Nonprofit University Blog

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.

In May 2009, a group of Harvard MBA graduates of the Class of 2009 created the MBA Oath, intended to be the management equivalent of the Hippocratic Oath.  By signing the MBA Oath, that MBA graduate is promising to abide by a number of standards, from not advancing” personal interests at the expense of [her/his] enterprise or society” to upholding both the letter and spirit of laws and contracts to refraining from business practices “harmful to society,” among other things.  And a signer understands that her/his “behavior must set an example of integrity, eliciting trust and esteem from those I serve.”

Today, the MBA Oath has moved well beyond the hallowed gates of Harvard, and has been signed by over 4,200 individuals from more than 300 schools from around the world.  Nice!  (But hey, what about the other thousands?)

Despite that little barb, I am not writing about the non-signers of the MBA Oath, as I am impressed and pleased with the Oath’s creators and the 4,200 others who joined their cause.  It is a step in the right direction.  Today, I writing about the need for a Nonprofit Oath that those of us who work in the nonprofit sector would sign and uphold with the same pride, commitment to standards of excellence and integrity and furthering the credibility of our profession that doctors—and now MBA graduates.  Such an oath is long overdue.

Before everyone jumps on me, yes, I would like to think that such an oath, such a reminder, would not be necessary for any professional, least of all those working in the nonprofit sector.  But any such naïveté that I might have had disappeared a long, long time ago.  In fact, the nonprofit sector may need such an oath more than other professionals.

What set me off on this?  Perhaps it was the monthly (at least) calls I get from reporters around the country asking if situation X is a conflict of interest.  Perhaps it is the fact that too many nonprofits hire businesses owned by staff and board or their family members.  Perhaps it was the executive director whose answer to every complaining staff member is “you need counseling” and refers the staff member to the counseling business she owns.  Perhaps it was the executive director of Philadelphia’s Housing Authority who says that the $300,000/year job was too much pressure and thus why he fell behind on his mortgage payments and payment of taxes and who disappears from his job for several days but is then praised by a Philadelphia Congressman who asks the public to remember the good work he has done providing housing for thousands of people.  (Excuse me, that is the job of a housing authority.  It is nothing special or extra.)

Or perhaps it was the Delaware River Port Authority, which charges cars $4 to cross the Delaware River from Philadelphia to Camden and was planning a $1 rate hike for next summer, gives money to the Kimmel Center.  (I get why they want to support the Kimmel Center, but then charge less money for crossing the river.)  This list, in case you didn’t figure it out, is just the tip of the iceberg!

I am sick and tired and I’m not going to take this anymore.  (I actually hated that movie so much I walked out in the middle.)  But perhaps it is our own fault.  Perhaps many, like I did, assumed that people have their own strong code of ethics and bring those standards with them to work.  (But, as we all know, assuming makes an ass out of you and me.)  But clearly, we are wrong.  So, we must be explicit:  create that oath, have everyone affiliated with the organization sign it; and then hold them all accountable.  Review performance of staff, board members and other volunteers as it relates to upholding the oath.

So, what might that oath look like?  Borrowing heavily from the MBA oath, it might include such statements as:

I promise that:

• I will fulfill my responsibilities with loyalty and care, and will not advance my personal interests.

• I will understand and uphold, in letter and spirit, the laws, regulations and best practices that govern my conduct, my organization and the nonprofit sector.

• I will refrain from corruption, unfair competition or business practices harmful to my organization, the nonprofit sector and society.

• I will protect the human rights and dignity of all people affected by my organization, and I will oppose discrimination and exploitation.

• I will protect the right of future generations to advance their standard of living and enjoy a healthy planet.

• I will report the performance and risks of my enterprise accurately and honestly, and should I discover unethical practices and behavior within my organization, I will report that as well.

• I will invest in developing myself and others, helping the nonprofit sector to continue to advance and create sustainable and inclusive prosperity.

In exercising my professional duties according to these principles, I recognize that my behavior must set an example of integrity, eliciting trust and esteem from all those I serve, from clients to colleagues to donors to the public at large. I will remain accountable to my peers and to society for my actions and for upholding these standards.

A former board president of a nonprofit recently confessed to me that she and the rest of the board had no idea what the full mission of their nonprofit was.

This comment is scary, for sure, but unfortunately, not surprising.   For, truth be told, my best conservative estimate is that the majority of board members of nonprofits do not know the full mission of their nonprofits, do not know the full breadth and depth of the very thing they are charged with stewarding and protecting—the organization’s mission.

And, if we are telling truth, then let’s tell it all:  this lack of full understanding of what an organization is all about—not just what it does, but what it aims to accomplish by doing what it does—extends deep into an organization.  It is highly likely that the majority of an organization’s volunteers—if fortunate enough to have volunteers—do not understand the whys and wherefores of the organization.  And if you haven’t yet gone there, let me take you there:  the odds are very good that that less than 100% of the staff of a nonprofit really understands the organization’s mission:  what all that it does for what ends and impact.

