Nonprofit Board Crisis

Nonprofit Board Key to Money #NonprofitBoards

It is likely you would be reading the title of today's blog as another missive about the role of nonprofit boards in raising funds for their nonprofit.  In a way it is but not probably the way you would expect.

As reported in Sunday's Washington Post, the FBI has been conducting a sting operation centered around college basketball and the use of a nonprofit as a pass-through for the distribution of money to families who's kids would be players for xyz colleges.   According to the FBI who participated in a meeting that included an assistant coach from Louisville: 

            ....payments from Adidas to an unnamed high school basketball player and his family to ensure the player eventually attended             Louisville, whose basketball team is sponsored by the shoe company.

The nonprofit serving at the center of these transactions is called The League Initiative.

             The nonprofit’s mission, according to documents filed with the state, is “to enhance the lives of youth by exposing them to               opportunities that will realize their potential including support for education, mentorship, and fitness.

Do note, that Louisville is not the only college athletics program involved in this fraud which the FBI is labeling the Sportswear Company Fraud Scheme.  

So here we have a nonprofit being used as a cover for illegal activities.  A visit to Guidestar shows The League Initiative having started in 2015 and having provided no information on its activities, program or financial.  There is no list of board members.  And of course, the League Initiative's website is "under construction".  Do we think there ever was an legitimate nonprofit here?  And what about the so-called board members?  It certainly wouldn't take long to find-out their connections to the primary suspect in this case who is referred to by the FBI as the individual who "controls" the nonprofit.   In this case, the quickest route to following the money is to look at the board members who appear to be on the receiving rather than raising end of fundraising.

I'm thinking that even if the FBI's case breaks-down, the IRS and the State of Florida have enough evidence that the nonprofit organization is a fraud - at minimum raising money from "donors" and not pursuing mission although one could argue that steering athletes to certain colleges does help these students "realize their potential".

 

 

Book Review: Nonprofit Finance: A Practical Guide #NonprofitBoards

I just completed Sheila Shanker's Nonprofit Finance:A Practical Guide (for Controllers, CFOs and Board Members).  Ms. Shanker clearly put a lot of time and energy into reflecting on how best to help board members in particular and maybe Controllers and CFOs how to think about nonprofit financial, particularly accounting and bookkeeping, matters. 

I do wonder that Ms. Shanker's book shouldn't be one of the text books in the many graduate and undergraduate nonprofit degree or certificate programs for folks who do not plan to be the Controller or CFO.  I would have think on the other hand that CFOs (strategy and policy) and Controllers (accounting and bookkeeping) would have had all that's in the book many times deeper and wider.  So, an educational guide for CEOs and Program Directors and Board members: possibly.

I think my challenge with the depth and breadth of the content of Nonprofit Finance is just that: I seriously doubt that board members and other non-finance and accounting folks are going to really want to spend the time and energy needed to absorb what has been carefully prepared.  However, this does not mean there isn't some material in particular that board members would eagerly lap-up and be helped by.  In particular, and remembering that the fiduciary role of a board is centered around risk reduction and prevention and compliance, Ms. Shanker's section on Internal Controls can prove very helpful to thinking about policy and evaluation.  The section on nonprofit issues (like compensation) is equally helpful. 

One thing I had not been conscious of before reading was an idea that maybe the finance committee and treasurer but even all the board should walk through the 990 (annual IRS financial filing) as a source of education and awareness about all things finance (including board role).  I know that the annual audit presentation kind-of takes board members on this journey but that often happens at the end or months after the end of the fiscal year.  What if as an educational tool the 990 was divided into 4 parts and 10-15 minutes was set-aside every quarter for board, at their business meeting, to learn financial stuff.  Ms. Shanker's book could even serve as a companion to the process when helping board members understand terms and how some numbers come to be.  

Bottom line: I would likely recommend Nonprofit Finance as one more resource tool to the finance committee, Treasure and Board and maybe non-finance people.  There's some important material here.  At the same time, keep your expectations low - the finance people will need to stand-by as instructors.

