Nonprofit Board Crisis

Motivating a Nonprofit Board #NonprofitBoards

I firmly believe that getting or keeping a board/board members active begins with the mission moment.  I believe there can't be too many mission moments.  You may know of the Morning Meeting used in pre and elementary school where the day begins with kids sharing their story for that day?  Well, maybe as frequent as once-a-week via email and for-sure, the beginning of a board meeting, "report" a story that illustrates an experience that exemplifies mission.  These happen every day and every week with your customers.  Tell these linked to why your nonprofit exists.  This is why people join boards - yes, it's that simple.  

Meanwhile, here's some further thinking on board motivation by Joan Garry culled from the Chronicle of Philanthropy:

ARTICLE
JULY 30, 2019 

---

Ignite Your Board Members’ Passion

By Joan Garry

How to Reignite Your Board Members

To engage trustees, I use a simple equation when coaching executive directors, which creates a more productive partnership and equips trustees with the enthusiasm and tools they need to become real ambassadors:

The formula: Inform + Engage + Enrich = Ignite

Most board members will tell you that they are informed. But as a nonprofit leader you need to take two other critical steps to create vocal and visible ambassadors for your cause ― the kind of ambassadors whom those you serve need and deserve.

For example, last year I worked with an equine-therapy program that offers the benefit of horseback riding to kids on the autism spectrum. I gave the executive director some tough love: I told her that her fingerprints were all over her disengaged board.

Here’s how we used the formula.

Inform. The information has to "stick" ― no recitation of your board report. Instead, a PowerPoint presentation with only 13 slides, each with a single image of the horses — the real stars of the organization. On every slide, the name of the horse and its "magic power," such as one horse that is uniquely attuned to anxiety whose healing power helped transform one child. Not only are those board members informed, but now they have personal and powerful stories to tell.

Engage. The topic must tap into what board members bring to the boardroom. For example: The equine-therapy group is considering purchasing an adjacent property. The executive director wants to serve more kids, and the conversation about purchasing the property is big and strategic. So, the director framed the pros and cons to the board, asking questions like these:

• "Am I thinking about this the right way?"
• "If we don’t buy it, who might be our neighbor, and how would that affect us?"
• "If this property weren’t going on the market, would we be looking to expand?"
• "What other questions should we be asking?"
• "What additional information do we need?"

A boardroom of people with the right skills and expertise will add a lot of value to the discussion. And then, when you move forward, the trustees share ownership of the decision, which always leads to more-enthusiastic fundraising.

Enrich. Board members are leaders. Leaders have context and know trends, but they need data. For example, if you are serving kids on the autism spectrum, you need to tell trustees the extent of the problem, expected future trends, and whether the population is growing.

The executive director of the equine-therapy organization has a large network of contacts. Working with her board chair, she extended one board meeting by 30 minutes to allow time for an expert to give a 20-minute presentation with 10 minutes of Q and A. The expert also joined a social gathering afterward. Very few board members left early.

Think of your last two, three board meetings: Did you give your board a bite of any of these three elements of the formula? Were you intentional about how to use a meeting to accomplish any of these things?

 

Nonprofit Board Risk Prevention #NonprofitBoards

In general, vandalism sucks - particularly when you are a nonprofit and one of your essential sources of revenue is the income earned from your thrift store.  We also know that vandalism, or at least the results from vandalism and particularly of a nonprofit venture, makes good news and often raises donations, one-off albeit, but extra funds from folks who generally wont give will come-in.  And this of course can result in some long-term givers.

That said, the St. Vincent De Paul thrift store in Ownesboro, Kentucky was vandalized and really big windows, $1,000 a-pop windows, were broken.  This of course sucks in the short-run or at least 'till the windows are replaces and in the meantime, they have been boarded-up - very unsightly.  But this is also a perfect opportunity to talk about one of the ways a nonprofit board exercises its fiduciary duty of care.  I'm talking about risk prevention. 