My statements come from decades of work with nonprofit boards, staff and volunteers.  Of doing strategic planning with nonprofits and listening to the discussions of long-serving and new members of the organization’s community disagree on what the mission of the organization is or what does it matter if they are running programs that just serve boys, because they are good at doing them, even though the mission says “children”.  Of watching light bulbs go on as folks learn that the mission really does say they should be doing education, not just preservation; that they are to be serving all communities, not just one; that they are trying to improve school performance not just provide children a fun afterschool safe haven.  Of watching people go through the motions because they don’t understand how their work feeds into a bigger picture, a bigger goal.

This is a problem.  A BIG problem!

One of the joys of working for a nonprofit is that, at the end of the day, we feel good about what we did that day because we know we are working to make a difference—for people, for communities, for ourselves.  We know that answering a client’s questions is a tool that allows us to accomplish the organization’s mission of empowerment.  We know that curating a show or teaching people to read means that people’s lives will be enriched, new doors will be opened, imaginations will be whetted.  We know that sweeping the hallways and cleaning the kitchen means that people are being respected, nourished and valued.  But when we don’t understand why all questions need to be answered with grace and compassion, all people deserve to sleep and eat in safe and clear surroundings and that art, culture and literacy are not a privilege but a right, our job as employee, volunteer or board member is diminished, as is our ability to fulfill our mission promises.

While it is great that each of us does our work having identified what we see as the purpose, it is paramount that our individual purposes are in synch with the organization’s mission. And while it is great that we feel good about what we do each day, it is essential that we understand how our work fits into the mosaic that is the organization’s mission and that we can speak about the whole mosaic and not just our little piece.

The same is needed of volunteers—be they the volunteers who help run the office, train the dogs or cook in the kitchen, or the volunteers who are the board.  All must understand that they are a very significant part of a whole seeking to deliver a comprehensive impact.  It is essential, therefore, that all of the pieces—not 80% or even 95%–understand and embrace that comprehensive impact and value all of the ways that impact is achieved.

So, where is your organization?  If 100% is the necessity, where are you?  If you were to give a quiz to all of the staff, volunteers and volunteer board members affiliated with your organization about the mission of the organization, what it is, how it is achieved, and what is the ultimate desired impact, would you hit the 100% mark?  And if not, as I am betting you won’t, what will you do about it?

Perhaps because I have spent the vast majority of my life in academic institutions or perhaps because as an adult, I started making my new year’s resolutions at Rosh Hashanah, I view September as the time of year to make new starts, new commitments, face new challenges.  Thus, today, in preparation for the start of the new year, I write with a double challenge:  to those reading this who are involved with nonprofits but not a board president and to board presidents everywhere.

To those who are not the board president, my challenge to you is to pass this to every board president you know.  To board presidents, my challenge is to take to heart my letter to you and accept the challenge.  I’ve dropped the glove; it is up to you to go from there.

Dear Nonprofit Board President:

My guess is that when you accepted (or your arm was twisted to accept) the job as board president of the nonprofit in whose mission you believe completely, you had no idea of the importance of the job or its magnitude.  My guess is that you had no idea of the responsibility that was now placed on your shoulders.  Though I hate to think this true, naïveté is not one of my traits, so my guess is you might be one of the majority who has yet to realize just how pivotal your role is to this nonprofit.  Yes, you can make or break the nonprofit.  But the good news is that you are not alone:  you have every other member of your board of directors and the executive director to help you in your job.

Let’s go back to my earlier statement:  you can make or break the nonprofit.  An active, involved board doing its job—and not that of the executive director—can make all the difference to a nonprofit.  It can help to strengthen its operations through solid financial oversight, strategic planning, fundraising, and executive director oversight.  It can help to build its solid reputation by fulfilling its ambassadorial role, building a compensation structure that attracts the best and the brightest, strategically building the board so that it, too, attracts the best and the brightest.  It can ensure that the organization stays focused on its missions, fulfilling its promises to its client base, donors, the general public through strategic planning and outcomes evaluation of all of its programs establishing a clear course for the future and measureable benchmarks for successful programs.  And this list could go on and on, but I trust you get the point.

An inactive board, one that revisits matters again and again but never moves off the spot, or one that is active doing the wrong things—such as using board meetings simply to gather data (i.e., hear reports) rather than to look strategically at that data or to do the executive director’s job and discuss where the new sign should be put or who to hire to mow the lawn—can lead an organization to stagnation and, ultimately, to defeat.  These boards give the executive director, staff and other volunteers no direction, no oversight, no support, no guidance—none of the extra that a board is designed to bring to an organization.  These are the organizations that are caught in an eddy, swirling round and round, working to stay afloat but getting nowhere; these are the ones that are on the way down.  A strong executive director might manage to swim out of the eddy, but with no guidance as to the best way out may end up in a rip tide—still struggling, still looking like a functioning organization, but still going no where.

As the leader of the board, you, board president, have the ability to allow a board to languish doing nothing, to work at the wrong thing or to move in the direction of becoming a stellar board.  Your leadership—not your dictatorship—can help move the board, and, thus, the organization, to a higher level of performance.  So, my challenge to you, board president, as another school cycle begins and students (and shouldn’t we all be lifelong students?) everywhere begin another year of learning, personal growth and improvement, is to do at least one thing that will help you and your fellow board members become a stronger, better board.  What might that one thing be?  Oh, my list is long, but I’ll only throw out several, all very easy suggestions.

