Nonprofit Board Crisis

Nonprofit Board Accountability #NonprofitBoards

The following is an excerpt from a tome written by a relatively grumpy but perhaps right-on individual who became frustrated and perhaps more with their nonprofit experience.  The excerpt below is focused on nonprofit governance.  The observations are thoughtful and should be worth consideration, perhaps annually, by nonprofit boards.  After reading, ask yourself how true any of this is for your board.

One of the first things I wanted to better understand after I left the industry was nonprofit accountability and oversight.

Upon request, nonprofits are required to provide copies of their three most recently filed annual returns (IRS Form 990) and the organization’s application for tax-exemption. There are tons of laws they must follow, but that is it for transparency. Everything else is just ‘suggested, but not required’ for organizations funded by public money, serving vulnerable people in our community.

Some of the things that are rarely even suggested, and definitely not required are detailed financial information made available to the public, reviews of expenditures and travel policies, conflict of interest policies, financial management polices, executive compensation policies and routine audits. And checks to make sure the people served are being treated with dignity and respect, my initial complaint.

Most people who start a nonprofit are just regular people who see a need and want to help. Understandably, they might not have all the needed skills to run an organization. They might hire people who do or gain them over time. There is honor in that. If someone wants to feed a hungry person or offer free tutoring right now, they should not be forced to get a degree or some expensive certification. We have great people in our communities with real world experience, who give their blood, sweat, and tears every single day. These people should be the ones on the front lines.

But this habit of people with no experience founding full-on organizations can lead to a bunch of obvious problems. The main one is the possibility of unqualified people being in charge of other people’s welfare. This is where there is lots of room to take advantage of the gap in oversight.

Suddenly unqualified and irresponsible people might have access to large amounts of money they may have never seen otherwise. A Board of Directors is usually the group providing that oversight to keep things in check. That comes with serious responsibilities and real consequences. Some Boards can be personally held liable for financial impropriety. However, when change needs to happen it can literally take years to do with all the red tape, and assumptions of the good and personal relationships that are often involved.

Nonprofit Board Rise and Fall #NonprofitBoards

In case you missed it, what follows is the story of what became an internationally acclaimed nonprofit that, while it's chapters still thrive, the "mother ship" has failed.  Based on this a a read-through a number of other articles about this situation, paid and volunteer leadership failings contributed to the rise and fall.  Yes, both.  There are lessons to be considered about oversight, planning, evaluation and policy setting.  Accountability or the lack there of (ensconced in oversight, evaluation and policy setting) was clearly limited.  Architecture for Humanity represents the optimal in outcomes and the worst in efficiency, at least from a management and governance framework.

From Fast Company:

What's Next For Architecture For Humanity?

Where the architecture nonprofit went wrong, and where volunteers hope to take it now.

 

 

 

SHAUNACY FERRO 01.22.15 7:30 AM

Last week, news broke that Architecture for Humanity, the design nonprofit founded in 1999 by Cameron Sinclair and Kate Stohr to bring better architecture to those in need, had shuttered its San Francisco headquarters, and would be filing for bankruptcy.

The announcement came from a story in the San Francisco Chronicle on Friday, surprising even those running the biggest of Architecture for Humanity's almost 60 chapters across the world. While the volunteers who ran Architecture for Humanity chapters knew that not all was right in the organization (as one volunteer described it, "people were disappearing" from headquarters), many didn't find out about the fact that the global nonprofit they were volunteering for had shut its doors, potentially sidelining the projects they had been working on and jeopardizing funds they had raised, until it had been reported in the media—weeks after the full-time staff had been let go. In a way, Architecture for Humanity's public unraveling mirrors the deeper problems that ultimately contributed to its demise: disorganization, an inability to adapt, and simmering tension between the parent organization and its army of volunteers.

A LAUNDRY LIST OF CHALLENGES

Architecture for Humanity operated several field offices abroad in addition to its 59 volunteer-run chapters, which could be started by anyone as long as they had a few dues-paying members and at least one architect on board. Its field offices, in places such as Port-au-Prince, Haiti, oversaw the nonprofit's disaster rebuilding efforts and were financially supported and staffed by Architecture for Humanity. The subsidiary chapters, scattered throughout the U.S. and internationally, pursued local projects in their community, and were dependent on Architecture for Humanity's institutional support and brand recognition, but didn't receive monetary support.

"The chapters had known for some time that there were financial issues with headquarters," says Tom Veed, a member of the board of directors for Architecture for Humanity Chicago. But the Architecture for Humanity board, which as of Tuesday afternoon still had not released any kind of statement, did not notify chapter members of the plan to file for bankruptcy. (The board's chairman confirmed the news to the New York Times on Saturday.) Veed—whose chapter is made up of more than 800 volunteers—found out via an emailed statement from Sinclair, who stepped down as the organization's executive director in October 2013.* (Stohr, his co-founder and wife, left earlier that year.)

The group's challenges were apparent long before this. As Architect magazine noted in a profile of Architecture for Humanity in 2011:

It's doubtful that even [Cameron] Sinclair knows exactly what all Architecture for Humanity does. At a glance, the organization coordinates architects in regions where their services are scarce or distressed. Architecture for Humanity promotes a broad network of young professionals through its design fellowship program and chapter organizations. Through this outreach network—and the requests for proposals it fields for clients as well as collaborations with other for-profit and nonprofit firms—Architecture for Humanity marshals architectural services for communities struck by conflict, natural disasters, and deficits in resources. And that’s just for starters.

In the 12 years since the organization took root, in 1999, in a 300-square-foot New York apartment shared by Sinclair and Kate Stohr, Architecture for Humanity has grown. Its San Francisco office employs 36 full-time staffers and manages a small army of volunteers—teams that work to alleviate poverty, build community, and address climate change among at-risk populations. The organization has 17 staffers in Haiti alone. Yet it also declines 70 percent of the projects it is pitched—it just can’t get to them.

