Nonprofit University Blog

The 13 September issue of Newsweek had a headline that grabbed—not merely caught—my attention:  “Do fines EVER make corporations change?”  And the answer, as you soon will learn, if you didn’t already know, was at this rate, how could they?

Newsweek provided data on three companies.

• BP:  2007 was its worst year in the fines department, fined a total of $391 million dollars for such behavior as “illegally manipulating energy markets, breaking environmental laws, and anticompetitive practices.”  In 2007, BP had revenue of $284 billion.  Thus, its fines for 2007 amounted to a mere .14% of its revenue in 2007.

• Goldman Sachs:  its worst year for fines (are you getting the point:  year after year, these companies are fined, but the behavior is just repeated, or new fine-producing behavior occurs, the next year) was 2009.  Its fines totaled $550 million, out of total revenue for the year of $51.7 billion.  These fines cost them only four days worth of revenue.
• Massey Energy (owners of the Raleigh County, West Virginia coal mine that exploded this past April killing 29 miners):  it, too, had its worst year of fines, to date, in 2009.  It was fined a mere $13 million, out of its annual revenue of $2.7 billion, meaning its fines totaled less than half of 1% of its annual revenue.

Now, if the US government only wanted to fatten its coffers by levying fines, my guess is it achieved that goal.  I would think that $954 million could do a little something to help out our government’s bottom line.  But if the fines were intended to correct behavior, make things better for people and communities, fines, as depicted above, are clearly not doing the trick.  They are not affecting behavior, which means attitudes haven’t changed and it will be business as usual.

So, let’s come up with a different “punishment”.  I know that for so many in the corporate world money is the basis for all exchanges, for judging the “success” of people and companies, for rewarding “good” performance, etc.  Thus, a monetary fine fits in perfectly with that world.  But what about an alternative?  What about fining the lifestyles of every senior manager and employee who took a part in the behavior that lead to the fine?  That would mean everyone in the board room, in the executive suite, several floors down and more.

What if they had to work in the mines for a month or literally clean up the gas spill instead of appearing in pretty television ads saying how hard they are working and will work to clean things up, or move out of their homes and live with relatives or on the street or in a one-bedroom, fourth floor walk-up because they were now in foreclosure?  explain to their children that their savings were gone?  What if they had to report to the unemployment office once a week and wait for their welfare check to arrive to make ends meet?

Too harsh?  Too difficult to achieve?

Well, the courts in our country regularly sentence people to fines and community service.  So let’s go for the community service option and get some real benefit for the nonprofits that are serving all the people who have been harmed by the behaviors that led to the fines.   What if a company’s board members, executive suite residents, senior managers and all others involved in the negative behavior are required to spend a month working in the nonprofits that serve the people harmed by their greedy behavior, willingness to ignore laws and regulations, to bend a little here and there, lie, dupe, etc?  Don’t worry, they would be paid and have benefits—but in accordance with the compensation package of the nonprofits where they were employed for the month?  (And some of the billions of dollars in fines could be used to pay those salaries and benefits costs; I’m sure the US government could spare that chump change.)  What if they had to see the consequences of their behavior as they stocked food pantry shelves, did intakes at the local health or mental health clinic, counseled at the jobs training center, etc.?  What if they had to pay back with their own time and talent and not just the company’s bottom line?

Might they not learn some lessons that might actually stick when they return to their board rooms and executive suites?  And in that learning process, they could help individuals and communities recover from their figurative raping and pillaging.

I don’t know if the late Senator William Proxmire and Thomas Szasz, MD, ever met, but they had a lot in common.  Proxmire was a Democratic Senator (and Hill School graduate) from Wisconsin from 1957-1989.  He’s perhaps best known as the creator of the Golden Fleece Award which he gave to government funded research projects that he thought were a waste, as they merely demonstrated what everyone already knew.  Szasz is a psychiatrist and academic who long ago infuriated many of his colleagues in psychiatry by accusing them of making simple “misbehavior” into “disease” in order to justify their own importance and value.

Both Proxmire and Szasz would likely be equally amused by two new research studies on the value of the ratings by charity watchdog groups, and the watchdog groups’ reactions to the studies.

The studies, one by George E. Mitchell, research assistant with Transnational NGO Initiative at the Moynihan Institute of  Global Affairs at Syracuse University, and the other by Jessica E. Sowa, Associate Professor at the School of Public Affairs at the University of Colorado in Denver, were commissioned by the Direct Marketing Association Nonprofit Federation.  Breaking it down to the bare essentials, both studies found the watchdog group’s ratings sorely lacking, problematic and potentially damaging to a charity.  But to anyone with half a brain, this should not come as any surprise.  Hence, had these studies been funded with government funds, I’ve no doubt Proxmire, were he still alive, would recognize them as strong candidates for the Golden Fleece Award.