Risk prevention is taking care to put into place policies and procedures that address whatever might come down the pike and affect pursuit of mission.  A key tool in the risk prevention kit: insurance.  Now I recognize that depending on deductibles and other clauses, insurance may not fix everything but it may well reduce the need to take no action until and if donations come pouring-in.  Buying insurance is a common sense approach to risk prevention, again a core element of exercising the fiduciary duty of care.  And, common sense, doing what most other "owners" would do facing similar challenges, is the standard used to assess decision-making.  I'm hoping that the thrift store board did indeed use common sense and invested in insurance so it won't have to wait too long to get the store back-up and running again.

Here's the story:

 

St. Vincent De Paul thrift store vandalized in Owensboro

By Erin McNally | July 29, 2019 at 5:50 PM CDT - Updated July 29 at 6:15 PM

OWENSBORO., Ky. (WFIE) - St. Vincent De Paul serves the poor in several communities across the Tri-State, but after the Owensboro location was vandalized on Friday, July 26, they’re facing some setbacks.

Officials with the non-profit say the windows of the building were shot out. The CEO, Richard Remp-Morris, says they’re relying on the community for help with repairs.

“We need folks to realize though, we are a nonprofit organization. So, you just don’t have a lot of damage funds in our budget. So we would appreciate any help or support,” said Remp-Morris.

Until the nonprofit can collect enough money in donations, the boards on the windows will be staying.

“These windows are very large. We know at a minimum a thousand dollars a window. So, as you can see there are several that are out here. The other thing is the vinyl signage. We also lost an entire days revenue, which is huge to us,” said Remp-Morris.

St. Vincent De Paul will be working with the Ownensboro Police Department to find out who did this. Officers say that they currently have no suspects, but that this is an ongoing investigation.

If you would like to help with repairs, St. Vincent De Paul is accepting donations at their Owensboro location on 200 East 18th Street.

Copyright 2019 WFIE. All rights reserved.

Nonprofit Board Member Pay #NonprofitBoards

Within the nonprofit sector there is a long tradition and a clear rationale (service for passion) that those who serve on boards volunteer, not be paid, for their service.  There is a small sub-sector currently advocating for a change saying that payment for attendance at board meetings and other fulfillment of fiduciary duties is an incentive to get folks to perform their duty and additionally recognizes their value.  

Some folks in Hawaii have just approved a payment of nonprofit board members for their service WHEN THEY WEAR THEIR VOLUNTEER HATS.  Again, the purpose is to provide incentives and reward the work that is being done but NOT for their service when wearing their board hat.  Kudos for these folks' understanding and recognition of what is meant by nonprofit board service!

Here's the story from the Hawaii Tribune:

Ballot proposal would pay nonprofit boards with PONC money

By NANCY COOK LAUER West Hawaii Today | Monday, July 29, 2019, 12:05 a.m.

 

 

Officers and board members of nonprofit organizations receiving stewardship grants from the county’s public land fund could be paid for their work with taxpayer money, under a change to a proposed charter amendment unanimously approved by the County Council.

Currently, officers and board members of a nonprofit grant recipient are prohibited from receiving pay from the county Public Access, Open Space and Natural Resources Preservation Commission (commonly called “PONC”) maintenance fund.

 

---

Resolution 216, sponsored by South Kona/Ka‘u Councilwoman Maile David and North Kona Councilwoman Karen Eoff, would change that. It amends a charter amendment the Charter Commission has approved for the 2020 ballot.

The board members would not be paid for “performing their duties or functions as an officer, board member or employee,” under the council’s proposed change. However, they could be paid for specific duties such as “labor, educational workshops and maintenance work,” if those duties have been specifically identified and officially approved in the detailed business plan submitted as part of the stewardship proposal.

“Especially in my district, the nonprofits that are working hard to maintain these open spaces, they’re doing it on their own time because they really believe in what they’re doing and protecting these open spaces,” David said. “We wanted to respect the fact that if they’re doing valid and legitimate work, which most of them do, then I believe they should be compensated.”