Architecture for Humanity grew rapidly in the past few years. From 2009 to 2013, it went from $2 million in annual revenue to $12 million, according to a strategic plan for the organization posted online by Cameron Sinclair in the fall of 2013. That plan reveals that even then, Architecture for Humanity had several weaknesses, including that "autonomous chapters are under-supported, under-leveraged," and a "lack of consistent funding streams." The plan warned that "lack of focus could spread resources too thin." Last week, Matt Charney, the chairman of Architecture for Humanity's board, admitted to the New York Times that there were several cost overruns on projects. Some remain unfinished, like a school in the Philippines and rebuilding projects in parts of New Jersey damaged by Hurricane Sandy and in tornado-ravaged regions of Oklahoma. A community center in Roškovce, Slovakia opened in early December just before the nonprofit folded.

Structurally, it appears that Architecture for Humanity could not keep up with its expanding global footprint. The group had a more than $2 million budget deficit and had gone through several rounds of layoffs before it closed. According to the New York Times, that the group tried to cut costs by reducing its payroll and moving to smaller offices. However, by the end of the year, that was not enough to keep the company afloat, and it laid off its staff of almost 30 people.

We all work for free. We weren’t leveraged as much as we could have been.

There’s lingering tension between the volunteers, many of whom only found out the news through Sinclair’s news blast, and the larger parent organization. Even before the nonprofit shut down, some volunteers felt that the local work was not deemed as important as headline-grabbing projects in Haiti or elsewhere. "The comment thread has always been that the visibility always went to the disaster relief projects that headquarters was working on," Starobinsky says. "The chapters were not really highlighted or valued as much as they could have been. We all work for free—we work on our nights and weekends," she says. "We weren’t leveraged as much as we could have been."

WHAT'S NEXT

Their work may continue, while the field offices abroad, like the rebuilding center in Port-au-Prince, Haiti, have been shut down. (Unlike chapters, these were funded and run by Architecture for Humanity, rather than registered as independent charities or run by volunteers.) That spells the end for most of Architecture for Humanity’s high-profile disaster relief work—like the rebuilding programs the nonprofit ran in Mississippi in the aftermath of Hurricane Katrina, in Haiti after the 2010 earthquake, and in northern Japan after the 2011 tsunami. But the organization's mission to bring better design to the underserved will likely survive through its wide network of volunteers.

"From the sounds of the 100+ emails between local and international chapter leaders since Friday, it seems that most chapters are ignited in continuing our work," Hilda Boyadjian, director of the Los Angeles chapter, told Co.Design in an email on Monday.

Contrary to the field offices, which were run by staffers hired by Architecture for Humanity to support the organization's disaster relief work, the international chapters in places like Barcelona, Vancouver, and Tokyo are each registered as independent charities, making it relatively simple for them to continue operating without their parent organization, (which some, like London, have already pledged to do). But the situation is a little murkier for the domestic chapters, registered as sub-chapters of the 501(c)3 organization based in San Francisco and run entirely by volunteers.

Chapter volunteers are not even sure what court jurisdiction the bankruptcy will be filed in.

Operationally, the U.S. chapters were fairly removed from what went on at Architecture for Humanity's headquarters. They went about raising money, establishing local partnerships, and selecting and implementing projects on their own. Different chapters interacted with the San Francisco headquarters to varying degrees, but as long as a chapter's work met branding guidelines and hewed to the organization's mission statement, the nonprofit was essentially just a place to keep their money. Architecture for Humanity provided branding, back-end website support, general liability insurance, and a bank account. It occasionally co-signed grant applications, but didn't financially support the chapters.

Whether the chapters will be able to continue as a united network of volunteers under the same brand has yet to be determined. Furthermore, though the chapters did their own fundraising, their funds were held by Architecture for Humanity. There’s still confusion over whether the chapters will ever see that money again.

Boyadjian says she doesn't think any of the chapters will be able to retrieve their lost funds, while Veed and Rachel Starobinsky, managing director of the New York chapter, remain more hopeful. "We are all putting together documentation so we can hopefully retrieve some of those funds," Starobinsky says. The Chicago chapter plans to argue that the donations it raised were restricted funds, specifically earmarked for Chicago-based projects. But since the money was raised under the same 501(c)3 organization and kept in the same bank account, in some cases with the parent organization co-signing, it's unclear whether that will work. In the meantime, some ongoing projects will be tabled while Architecture for Humanity sorts out its bankruptcy filing. In New York, for instance, a planned exhibit on the future of libraries, scheduled for this summer, is in danger of being cancelled, since the money the chapter raised in the last quarter cannot be accessed. The chapter volunteers are not even sure what court jurisdiction the bankruptcy will be filed in.

However, some of the work the chapters have planned will go on, regardless of what happens financially. Much of the design services they provide, whether it’s planning a street scape for a local public school or doing preliminary designs for a new community arts center, come cheaply, and cost no more than a roll of paper and the time of their volunteers.

"We see a critical need in the design community to provide services for organizations that can’t necessarily afford them," Veed says. "And that’s not going anywhere."

Update: The board of directors for Architecture for Humanity released a statement Thursday afternoon announcing that they expect to file for Chapter 7 bankruptcy in the next two weeks. "Architecture for Humanity has had incredible partners and funders that made our work possible over the last 15 years but, like many charity organizations, we have had serious funding challenges," board chairman Matt Charney writes. "Our leadership worked to overcome the funding gaps to the best of their ability, but the deficit combined with budget overruns and an overall decrease in donations finally became an insurmountable situation."

The nonprofit's international chapters, the statement notes, are separate legal entities from Architecture for Humanity, and will continue operating. As for the fate of the domestic chapters, Charney writes that "those directors have vowed to continue the work of the organization, though it may be under a different name."

*The original version of this article stated that Cameron Sinclair left his position at Architecture for Humanity in April 2014. He departed the organization in October 2013.

Nonprofit Board Size #NonprofitBoards

Just how many seats is too many seats for a nonprofit board?  Believe it or not, this not-so academic debate is being conducted on the floor of the North Carolina General Assembly.  Members are debating a proposal to reduce the number of University of North Carolina Board of Governors seats from a current size of 32 to a proposed "more manageable" size of 24.  An argument for the reduction is that smaller (224?)

reflects modern corporate governance and efficiency needs.  It reduces the board down to a manageable number and it’s being done all across this country.  Any nonprofit, any business you can think of, most of the success stories talk about how lowering the size of their board created success, and that’s exactly what we’re trying to do here.

