Nonprofit Board Crisis

A Great Nonprofit Periodical

I'm writing to plug an on-line newsletter that often-times provides great insights into nonprofit governance and management -- maybe I've plugged it before but what's once more?  The site is Blue Avocado, run by Jan Masaoka, a founder of Compass Point.  Jan and Blue Avocado are thoughtful, insightful and creative.  She is particularly clever at getting at nonprofit governance and management issues with a personalized approach.  Plus, it doesn't take much time or effort to read.

You really should subscribe (for free although donations are welcome).

Here's the address: www.blueavocado.org.

Charter School -- Opportunity for Embezzlement

An executive office with:

$145,000 in expenses that included flat-screen TVs, lavishly appointed bathrooms, and a kitchen with granite countertops; $46,000 in improvements to a principal's home billed to the school; and, $34,000 to the school board president who approved rasises for the top exec and a 20-year consulting contract for more than $100,000 annually for 90 days' work or less.

These are some of the abuses the Philadelphia charter-school CEO and Board President are being accused of, according to a story in the Philadelphia Inquirer.  The former founder, also implicated in this federal investigation, killed himself several weeks ago.

So clearly, the controlls needed to steer this level of embezzlement away were not in place or controlled so as not to be effective.  I've gotta admit that when the Exec and Board Chair are in cahoots, it's tough to be preventive.  On the other hand, I do wonder about the finance committee's capacity to ask financial questions effectively.  All must bear some burden for this situation.

Kennedy Center to Expand Helping Arts Agency Initiative

According to the Washington Post, the Kennedy Center for the Performing Arts' Executive Director has announced that he will be hitting the road visiting all 50 states and spreading the deep and profound wisdom the Center has to offer on "addressing the challenges in areas like fundraising, building more effective boards of trustees, budgeting and marketing".

As I stated back in the fall when this Initiative was launched, I don't understand exactly what the Kennedy Center will tell all the uber-struggling nonprofit art groups throughout the country.  Other than, or course, what it's like to have really deep pockets.  More importantly, I don't quite get what the Kennedy Center gets out of this effort.  

Do I think its bad someone wants to support arts organizations through this weather? Not necessarily, although it has the potential common to really big organizations, sucking up money away from a number of other arts-capacity building groups -- but maybe that's just the way the new economy will be in the nonprofit sector.

If you are particularly interested in the arts and this economy, the Washington Post has also published a special report specifically on this topic.

Can Nonprofit Trustees be Trusted?

Not all nonprofit trustees can be trusted as is highlighted in the UK's Third Sector On-line.

The case in question:

The charity's then chair and treasurer had been paid for five years for acting as its chief executive and deputy chief executive respectively, according to the commission's inquiry report, released yesterday.

The inquiry found that the treasurer had written out and signed at least two cheques to himself as payment for his services. The cheques had previously been signed in a blank form by another trustee – a practice that had been going on at the charity for 27 years.

I suppose the good news is that there was sort of a check-and-ballance (well, another trustee was signing the checks).  And, the chair of the nonprofit was subsequently removed by the trustees.  However, the treasurer was not removed "in the wake of an internal decision review after he and the rest of the trustees made a number of pledges, including to stop paying trustees and pre-signing blank cheques."  On the other hand, the treasurer is no longer treasurer.  I guess he has more friends than the previous Chair.

So questions: when a nonprofit's board is also staff (whether as individuals or in committees) should they be compensated?  And if also staff, what checks-and-balances can be put into place to ensure the situation played out in this case is avoided?  And, why wasn't that treasurer booted out too?

Nonprofit Board/Committee Not Representing Members

The Pastor of Riverside Church has resigned after just 9 months on the job (that's a short time for most jobs but really short in the pastor world).  For those who don't know, Riverside Church has been the home for some amazing social change-focsued pastors.

Well, this Pastor is resigning over a number of issues that are desecribed by the New York Times as  having included a fierce battle within the congregation over his compensation package and the mission of the church.  (Note, according to this article "his pay package exceeded $600,000 a year, including a $250,000 salary and a housing allowance").  By the way, yes it's a lot of money/value but this is not the focus of today's blog.

The controversy for this Pastor started "a week before his formal installation in April, a group of dissident congregants went to State Supreme Court in Manhattan seeking to block the ceremony, saying that he and the board had been unnecessarily secretive about the church’s finances. They also complained that Dr. Braxton was moving Riverside away from its tradition of interracial progressivism and toward a conservative style of religious practice."

