts confirmed that discussions had been underway about ending the nonprofit's operations.

 

Both said the discussion began after the gifts were made public but before the subpoena was received by the nonprofit.

Ryan Boyer, business manager of the Laborers District Council of the Metropolitan Area of Philadelphia and Vicinity, was chairman of the nonprofit until he resigned two weeks ago.

"There was talk about disbanding the fund and disbursing the money to charities it had already given money to," said Boyer, who said the Second Chance Foundation did good work supporting programs that needed help.

Boyer said the controversy about Williams' belatedly reported gifts made it difficult to continue the nonprofit's work.

"When the face of the organization is somewhat tainted by what he did, how is the fund-raising going to be?" Boyer said.

Gaetano Piccirilli, a lawyer who served on the board and resigned around the same time as Boyer, also confirmed the conversations about disbanding the nonprofit.

Piccirilli said he resigned after expressing his concerns to Williams.

"It was a difference of opinion between Seth and me about whether the organization had any viability going forward," he said.

The foundation's website describes its mission as providing "financial assistance and resources to vital, community-based organizations that serve at-risk children, young adults and families to help them lead more productive lives that promote a safer Philadelphia."

The nonprofit's most recent federal tax filing, submitted in November, listed $104,038 in assets at the end of 2014.

Williams, a Democrat, is planning to seek a third term next year.

Along with the ongoing federal investigation and gifts controversy, Williams must now also contend with the negative publicity generated by criminal charges filed Sunday against a woman Williams in the past had identified as his girlfriend. Stacey Cummings, according to the charging documents, confessed to slashing the tires on two city-owned vehicles assigned to Williams' security team and parked outside his house in November.

That case is being prosecuted by the Delaware County District Attorney's Office.

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215-854-5973 @ByChrisBrennan

Nonprofit Governance Matters #NonprofitBoards

 A story in the Washington Post about the many fundraising efforts that followed the Orlando shooting serves to remind us of the "added value" of nonprofit boards.  As part of preparing the article, Associated Press staff randomly analyzed a portion of the 437 fundraisers posted on the GoFundMe website.  What they learned was pretty much that donors can't be assured of what will happen to the monies they donate through the site.  I think it's safe to say that the GoFundMe site is a Caveat Emptor world.

So what is that value added that nonprofit boards bring? Peace of mind and some assurance that when money is donated, it will be used for what the donor intended.  And, for the most pat this is true.  And, to reinforce this assumption, according to the article:

Several big funds have joined forces in an official centralized campaign that raised more than $23 million, including the $7 million from Equality Florida’s GoFundMe campaign.

The donations to the central fund are generally tax-deductible, since they go to registered charities. Donations to a crowdfunding site are typically not tax-deductible, unless the organizer is a tax-exempt charity.

The bigger charities — unlike many crowdfunding campaigns — give timetables for distributing aid, and detail recipients and how decisions are made. Ken Feinberg, administrator for the centralized fund, has already held two town hall meetings with survivors and family members of the victims.

But, when compared to a non-formally organized fund: In one crowdfunding campaign, friends Guardini Bellefleur and Demetrice Naulings asked for $25,000 to set up a vaguely defined foundation in memory of Eddie Justice, a friend of Naulings killed in the shootings. They said the money would pay for Justice’s funeral and victim counseling.

As is the point of today's blog, little do we really know about asks that don't come from nonprofits - institutions with folks who are responsible for ensuring that money given will go where it is intended.

 

 

 

Nonprofit Board Power #NonprofitBoards

The following editorial was too good for me to pass-up.  Clear and direct the message in this missive: politicians and nonprofit governance can be minimum, messy.  One reality not stated: when politicians are involved in starting-up or managing nonprofits, good governance or control by a board, appears to go "out the window".  Everything we are told and everything we expect from a nonprofit board to be both responsible and in control appears to lapse when politicians are involved in a nonprofit.  But not all.  Take Jimmy Carter as the "good" politician actively involved with a nonprofit.  And, I would pose however that this phenomenon is not unique to politicians nor are all politicians "bad" when it comes to nonprofit governance.  Take for instance, performers.  Remember Jean Wycliff or (and yes, there is a list that includes athletes, musicians, actors...).  But again, not all "stars" abuse their power and authority when it comes to a charity (Willie Nelson?).