Nonprofit Impact #NonprofitBoards

A recent article from the Stamford Social Innovation Review should provide some fodder for conversations among nonprofit board, execs, funders and consultants for years to come.  The bottom line: according to the 3000 nonprofits who responded to the Engine of Impact survey (you can take the survey now using this link), they are not for the most part getting "it" correct.  They are failing and are particularly bad in three of the seven essential elements: board governance, funding, and impact evaluation

As stated:

After spending several decades researching, advising, and helping lead nonprofits, we have come to believe that the best nonprofits are able to master seven elements that constitute what we call “strategic leadership”: mission, strategy, impact evaluation, insight and courage, organization and talent, funding, and board governance. These elements work together as a system. An organization that exhibits strong performance in all seven areas becomes an “engine of impact” and is capable of achieving real impact on a scale that is adequate to current needs.

For sure it's worth a board and staff's discussion to both review the findings and consider using the tool (it is after all, free).  Of course the big challenge does not lay in just understanding what is not working as much as in understanding what steps to take about what's not working.  But nonprofits should not be daunted in this learning, there are plenty of us who are glad to help as long as the nonprofit leadership, board and staff, are committed to the work.

Nonprofit Board: Pleasant Versions of their Normal Selves

According to Amy Wishnick as she wrote in a recent Charity Channel thought piece on nonprofit boards, HALT (hungry, angry, lonely, tired) is a stress management technique used to introduce incoming college students for self-awareness and understanding purposes (likely not approved by Betsy DeVoss but who knows) that can be re-framed for nonprofit governance purposes.

In a very simplified overview, Ms. WIshnick offers HALT as follows:

Hunger - "nourishing your board, literally and figuratively, as promoting effective leadership and includes actually providing food while strengthening the relational aspect of members.  

Angry - directly manage and/or don't retain hostile or negative board members

Lonely - create activities that help unify members - one simple step is to bring-on a class of members at the same time and build relationships at least with that group reducing isolation

Tired - term limits matter to reduce weary members.  Also, board meeting agendas should be structured to ensure higher engagement.

I generally think this this HALT paradigm as kind of hokey BUT I I very much agree with one central and underlying unspecified theme:  there are two constant dynamics in a board's life: relational and transactional.  The relational dynamic always affects the transactional dynamic - positive and stronger relationships produce positive outcomes. 

Nonprofit Board Executive Committees #NonprofitBoards

Nonprofit board executive committees: useful historical constructs or, for the most part, bad idea?  There's actually no documented research or evidence that states how good or bad, effective or ineffective are nonprofit board executive committees. But there are a lot of reports, particularly from execs and board members. So, while not a best practice, I have formed my own opinion that exec committees leave much to be desired.  In general, while I recognize that they could contribute in setting the board meeting agenda, serving as a kind-of business advisory team to the exec, and possibly leading the annual exec performance review, all of these tasks can be handled equally well through other avenues. 

But more popular advice about exec committees is represented by this Tallahassee News, nonprofit exec/consultant who has shared some thoughts on the topic.  

• The Executive Committee has the right to have executive session and ask the Executive Director to leave the room or not attend. Be respectful and notify the Executive Director in advance you are meeting or will be asking them to leave at a certain point and why. If Board members feel like they must sneak around to meet because of suspicions about the ED then there are problems to deal with. Immediately.

I suppose, if the by-laws say so, that this is true (that the exec committee has a right to have an executive session).  I think however that it is more true, again if sanctioned by the by-laws, that it is the full board that can have an executive session (discussion without staff) and I would encourage boards to actually schedule 10-15 minutes every meeting for this purpose.  This is THE opportunity for the board to lead itself and were there any reason not to include staff, this would be the opportunity.  I'm otherwise unclear at all why the exec committee would have an executive session.

• Most Boards give the Executive Committees, per the bylaws, the authority to act on their behalf between board meetings. The Executive Committee should use this primarily for urgent issues. Be cautious about how often you exercise this right since it means a small number of board members are making decisions yet the full board retains liability and responsibility for them.   

The key to disenfranchising or disengaging the board members who are not exec committee members is to have the exec committee make decisions without the rest of the board.  I can not honestly think of an occasion when such a moment for an emergency exec committee decision should arise.  Such a moment would in my mind be a failure in planning or policy on the part of the full board.  Yes the unseen happens but why would this necessitate a meeting of the few if the "it" is that big of a deal?  Bad, bad, bad!