Who would think, for a minute, that financial benchmarks, which Mitchell labels “arbitrary and inconsistent” would be a good indicator of an organization’s overall effectiveness and efficiency?  The answer? Watchdog groups!  Mitchell further points out that some financial benchmarks, such as the cost of raising a $1 contribution, are beyond the control of nonprofits, as the cost of raising funds is determined jointly by the charity and the donor.  Few executive directors, Mitchell notes would define organizational success as “overhead minimization,” yet watchdog groups do.  He says, “A more appropriate measure of organizational effectiveness would measure the extent to which organizations are achieving their promised goals.”  Duh!  And that duh is not for Mitchell or Sowa (whose conclusions are in synch with Mitchell’s), but rather for the watchdog groups who created the ratings systems and everyone else who believes in them, from nonprofits staff and board who seek the “stars” from the watchdog groups and the general public who uses the stars to make a determination of whether a nonprofit is worthy or not.

Let’s be clear.  I’ve said again and again in these posts that nonprofits are businesses that must pay attention to their bottom lines.  But they must pay attention to the bottom line tempered by the ability to fulfill mission promises.  Nonprofits that don’t pay attention to their financials are those that risk not being around tomorrow.  Hear me loud and clear: I am not for a moment discrediting the value and importance of financials when used appropriately, but only when put forth as a valid measure of an organization’s goodness.  But to use them to judge an organization’s effectiveness or efficiency is ludicrous, as we are using, as Mitchell notes, an “untested assumption” as “credible evidence is lacking that any such connections [between financial ratios and organizational effectiveness] exist empirically.”   And yet donors, and others, make all kinds of assumptions about a nonprofit based on “stars” awarded as a result of a methodology that has never been shown to be valid.  Where is the logic in that?  But at least now we have academic research to challenge that which has always defied common sense.

But the watchdog groups are fighting back, defending their value and importance.  Ah, Dr. Szasz, me thinks they doth protest too much! Charity Navigator responded to the studies by saying that the measures the researchers suggest don’t currently exist, thus leaving financial data as the only tool available to measure organizational goodness.  Wow!  Another demonstration of great logic:  the good measures don’t exist so let’s just use what is available even though there is no empirical evidence that demonstrates that it does, indeed, measure what we are saying our ratings scale measures.

American Institute of Philanthropy defends its work—and therefore its need to exist—by blaming the victim.  And I just love it!  (I am being facetious.)  Its president, Daniel Borochoff, said that “[c]harities are in denial when they say financial performance measurements are somehow not relevant or important.”  Excuse me?  In the last 30 years, has anyone heard an executive director say that the financial performance of her organization is not relevant or important?  in fact, more and more executive directors will tell you they spend more and more of their time assessing—for some it is even obsessing–and worrying about the financial health and well-being of their organizations.   And in defending his organization, and other watchdog groups, as vitally important, Borochoff said, “[i]t is pathetic and sickening that there are so many charities ripping the public off.”  There are 1.8 million charities in the United States; but at 1% that would mean 18000 charities are “ripping off” the public every year.  Are there that many?  more? less? I have no idea.  And though having even one nonprofit trying to rip off the public is quite distasteful, to say there are “so many” conjures up figures of 25% or higher.  And we simply are not there.  For I do know that the vast, vast majority of nonprofits are not ripping off the public or their donors, nor do they have the hopes or goal of doing so.  I find it quite sickening when organizations that set themselves up to be the judge of others rationalize the importance of their business on gross generalizations and an absence of facts.

So, to the spirit of Senator Proxmire, I acknowledge that this research is of the Golden Fleece ilk but with the potential to open people’s eyes to the absurdity of what it studied.  And to Dr. Szasz, the beat goes on:  professions will continue to justify the need for their existence as long as we, the public, allow them to do so.

Culture change is hard; there is no getting around that.  But if you have reached the point where you are talking about culture change—or if you like the softer euphemism of culture shift–you are past the point of needing one.  So now the challenge is to do it.

What am I talking about?  Oh, I’m talking about that culture of no accountability that allows some people to not be accountable for doing all of their job while others work double time.  I’m talking about that culture that goes beyond the moral call of duty and gives nine, ten, twenty-seven chances.  I’m talking about that culture where the executive director enables the board not to do its job and the board allowing that to pass.  I’m talking about a culture that never moves forward and simply has the same conversation over and over and over again.  I’m talking about that culture that is comfortable accepting the thinking of nonprofits as second class citizens.  And oh so much more.  But truth be told, if your organization needs a culture change, the smart ones amongst you know it.