I would certainly be hard-pressed to argue that any reduction from 32 wouldn't help with achieving higher levels of efficiency but I would be somewhat challenged in defending that reduction alone achieves effectiveness or "success".  Success of course would first need to be qualified.  Would success mean better-run meetings with more folks' voices being heard and reflected in action?  Would success mean more folks would show-up for meetings?  Would success mean there would be fewer but more effective committees or less spread of members to better fill committees?

Yes, the question of "how many" continues to plague nonprofit boards who may place diversity of voice/lens and ideas as a priority that can best be achieved through "more".  To me representation is a reasonable rationale for larger.  But smaller is definitely more efficient while there are multiple ways of engaging voices not singularly tasked with the fiduciary role but informing and directing the strategic role.  And, while I don't actually recall seeing "corporate governance" declarations that 24 is an appropriate number, I have been more of the school that 12-15 is far more manageable a number than 24.  For that matter, many states allow a minimum of 3 seats and this is for sure, an efficient number, albeit one that is pretty exclusive when the call is for diversity.

So, is there really a "best" number?  Yes!  Best is what makes the most sense and achieves the needs of the specific nonprofit and its constituents.  

The following North State Article offers some more details about this discussion.

 

            General Assembly sends first 2017 bill to governor

                        Republican-sponsored H.B. 39 would reduce the membership of the UNC Board of Governors from 32 to 24 by                         2019 and could face veto amid Democrat opposition

By Jeff Moore

February 22nd, 2017 9:01 am

RALEIGH — Having technically convened the 2017 legislative session weeks ago, revving engines gave way to traction as the North Carolina General Assembly passed its first bill of the year Monday evening with the N.C. Senate voting to send University of North Carolina system Board of Governors reform legislation to Gov. Roy Cooper. House Bill 39 would reduce the membership of the board from 32 to 24 members by 2019.

Republicans are seeking to reduce the number of board seats with the support of UNC System President Margaret Spellings in an effort they say reflects modern corporate governance and efficiency needs.

“It reduces the board down to a manageable number and it’s being done all across this country,” said Sen. Bill Rabon (R-Southport). “Any nonprofit, any business you can think of, most of the success stories talk about how lowering the size of their board created success, and that’s exactly what we’re trying to do here.”

University of North Carolina System is approximately $2.7 billion part of state budget

Several Democratic senators opposed to the bill feared it reduced diversity, offering an amendment that would give the General Assembly authority to fill select seats on the new board structure to satisfy specifically designated categories, for instance a graduate of a historically black college or university or a particular party affiliation.

“There is a narrowness of point of view with respect to representation,” said amendment sponsor Sen. Angela Bryant (D-Rocky Mount). “A governing board is there both for governance and for representation of the constituencies that are subject to that board.”

In a clever response, Sen. Ralph Hise (R-Spruce Pine) offered an amendment to expand political affiliation quotas beyond the board to all faculty across the system, drawing laughs from both sides of the aisle.

 

“What we find over and over and over again with our faculty is there is a lack of diversity of thought,” said Hise. In seriousness, Hise later remarked that, “No matter what discussions we’ve had, this bill is about should the board of governors be 32 to 24 members. That’s it.”

Sen. Wesley Meredith (R-Fayetteville) asserted that all the university system’s constituencies are already fully represented by the hierarchy of governance in place.

“I think it’s very important that we all remember that there’s a chancellor, there’s a board of trustees for each on of these colleges that is banging the drum and blowing the horn every day,” said Meredith. “How can we say that these universities are not going to be represented?”

Supporters of the reduction argue that an entity such as the UNC System adapt to best practices in corporate governance in an effort to streamline decision-making and drive efficiency. They note that leading corporations have comparatively small boards and cite studies that suggests maximum utility for such nonprofit boards is approximately 13-15 members.

“I can tell you a number of boards that I’ve served on, 32 [board members] would be unwieldy,” said Sen. Tommy Tucker (R-Union). “Just to give you one example; Apple, which has a $775 billion market cap, has eight members to its board.”

Despite the healthy floor debate, H.B. 39 passed the N.C. Senate and was order enrolled. The bill will be the first presented to Cooper from the Republican supermajorities in the state legislature and may be at some risk of veto. Though many Democrats oppose the reduction of the board as a threat to diverse representation, Cooper may ultimately keep his veto pen out of the ink well.

The fact that Spellings has been publicly supportive of the bill and the likelihood that among forthcoming legislation there will be bills more upsetting to partisan sensibilities than H.B. 39, makes a case for the governor keeping his powder dry for now. To wit, Republicans in the legislature have sufficient override votes if Cooper does decide to veto the bill.

Now that the seal is broken, the General Assembly is likely to send a slew of bills to the governor’s desk in coming days and weeks. Multiple appropriations committees met Tuesday to review funding details in anticipation of receiving Cooper’s full budget recommendations by early March. A piece of that budget was revealed Monday when Cooper unveiled a teacher pay raise proposals contained therein.

Nonprofit Board Could Make A Difference #NonprofitBoards

The following is what I consider a sad story about a nonprofit that proved unwelcome in the neighborhood.  I don't really know the merit of the work of the organization, but clearly, members of the community made-up their mind that costs were greater than benefits.  Right or wrong and as a consequence, the organization is closing its doors.  They will be no more.

Now the article doesn't really discuss the board or what efforts the staff made to redirect the community or even negotiate for a resolution but I can't help think that had the founders recruited a board that included members of the community and even gone further to engage members in dialog about what might be acceptable, the ending might be different.

Community engagement is not a simple task and relies on communication, transparency and honesty as well as openness to work together.  Had there been a board comprised at least in part of folks who lived in the community - the space for discussion would have presented more opportunities for dialogue.  Clearly, all systems failed and even the rules of negotiation weren't adhered to.

Community-based successful nonprofits are not enterprises owned and operated by the few.  The lesson.....

 

From the LA Times:

 

Boyle Heights art space closes, citing harassment by anti-gentrification activists

Jules Gimbrone, left, and Barnett Cohen, founders of PSSST, announced Tuesday that the nonprofit art space was closing. (Aubree Bernier-Clarke / PSSST)

    Brittny Mejia and Steve Saldivar Contact Reporters

 

Citing harassment and online trolling, the co-founders of an art space in Boyle Heights announced Tuesday that they will close the nonprofit, calling it a casualty of a raging fight over gentrification.