 

Nonprofit Board Direction #NonprofitBoards

In the Chicago Tribune/Beacon-News (Aurora Illinois) there's a story about a Foundation whose executive director has contracted with his family business that "covers the cost of Dunham Fund employees' salaries, benefits, various types of insurance coverage, Social Security contributions and other expense". The family firm receives a fee of about 16% for its services.  The executive director is an officer of the family business.

In many ordinary circles I might raise a yellow flag to the board and say: hey folks, you have the prospects of a conflict of interest here.  Have you, the board, had a discussion about the bidding process and how does the price compare with the alternative options.  This discussion would be what is expected from a prudent board.

Fund board chairwoman Wendy Hirsch referred questions to the fund's trustee at First Midwest Bank, saying

    "the board would not approve anything without the trustee's approval."  More interesting, the chair went on to state:

    "There's nothing being done inappropriately, I can tell you that," Hirsch said. "We're just doing what we're directed to do."

While there may indeed be conflicts of interest (and the exec's own lack of willingness to share with the press the Fund's pertinent data) does raise suspicions but my biggest concern is from the board chair: we're just doing what we're directed to do". 

I would not want to be on a nonprofit board where members gave this answer.  After-all, fiduciary duty alone demands much more knowledge and responsibility.  A nonprofit board is the surrogate owner of a nonprofit on behalf of the public's interest.  Doing the bidding of an executive or others is not in the public interest.

Nonprofit Board Culture Matters #NonprofitBoards

While the following Hospitals and Health Networks article focuses on hospitals, the question asked and answered is universal to all boards: can boards be held accountable for the organization's culture?  My answer: unequivocally, yes!  Beginning with establishing a clear Theory of Change, Mission, Vision (which includes culture) and Values, I believe that every policy decision made by a nonprofit board sets some parameters or goal around culture.  The article notes that board education and board monitoring are two areas that enhance a board's establishing and monitoring of culture and reinforce that culture matters in the pursuit of mission.  

Can Hospital Boards Be Held Accountable for the Organization’s Culture?

It’s trustees' role to make sure the hospital’s culture is healthy

November 2, 2017

 

Paul Keckley Ph.D.

In recent weeks, high-profile companies like Wells Fargo, Uber, Equifax, The Weinstein Co., Fox News and many more have garnered media attention for their leadership and corporate cultures. And the boards of companies including Whirlpool, CACI International and Citigroup have formed culture committees to surveil the climate in their respective organizations.

On Wednesday, Oct. 4, the National Association of Corporate Directors released a report from its 34-member commission outlining 10 recommendations that would encourage boards to be more proactive in attending to corporate culture. They include the formal measurement of culture, the inclusion of culture considerations in performance reviews of top managers, changes to incentives in short- and long-term compensation and others. Their bottom line is this: Boards must understand how an organization achieves results, not just the results themselves. As The Wall Street Journal’s Joann Lublin wrote on Oct. 4: “Corporate culture counts. But bad culture can damage a company’s reputation, results and recruitment.”

I have served on several investor-owned boards where attention to risks associated with regulatory compliance, cybersecurity, sexual harassment and ethical business practices get significant and growing attention. The CEO’s performance is scrutinized in the context of organizational goals and targeted results, and the chief legal officer plays an active role in directing the board’s attentiveness. I have also worked in organizations where financial results justify the acceptance of narcissistic behaviors and the dismissal of concerns about the culture. But the board’s concern was not evident. Many boards are now focusing on how their respective organizations achieve results.

Can hospital boards, especially community boards that provide fiduciary oversight to nonprofit hospitals and health systems, be expected to know the corporate culture in their hospitals? Can they be held accountable for lapses? The answer to both questions is yes.

Nonprofit hospital boards represent the interests of their community. Most volunteer their time and receive no compensation. But that’s no excuse. It’s not easy but is nonetheless imperative. To start, two considerations are worth discussion:

Board education: Hospital boards need education about the complex issues and challenges that face their organizations. Public company directors spend 200 hours annually doing their work through committees and board meetings. But these directors are also encouraged to study issues on their own, and formal evaluations of board member independence and competence are included in outside assessments of the company’s performance by their investors and organizations like Institutional Shareholder Services. Nonprofit boards underinvest in board education and many are lax in evaluating their boards. Complex issues like private inurement, the False Claims Act, HIPAA and many more require more than casual understanding by trustees. Is the board prepared to address the culture with an informed, objective view of the context, issues and challenges facing the organization and the industry?

