Nonprofit Board Crisis

Nonprofit Culture and Board Values Postscript #NonprofitBoards

Yesterday I posted about the Uber board addressing the organization's "profit-first" culture with removal of the CEO and an external investigation to review policies and the like.  Lo and behold, according to the Chicago Tribune:

Uber board member and hedge fund partner David Bonderman resigned Tuesday night after making what he called an inappropriate remark about women at a company meeting.

Looks like the "culture" the board was trying to address (of course before affecting profits), like perhaps what happened at Penn State or any number of institutions (think Olympics and private schools) didn't start with management.  

Conclusion: if board members don't share common values, anything goes.

Nonprofit Culture and Values #NonprofitBoard

An organization's culture, the norms for how business gets done and how employees behave with each other and with customers may be the purview of management but when the culture goes against the "owner's" values, it is up to the board to make a change.  

Of course I am referring in particular to the very real-time case of Uber whose founder/CEO is now living in a  between world of being in-charge and not being in-charge and for the very sound reason that the culture Uber's management either designed (not likely) or permitted was both harmful, injurious, presents legal possibilities against the company and is effectively, not good for the bottom line.

As my focus is always about nonprofits and nonprofit boards in particular, Uber serves as a great reminder to boards that it is on them to know what the culture is and to ensure that the culture does not impede pursuit of mission.  Yes, it is not always an easy task for the board to know what the organization's norms are, at least as reported by management so it is critical that management be annually called upon to report on its assessment of the culture which should include a reflection on actual data - surveys, interviews and the like, be it by the top management or lower management.  Consumer surveys also provide some insight about culture and the summaries of such surveys or reports should also be shared with the board.  

A nonprofit board can not justifiably plead ignorant to not knowing its company culture and how this may vary from the board's stated values.  And a board certainly does not want to learn about culture via blogs or other e-sources.  So, the lessons from Uber: 

1. A board has one employee, the CEO, and one important role of the CEO is to establish a culture reflective of its values.
2. A board must be clear about its values, theory of change (which is informed by values) and mission
3. A board must ensure that it is fully informed about how its values are being implemented

Nonprofit Board Values #NonprofitBoards

I regularly reference the statement "the only thing wrong with tainted money is there 'taint enough of it."  But what if the shoe is on the other foot and its the donors who have decided that what they are sponsoring is tainted?  

This is the question of the day as Bank of America and Delta Airlines have both announced their decision to withdraw their sponsorship of New York's Shakespeare in the Park's version of Julius Cesar.  If you aren't yet aware of the issue for these two corporate sponsors, the currently revised Julius is a Donald Trump and his wife with an ending of the play identical to the original story.

While one might argue that this is just theater and theater can be a place for broadening minds (as I'm guessing the board concluded in going forward with this production), the sponsors see the offering in a decidedly more offensive way.  Delta in fact stated that:  

“No matter what your political stance may be, the graphic staging of Julius Caesar at this summer’s Free Shakespeare in the Park does not reflect Delta Air Lines’ values,” the company said in a statement, ending it’s four-year run as the official airline of the Public Theater".

So, back to the core question - the board of Public Theater clearly believed that it valued theater that did more than entertain and supported the offering going forward.  The Theater's offering is according to the sponsors, the tainted item.  Should this then result in changing the values of the nonprofit?  I would suggest certainly not but of course, values don't pay the bills.

For the NY Times review of the situation, go here.

Good Nonprofit Governance #NonprofitBoards

It is good to acknowledge a nonprofit board when it behaves at the top of the game in terms of responsibility: doing no harm and even going beyond.  Today, I acknowledge the Nebraska State Soccer Association for publicly seeking to repair the damage of one its chapters which kicked-out a team because, according to the judges, one of the team's members looked like a boy (because of their haircut).  Kudos to the Association!

Meanwhile, the Nebraska State Soccer Association announced that it is investigating the Ray Heimes Springfield Soccer Invitational and is conducting a detailed review of what happened.  It released the following statement:

While NSS did not oversee the Springfield tournament, we recognize that our core values were simply not present this past weekend.“While Nebraska State Soccer did not oversee the Springfield Tournament, we recognize that our core values were simply not present this past weekend at this tournament and we apologize to this young girl, her family and her soccer club for this unfortunate misunderstanding,” the association said in a lengthy statement on Twitter.

To read the full story, go here.