But for sure there is something about folks who have "star" power that appear to give nonprofit boards an understanding that they don't or perhaps can't  or shouldn't fully exercise their fiduciary responsibility.  And this is where the gap lays.  I am thinking that the real problem that occurs when "stars" get involved in nonprofit governance has more to do with failed governance than it does that folks in power positions get to do whatever.  Assuming that all stars are inherently honest and intentional about having positive outcomes, the candidates to fill governing seats should be recruited because they will be committed to the good outcomes, not the star.  Their job will be to ensure that all money goes where it is intended according to mission.  Or is this too much to ask?

From the Philadelphia Inquirer:

DN editorial: Pols should stay out of charity business while they're pols

Updated: AUGUST 26, 2016 — 3:01 AM EDT

THERE IS NO good reason for an elected official to create a nonprofit organization.

 We have said this before - and this week's Inquirer report that a federal probe into District Attorney Seth Williams' finances have extended to a nonprofit he created, prompts us to say it again: The practice of politicians starting nonprofits must stop.

We don't know what the probe of Williams' Second Chance Foundation entails - or whether it is related to his admission this month that he failed to report $160,000 in gifts - but we do know that the minute the words "Williams" and "nonprofit" appeared in the same sentence, we had four immediate thoughts:

1. Chaka Fattah

 

2. Vince Fumo

3. Mike Veon

4. Kenyatta Johnson

We also thought about Tom DeLay, Rick Santorum, and, yes, Hillary Clinton. All of these are elected officials who have created and controlled nonprofits (except for Clinton, whose husband did, and Johnson, who claimed his nonprofit was registered with the Internal Revenue Service, but wasn't).

Fumo and Veon have served jail time. Fattah is facing a similar fate for activities related to his nonprofit, which he used to funnel payments to pay back a campaign loan.

It's not illegal for elected officials to start nonprofits, and we're not suggesting Williams broke any laws.

But the potential for conflicts is real. Under tax law, organizations are typically classified as 501(c)(3) or 501 (c)(4). Either is a treasured status, since an organization is exempt from taxes and donations to the nonprofit are tax-exempt.

Such organizations also are exempt from much oversight. They file tax forms that detail budgets and spending, but donors to these groups can remain anonymous. Worse, pols can use their influence to fund these organizations with taxpayer dollars. While Fattah, for example, held a powerful appropriations role in Congress, millions of federal dollars flowed to his nonprofits. Those organizations were often staffed, with high salaries, by the congressman's friends and allies.

 

Williams' Second Chance Foundation reported assets of $104,038 at the end of 2014. Until June, its acting executive director was also a member of the D.A.'s staff.

Here is one problem with the notion of public officials and their nonprofits: The largesse of a foundation or charity can't easily be separated from the largesse of its founder. And when that founder also relies on votes to get elected, how can we be sure this largesse isn't politically motivated? How can the public be sure that the grants an organization bestows are not made strategically to help an official get elected? These nonprofits can make "dark money" look like a high-intensity lamp.

And that's the most benign problem this practice creates. Fumo, for example, was found guilty of, among other things, using his nonprofit, Citizens' Alliance for Better Neighborhoods, as a personal ATM machine.

Let's assume the most optimistic motives: that a public official wants to extend the good he or she can do and creates an organization to raise and dispense money to good causes.

Given the entanglements and conflicts of interest such charities can create - to say nothing of the betrayal of public trust and money - the choice for officials is clear: Serve the public good in your job, or quit your job and become a philanthropist. No one should be allowed to do both.

Nonprofit Board Recruitment #NonprofitBoards

Here's an interesting list of questions that are proposed to folks considering joining a nonprofit board.  I'm thinking I would encourage prospective members to at least ask (and receive answers to) Q's 2 which should include mission (although this looks a lot like Q3); Q8 and Q9 but include "get" along with give.  Of course Q6 is a given but I suppose that depends on the person being recruited.  The rest of the questions are not what I would think of as game stoppers to join but would kind-of expect answers be offered at the on-boarding exercise.

 

 

Contemplating a joining a nonprofit board? 