Eoff agreed. She said she’s been watching the work of the Charter Commission, but hasn’t wanted to interfere.“You can only depend on volunteers so much,” Eoff said. “If you want to get something done, you have to have a project coordinator that’s in charge and is paid.”

Some concerns remain, however, about paying outside contractors work that has “customarily and historically” been provided by civil servants, the basis of the successful 1997 Konno lawsuit the United Public Workers Union filed against the county in a case that went to the Hawaii Supreme Court.

Concerns about implementing a pay scale and how it would compare to the pay scale of full-time Parks and Recreation workers also must be considered, said Hilo Councilman Aaron Chung.

The council’s unanimous vote Wednesday sends the measure back to the Charter Commission for consideration at its next meeting. The commission can incorporate it into its proposed charter language or reject it, in which case the council could vote to put it on the ballot side-by-side with the commission’s version.

The PONC acquisition fund comes from a sweep of 2% annually from county property tax revenues. Another 0.25% is taken for the PONC maintenance fund. As of June 30, there was $22.6 million in the acquisition fund and $2.9 million in the maintenance fund, according to PONC commission records.

Debbie Hecht, Save Our Lands citizen initiative coordinator who collected signatures to get a dedicated land fund on the 2005 and 2012 ballots, was one of a handful of testifiers in favor of the change.

“(It) enables the nonprofits to be able to pay people to work on the land, even if they volunteer as a board,” Hecht said.

Toni Withington, who has long been active in efforts to protect and promote coastal access in North Kohala, said she was speaking on behalf of five community organizations.

“The people who are most passionate about preserving land, those are the people who are really on the board,” said Withington. “If those jobs are designed and taken by board members, those board members should be paid. … They pour their hearts into it and then they burn out. We don’t want to burn out.”

 

---

The Charter Commission, which meets every 10 years, has proposed 21 amendments that will appear on the Nov. 3, 2020, ballot.

Email Nancy Cook Lauer at [email protected].

Nonprofits = B Corp Governance = Shareholder Primacy #NonprofitBoards

There's lots applause going around for a company called Natura.  The B Corp. company purchased The Body Shop (a social enterprise B corp) last year and just completed the all-stock purchase of Avon (no, not a B Corp).  The applause is for a company  whose decision-making, is not, according to B Corp. principles informed singularly by making profits for the shareholders but equally doing good for employees, consumers, and, the earth.  That's the principle and let's go with the idea that this is also the reality for Natura as it was for The Body Shop.  

But wait, aren't all nonprofits essentially B Corp. companies sans giving back its surplus to the public or donors?  Alas, the answer is no, not perfectly.  We know from lots of examples just this week that employees for one tend to not be included (perhaps with the exception of CEOs) as equal beneficiaries of surplus.  Does this mean it's a "no", nonprofits are not like B Corps?  Possibly but it's certainly worth considering the implications.

Here's an article that describes B Corps and the Natura purchase.

Nonprofit Board Member Hears and Acts #NonprofitBoards

After protests from artists and museum staff a Museum's board member has resigned.  Warren Kanders' company produces products used by the US Boarder Patrol and the belief by those in protest was that his presence on the board communicates the wrong message to the public and is counter to artists and staff's own values.  Mr. Kanders was not voted off the board and the Musuem board did not ask him to resign (as far as I know).  Nor did there appear to be pressure by other donors.  However, the protests and even refusals by Artists to display their works served as a fairly profound distraction. 

This particular resignation however does re-introduce the challenges to boards to be clear about what they believe and value and live stated beliefs and values.  I of course do not know what is the stated values of the museum and don't know that they have enunciated in particular their willingness or lack thereof to question both the principles of those who serve as board members and/or donors and thus also question the origin of their donations.  The museum has not, as far as it is reported, returned the donations by Mr. Kanders and indeed, offered he and his wife thanks.  This would of course suggest that the board does not "feel" the same as the artists and donors.  And, while artists and donors succeeded in making their case and in achieving a change, the next and even higher action should be to focus on ensuring that the current board should go through a soul-searching examination of core values and operating principles and be sure to include its constituents, donors, staff and artists in doing so and then, once done, consider redrafting its visions.  Those then who might consider serving as board members and donors will have to be sure their values align as will the Museum itself in accepting gifts.