 

“While Nebraska State Soccer did not oversee the Springfield Tournament, we recognize that our core values were simply not present this past weekend at this tournament and we apologize to this young girl, her family and her soccer club for this unfortunate misunderstanding,” the association said in a lengthy statement on Twitter.

Nonprofit Board 7 Deadly Sins #NonprofitBoards

I found the following "The 7 Deadly Sins as part of an AZ Business News article titled: Balancing risk: What to know when joining a nonprofit board.  The full article offers some practical tips about what to do and not do when considering joining a board.  In particular, one tip that caught my attention: "it’s important to not accept money from the nonprofit for your services as a board member (sometimes called an honorarium). As long as you don’t accept money, you’re considered a volunteer who’s protected under Arizona’s Volunteer Protection Act. Under the act, you’re not liable for negligence of the corporation as a volunteer. But if you accept an honorarium, you lose your volunteer status and the protections of a volunteer".  This advice certainly throws a wrench into the NANOE's plans for board members.  

Do review the other tips - they are pretty common sense points.  Meanwhile, also take a look at this so-called 7 Deadly Sins.  The one point I find most intriguing and usually not on many folks' radar: failing to manage officers. As a matter of fact, there is frequent conversation these days among governance consultant types like me over the continued exercise of maintaining Executive Committees.  There is common knowledge that these Committees, often comprised of the officers, can easily usurp the responsibilities of the rest of the board by making decisions in-between or ahead of full-board meetings and often without consulting the rest of the board.  Not having Executive Committees certainly reduces the risk of decisions being made without the full board but going a step further and ensuring that officers aren't making THE critical decisions raises good governance to another level.  Anyway, do ponder the remaining 6 "sins" (a word which I must admit for me is a bit out-of-place in a non-religious setting).

 

 

Nonprofit Governance At its Worse #NonprofitBoards

A tale to teach us all what good nonprofit governance is not with body odor of serious conflicts of interest, and self-dealing, minimal duty of care and well, it just doesn't stop such that everything about this Foundation and its operator and board, wholly and severally, deserves nothing less than prosecution and requirement that donor money be sent to where it was intended.  The graphs alone in this Forbes story are amazing!  State AG's and IRS - where are you??

Eric Trump set up his foundation as a public charity, a classification that allows it to raise most of its money from outside donors. In 2007, when he was 23, the first Eric Trump golf tournament took place, raising $220,000. A compelling sales pitch evolved--the free golf course and the donated goods and services assured donors that every penny possible went to charity. The Eric Trump Foundation employed no staff until 2015, and its annual expense ratio averaged 13%, about half of what most charities pay in overhead. His original seven-person board was made up of personal friends, an innocuous lot who helped sell tournament tickets, which last year ranged from $3,000 for a single all-day ticket to $100,000 for a pair of VIP foursomes.

In 2010, the year the economics of the tournament suddenly pivoted, four of the seven original board members, who were personal friends of Eric, left. Those 4 were eventually replaced by 14 new board members, the majority of whom owed all or much of their livelihoods to the Trump Organization. Six of them were effectively full-time employees, including Trump lawyer Michael Cohen and executive vice president Dan Scavino Jr., who both serve in political roles for President Trump. Another owns a company that billed the Trump campaign $16 million. Add in Eric himself, as well as his wife, Lara, and 9 of the 17 Eric Trump Foundation board members had a vested interest in the moneymaking side of the Trump empire. The foundation had become a de facto subsidiary of the Trump Organization.

"They were wearing two hats," says Langan, the former director of golf, who says he sat in on meetings where he couldn't tell where the business ended and the charity began. "You're dealing with people talking about the event and the charity who also at the same time are thinking about it as a corporation and as a business. It's a for-profit club. You know, they're trying to make money."

Until this board turnover, the Eric Trump Foundation pretty much did what it told its donors it would: send its money to St. Jude. But starting in 2011, more than $500,000 was redirected to a variety of other charities, many of which were personal favorites of Trump family members and several of which had nothing to do with children's cancer--but happened to become clients of Trump's golf courses.

Nonprofit to control the US Skies #NonprofitBoards

I must admit some doubt that an individual who is rarely affected by whatever troubles air traffic controllers (either as president or as a business person) can make a proposal to turnover to a nonprofit a system that I wonder shouldn't be under the purview of government.  