PSSST, which opened on East 3rd Street last year, came under fire from some residents and activists concerned about a new wave of galleries moving into the largely Latino Boyle Heights neighborhood.“We are unable to ethically and financially proceed with our mission,” co-founders Barnett Cohen and Jules Gimbrone and community outreach coordinator Pilar Gallego said in a statement on their website. “Our young nonprofit struggled to survive through constant attacks.” 

While our closure might be applauded by some, it is not a victory for civil discourse and coalition building— PSSST gallery co-founders

 

Staff and artists were routinely trolled online and harassed in person, according to the statement from the nonprofit.. 

“This persistent targeting, which was often highly personal in nature, was made all the more intolerable because the artists we engaged are queer, women and/or people of color,” the statement read. “We could no longer continue to put already vulnerable communities at further risk.”

“While our closure might be applauded by some, it is not a victory for civil discourse and coalition building at a time when both are in short supply,” the statement added.

Fundraising became an impossibility as a result of a “mischaracterization” of the art space “as being fundamentally in opposition with the varied intersectional communities we aimed to support.”

We hope the rest of the galleries follow the example set by PSSST an[d] leave Boyle Heights.— Facebook post credited to the group Defend Boyle Heights

 

Cohen declined to comment beyond the statement. 

 

Members of the activist group Defend Boyle Heights, who have long been protesting the art spaces, shared the news on Facebook shortly after. 

“We hope the rest of the galleries follow the example set by PSSST an[d] leave Boyle Heights,” the post reads. 

In the last few years, more than a dozen galleries have appeared in the area, mostly in the industrial zone west of the 101 Freeway. Community activists say they fear the galleries will inflate property values and push poorer residents out.

Late last year, Los Angeles police were investigating three acts of vandalism targeting art galleries in the neighborhood, including graffiti at one gallery that attacked “white art.” An officer said they were being treated as possible hate crimes.

It is unclear what will go in the space occupied by PSSST, as the owner will now assume control of the building, the statement read.

In a Facebook post, Defend Boyle Heights said: “While we do not know what the landlord will do with the property, you can be guaranteed we will keep a close eye and involve the immediate community to resist.”

Nonprofit Boards: How Many is Too Many? #NonprofitBoards

In my governance consulting practice I regularly come across board members who are sitting on two-to-three nonprofit boards, simultaneously.

In my estimate, that nonprofit board member contributes approximately 50-60 hours a year in their board service.  So, sitting on multiple boards simultaneously may not be that burdensome for the member.  Of course, the Sodom & Gomorrah question then becomes: how many is too many before diminishing the value to each board?

I don't honestly have an answer to this question but a recently study demonstrates that prior to Sarbanes-Oxley, corporate boards were principally dominated by a small number of members creating an intricate network where there was no more than 3 degrees of separation between corporations.  The London School of Economics and Political Science Business Review noted:

        Throughout the twentieth century, directors serving on multiple boards were more likely to be invited onto yet more boards. Serving on many boards was a signal of high status. But after a series of corporate scandals in the early twenty-first century, culminating in the passage of the Sarbanes-Oxley act, directors serving on many boards came to be viewed with suspicion. Forbes magazine called such directors “overworked”, others called them “busy”, “overboarded”, even “greedy”, and influential advisors such as Institutional Shareholder Services called for a limit on the number of boards a director served on. 

This article focused on the consequences of having broken up the networks created when the few dominated the many but reminded me of an equally important question for nonprofit boards: just how many boards can one person simultaneously benefit?  Should nonprofit boards leave it up to the individual as to how many is too many or should there not be a policy? 

I would pose that such a policy might consider the question simultaneous board service creates in the philanthropic giving realm.  For instance, there is a common practice of asking board members to make the nonprofit they serve as a board member their 1st giving priority after their college and faith practice.  What exactly then would be the obligation when they serve on multiple boards?  

And what about board and committee meeting scheduling?  And are there not a number of other "competing" interests that affect the ability to serve, particularly when a member sits on more than one board?

I don't have a recommendation as to what precisely a policy should be but I am thinking that the topic of accepting board members with multiple obligations should weigh on the minds of the governance committee as they seek new recruits.

Nonprofit Board Values #NonprofitBoards

The IRS, on behalf of the taxpayer, provides organizations that meet the requirements, a tax exempt status that limits tax liabilities for the organization and, at least for the time being, can provide immense value to donors (see President's tax plan). As history indicates, an organization's values does not appear to be one of the tests or standards for determining or even removing tax exempt status but there have been clear examples when values really mattered. Bob Jones University is one of these cases where the University lost its tax exemption following a Supreme Court case that the school had outright discriminated in its policies and practices.  Interestingly, the loss of exemption was never true for the Boy Scouts which institutionally discriminated against gay men so I presume there's some room for judgement on the part of the IRS.  But now, Bob Jones University has been re-granted its exemption.  It has changed its policies and practices.  It has, pretty much as has the Boy Scouts, agreed to do less harm.

What's the so what?  I am of the firm belief that a nonprofit status should be granted only to those institutions that promise to do no harm and preferably, commit to doing good.  Why else would or should we grant tax exemption?  And yet how much do "we" the public, through the IRS, vet the intentions and values of those who seek and maintain tax exemption?  Bob Jones is one of those examples where values mattered.  Perhaps this should indeed be lifted up as one of the core elements to getting and keeping tax exemption?

 

Bob Jones University regains nonprofit status 17 years after it dropped discriminatory policy

Nathaniel Cary , [email protected]Published 5:20 p.m. ET Feb. 16, 2017 | Updated 5:45 p.m. ET Feb. 16, 2017

 

In a move that’s been more than two years in the making, Bob Jones University announced Wednesday it would regain its federal tax-exempt status on March 1, more than three decades after the IRS stripped its nonprofit status following a landmark U.S. Supreme Court ruling.

The issue in the court case was the university’s refusal to allow interracial dating or marriage among students, staff or faculty of the university, a rule it has since abandoned.