Here's the Wall Street Journal story.

 

Warren Kanders Resigns From Whitney Museum’s Board Amid Protests

Artists and museum staff have protested over his company's military products seen at the U.S.-Mexico border

By 

Leslie Brody

July 25, 2019 12:30 pm ET

 

A vice chairman of the board of the Whitney Museum of American Art resigned Thursday after months of artists’ protests over his company’s military products, including canisters used to hold tear gas.

In his resignation letter, Warren B. Kanders said he is stepping down with great sadness after 13 years on the board because attacks against him “threatened to undermine the important work of the Whitney.”

Mr. Kanders is chairman and CEO of Safariland LLC, based in Jacksonville, Fla. Safariland’s website shows it sells military gear such as gun holsters, bulletproof vests and tear-gas canisters.

His departure comes during the museum’s signature biennial exhibition, which runs through Sept. 22.

For months, artists and museum staff have protested Mr. Kanders’s involvement in the Whitney after news photos showed Safariland products at the U.S.-Mexico border where U.S. Border Patrol agents used tear gas to disperse migrants trying to enter the country.

Four artists sent a letter to the biennial’s curators last week, released publicly through the art news site, Artforum, saying they refused “further complicity with Kanders and his technologies of violence.”

Four other artists said they wouldn’t participate as well.

 

“The power of art lies in its ability to express, to push boundaries, and to ask questions,” Mr. Kanders’ resignation letter said. “Art, as I know it, is not intended to force one-sided answers, or to suppress independent thinking. And yet, these recent events have illustrated how a single narrative, created and sustained by groups with a much larger and more insidious agenda, can overwhelm that spirit.”

The museum released a statement thanking Mr. Kanders and his wife, Allison Kanders, for their generous financial contributions and gifts of more than a dozen artworks.

Nicholas Galanin, an indigenous artist in Alaska who had pulled his two pieces from the biennial, said his work could now remain in the show.

Mr. Kanders’ resignation “was good news to hear for sure, I was in disbelief,” he said. “Artists and activists have power when we come together in shaping these institutions.”

Mr. Kanders’s departure comes as other philanthropists face pressure to withdraw from arts institutions.

In May, the Metropolitan Museum of Art in New York said it would stop accepting donations from members of the Sackler family associated with drugmaker Purdue Pharma LP, amid scrutiny of the drug company’s role in the opioid epidemic.

Write to Leslie Brody at [email protected]

$4 Million To Increase Board Diversity #NonprofitBoards

To be sure, I am 1000% behind any nonprofit that wants to do planning - I am a organizational development consultant after all and rely on commitments to invest in organizational change and planning.  That said, I must admit that I am scratching my head over why it will cost $4 MILLION to "increase the racial diversity" of 50 museum boards in the US.  Yes, it is for certain that there is a historical lack of commitment to and skill in recruitment of people different and potentially equally as valued as those currently sitting at the tables.  But, first we should acknowledge that it's not really the lack of skill in recruitment that is the primary source of the problem.  After all, these boards have actually done a pretty amazing job in recruiting the folks who are already at the table - people who one might suggest have lots of options as to where they sit and different benefits, so clearly the museums are not without a depth and breadth of experience in the board recruitment department.  So, I would argue it's not skill as much as commitment and then a change in culture to accept those who bring a different set of value to the board.  Again, $4 million is a lot of money and I would welcome seeing the workplans and budgets and outcomes for this investment.

Here's one article that describes the project.

A dozen Twin Cities museums receive diversity funding

The push for inclusion is part of a national effort. 

By Maya Rao Star Tribune

 

JULY 23, 2019 — 8:12PM

A dozen museums in the Twin Cities have been selected to take part in a national initiative to increase racial diversity in museum boards and leadership, including the Walker Art Center, Minneapolis Institute of Art and Science Museum of Minnesota.