Years ago a corporate client and friend of mine was thinking of joining a nonprofit board and asked for my advice about what questions he should ask. I put together a list of questions to ask, he asked the questions, found the responses very enlightening, joined the board with eyes wide open, shook some things up, and the organization has since gone from strength to strength. 

I have been refining it ever since, and thought today was as good a day as any to share it! So – if you’re contemplating joining a nonprofit board, before you commit, here are ten killer questions to ask your potential nonprofit Board colleagues. 

1. How much faith do you have in the current CEO/Executive Director?
2. What are the current objectives for the organization and what happens if they are not met?
3. Can I see the strategic plan?
4. What will the organization NOT do?
5. Who makes key strategic decisions (i.e. to serve a target group, to allocate a significant portion of funding)?
6. What is the current funding situation & how sustainable are the sources?
7. Do you know how much it costs to serve a client?
8. Who are the other board members and what are their roles? 
9. Are board members expected/required to make a financial commitment to the organization? Why, or why not?
10. How does the Board relate to other local, national or international Boards associated with the organization? Is it clear who is expected to do what? Who gets to make what decisions?

Nonprofit Board Diversity Matters #NonprofitBoards

What is one of this year's biggest "aha" moments by those who oversee and are celebrating 100 years of the National Parks?  The answer: that the folks who use the Parks are predominantly "white".  Is this a problem?  At least those who oversee the Parks think so, now according to the following Wall Street Journal article.  But the reason those at the top of the Parks Service are so aware of the absence of those of color (aka minorities) aren't present: the need for a broader constituency that financially supports the Parks.  Challenged as many government-supported entities are to secure ongoing support, without a constituency that is broad-based, diverse, and cares, the baseline funds that support the Parks, not to mention the additional funds that are needed for infrastructure, will be absent.  Of course, understanding a diverse market is more challenging when those at the top don't represent that market so if there's a place to begin I would pose it be in diversifying the "top"

But I should note that the Parks have a nonprofit arm called the National Park Foundation.  These are the folks who have volunteered to link the National Parks to the money it needs.  And by my count there are at least to Latino men on the board.  The National Parks also has an Advisory Board (established in 1935) that includes, from my assessment, two non-white folks among its 12 members.  Both the Foundation Board and Advisory Board are forums toward inclusion and understanding of those not otherwise "owning" and benefitting from the Park system. But is it enough to inform the Park Service about its goal of seeking minority support for a present and future where "minorities" may not be the minority?

Park Service seeks minorities’ support as it marks 100 years

By Felicia Fonseca and Beatriz Costa-Lima | AP August 24 at 2:41 AM

GRAND CANYON NATIONAL PARK, Ariz. — When Asha Jones and other Grand Canyon interns arrived for their summer at the national park, they were struck by its sheer immensity, beauty and world-class hiking trails. Soon, they noticed something else.

“It is time for a change here, specifically, at Grand Canyon and in the National Park Service in general, to get people who look like me to your parks,” said Jones, a 19-year-old black student at Atlanta’s Spelman College.

The National Park Service, which oversees more than 131,000 square miles of parks, monuments, battlefields and other landmarks, thinks it’s time for a change, too.

As it celebrates its 100th birthday Thursday, the agency is facing some key challenges ahead. Among them is reaching out to minority communities in an increasingly diverse nation and getting them to visit and become invested in preserving the national parks.

“If public lands aren’t telling their story, and they don’t see themselves reflected in these beautiful places, they may not support them,” Interior Secretary Sally Jewell said. “They may not recognize that these are their assets and protect them for future generations.”

 

The NPS doesn’t track the makeup of its visitors, but commissioned studies have shown about three-quarters are white. The agency’s workforce is less diverse, at 83 percent white, a figure that can fluctuate with temporary employees.

Minorities are expected to eclipse the country’s white population before 2050.

The problem of lack of minority engagement is longstanding and complex but can be tied to two main factors, said Myron F. Floyd, a leading scholar on race and ethnicity in outdoor recreation at North Carolina State University.

The first relates to cultural traditions. Outings to national parks generally aren’t passed down through generations in minority communities, he said, and few minorities grow up with an appreciation for such sites. Also, for many years, African-Americans were excluded from national parks and other public resources, he said.

Barriers to visiting national parks also can be as simple as not knowing they exist, or not having a way to get to them or enough money for entry fees and gear, said Jose Gonzales, Latino Outdoors founder.