The conservative Christian university dropped its interracial dating ban in a nationally televised interview with past president Bob Jones III on CNN’s Larry King Live in 2000. In 2008, past President Stephen Jones, great-grandson of evangelist and university founder Bob Jones, apologized for BJU’s past racial discrimination.

But the university hadn’t sought to reinstate its tax-exempt status until 2014 after Steve Pettit took over as the school’s fifth president in its 90-year history.

“Organizing as a tax-exempt entity is something BJU has needed to do for quite some time,” Pettit said.

 

 In his first meeting with the university’s Cabinet, Pettit said he believed it was appropriate for BJU to seek its tax-exempt status because the university doesn’t believe the positions it once held about race.

Pettit called the university’s racist policies a social issue that was not biblical.

“The Bible is very clear,” Pettit said as he announced the change to the university Wednesday night. “We are made of one blood.”

Bob Jones University lost its tax exemption after a 13-year battle with the IRS over whether the university’s policies against interracial dating precluded it as a non-taxable religious educational institution. The university didn’t admit any black students until 1971, 17 years after Brown vs. Board of Education. It then wouldn’t admit any students who were in a mixed-race marriage and created rules to prohibit students from interracial dating.

The case rose to the Supreme Court, which ruled in 1983 that the IRS could revoke the university’s tax-exempt status because the government’s interest in eradicating racial discrimination from education overrode the university’s First Amendment rights to religious free speech.

The case has been cited many times through the years. Most recently, it arose in an exchange before the Supreme Court in the Obergefell vs. Hodges decision, which legalized gay marriage. After that decision, the IRS commissioner said the agency would not target the tax-exempt status of religious institutions that oppose gay marriage.

It’s taken two-and-a-half years for BJU to accomplish the reorganization because it used a complicated plan to split its organization into two entities with the university falling under the umbrella of its elementary school’s existing non-profit status to achieve its own, according to university statements and organization documents filed with the South Carolina Secretary of State and the IRS.

That existing nonprofit was called Bob Jones Elementary School, Inc. until last May, when it was renamed BJU, Inc.

The restructuring came after “consultation with legal counsel and accountants with many years of experience in assisting tax exempt organizations—as well as input from members of the BJU community and our congressional delegation,” Pettit said.

The change didn’t require IRS approval because its elementary school was already a nonprofit, though the university had formal correspondence and conversations with the IRS, said Randy Page, BJU spokesman.

The university is now listed as a 501(c)(3) nonprofit on the IRS website, said Michael Dobzinski, IRS spokesman.

What it means

Until now, if members of the community or alumni wanted to donate to the university, their gifts were only tax deductible if they gave to certain nonprofit arms of the university, such as its scholarship fund, art museum or athletic foundation.

Donors couldn’t give tax-deductible gifts to the university itself to help with capital campaigns or for university initiatives.

Most of the large gifts to the university recently, like a $500,000 gift from the Sargant Foundation in December and a $1 million anonymous gift announced last November, went toward its BJU Scholarship Fund, a nonprofit entity of the university.

Now donors’ gifts will be tax-deductible, Page said.

“It helps when you’re trying to raise money for an organization to have a tax-exempt status,” Page said. “That obviously helps your advancement folks, your development folks and those in the community – companies, individuals, alumni – to make it easier to donate to a nonprofit.”

The change wouldn’t affect students’ scholarships or grants and wouldn’t affect employees, he said.

The change levels the playing field between the university and other sister institutions when applying for grants, he said.

It also moves BJU from a for-profit college to a nonprofit classification with the U.S. Department of Education, “which is frequently perceived more favorably by the public,” Page said.

That change could prove important as the U.S. Department of Education has targeted for-profit colleges with added oversight in recent years and fined several for-profit networks of colleges under the Obama administration, which resulted in colleges like Corinthian College and ITT Technical Institute closing down.

And though the university operates debt-free and doesn’t plan to take on debt, it could potentially save through lower interest rates if it chose to take on debt, Page said.

How BJU will be structured

On March 1, Bob Jones University, Inc. will be renamed Bob Jones Education Group, Inc. and will remain the university’s taxable entity and will donate about half its assets to the non-taxable BJU, Inc.

The university’s assets will effectively be split between the two organizations.

BJU, Inc. will include the university and most of its facilities, the art museum, elementary school and child development center. BJU Press writers also will come under the umbrella of BJU, Inc.

The for-profit arm of the university – Bob Jones Education Group, Inc. – will include the BJU Press, University Cleaners and the Bob Jones Academy middle and high schools.

The university will still be governed by its 25-member Board of Trustees. The board will appoint a new eight-member board to govern Bob Jones Education Group.

The transition process began in late 2014 with a study of how to achieve tax exemption. Last May 5, the Board of Trustees approved the final plan for pursuing tax exemption and the administration has been working to implement it since then.

At the same time, the university has been seeking regional accreditation through the Southern Association of Colleges and Schools Commission on Colleges. The university, which is listed as a candidate for accreditation, notified the commission of its potential changes, which wouldn’t affect its candidacy, Page said.

Nonprofit Board Failure #NonprofitBoards

What follows is a sobering reflection from the LaSalle Center for Nonprofit Management blog offering lessons for nonprofit boards on the Penn State Board failure.

 

When Nonprofit Boards Fail

Posted by Laura Otten, Ph.D., Director on February 17th, 2017 in Thoughts & Commentary

Years ago, a colleague said to me, “You can lead a horse to water, but you can’t drown his sorry ass!”  She must have been thinking about nonprofit board members when she said that.  I’m reminded of that turn of phrase as I think about all of the wake-up calls nonprofit boards have received over the years and all the near misses they’ve been granted.  And, yet, so many still act as if they have no clue what it is they are supposed to be doing.  Oh!  Wait!  Too many of them don’t have a clue, while yet too many others do have a clue and still choose not to do their job.

Foolishly, I thought the Penn State fiasco would have been the last wake-up call needed.  Unlike some of the previous wake-up calls, most notably Lemington Home for the Aged, that were less widely reported, Penn State was all over the national media.

Unlike other wake-up calls that had localized media attention and required reading judicial decisions to learn of the facts, The Freeh Report (of the investigation by  Louis Freeh, hired on behalf of Penn State’s Board of Trustees), is available to everyone just by typing its name into a search engine.  While the Freeh report is a key teaching tool in academic governance classes, it has missed the “must read” list of way too many board members.

