Nonprofit Board Crisis

Nonprofit Boards Set an Executive's Salary

One of the primary jobs of a nonprofit board is to hire an executive.  One of the hiring tasks include setting the value of that executive.  Value of course refers to salaries and benfits.   And it is the nonprofit board's job to determine value based on any number of factors including job requirements and demands, comparable rates paid by other nonprofits, and of course, the skills, knowledge and experience of the particular individual.

Interestingly it is executive salaries and benefits that are often one of the elements the public and the media and sometimes the government raises the most questions about a nonprofit over pretty much any other aspect of a nonprofit including outcomes. Maybe it's because donors can best see how their dollars are being used in the form of the exec salary.  And, I'm sure there are a bunch of other reasons, some more rationale than the next.

So it's really unlikely that the public or media will let salary go as a topic to discuss when thinking about nonprofits.  And its really unlikely the public or media will let salary go as a topic when added information indicates that the recipient doesn't appear to be working full time for a full time job or even working at the location of the nonprofit.  That's the story the Hartford Courant reported on about an area nonprofit.

Bottom line: it's still up to the nonprofit board to determine what it needs and is willing to pay to get the outcomes it values.  Yes, there are consequences for decisions which on the surface maybe cause head scratching but nonprofit boards: this is your job.  Let prudence be your guide and good luck if you fail at that.

Nonprofit Board Pushes Forward

I know in this blog I tend to favor sharing learnings by highlighting nonprofit boards that have mismanaged or otherwise proven their inefectiveness.  However, trying to be effective after failure provides learning opportunities as well.  The Slavery Museum is today's case in point. 

The Wall Street Journal, in an article yesterday, noted that the Museum Board was stepping out of Chapter 11 with a plan that would address its debts and its longer-term sustainability issues through a combination of fundraising and increased revenues.  In my humble opinion and based on all I know about the Museum's focus, the goal of raising $900,000 from individual donors, to repay debt, should be achievable.  And increasing revenues from operations should be achievable too.

More importantly, I am thinking that the experience of the Museum's Board is worth documenting for all nonprofits.  For example, how typical is it for a board to mirror many small business entrepreneurs who are driven by mission and hope to the point that they put aside prudence when all that flies are yellow caution flags?  And, how much of the board's membership needs to change, if any, for the board to get to a place that it can renew its optimism while applying prudence?

I am hoping some academic institution will help answer these types of questions.  In the meantime, if you would like to know more about what's next for the Museum, do check-out the Wall Street Journal article and click-on the link that will take you to the Museum's actual Chapter 11 plan for the future.

Nonprofit Boards and a sustainability strategy

According to a recent analysis, mega nonprofits that rapidly scaled up did so by pursuing one big funding stream rather than a diversity of streams. On the one hand, this idea is consistent with Jim Collins' advice of "doing what you do best".  On the other hand, this idea flies in the face of the generally offered advice that a nonprofit does best to avoid over dependence on any one funding source, primarily because funding sources can be unreliable. 

The authors of the study suggest that pursuing one stream "can better attract the resources neeeded to fuel programmatic growth and avoids spreading resources thinly across a variety of funding opportunities." The authors also suggest that a sustainability strategy is better determined early in the life of the nonprofit.

Two different lessons arise for me from this study.  One is that an effective sustainability strategy is one based solidly on market research.  The second lesson is that a sustainability strategy is just that: a strategy developed to achieve a particular goal.  Developed as a part of a straegic plan and revisited with each new plan or sooner, determining a sustainability strategy is an important fiduciary act of the board -- one that obviously can have a large impact on the organization's future.

The study, Why More Nonrpofits Are Getting Bigger, can be found in the Spring 2012 Stanford Social Innovation Review: www.ssireview.org.

Nonprofit Board: Good or Bad

Is this nonprofit board good or bad?  This is the question I'm certainly left to answer after reading this Port Orchard News article about a humane society which appears to be struggling but the basis for its struggles "ain't exactly clear".

Here's a few lines from the article:

the nine-member board parted ways with former executive director Sean Compton

The board of directors has selected a new interim executive director for the nonprofit.

An online petition was started on the website www.change.org alleging mismanagement by the nonprofit’s volunteer board, ranging from financial dealings to tampering with board meeting minutes, and calls for an election of the board by donors in March

the idea that the board of directors would ever use the Humane Society for personal benefit, especially financially, is ridiculous says a former staff: one of the board’s main functions is to choose a competent executive director, who then makes most of the decisions about contracting and financial matters.