Asian-Americans, meanwhile, can be reluctant to travel outside their ethnic circles, and they might find few billboards or brochures in their language at national parks, said Mark Masaoka of the Asian Pacific Policy and Planning Council.

“It may not seem welcoming or as inviting to go to a place where there are hardly any visitor centers, few signs, and you’re left to figure it out,” Masaoka said.

 

The Park Service has made some changes to address these issues, including recruiting minority interns and producing videos and brochures for Spanish-speaking audiences. Its employees spend time in schools with large minority populations to encourage children to visit the outdoors.

The agency also has pushed to designate more sites that highlight the history and contributions of minorities. Some of its newest locations include the Cesar A. Chavez National Monument, established in 2012, and New York’s Stonewall Inn, the first national monument to gay rights, in June.

National parks need more support than ever because years of tight budgets have left them with a lengthy and growing backlog of maintenance projects, officials say. The list of needed repairs totaled almost $12 billion as of last year.

The Park Service gets help from some outside groups like the nonprofit Rocky Mountain Conservancy, which recently worked to restore old cabins used by research scientists at Colorado’s Rocky Mountain National Park. But that’s not enough, experts say.

“I would argue that one of the greatest challenges (the agency) faces in the 21st century is how to engage an increasingly racially and ethnically diverse population in order to maintain the support it has had for generations,” Floyd said.

Kristen Smith, a 44-year-old black woman from Long Island, New York, said she and two white friends were subjected to racial slurs and gawked at by visitors during a 2014 trip to Yellowstone National Park in Wyoming. But she didn’t let it spoil her outlook on the outdoors.

She particularly enjoyed an earlier visit to Yosemite, where a hiking guide nonchalantly noted black men built some of the park’s first trails. The hundreds of Buffalo Soldiers — members of the nation’s first black Army regiments — were protectors of the land before it became Yosemite National Park, and also served at California’s Sequoia National Park.

“The part that was the nicest was having someone so casually mention that, acknowledge the truth,” Smith said.

The history of minorities in national parks isn’t always well-known. An annual pilgrimage to Yosemite’s Sing Peak honors Chinese Americans. Frazer Point in Maine’s Acadia National Park is named for a freed black slave who built a homestead on land that became part of the park.

Those types of stories are important in selling national parks to minorities, Grand Canyon intern Iesha Baldwin said. Conversations in the students’ cabins sometimes focus on frustrations about seemingly being the only black people in the park.

Jaszymne McKenzie, a black intern from the University of Arkansas at Pine Bluff, will return this fall with another adventure to share. She walked along the East Coast looking at stingrays during a previous internship, and this year watched Grand Canyon visitors marvel at elk and squirrels.

The Park Service hopes the interns’ experiences translate into a desire to work for the agency, and McKenzie isn’t ruling that out. She wants to be part of a team that recruits minorities.

“It’s the National Park Service. You think, ‘Does it need a marketing team?’ But when you look at it with ethnicities, I would say so,” she said.

___

Fonseca reported from Flagstaff. Associated Press writers Matthew Brown in Billings, Montana, and Brennan Linsley in Rocky Mountain National Park, Colorado, contributed to this report.

 

Nonprofit Board Chairs Study Report Now Available

As part of the team that developed this study I can only say, YAY - it's ready.  

 

Voices of Nonprofit Board Chairs reflects the voices of 635 nonprofit board chairs across the United States. The study was conducted by the Alliance's Governance Affinity Group and is intended as a first step in hearing directly from board chairs about their experiences and perceptions, acknowledging the importance of the leadership role of board chairs and the significant dearth of research in this area.     Although there is much prescriptive information in the field, there is surprising little research or evidence to back up these assertions.  As one of the few studies on board chairs, this study sought to answer two research questions:  How do individuals prepare for their role as chair of a nonprofit board? and, what do board chairs perceive their leadership roles to be in relationship to the board, the community, and the CEO?   To learn about the findings, implications for practice, and access the research report, please download the report here.  The Research Team is available for workshops, talks, webinars and articles based on this research. For more information, please contact, Governance Membership Affinity Group Chair,Judy Freiwirth.