Nor was there widespread publicity on the lessons that should have been learned from the American Red Cross’ egregious violations of fundraising law after both 9-11 and Hurricane Katrina because the body in charge of responding to the situation—the US Congress—didn’t know what should have been done.  So, instead of clearing out the boards of the American Red Cross after it mislead American donors with each of the fundraising appeals associated with those major tragedies, it took the step of replacing management each time instead of governance.  It should have done both!

In January 2015, the Third District Court of Appeals in Pittsburgh held the employee officers and board of directors of Lemington Home for the Aged who allowed for the collapse of the organization personally and individually liable to the agency’s creditors.   The board, it ruled, had breached its fiduciary responsibilities of duty of care and duty of loyalty.  Boards are expected to know, understand, monitor, protect, etc. the organization’s finances and its financial health, well-being and sustainability.  The Third Circuit did, however, vacate the lower court’s decision to hold the members of the board liable for punitive damages.  So many lawyers wrote about this, raising the warning to nonprofit board members everywhere.  Why didn’t people catch on?

The same year that the Third Circuit was upholding the Lower Court’s finding that Lemington’s officers and board members failed to fulfill their fiduciary responsibilities, the board and officers of Federation Employment & Guidance Service, FEGS, the largest social service organization in New York, were doing the exact same thing.

FEGS closed and within the year, both the Manhattan District Attorney and the New York State Attorney’s General office were interviewing employees, leadership and board members.  Word came out this week that creditors are suing FEGS’ former president, executive vice president and accounting firm in an effort to amass as much money as possible to pay creditors, including former employees.  (And, yes, both those officers already sued for payment of money they claim FEGS owed them, despite their egregiously high salaries and poor job performance).

Can pulling the board in be far behind?  After all, FEGS’ board appears to have breached the same responsibilities of duty of care and loyalty as Lemington’s—and more.  FEGS’ board continued to work with, and accept reports from, an accounting firm that was apparently widely known to have been associated with several other well-documented accounting scandals.

When a board fails to fulfill its fiduciary duties for money or mission, or whatever, it has failed to do its job.  When it fails to provide sufficient oversight of its executive and demand the information it needs to understand the reality of the state of the organization, the functioning of leadership, the success or failure of its programs, it has failed to do its job.  When a board fails to create the policies that guide an organization to do the right and best thing and fails to monitor adherence to those policies, it has failed to do its job.

And for and all of these reasons, and all of the other ways in which board after board fails to do their job, nonprofit boards deserve to be held accountable—accountable by the law, by the good employees who are trying their best, despite the errors of the board, to do their job and fulfill the promises of the mission and by the clients and public to which the board is ultimately accountable.

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.

Nonprofit Board Chair Duties #NonprofitBoards

Having been part of the team that recently released the national study that focused on understanding what nonprofit board chairs do to prepare for their job and what are their relationships, I perk-up when I see stories from board chairs about how they view this job.  Such is the case with the following college newsletter that included an interview with the chair of the board of trustees.  Agree or not, both the content and framing does provide insight.

From Grinnell College's Scarlet and the Black

Patricia Finkelman ’80 is currently the Chair of the Board of Trustees at Grinnell College. She was an economics major who came to Grinnell from Pittsburg and has served on numerous nonprofit boards throughout her career. When she returned to campus in early February for the board’s quarterly meeting, she sat down with The S&B’s Philip Kiely and shared her thoughts about how the College has changed since her time as a student.

 

The S&B: How did you become the Chair of the Board of Trustees?

PF: That’s a really long story. I’ve been an active volunteer with the college since I graduated. I started doing admissions interviews and going to college fairs right away, I did that for years and years. I joined the alumni council in 1990 and by 1997, I was president of the alumni council. The president of the alumni council is an ex-officio member of the board. So for a year I was an ex-officio trustee, and it happened to be the year that we had a change in presidents, and there was a search going on, and I was on the search committee, so I got to know the trustees really well, better than a lot of alumni council presidents are able to. At the end of the year they elected me to the board.

 

The S&B: In your opinion, what is the role of the Board of Trustees? What is your most important mission for the college?

PF: Our role is to make sure that the college is living up to its mission. At the end of the day we are responsible. Some people would say that our role is very simple: we hire the President and we manage the endowment. That’s very simplistic, we do a lot more than that, but really the President runs the college, we make sure that we have the best person in that spot, and then we have fiduciary responsibility for the college’s resources. That’s a pretty big responsibility, we take it very seriously. Our board is … probably 80 percent alums, maybe 90 percent, so we start out in board service with a passion for the institution.

The S&B: How can the board help shape Grinnell’s story?

PF: I think that the board, along with the administration and the faculty, we’re so intimately knowledgeable about Grinnell’s strengths that we can help craft the message. I think that we need the outside experts to help us finalize it, but we know the institution, we know its strengths, and we’re passionate about this place.

The S&B: What are some of the day-to-day things that you do?

PF: Leadership … is twofold. One is keeping things moving, and that requires a lot of communication, whether it is communication between the administration and the board members, communication within the board leadership, so there’s a lot of communication. I spend a lot of time on the phone and a lot of time emailing. There’s a responsibility to make sure that the relationship between the board and the administration is strong and collaborative. The President and I, at the end of the day, it’s our responsibility to make sure that it’s working well.

The S&B: What do you see as some of the biggest challenges facing the college right now?

PF: I think that they are the same challenges that are facing a lot of institutions of higher education, college is increasingly expensive, and that’s an issue that we’ve been really fortunate at Grinnell that we’ve had the resources to be very generous with financial aid but costs are just going to continue to go up, so that’s a challenge.

 

Nonprofit Board Unappreciated #NonprofitBoard

What is the one of the most unappreciated or underappreciated jobs in the nonprofit sector?  Being a board member.  It is not difficult to understand why nonprofit board members might question as to what good they are doing sitting in a room listening to a lot of data and once in a while making a decision.  Nonprofit CEO's get all the "glory" many board members say to me outside of CEO hearing. These same board members acknowledge that it's the CEO who does the heavy-lifting internally and externally but they also know they do the hiring and they make the policy and set the mission - at least this much.