The "behind smoke there's fire" addage comes to mind for me.  The "sudden" departure of an exec and acusations by others.....for sure, there's something going on.  I must say though that the idea of donors getting together to elect a new board.....I'd love to see the by-laws.

City and Nonprofit vs Citizens

What happens when a municipality and a nonprofit have an agreement but a group of citizens doesn't believe they benefit from the arrangement?  What happens remains to be seen with this exact situation involving New York City, Lincoln Center a group of residents living around a city park that is rented out for the Big Apple Circus and Fashion Week. 

I'm not particularly loyal to either the City or Lincoln Center but the idea that a city and a nonprofit could reach an agreement where lots of good stuff happens for the community and money is made for both the City and the nonprofit is unusual enough that it should be lauded.  On the other hand the idea that a nonprofit is viewed as an offender of rather than filling a void for citizens raises some interesting questions about the general nature of nonprofits. 

Note though: the Federal Government (the people) doesn't discriminate in its allocation of tax exemptions.  Right wing and left wing and centrist groups can all get a nonprofit status.

Nonprofits to pick-up the shortfalls in cities?

Once again cities are turning to nonprofits, not only to provide the critical services that fill-in the voids the public sector doesn't address after its first priorities  and/or are created by the failings of the for-profit sectors decisions to chose profits over everything elese. 

Take for example the City of Providence, Rhode Island and Brown University.  Now, admitedly, Brown has a lot of money in savings and it's a really big non-exempt property holder currently paying the same city-determained amount owed by all property holders who aren't tax-exempt.  But Providence wants Brown to pay a much larger amount in the form of a PILOT (payment in liew of taxes).  The impact on Providence would certainly be favorable but what about the long-range impact on Brown?  If it paid what was asked, would it retain its economic security not to mention provide the added value that comes from bringing business to town?  Likely not at the rate the city wants it to pay.

See the Wall Street Journal for the story.

Nonprofits Out of Business

Last week I noted the story about an LA "backroom" fiduciary nonprofit that misspent the money of the variety of nonprofits that had trusted the organization.  According to the LA Times, these group's monies were spent on were "used to pay legal fees and other bills, including $12,000 a month for offices in Pacific Palisades, as well as back taxes and penalties to the IRS."  Almost one million dollars of funds were depleted from these grops leaving almost all without any money.

I'm not sure what the groups could have done to prevent this situation.  For sure they should take up a class-action suit to get their money back from the exec and the board (never mentioned in the article) that was responsible for this gross violation.  I also have a tip.  These digital versions of news stories permit related ads and on this page, at least when I was read the story, was an ad by BofA that said: "supporting the nonprofits that address critical community needs."  While I can't speak to the nature of the needs being addressed by the groups that lost their funds here, seems like BofA should at least be a first stop.

Nonprofit exec says financials are confidential

The transparency police are up in arms when they hear this Maui (you know, Hawaii) nonprofit exec say that the organization's finances are "confidential".  Perhaps you are thinking "doesn't sound that bad", but what if I tell you that "confidential" is the term the exec used to describe why the financials are not available to her board!  Well that's just part of the story of obfuscation; check-out this article in the Maui News and then ask yourself -- what stopped this board from just outright firing their exec?

Nonprofit Founder Disapears

In this blog I frequently feature stories about nonprofit founders whose time it is to depart from their nonprofit.  I for one would not have ever thought about a founder who left before the nonprofit actually got off the ground.  Please read this Washington Post article and think about what you might advise these board members.

Nonprofit Fraud

Last week I talked about a Nonprofit World January/February 2012 article on fraud, specifically, what are the types of fraud.

Another item I found interesting in the same article was the "behavioral red flags of perpetrators". 

Here goes:

43% -- living beyond means (doesn't everyone)

36% -- financial difficulties (who isn't)

23% -- control issues, unwilling to share duties

22% -- unusually close association with vendors/customers

19% -- wheeler-dealer attitude

18% -- divorce/family problems

15% -- irritability, suspiciousness or deffensiveness

12% -- addiction problems

10% -- refusal to take vacations

I'm not listing the remaining 7 red flags which gives numbers that are less than 10%.  Funny thing: i'm thinking that "perpetrators" may well have more than one of these characteristics.  After-all, aren't these traits similar to lots of people at different times and don't necessarily lead to fraud?

Just the same, telling.