 

Free Webinar: Voices of Nonprofit Board Chairs Research Findings and Consulting Practice Implications from the Largest National Research Study on Board Chairs   September 15, 2016   9 am - 10:30 Pacific / 12:00pm - 1:30 Eastern   Hear about the key findings and consulting practice implications of this important national study conducted by the Alliance's Governance Member Affinity Group.  The Research Team will lead an interactive discussion regarding implications for consulting practices and new thinking about board chair preparation and effectiveness.    Presenters: Judy Freiwirth, Psy.D.; Mary Hiland, Ph.D., Mike Burns, M.A., Gayle Gifford, M.S., and Debra Beck, Ed.D.   Click here to register for the webinar.

 

 

Nonprofit Board Duty of Obedience #NonprofitBoards

The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization.  So when a board member, and even when the board chair decides to act independently of the rest of the board, it is my opinion that the board should collectively take action and either challenge that chair or even, should the independent action be grievous enough, remove the chair.  I'm not sure what precisely the board of directors of the Mayor's Fund for Philadelphia will do about it's board chair approving an expenditure far outside the board's specific policy, but stay tuned.  Here's the details from the Philadelphia Inquirer.

Mayor's Fund board kept in dark about spending
Updated: AUGUST 22, 2016 — 1:08 AM EDT

In April 2015, the board of directors of the Mayor's Fund for Philadelphia turned down a $25,000 grant request to market the city to the World Heritage City selection committee.

"The designation of Philadelphia as a World Heritage City is not a high priority from the board's perspective," the minutes of the meeting stated.

Two months later, without board approval or apparent knowledge, the Mayor's Fund came up with $10,000 for the effort, a pet project of Michael Nutter's when Nutter was mayor.

The grant apparently was approved by the fund's chairwoman, Desiree Peterkin Bell, who was also city representative and a member of Nutter's inner circle.

"I don't see anything that brought it back to us after we declined it," Andrew Frishkoff, one of the fund's board members, said after reviewing minutes and his own notes from the meetings last year.

The $10,000 grant is one of dozens of expenditures made by the Mayor's Fund without board approval.

City Controller Alan Butkovitz reported Tuesday that nearly $593,000 was spent from a Mayor's Fund account that had little to no oversight from the board of directors. He said that more than half those expenditures had been approved solely by Peterkin Bell.

Peterkin Bell's lawyer, Joe H. Tucker, said Friday that Peterkin Bell "never did anything that was inconsistent with the mayor's goals and that were not signed off on."

The Mayor's Fund for Philadelphia is a nonprofit run by city officials that manages $7 million to $10 million each year to promote tourism, business and economic development, education, culture, and job growth.

Much of its revenue comes from the city-controlled annual marathon. From that money, $500,000 was set aside in 2014 for grants, $200,000 of which was placed in a Marathon Reserve account, Butkovitz said.

Butkovitz said Peterkin Bell was using the marathon reserves money as a "slush fund." Money spent went to unapproved grants, a trip to Rome by Mayor Nutter and his staff to bring the pope to Philadelphia, an open-bar reception for the NAACP convention here , and Nutter's farewell celebration at University of the Arts. There was also more than $100,000 in credit card statements with no supporting invoices or explanations.

Nutter and Peterkin Bell have denied that the marathon reserve fund was used inappropriately. They said the fund's executive director, Ashley Del Bianco, approved all expenses.

Del Bianco said last week that although she did sign off on the expenses, she was concerned that the full board of directors had not been consulted. In January she asked the controller's office to review the fund.

"There were two different set of procedures and I wanted to align them," Del Bianco said. "The reserve fund was just under the discretion of one person, and that's just not good practice."

Del Bianco's predecessor, Maari Porter, said that the reserve fund had existed for a "long time" and that it is marathon profit set aside for the discretionary use of the City Representative's Office.

Several board members interviewed after Butkovitz's report expressed surprise and disappointment that they were kept in the dark about the Marathon Reserve Account.

"The frustrating piece for us is we weren't privy to this information," Frishkoff said. "We were brought on to try to professionalize this nonprofit."

Suzanne Beimiller, who served on the board from 2010 to 2014, said that record keeping was in disarray when she was appointed. She worked with fellow board members to get things in order. The board amended its bylaws in 2013 with strict rules on approval of spending.