These were the thoughts that came to my mind as I read an interview of the executive now running WOMENS' WAY in Philadelphia.  Folks may not recognize that not all nonprofits benefited from the one of THE greatest fundraising innovations: federated (aka collective impact before the name was branded) workplace giving through payroll deduction.  United Way was the pioneer but out of necessity, alternative federating giving providers followed like the Black United Way, the Other Way and, WOMENS' WAY.  

Given an environment where payroll deduction has largely shrunk, particularly with the combined reduction of the number of government employees (which was a large source of federated giving) and manufacturing (no doubt, soon to be resurrected), staying alive by these federated fundraising organizations has not been easy.  So hats-off to WOMENS' WAY whose mission has certainly not gone away.  And, hats-off to the interviewee - a professional individual who clearly understands the environment and the work that she must do.

But my more important reflection today was on the absence of even a reference to the board in this interview.  Now it may be that the interviewer did not hear the reference or heard the reference and didn't think it significant but I think it an important message that nonprofit CEOs hear that it is their job to at least credit if not sing the praises, where warranted, of those volunteers who bear the responsibility, minimally in name, for the welfare of their nonprofit.  CEO's have their positions because boards believe they will carry forth the mission and safeguard assets.  Boards place confidence in CEOs but confidence does not mean abdication of responsibility.  I believe that CEOs should, whenever the opportunity arises, give a "shout-out" to their boards.  These shout-outs are one of those steps I believe that can result in a more loyal and higher-engaged board.

From the Philadelphia Inquirer, here's the interview.

 

Philly nonprofit exec is frustrated: Here's why

Updated: FEBRUARY 11, 2017 — 10:15 AM EST

 

by Jane M. Von Bergen , Staff Writer @JaneVonBergen | [email protected]

Diane Cornman-Levy worked in nonprofits almost her entire career and led a bunch of them. Now she's the new executive director of Women's Way, which is, of course, a nonprofit. But, truth to tell, they frustrate her.

 

"I’ve been the executive director of three nonprofits and I’m very frustrated with it and I’ll tell you why," she said during our Executive Q & A interview published in Sunday's Philadelphia Inquirer. 

OK, tell me why.

 

One, a lot of the funders dictate the priorities, and sometimes they don’t connect with the people on the ground doing the work.  They determine how much money and the length of funding.  Then they oftentimes tell you what outcomes they want to see.  The funding is not in line with the outcomes they want to see.  It’s unrealistic.  They want everyone to measure and evaluate their outcomes, but there’s never any funding to help these organization do assessment and evaluation.  Then they want to take these to scale and have national models and they fund for one, two, and maybe three years.  Social change takes many years, and if they really want systemic change it’s multiple, multiple years.

Then, you get funding and you’re starting to just make progress from a funder and then [they say] `Oh, we changed our strategic focus.  We’re not going to do it.  We’re now going to fund this [other initiative]. '  So, when you’re just making headway, then these funders pull out.  We’re just learning what’s working and what’s not.  So, then you spend a lot of time constantly raising money. 

Isn’t it kind of a flavor-of-the-month scenario?

 

 

Yeah, it’s like a flavor-of-the-month and it comes a lot of times from the foundation’s families or someone like that. They say, `Oh, this is really cool.  Let’s do this.  This is really hot.  We’re going to do this, because we’re going to get more publicity, it will look good on our portfolio.'

So, there are two problems there.

 

The other problem is they’re not strategic partners a lot of times.  What I mean by that is they give the money and they want a report.  At Women's Way, we want to be strategic partners.  We want to be at the table with our grantees.  We want to listen them.  We want to learn together.  We want to help support them.   So, when we make investments, [we'll say], `Let’s help build capacity, whether it means bringing in other partners.  What are the trainings that they need?'  So, be really strategic partners on this, not just, `Here’s the money and give us a report.' We also want to promote learning.

What do you mean by promote learning?

Learning means you’re going to make mistakes and some things aren’t going to work.  In fact, some things might fail, but let’s learn from that and adjust and revise.  A lot of funders say, `Oh, you didn’t reach your outcomes.  OK, we’re not going to fund you again.'  At Women's Way, we’re here.  We’re here for the long-term.  We’re going to learn together.  Why didn’t that work?  Let’s learn from that and adjust and modify and reinvest dollars that we think are going to be more impactful and more effective.  So, we really want to foster a community of learning. This is all part of collective impact.  Learning then guides us in terms of how to reinvest dollars into the initiative.  So, it’s very fluid and dynamic and solutions emerge as we learn.  We don’t have predetermined solutions.

Isn't that risky? After all, don't people want to fund something that works? 

 

 

In traditional philanthropy, they’re not risk takers.  Period.  They’re just not, because it’s more about their image a lot of times.  I hate that.  They want to make an impact, but they’re very cautious.  We want to say, `We’re going to take risks here,' because really, to make change you have to take some risks, calculated risks.  That means we’re going to fail some.  Through that failure though, we’re going to learn.  And the whole idea of emerging solutions, versus pre-determined solutions -- we don’t know what’s really going to work until we have the players at the table.  We’re not talking about just different nonprofits coming together.  We’ve got to get government at the table, the private sector philanthropy and people affected by these issues talking.  I’ll tell you that really happens.  I did some prison reform work with this and I had three funders, foundations at the table, who had invested in prison reform.  They never talked to someone coming out of prison.  

As long as we're talking philanthropy, I have to ask you about your 990 -- that's the federal tax form that nonprofits have to file. I realize you are new on the job, having just started this year, but last year's 990 raises some questions. It looks like Women's Way is spending most of its money on administration and not as much on grants to the organizations it funds, such as Women Organized Against Rape, Women Against Abuse and the Women's Law Project.

Part of what happened with Women’s Way was one of the previous executive directors really started going off on advocacy. 

I noticed a big lobbying component.

But, that took them away from the other areas. 

Oh, I see. The advocacy/lobbying money comes out from the administration bucket, not from the grant making line item.

 

Right, because there’s separate money for grant making. The money  started focusing on building this whole staff around advocacy. Also, it’s very hard to drive money to support advocacy, and it really wasn’t the primary mission.  So, there was a mission drift that happened.  They kept hiring more people and they’re like, `We’re in the red here, guys.'  The community is like, `Well, what’s going on here?  You’re spending all this money on administration, but there’s less money going out to the community. '

That’s exactly what I noticed.   