Culture monitoring processes: Hospital boards must create a formal process for monitoring the culture in their hospitals. Most hospitals conduct employee surveys and share the results with the board. Many of these include comparisons to other organizations and best practice recommendations. But in the future, boards must go deeper. The work climate in most hospitals is stressful. The workforce is expected to do more with less and alter work habits as clinical innovations and payment schemes force change. Boards must examine the mechanisms whereby the workforce is managed, promotions awarded, recognition and compensation given. While not interfering in day-to-day operations, boards must create mechanisms for obtaining the views of current and former employees and developing ways to interact with their leaders constructively. Is a thorough process in place to equip the board to gauge the culture in the hospital?

Times are tough for hospitals. Straddling the fence between fee-for-service and value-based incentives is complicated. Managing compliance risks with the ever-expanding rules and regulations is a daunting task. Reducing costs and doing more with less is a relentless pressure.

A hospital’s culture defines how the organization responds to these challenges. A healthy culture is not a guarantee of success, but an unhealthy culture is a guarantee of failure. It’s the board’s role to make sure it’s healthy.

Paul H. Keckley, Ph.D. ([email protected]), does independent health research and policy analysis and is managing editor of The Keckley Report (www.paulkeckley.com). He is also a member of Speakers Express. For speaking opportunities, please contact Laura Woodburn. 

The opinions expressed by the author do not necessarily reflect the policy of the American Hospital Association.

Leadership & StrategyCEOH&HN Daily

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Nonprofit Board Orientation: A Case for Spreading it Out #NonprofitBoards

So on-boarding, as it the effort to prepare new board members for their volunteer leadership position is now labeled, is a very righteous activity.  Folks in particular who have never served on a board definitely need more than a warm handshake and a chair to begin their tour of duty.  But what precisely should an on-boarding exercise include?  

Here's a list of items one consultant believes is necessary to bestow on that very first set-aside occasion for orienting a new member:

 

• Your organization’s website
• All of the past year’s board meeting minutes
• Strategic plan
• Fundraising case for support
• Master calendar
• Board contact list
• Current annual budget and prior year’s budget/actuals
• Current financial statements
• What is the budgeting process?
• What is the scope and level of fundraising?
• What are the fundraising revenue streams?
• How do budget and fundraising and program intersect?
• What programs and services do the organization offer?
• How do you communicate and share information about what is going on with programs and other aspects of the organization?
• Is there a strategic plan? How is it monitored?
• What are the board’s committee structure and the expectations for board members?
• How often does the board meet? When? Where?
• What is the meeting schedule?
• Does the board have an annual retreat?
• Who are the other members of the board? What do they do, their affiliations? What do they bring to the table?
• acronyms meant. 
• Board Culture
  • What is the tone of your meetings?
  • Do you strictly abide by Robert’s Rules of Order?
  • Do you watch the time carefully or let people talk as long as they need or want to?
  • Do directors arrive early to chat with each other?
  • Do you always conclude with an executive session?
  • What are other norms for this particular board?

WHEW!  And this is just the beginning of what might be presented.  Me, I'd recommend that the first on-boarding rule is that on-boarding is an experience that lasts throughout the first 6 months - plenty of time to introduce new members to all these subjects and likely accompanying the explanations with a good board manual or even an on-line board portal.  Yes, telling members when are meetings (and of course your organization has set a year-advance dates) and where and what time is essential.  But in addition to the fundamentals I'm thinking I would like the first on-boarding experience to be just that: an experience.  A time for mission-connecting and story-telling.  Of course I believe that a story about victories or consumers should be shared at every meeting (aka mission moment) so the on-boarding event is the starting point for everything a new member will experience in addition to getting to know who are all the players.  Yes, relationships matter even more than the transactions that will eventually be the fodder for meeting.  So come-on folks, get out and have a meaningful learning relational first orientation.  And then, set aside part of every meeting or every action, time for learning.