So, I'm thinking that this fall-out could have been averted through any number of means but all at the pre-hiring stage.  I'm thinking something seriously went wrong in the way the Committee/Board did their job -- maybe they didn't talk to congregants about the member's needs and interests; maybe they didn't find a way to "test" their selection leanings; maybe they didn't "sell" their decision well to the congregants.  Certainly, they did not engage the congregants to the degree that some portion were willing to act strongly against the chosen candidate and in the end, leave the selectee needing to move on. 

I believe this story is really a lesson in governance and more specifically, engagement governance.  I hope the Board and Committee in particular are taking with them these lessons as they must now start over.

What Relief Will Foundations and Nonprofits Get From Madoff's 150 years?

As you likely have heard by now, Bernie Madoff got 150 years for "screwing" a whole bunch of individuals and institutions, including some important foundations and nonprofits.  The Wall Street Journal offers a great read on this story including some details about some of the sources of prospective cash the Justice Department is trying to recoup (even more about Mrs. Madoff and all she gets to take with her).

Well anyway, Mr. Madoff's 150 years are pretty silly -- at the minimum, he isn't going to really serve 150 years -- maybe not even 10 (they'll probably let him out in maybe even 5 years because he will be sick after a period of not living in the style he's become accustomed to). 

A bigger question: what good is Mr. Madoff's imprisonment to the foundations and nonprofits who must now proceed without the levels of support previously afforded them?  Can't we have Mr. Madoff use his obviously special skills to earn these foundations and nonprofits some of their money back? 

And, perhaps more important, what lessons have these foundations and nonprofits (those that still remain) acquired from this experience?  How will they change their behavior -- will their boards become more fiduciarily responsible?

Final bid for Buffett lunch -- no chump change even in this economy

"Warren Buffett's charity lunch sold for $1.68 million, a 20 percent drop from the price paid in last year's auction" reports the San Francisco Business Times.  The name of the final bidder has not yet been announced and the proceeds will again go to the Glide Foundation, a San Francisco church with a huge ministry to the homeless.

As much as the press was poo-pooing the final bid as being a 20% drop from the previous year, I don't think of 1.68 million as chump change (which according to thefreedictionary.com means a "a trifling sum of money"). 

Critics need a better life -- kudos to Warren Buffett for his gift of time and wisdom and mega-kudos to the top bidder!

Who Should Evaluate Health Insurance Plans?

According to the New York Times, "Senator Jay Rockefeller has proposed creating a nonprofit organization to grade all plans offered on a national exchange based on such factors as adequacy of coverage, affordability, customer and health provider satisfaction, and transparency of procedures and decision-making."

The Editorial from the Times essentially focused on the evils of the health insurance industry, even in the wake of a possible universal plan.  Of course, they are evil -- but that aside, wouldn't it be the government's job to regulate and monitor especially if the industry is not serving the public?

Maybe Now Nonprofit Hospitals Will Be Nonprofit

From the Washington Post we are hearing of the huge economic challenges nonprofit and for-profit hospitals are facing given the economy and particularly the extraordinary number of new uninsured.  The challenges loom large and are projected to grow over the immediate if not long-range future. 

The good news: maybe this crisis in hospitals will spur action by the legislature to support universal health care etc.  Also, for nonprofits in particular, if I accept that hospitals are growing their debt while serving more folks without insurance, then at least nonprofits are being more nonprofit, albeit not necessarily great businesses although that was never my concern. 

The bad news: well, maybe there really won't be as much health care access as needed but of course this is back to the good news -- the government will have to eventually step in.

Small Boards Reason For Madoff Losses by Foundations?

A National Committee for Responsive Philanthropy report analyzed by New York Times’s Stephanie Strom concludes that the reason so many foundations lost money to Madoff is that they had really small "insular" boards.  The logic here, according to the National Committe's Exec is that these Foundations had small, homogenous boards where someone knew someone who trusted Bernie Madoff and that was enough for the board to say ok then, let's invest.

I suppose that yes, members of small boards are more inclined to follow another member's recommendations.  And, we know that folks who get together to give away certainly don't get together to have a bad time and maybe too, some don't have financial expertise (although unlikely given how these foundations tend to get started).

BUT, I absolutely much more agree with Hildy Gottlieb who in the same Times article  said, “What tends to happen is we tend to point fingers at individuals when in fact there is a failure of systems, regardless of size, organizations need to have systems in place that address what it does and needs to accomplish, including a sound investment policy.” 

Small size or not, I agree and believe this failure by foundations was about systems and policies and due dilligence -- none of which appear to have been in place enough to prevent this very ugly and sad outcome for all.