The American Alliance of Museums (AAM) is launching a program involving 50 museums nationwide, with $4 million in grants from the Andrew W. Mellon Foundation, Alice L. Walton Foundation and Ford Foundation that will provide the training and resources for museum leaders to build cultures that better reflect the communities they serve.

In 2017, a survey by AAM and BoardSource found that 46% of museum boards are all white. While 77% of museum directors believed that increasing the racial and ethnic diversity of their boards was important to advancing their missions, according to the survey, only 10% of museum boards had developed a plan to be more inclusive.

Science Museum of Minnesota President and CEO Alison Brown said changing diversity and inclusion within an organization won't be successful unless the board is part of that change. Twenty-one percent of the museum's board members are people of color, and 38% are women. With more of Minnesota's youths being people of color, the museum wants to reflect its changing audience.

But in doing racial-equity surveys of staff and volunteers for the last two years, the museum found a disparity in the comfort level of people of color vs. white participants about working there. The museum has made progress in that area, but it still isn't where it needs to be, Brown said.

"The hardest work has been our work on ourselves, and for me to learn my own biases, to learn what I need to do as a leader to be more open," Brown said.

Also receiving grant funding are the American Swedish Institute, Anoka County Historical Society, Bell Museum, Goldstein Museum of Design, Hennepin History Museum, Minnesota Museum of American Art, Ramsey County Historical Society, University of Minnesota Landscape Arboretum and Weisman Art Museum.

Nonprofit Board General Counsel #NonprofitBoards

In fulfilling their fiduciary duties, a nonprofit board may encounter challenges that require legal counsel.  Fiduciary matters range from creation of policies that reduce risk, promote the well being of the organization, its constituents and paid and unpaid staff, and, ensure the pursuit of mission.  The environment is huge even for the smallest of nonprofits. 

I caught an announcement in the Potamic announcing the appointment of general counsel to the Young Marines organization.  The appointee appears quite qualified and he is mission-focused having been a Marine himself.  What caught my eye in particular was that the appointee currently serves as a board member of the Young Marines.  What then becomes murky is whether and shouldn't the appointee resign as a board member to serve in this newly appointed role   I generally recommend that legal counsel be sought by non-board members and the following entry from the Nonprofit Law Blog explains why and what all nonprofit boards should consider:

Attorneys may be of great value to nonprofits when serving on nonprofit boards. They bring to the board a special set of knowledge, skills, perspectives, networks, and experiences, including an ability to spot and address particular issues and problems. For such reason, many nonprofits actively seek out attorneys to serve as directors.

From the Nonprofit Law Blog:

But this can also cause a misunderstanding of the capacity in which the attorney is going to serve. Nonprofits may want and expect the attorney to serve as pro bono counsel while the attorney often wants to serve purely as a director.

However the relationship starts out, it’s not uncommon to see the attorney/director eventually providing legal advice to the nonprofit, whether or not in the official capacity as the organization’s lawyer. Here are a list of issues for an attorney/director to consider in such scenario:

Ethical Considerations

Role Confusion. When you offer a particular opinion to the executive or to other board members, are you communicating as a director or as a lawyer? Does the recipient of the communication know in which capacity you are providing the opinion? The concern is two fold: (1) your words offered as a director may be received with unwarranted and unspoken deference if the rest of the board considers it legal advice, and (2) your legal advice offered as a lawyer may be received without appropriate consideration if the rest of the board considers it the thoughts of a director.

Loss of Independence. Will the dual role compromise your independence of professional judgment? Consider if your legal opinion or advice will be clouded if you are reviewing an action already taken where you participated in the vote or had a preferential viewpoint from a business perspective.

Conflicts of Interest. What is your role if the organization enters into a dispute with your firm or one of your firm’s clients or prospective clients? Will you be aware of the conflict if representing the organization? In addition to potentially harming your firm, you can harm the organization if you either fail to provide zealous representation or withdraw from representing the organization due to the conflict.