What did they have, like nine or ten staff?  That was part of it.  It was a lot of administration.  So, they got rid of a lot of staff. We, literally, have three people here right now, [including] myself.  We’re going to keep it very lean right now.  We did hire two interns to help us, because there’s a lot of stuff we’re doing.  We really want to say the majority of our money should be getting it out to the community. 

But what about the advocacy work?

Instead of us doing it, support the organizations that are doing that and have the expertise, right? That’s not one of our primary roles and it won’t be.  What we can do is help those that are doing advocacy by collecting data, which we will be doing, and communicating and putting that into reports and things and helping them use that to build public will, and talk to legislators, and also being a connector.  So, we want to bring legislators to the table and say okay, these are the folks doing advocacy around reproductive healthcare and we will help be that connector.  That’s not a costly thing.  You don’t have to hire a whole staff to do that.  

Nonprofit Board Issues #NonprofitBoards

A story about Aspira Charter Schools should give notice to nonprofit boards that what may appear to be matters that are all owned by staff, they are instead, matters that the board must address.  

As the Philadelphia Inquirer story highlights, Aspira Charter School fired an employee for what was stated as, effectively, doing a bad job.  This is definitely the purview of the staff - to fire someone for doing a bad job.  The fired employee however claims that she was fired as a whistleblower - someone who publicly identified illegal management practices.  Whistleblowers are protected under federal law and while they can certainly be fired (pretty much as a cover-up by those being accused of wrongoing), they have rights that if proven correct, will at least provide some compensation and possibly a return to the job - should a person want to be working for that nonprofit after this experience.  Staff must advise their board (the owners) of a whistleblower case and the boards must discuss what action is necessary.

But, wait, there's more!  Aspira paid out money to settle a sexual harassment lawsuit by a former administrator.  Again, not just a staff matter - a board matter.  And yes, the organization is also currently be investigated around its finances and management.  For sure, a board matter.

Ask me, Aspira's board has a lot to discuss wearing its fiduciary duty of care hat.  Members must fully understand all these trials and tribulations and have clear, fully-informed discussions that are actionable - at minimum, approving the management's action; at maximum, replacing management.

 

Fired employee files whistle-blower suit against Aspira, says federal probe underway

Updated: FEBRUARY 9, 2017 — 6:42 PM EST

by Martha Woodall, Staff Writer @marwooda | [email protected]

A former accounts payable coordinator at Aspira has filed a federal whistle-blower suit that claims she was wrongfully fired by the charter school operator after refusing to manipulate bookkeeping entries.

 

 Juanita Way also alleges that Aspira Inc. of Pennsylvania  fired her in retaliation for talking to the FBI and the U.S. Attorney’s Office in an investigation into Aspira’s financial practices, including a plan to use charter school funds to pay medical insurance premiums for people who were not school employees.

The suit, which was posted on the federal court website Wednesday, was first reported by  Fox 29.

 In a statement Thursday, Aspira called the allegations “outrageous and completely false,” and said it was “prepared to vigorously defend itself against these frivolous claims in court, and we expect to be fully vindicated.”

 

Aspira said Way “was terminated for cause” and said the organization’s decision to fight her claim for unemployment “resulted in the denial of unemployment compensation.”

The statement added:  “As for allegations of financial improprieties, as we have said before, Aspira schools are audited annually by an independent accounting firm, and all of these audits – without exception – have resulted in ‘clean’ audit opinions.”

The organization said the allegations in Way’s suit were “simply the latest in a continuing effort” by Aspira’s  opponents to discredit it and “its reputation as a leader in the education of children throughout Philadelphia’s Latino community.”

A spokeswoman for the U.S. Attorney’s Office said she could not confirm or deny whether the federal government was investigating Aspira.

Three former Aspira charter school employees have said they also had been interviewed by federal agents in connection with an investigation into Aspira’s operations. All three declined to be named for fear of reprisals.

Aspira, a nonprofit based in Hunting Park, focuses on Latino youth and education. It operates four charter schools in Philadelphia:  Olney High and John B. Stetson in Kensington, Eugenio Maria De Hostos in Olney, and  Antonia Pantoja in North Philadelphia. The organization also operates the statewide Aspira Bilingual Cyber, based in Olney.

 In her suit, Way said she was hired by Aspira in May 2011 and wrongfully terminated on Aug. 26, 2016, accused of mishandling two accounts. The complaint called that accusation “pretense and subterfuge” and says Way was fired for refusing “to engage in financial fraud [and] for providing information to law enforcement.”

Way said that she was contacted by federal investigators in December 2015 and that Aspira’s  management was aware she met with the FBI.

 

According to the suit, Aspira was trying to take over two California schools in spring 2016 but needed bank loans to complete the deal. Officials  asked Way to manipulate bookkeeping entries to make it appear Aspira’s finances were better than they were. When Way refused, she faced “increasing criticism and pressure,” the suit said.

 Benjamin Friedman, Way’s attorney, described her as “a lovely woman who took her job very seriously.” He said Aspira not only fired Way but “fabricated a nasty scenario, accusing her of mismanaging accounts. She is a very precise and accurate woman, and the idea that she would suddenly screw up seemed very mean-spirited.”

 Way’s suit and the revelation of a federal investigation are the latest problems to face Aspira. Among other things, Pennsylvania Auditor General  Eugene DePasquale announced last week that his office would begin an audit of the five charter schools operated by Aspira because of news reports that the organization had paid a former administrator $350,000 to settle a sexual-harassment complaint and lawsuit she had filed against Aspira president and CEO Alfredo Calderon.

In addition, concerns about finances and management -- and Aspira's requests for time to resolve them -- have prompted the Philadelphia School Reform Commission to repeatedly delay voting on new operating agreements for Olney and Stetson.

Both are once-troubled district schools that the SRC turned over to Aspira in 2010 and 2011 to convert to charter schools and overhaul their academics. The district’s charter office has said the two schools are entangled in a web of financial transactions, including payments and loans to Aspira, to each other, and to Aspira-related businesses.

Published: February 9, 2017 — 6:52 PM EST