For example, anything above $5,000 required signatures of two fund officers. If an action that normally required board approval was to be approved outside a meeting, all board directors had to agree. Each grant applicant had to have a deputy mayor or city department sponsor its application.

"I was really happy," Beimiller said. "The board had processes and procedures for marathon grants and made sure grants would meet the mayor's goals."

According to meeting minutes, board members made careful decisions about how to spend their small pool of grant money. Many seemingly worthy programs were denied funding because the organization had already received money the previous year, or because its goals did not match the fund's, or because its application was unclear on goals and projected outcomes.

Those that were approved often received a fraction of what had been requested.

"They highly scrutinized everything while I was on the board," according to a board member who requested anonymity. "There was a lot of speculation and distrust, uncertainty from the board because of the past."

David Thornburgh, president of the civic watchdog group Committee of Seventy, said the Mayor's Fund for Philadelphia had been a "political volleyball" for as long as he could remember.

"It's supposed to be a more flexible way of spending money," Thornburgh said, "but that leaves it vulnerable."

Thornburgh said he could see justification for Butkovitz's questions. But he said proper controls should be in place to keep track of expenses.

"Is it sloppiness or willful deceit? Who knows," he said.

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Nonprofit Board Duty of Loyalty Closely Defined #NonprofitBoards

When is a conflict of interest maybe but maybe not a conflict of interest for a nonprofit board member?  The following Wall Street Journal article about conflicts for nonprofit hospital board helps shed a more nuanced light on the answer to this question.  And, no, this is not just about hospital board members.  And yes, board members should annually sign their Conflict of Interest statement while the board collectively discusses the transactions and entanglements that could make for possible conflicts of interest specific to their organization.

Nonprofit Hospitals’ Business Relationships Can Present Conflicts

By ANDREA FULLER and MELANIE EVANS
Aug. 21, 2016 12:31 p.m. ET
30 COMMENTS
Nonprofit hospitals have extensive business ties that can pose conflicts of interests for their administrators and board members, a Wall Street Journal analysis of newly released Internal Revenue Service data shows.

While having relationships with companies doing business with a nonprofit hospital isn’t necessarily improper—as long as the deals are disclosed and at market rate—administrators and board members sometimes may be forced to choose between what’s best for the hospital and what’s best for their private interests.

“Just because something is legal doesn’t mean that it’s appropriate,” said James Orlikoff, a Chicago-based hospital governance consultant. “You run the real risk of violating the public trust.”

Hospitals rank among the largest nonprofits in the country. Because they often are big employers and have complex business arrangements, they face these dilemmas far more often than most other kinds of nonprofits.

In 2014, 46% of more than 2,300 nonprofit hospitals had at least one trustee or officer with business ties to the hospital—either directly or through a relative. That is compared with 7% of all nonprofits in the Journal’s analysis of tax-return data compiled by the IRS.

Conflict Risk
Hospitals frequently conduct business with their board members and officers—far more often than other nonprofits

At more than 270 nonprofit hospitals, the arrangements topped $1 million each. Many of the largest transactions involve hospitals and medical companies that have common board members. But in other instances, hospitals have multimillion-dollar contracts with companies owned by trustees in areas such as advertising and construction.

Avera McKennan Hospital & University Health Center in Sioux Falls, S.D., had one of the largest contracts with a company that had ties to a director in 2014. The $20.9 million construction deal with the subsidiary of Avera Health, which includes a 545-bed hospital, five rural hospitals and dozens of clinics, followed years of similarly large payouts to the same company.

Between 2010 and 2014, Avera McKennan paid $91.2 million to Journey Group, the construction company where hospital trustee David Fleck is board chairman. Mr. Fleck sold his stake in Journey Group in 2012, but declined to say if the company currently pays him. Journey Group and Avera Health’s general counsel didn’t respond to questions about Mr. Fleck’s compensation.

An Avera spokeswoman declined to say whether Journey Group competitively won its contracts or offered the lowest prices. She said the hospital typically awards contracts to the lowest bidder but may consider other factors. Avera’s conflict-of-interest policies are in line with state and federal laws, and Avera hasn't received complaints regarding Journey Group’s contracts, she added.

Mr. Fleck said hospital trustees disclose conflicts at each board meeting, and he didn’t discuss or vote on Journey Group contracts. Mr. Fleck, like most board members at nonprofits, isn’t paid for serving.