Loss of Attorney-Client Privilege. Are you communications with the rest of the board protected by the attorney-client privilege? If it’s clear that the communications are to be attorney-client communications, they should be protected by the privilege. However, such protection may be lost if it’s not clear that you are communicating only as a lawyer or if the communication is recorded in minutes to which other persons have access.

Competence. Do you have sufficient competence in the areas of law in which you have been asked to provide legal advice as an attorney to the organization? The competency issue is of course critical in avoiding malpractice, and attorney/directors must be careful when asked to provide advice in areas in which they possess some knowledge but don’t have the requisite competence.

Heightened Exposure to Liability

Standard of Care. A director’s standard of care is generally expressed as that of an ordinarily prudent person in a like position under similar circumstances. While there are cases of inside directors (who are employees) of for-profit corporations having a higher standard of care than outside directors, there does not appear to be authority that extends to directors of nonprofit corporations with specific professional knowledge, skills, and experience that might be relevant in exercising their fiduciary duties. Accordingly, directors who happen to be lawyers should not be held to a higher standard of care than other directors. But there have proposals (including in a 2004 Discussion Draft Proposal from the Staff of the Senate Finance Committee) that would require directors with special skills or expertise to use such skills or expertise in meeting their duty of care. And it’s plausible that a director also acting as an attorney to the organization on a particular matter may be held to a higher standard of care based on being comparable to an inside director.

Reliance Defense. In performing the duties of a director, a director may be entitled to rely on information, opinions, reports or statements prepared or presented by an attorney. This may serve as a defense to a claim if, for example, a director took an action that would otherwise have been considered negligent but not for the director’s reliance on the opinion of a lawyer that it was proper. An attorney/director, however, cannot of course claim reliance on her or his own opinion as a defense against a claim.

Vicarious Liability. In performing the duties of a director, an individual serves in her or his individual capacity and owes a duty of loyalty to act in the best interests of the organization. If a director is serving in such capacity as an agent and at the direction of her or his employer, the employer may be subject to vicarious liability for actions taken by the director.

Insurance. The role confusion issue may extend to whether insurance will cover acts or omissions of an attorney/director. Directors’ and officers’ (D&O) insurance generally covers certain acts or omissions of a director acting in such capacity but will not cover legal advice offered by an attorney/director. Professional liability or malpractice insurance generally covers certain acts or omissions of a lawyer acting in such capacity but will not cover such individual if acting in the capacity of a director. Because it’s often unclear in what capacity an attorney/director is serving, some professional liability insurance carriers will not provide coverage where legal advice is being given to an organization on which the insured also serves as a director. Further, where it’s not clear in what capacity an attorney/director was acting, both D&O and professional liability insurance carriers may deny coverage.

Tips for Attorney/Directors

1. Inform management and the board about your role and the issues regarding attorney-client privilege up front.
2. Identify in what capacity you are communicating (make sure it’s accurately reflected in the minutes).
3. Refrain from voting on material financial transactions with your law firm.
4. Identify potential gaps in coverage between your professional liability insurance and the nonprofit’s D&O insurance.
5. At all times when rendering legal advice, exercise the independent professional judgment required of a lawyer (e.g., advising against illegal action even if favored by the board).
6. Diligently perform your duties as counsel, within the limits of applicable law, once an action has been approved by the board even if you disagreed with the action as a director.

Part of a 1/13/16 presentation for the Bar Association of San Francisco: Duties and Responsibilities of Serving on a Nonprofit Board.

Nonprofit Boards Approve Pay Disparity #NonprofiftBoards

According to a number of publications and most recently the New York Times, there is often a huge disparity between the compensation of museum executives and the many folks who do the day-to-day work.  This disparity is now coming to a head with the formation of unions.  Yes, unions have been in nonprofits for a long time but not for every sector and within each sector, not for every nonprofit.  Museums in particular have not been a part of the union rank and file for pretty much ever.  But this is changing and several notable institutions like the Guggenheim are now union shops.  The goal: change the compensation disparity.  