So, how do you make it happen?  First, though, let’s get one thing straight:  culture change does not happen overnight; nor is it easy.  Pain is involved, beginning with the very first step in culture change:  who/what (but it is generally a who) is preventing the change from happening?  Once identified, that person(s) needs to go!  Therein lies the pain—and for so many nonprofits, the rub, as far too many nonprofits don’t like to let people go.  (Notice I did not use the word fire!)  But there are no ifs, ands or buts about this.  Chances are very good that culture shifts—or perhaps even change—has been tried in the organization before, but it never goes anywhere.  Why?  The impediment(s)!  Frequently while talking out of both sides of her/his mouth, the impediment works with the culture change group from one side while squashing it from the other side.  The etymology of impede says it all:  from the Latin impedire, “to shackle the feet.”  Free the feet and start moving!

Culture change almost always means more work—at least in the short term, and perhaps even the long term.  Are you—is the organization, all of its people—ready for that?  Change itself is work.  And then the outcome of change is often that the same ole will no longer be, replaced by a new way of doing things.  People will need to learn new tactics and jobs, and just that simple act of learning new means more work.  While I do not mean to suggest that all culture change takes systems from the lackadaisical to the hard working (as sometimes the change that needs to happen is a stepping back from workaholic culture that burns people out faster than a yahrzeit candle to something that allows for better work-life balance), more often that is the direction of the shift, meaning more work to come rather than less.

Culture change also means hearing some hard truths, and rather than running from them, embracing them.  Embracing them means taking corrective action, creating solutions, trying new ways while admitting that the old no longer worked, and the list goes on.  And in so doing, there may be some missteps.  Culture change is not necessarily a linear process.

Changing cultures to become more effective at delivering mission, better work environments for our staff and volunteers, stronger organizations in which donors will want to invest is not something from which any person should shy away.  If you are among the smart people in your organization, one of the ones wiling to be honest with yourself, you know if your organization needs a culture change.  Make it happen.

You don’t have to be at the top of the organizational chart to start the course of change.

I don’t know Sean Coffey—don’t know anything about him—but if I were a resident of the State of New York, he’d have my vote for Attorney General—hands down!

Let me go on record saying that I am generally not a one-issue voter.  It just isn’t smart electoral behavior.  But I am so sick and tired of lawmakers who abuse nonprofits for their own benefit and, in so doing, damage the reputation and work environment of the millions of nonprofits who work so hard to do such great work for our communities, that on this issue, I would absolutely make an exception.

Sean Coffey, a Democratic candidate running for Attorney General, is proposing the creation of a special unit to crack down on lawmakers giving out money to their favorite charities—what he refers to as a “festering sore.”  Yikes!  Those charities that, sadly, all too frequently were founded by them or a family member, have them on the board, their staff also serving as the staff—and, yes, collecting salaries—of those charities, are an “out clause” for when they lose the next election or retire from legislative work, etc.

In Coffey’s proposal, lawmakers would voluntarily file disclosure forms—just like nonprofit board members file in accordance with their Conflict of Interest policies—identifying the potential conflicts they have with organizations that qualify for state funding.  This information would then be known prior to the approval of the state budget that would include those grant allocations.  Accepting, sadly, the fact that such external policing is necessary, my question is:  what took someone so long?  Attorneys General around the country have been cracking down on nonprofits for a good number of years now, holding the microscope very, very close.  (Nothing wrong with that, except too often it seems they go after the wrong organizations, ignoring the egregious violators.)   Yet with headline after headline, from east coast to west, north to south, of lawmakers fattening the coffers of questionable nonprofits with ties directly to the lawmakers, what took so long for such a proposal?

The one downside to Coffey’s proposal—based on the limited information about the program that is out there—is that it is voluntary.  Lawmakers will not be required to file disclosures.  (Do not let the irony be lost:  the Form 990 asks nonprofit boards to report whether board members sign an annual disclosure form and then asks for an accounting of every conflict that came up the previous year—what it was, how it was resolved, etc.  While failure to have this annual disclosure submitted by all board members is not illegal, there is an implied correct answer of “yes”.  Answering “No” most definitely raises a red flag. )  So what about those who don’t volunteer?  Coffey says he intends “to insert [himself] into the process.”  I hope he wins so he can insert away!

There is, however, no law that says this festering sore that exists in every legislative body that allows its members to award money, essentially unchecked, to organizations of their choice must wait for Dr. Attorneys General to redress.  In fact, it is so much more seemly when entities oversee and control their own.  It is about time legislative bodies started doing so.