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In addition to deals with board members, nonprofit hospitals are required to disclose transactions with families of officers and directors. At California-based Dignity Health, the chief executive’s son has a multimillion-dollar marketing contract.

Nathan Dean, son of Dignity CEO Lloyd Dean, landed a contract in 2011 to create an online market for Dignity’s branded goods and to produce those items, including lapel pins and badge clips.

The 39-hospital chain paid $3.8 million during two years to eLead Resources, Inc., and the contract was renewed in 2014. The younger Mr. Dean owns 51% of the company, said an attorney for Dignity.

The elder Mr. Dean said the hospital behaved ethically, and he avoided internal conversations about his son’s contracts. He didn’t balk at eLead’s bid for the business because his son’s company is qualified to compete for the work and Dignity has policies to prevent conflicts of interest, Lloyd Dean said. “eLead met the criteria for the open-bidding process,” he said.

Nathan Dean didn’t respond to interview requests.

Dignity Health solicited competitive bids for the marketing job, and said eLead’s bids were “fair and reasonable” and “market competitive.” Dignity declined to say if eLead was the lowest bidder.

Unlike government entities that solicit contracts, nonprofits aren’t required to disclose their bidders.

Dignity’s board reviewed eLead’s bids and performance annually, said Peter Hanelt, who chairs the committee tasked with the reviews.

“The conflict is not inherently wrong,” Mr. Hanelt said. “You simply want to disclose it and vet it and make sure it’s fair.”

Hospitals in small towns may face a particular dilemma when it comes to managing conflicts, said Michael Peregrine, a Chicago-based lawyer and governance consultant. They may think that because “governance gurus are telling us we’ve got to get the best and brightest people,” their only choice is to turn to the local business leaders known by the hospitals.

Frank Kinder, co-owner of a Cape Girardeau, Mo.-based advertising firm, joined the board of his local hospital in 2009. Shortly after, the then-chief executive of SoutheastHEALTH approached him about a small branding project, he said. “It was just kind of a natural development of me being present in the boardroom at that time,” Mr. Kinder said.

That work ballooned. The hospital paid his firm, Red Letter Communications, Inc., $8.3 million between 2010 and 2014, tax records show. Mr. Kinder said the hospital was his company’s second-largest client.

He said he recused himself from board meetings where advertising budgets were discussed, and eventually decided to eschew regular marketing meetings after his staff said he made the marketing team “uncomfortable.”

Mr. Kinder said his staff told him: “The fact that you’re a board member is intimidating.” He

Mr. Kinder remains on the board and stopped doing business with the hospital in 2015, concerned that his dual role was problematic.

Kenneth Bateman, chief executive at SoutheastHEALTH since 2014, said the hospital is now more cautious about entering contracts with board members. “Pretty much if there’s a significant conflict, board members have stepped away,” he said.

Rob Montagnese, chief executive of Licking Memorial Health Systems in Newark, Ohio, said his hospital banned business contracts with board members in the early 2000s. The hospital, he said, wanted to make sure “our community had confidence that our board members were truly here as volunteers.”

Mr. Montagnese said it hasn’t been a problem to find qualified board members under the ban, even in a small community.

At the time, Mr. Montagnese said, there were three trustees with hospital business—a bank leader, a local attorney, and a real-estate developer—who faced giving up either their board seats or their hospital business.

All three resigned the board.

Write to Andrea Fuller at [email protected] and Melanie Evans at [email protected]

Nonprofit Board Advocacy Fail #NonprofitBoards

An article in the NJ Spotlight about little or no funds for needle exchange programs in New Jersey leads me to ponder the challenge to the "three-legged stool" paradigm as well as nonprofit board advocacy.  The story is simple: the (state) government doesn't want to fund needle exchanges and the private sector (which includes mega drug companies) AND the philanthropic sector, the funders (also have some large players as well) not the providers, don't appear that interested either.  The paradigm suggests that the nonprofit sector fills the void where the government sector and the for-profit sectors have neither the public interest or consumer demand to invest.  In the case of needle exchange, what I believe to be a public health issue, what is superimposed and couched in resistance are core values or beliefs about the "beneficiaries" of the needle exchange programs.  Values inform a lot of decisions within all three sectors and when the values differ, so too does support.  