And where does the problem lie?  I would pose that it is the nonprofit boards of these institutions, most often individuals who at minimum have never missed a meal, who approve the annual budget and choose to compensate their CEO's at fair levels while not paying attention to the plight of those who dedicate their talents to telling the stories that make museums destinations for millions of individuals.  So, while it will be the execs who will negotiate with the unions, it will be the boards who must approve the terms and principles, according to their values.  Let's hope those values include employees - often a stated value in the compendium of principles that a board develops to guide the museum.

Here's the NY Times article.

Nonprofit Boards Considering Incentive Pay "NonprofitBoards"

I'm not wholly convinced that the following Crain's Detroit Business article (based on a Chronicle of Philanthropy report) is looking at any but the largest of nonprofits who are revenue-based, but within the article there are plenty of references to small nonprofits (that may also be a relative term).  The general theme of the article is that financial incentives must be offered in order to retain highly competent CEO's.  This is how it works in the for-profit sector.  What is not very well outlined in the article though is exactly what might be the measurable items from which incentives can be based.  The for-profit sector usually highlights profits as the core measurable base for incentives while recognizing that additional goals like customer satisfaction, employee satisfaction, sustainability, environmental impact etc. can all have clear, measurable goals.  So, if indeed, incentives plus base compensation is the direction nonprofit boards must head, the conversation must begin with understanding what will be the goals used to measure when and what incentives.  It's a process that the board must undertake to first, identify what should be the measurable goals and second, to conduct an annual review to measure performance against the goals.

Here's the Crain's Detroit Business article:

July 21, 2019 06:27 AM

Nonprofits step up incentive pay to stay competitive

Nonprofits are stepping up incentive pay opportunities to attract and retain top executives, experts say.

Those already offering it as a part of compensation packages are increasing the amount CEOs can earn, said Tim Dupuis, a Detroit-based vice president for Chicago-based executive compensation firm Pearl Meyer & Partners LLC.

And smaller nonprofits that hadn't yet begun to offer it are adding it to compensation packages.

Base salaries paid by nonprofits have generally been competitive with for-profit companies of similar size, Dupuis said. But for-profits offer larger incentive opportunities.

Nonprofits have tried to close the gap by offering slightly more generous health and wellness and retirement benefits, Dupuis said.

"But in order for us to be competitive in the market and attract and retain the talent we need to achieve mission, we need to have some kind of performance pay. The base salary and health and wellness benefits aren't cutting it anymore," he said.Nonprofits "are finding that to attract and retain their executive talent, they have to pay more similarly to for-profit organizations."

If they are going to pay executives more, boards prefer to put more pay at risk to ensure they get what they pay for, Dupuis said.

Because nonprofit boards are often comprised of for-profit executives, there's a willingness to look at incentive pay to compensate leaders, said Blaire Miller, co-managing partner of Bloomfield Hills-based Hunter Group, which does local and national searches for a number of sectors, including nonprofits.

"You have goals, and you get paid for goals."

Boards recognize the nonprofit world is still, in general, underpaid compared to the corporate world, she said.

"That pay-for-performance element is really building at the board level to recognize great performance."

Health care executives were the earliest among nonprofits to see incentive pay as part of their compensation package. Other nonprofits started to adopt merit pay in the early 2000s, as Crain's reported in 2005. As of 2012, just over a third of the highest-paid executives were awarded incentive pay.

In 2017, 61 percent, or 36, of the 59 highest-paid CEOs on Crain's list received bonuses.

Nonprofits that have included the "at-risk" or merit pay as part of compensation for years are giving executives the opportunity to be awarded a higher percentage of their base pay — say 20 percent instead of 10 percent — for hitting defined performance targets, Dupuis said.

Compensation mix

Incentive pay made up an average of 13.2 percent of the total compensation of the highest-paid executives in the region in 2017.

That's just below the national average of 14 percent reported by The Chronicle of Philanthropy in June.

Locally and nationally, the figures are skewed by a handful of executives who earn more at-risk pay.

When it comes to base pay, local executives were still earning a greater proportion of their total compensation through base pay than the national average in 2017.