In the 3-legged stool paradigm, the private sector pursues profits by satisfying consumer demand; the public sector does what is in the interest of the most folks; and the nonprofit sector fills the void where there appears to be no profits or public demand.  Mr. Trump proposed yesterday that air safety should be privatized and managed by a nonprofit.  This will, according to Mr. Trump, result in a more efficient (no government bureaucracy/red tape) and less costly (not sure how or why) system that serves the public better.

The proposed nonprofit will be governed by "a 13-member board of directors, which would be selected largely by the transportation secretary from a list of nominees assembled by airlines, FAA unions, general aviation trade groups and U.S. airport groups."  I believe these are basically the same folks that pretty much influence or operate the system now.  And what about consumers?

And, probably looking more like a B Corp (a social benefit corporation) Mr. Trump says that "the new nonprofit would have the ability to borrow funds, enter into contracts and sell or transfer its assets."  But, the nonprofit would be "self-sustaining, and financed through fees paid by users of the airspace system and there would be a sunset on aviation taxes that pay for air-traffic control, except for those needed to fund airport development."

I am surely missing something here in terms of sustainability and governance and while I clearly recognize the challenges to a government-operated service, I do wonder, at the bottom line, why this isn't truly a government responsibility who's governance is more in the hands of those who stand to lose the most by a failure of the system.

Quotes in today's blog were taken from the Wall Street Journal article on this subject.

 

Owner of Nonprofit? #NonprofitBoards

Like looking at one of this pictures that has faces you must find in the scene, the following Chicago Tribune story tells of a nonprofit that is accused of taking fees and not providing the promised services.  Yes, this is bad but the article states that the state Attorney General has filed suit against the organization AND its owner.  Owner?  If this is a nonprofit, why indeed is there an owner and not a board?  I of course felt compelled to check to assess whether this organization is indeed a nonprofit and Guidestar indicates that yes, European Adoption Consultants is a $2 million annual budget nonprofit with 40 employees and a board of 5.  The "so-what"?  I am trusting that the AG will be suing each of the board members for failing their fiduciary oversight.

 

State sues Ohio-based international adoption agency

Associated Press

 

The state has sued an Ohio-based international adoption agency for allegedly misleading clients and taking payment for services not provided.

The Ohio Attorney General's Office says the lawsuit against European Adoption Consultants and owner Margaret Cole was filed Thursday in a Cuyahoga County court. It alleges Cole and the Strongsville-based agency violated Ohio's consumer protection and charitable laws and seeks restitution for clients and dissolution of the agency.

Calls to the agency were met with a busy signal. No telephone listing could be found for Cole.

State officials say the nonprofit corporation offered international adoption services to clients in Ohio and across the country. Many clients who have filed complaints with the Ohio Attorney General's Office reported paying hundreds to thousands of dollars without receiving services.

How Nonprofits Are Financially Supported: A Reminder

http://pndblog.typepad.com/.a/6a00e0099631d0883301bb099f5d88970d-popup  

In case this link doesn't work for you, the answer about how nonprofits are financially supported is:

32.5% Government Contracts and Grants 

03.0% Foundations

01.0% Corporations

01.5% Bequests

07.8% Individual Giving

01.9% Other

04.8% Investments

47.5% Fees for Service

A monologue on the "so what" of these figures and the proposed White House budget can be found here: 

http://pndblog.typepad.com/pndblog/2017/05/presidents-budget-proposal-targets-foundations.html?twitter=organic06032017 

 

 

 

 

 

Nonprofit Board Checks and Balances #NonprofitBoards

5 years this director was able to take income checks and deposit them into her personal account!  Really, absolutely no one (board, treasurer, accountant, bookkeeper, auditor) saw the loss of $30K a year for 5 years?  No one?   

The following story tells of how to break all the fiduciary rules using prudence as a simple guideline were broken.

Audit: Leader of Iowa school meals group embezzled for years

The former executive director of an Iowa nonprofit that promotes healthy, affordable school meals allegedly embezzled at least $169,000 over a 5-year period.

A state audit report released Thursday says Norma LaMantia admitted to depositing checks meant for the School Nutrition Association of Iowa in personal bank accounts.

LaMantia told auditors and a Davenport police detective last month that the money helped pay her personal expenses and support her addiction to casino gambling.

The checks came from school districts and food companies to pay fees associated with association events.

Scott County Attorney Mike Walton said Thursday his office is reviewing the report to determine "what the appropriate action is as far as criminal charges."

LaMantia had been the association's executive director for a decade before resigning under pressure last year.