This said, the role of the nonprofit boards of the needle exchange program, folks who have values in common, have in my mind, attitudes and environment of tight monies not withstanding, failed to make their case that needle exchange programs are just about the program beneficiaries.  Public health is never just about those directly affected.  But that the case has not been made, for whatever the reason, I believe it's incumbent upon the boards of these providers to reconsider their approach and message and perhaps recruit folks who do not look or think like them, to the cause.  Changing hearts and minds is not easy and those at the helm, the nonprofit owners are responsible.  And actually, I think I would be starting with the faith institutions - places where messages about caring for your brother and sister is not so exclusively defined (depending of course on which faith we are discussing).  

Board Members as Staff #NonprofitBoards

In the early stages of a nonprofit board, there are often no staff.  Board members may even be formally designated with staff titles and play their part often not distinguishing between their board/governing "hat" and their staff "hat".  Needless to say, these times can be trying but also productive - work gets done at least on the program sign and maybe not so much on the governing signs.  But this reality is often part of the learning curve that results in a nonprofit that thrives and a board that develops effectiveness on the governing side (albeit, not always).

Below is the first part of a 2-part drama (part 2 is here) that describes a board that has played its part as governing while continuing to be staff, or at least designate some of its members as staff.  I am wondering however how, if the two roles are never fully separated, the drama will ever really end.

Offstage drama brings leadership change at Camden theater company

Updated: JUNE 17, 2016 — 5:49 PM EDTJoe Paprzycki has been forced to exit the theater company that owes its existence to the play that launched his career.

 Paprzycki, 58, left his unpaid post as the South Camden Theatre Company's producing artistic director this week, following an 11-3 vote by the company's board of trustees. He and two allies on the board voted against the measure.

Will there be a [new] play in this? Absolutely," Paprzycki said Thursday. "There's a play in everything, especially something with this much drama and backstabbing."

SCTC Board President Robert Bingaman, the company's resident set designer and a longtime friend of Paprzycki's, declined to comment. The Haddon Township resident, who's 59 and has been associated with SCTC since 2008, did provide a statement Friday from the board.

"The decision to remove [Paprzycki] was not made lightly," the statement said, citing "the current state of the company's finances, the declining attendance at our shows, and the many challenges facing the company" as reasons "to move in a new direction." The statement also noted that Paprzycki was not asked to resign from the board itself, but had done so voluntarily.

SCTC is "discussing candidates to fill [the post] on an interim basis while we also plan for the future," continued the statement; it also emphasized that summer programs, including free movies, will continue as the company builds "a viable young people's theatre program" and plans a season of "exciting professional theatre  ...  along with music, comedy, and local entertainment."

On Thursday, after news of his abrupt and unexpected departure broke on social media, Paprzycki said he was heartened by an outpouring of support.

"I can't tell you how glad I am to have gotten 100 emails and phone calls from people all over the country," he said. "I felt appreciated, what with all the terrible things that have happened."

Paprzycki described his ouster as the result of "a mini-cabal of board members" who took issue with his choice of material. "People who are carpenters and secretaries were saying,`you can't do that play because we say so,'" he said. "That's no way to judge what I do."

The Camden native and Gloucester City resident is a great fan of Tennessee Williams and Eugene O'Neill, and SCTC has regularly offered productions of works by these and other masters, often under his direction. He also organized series or seasons of plays centered on themes such as war and faith.

Paprzycki is a prolific playwright, and some of his works were produced at SCTC, including Last Rites. Set in 1967 at a South Camden bar owned by his grandparents, the play — a powerful story about the shipyard closure that traumatized the neighborhood — launched the theatre company at the nearby Sacred Heart Church in 2004.

Last Rites was also the debut production when a brand-new theater, built on the site of the former bar, opened in 2010. I saw the play (and many others) in this delightful new performing arts space, an anchor for the budding arts district in the tough but resilient section of Camden.

 

So the unexpected and in my view, unfortunate plot twist has an impact beyond the handsome walls of the Waterfront South Theatre. For the sake of the city, not to mention fans of affordable and often adventurous theater in South Jersey and beyond, SCTC's show must go on.

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856-779-3845 @inqkriordan