Nationally, base pay accounted for an average of 62.7 percent of total compensation for nonprofit executives, according to The Chronicle of Philanthropy, with remaining compensation coming through a mix of incentive pay, deferred compensation and nonmonetary compensation.

Here in Southeast Michigan, base pay accounted for just under 74 percent, on average, of the top-paid nonprofit CEOs' total compensation in the latest reported numbers.

But there were six nonprofit executives whose base pay made up only about a third or less of their total compensation.

Those executives led health care and other nonprofits that compete directly with for-profits and include: McLaren Health Care Corp.; Beaumont Health; Altarum Institute; food and water testing nonprofit NSF; and the three local Blues nonprofits: Blue Cross Blue Shield of Michigan/Blue Care Network; Blue Cross Blue Shield of Michigan Foundation; and Blue Care Network of Michigan.

For BCBS President and CEO Dan Loepp, the highest-paid nonprofit executive in the region, just 11.5 percent of his $13.4 million in total compensation was base pay. The bulk, or 77.34 percent, of his total compensation was incentive pay.

Nonprofit Board Duty of Loyalty #NonprofitBoards

The duty of loyalty requires that board members be completely loyal to the nonprofit at all times. It also imposes the responsibility to avoid possible conflicts of interest, thereby precluding a director from self-dealing or taking advantage of a corporate opportunity for personal gain.  Despite the fact that most boards are urged to require their members sign an annual Conflict of Interest agreement, it appears this to be a practice not lived by all.  Take for example Acacia Network Housing and its CEO who as an officer, must adhere to these principals.

According to the Wall Street Journal:

Councilman Calls for Hearing on Nonprofit Contractors and Their Business Ties

Request for more scrutiny comes after officials opened a probe into a shelter operator

City officials are probing the relationship between shelter provider Acacia Network Housing and a security firm. Above, an Acacia building in the Bronx. PHOTO: CLAUDIO PAPAPIETRO FOR THE WALL STREET JOURNAL

By 

Katie Honan

July 21, 2019 11:00 am ET

 

A New York City councilman is calling for a hearing to look at nonprofit city contractors after officials opened an investigation into the allegedly undisclosed business ties that a top homeless shelter provider has with a security firm.

The Wall Street Journal reported Thursday that the city’s Department of Investigation had opened a probe into the relationship between Acacia Network Housing Inc., a nonprofit homeless services provider, and SERA Security Services LLC. SERA was founded by the Acacia’s CEO, Raul Russi.

Since 2010, Acacia has received more than $1 billion in contracts from the city’s Department of Homeless Services to operate shelters. The nonprofit paid more than $12 million to SERA in 2017 for the firm to provide security services at some of Acacia’s shelters, according to the nonprofit’s most recent federal tax filing.

Ben Kallos, a Democrat who represents parts of Manhattan, said in an interview Friday that nonprofit contractors should be better scrutinized over their business ties.

“We should be using our tax dollars for caring for our neediest, and we shouldn’t have to worry about self-dealing,” the councilman said.

 

The city requires that a contractor and its principals disclose any business connections.

 

SERA, which has its own direct contracts with the city, listed Jose Rodriguez as its CEO in its most recent disclosure forms with the city’s contract records system. Mr. Rodriguez also serves as the chief legal officer for Acacia.

However, Homeless Services said it wasn’t unaware of Mr. Rodriguez’s ties to both SERA and Acacia until The Wall Street Journal inquired about the connection last month. The agency said it also wasn’t aware of Mr. Russi’s connection to SERA.

The chief of staff of Acacia previously said that there was no conflict of interest between the nonprofit and SERA. She also said that no officer or director at Acacia has any beneficial interest in SERA or receives any financial benefit.

Mr. Kallos said the Journal’s article raised concerns about misrepresentations and how the city ensures organizations are being honest.

“This is something that should have been caught in the process and a simple audit of tax returns and of the documents that should have and would have been submitted,” he said.

Write to Katie Honan at [email protected]