1. Hold a board training so that the board as a whole can learn from an expert what all it is a nonprofit board is supposed to do.  And do NOT be stopped from doing this because folks say, “Oh, I have been on nonprofit boards for decades; I know what we are supposed to do.”  No, the vast majority of them do not know.  And if they are from the minority who really do know, they can still learn by sharing in the conversation their peers have in response to the information gleaned.
2. Identify one thing that you have not done that a board is supposed to do, or one thing that you haven’t been doing well, and pledge to improve performance in this area.  Identify measurable benchmarks for knowing whether improvement has been accomplished.  Never done strategic planning?  Do it.  Never been good at cultivating donors, have no idea of what a major donor looks like for your organization?  Create and implement a major donor campaign.  Never evaluated your executive director?  Working with your executive director, design a process and measurable goals and by the end of the year pat yourselves on the back because you evaluated your executive director.    Board members go through the motions of reviewing financials, but really rely on the treasurer to say “yay or nay?”  Do board training and educate all board members on the hows, whys and what it says of your financial reports, audits, investments, etc.
3. Develop a year-long calendar of professional development activities just for the board.  This could start with a board training or reading any one of the thousands of books and articles on what a board is supposed to do, followed up by monthly discussions as a portion of your board meetings.  It could include each meeting a different board member responsible for designing a 15-minute presentation/discussion on something of importance to executing the job of board member.  It could include presentations by senior staff on the work for which they are responsible.  It could include anything that helps the board understand the mission of the organization and/or the job of board member.  Be creative.
4. Change your board meetings so that the board is doing real board work at its meetings rather than getting the tools (meaning the data and information contained in committee and executive director reports) it needs in order to do the real work.  Board meetings were never intended to be for sponges who sit around the table absorbing information; board meetings were meant for bright, articulate, creative people to identify what the data say and strategize on how to use that data to make the organization even better at fulfilling its mission.

So, board president, the glove has been dropped and the ball is in your court, the wind is waiting for your sails, check has been called —whatever metaphor you want.  Go for it.  Don’t let your organization down.

As summer begins to wind down, students and parents everywhere begin to face the reality of the return to school.  There is, however, a group of folks for whom returning to school is not on their minds – 2010 college graduates.  Their sights, naturally, are set on finding jobs.  In this simple statement there is an enormous opportunity for nonprofits everywhere; I only hope we are all smart enough to grab this brass ring.

The Corporation for National and Community Service, which runs both AmeriCorps and Learn and Serve America, has seen applications to AmeriCorps triple in the last year.  In 2009, Teach for America saw a 40% increase in its applications over the previous year.   Parade’s March poll, which seems to have introduced “compassion boom” into our vocabulary, found that 91% of respondents had done at least one activity in the past 18 months that they thought made a difference and 78% think the actions of one person can make a difference.  Thank you, Margaret Mead!

In addition, the Parade poll researchers identified three emerging groups who are part of this compassion boom, one of which has particular relevance here.  YEPPIES—young, engaged problem-solvers, are younger people, predominantly female, who want to be civically engaged.

Social analysts attribute the source of the development of this compassionate group of young people—those who do an act of civic engagement on a periodic basis, as well as those who chose civic engagement as their job—to the times in which they have grown up.  They have lived through September 11^th, on-going wars and international strife, natural disasters, the worst economic crisis since the Great Depression, an escalation of street warfare in their own backyards, and so much more.   They are primed to try and change this landscape—and apparently believe they can.

Herein lies the opportunity:  whether by conscious choice or a feeling of desperation, in light of the fact that there are fewer jobs to be had in the for-profit sector, this pool of recent college graduates is looking to the nonprofit sector for their first jobs after school.  We need to be ready to welcome them, to fulfill their need to make the world a better place for all, to nurture them, to sustain their interest in the sector so they can become our future leaders, and absolutely to pay them a truly living wage.  And herein lies the challenge to a nonprofit mindset that has needed to be jettisoned for quite some time!  I am so tired of reading stories that tell the tale of people who, with heavy hearts, leave employment in the nonprofit sector because they need to earn a “living wage” or who have to take on a second job to supplement their nonprofit salary.

It is time that every nonprofit—beginning with the boards of directors of these organizations who all too frequently carry with them the ridiculous notion that just because a person wants to work for a mission they have fewer needs and costs in their lives than those who work for the bottom line—figure out how they can pay a competitive salary to all of their employees.  I said competitive, not obscene.  A salary that allows nonprofit employees to share in achieving the same American Dream as for-profit employees:  a quality of life that allows for the necessities and the bonuses to be bought on the earnings from one job, not a primary job and another.  Those who help the poor should not be working poor themselves. Even in this tough economy, if nonprofits truly care about fulfilling their missions, they can—and must–find ways to pay those who execute the fulfillment of that mission a decent salary that will keep those employees, and keep them focused on delivering that mission.  Paying a living wage is no longer an option for nonprofits; it is absolutely mandatory!

We – the nonprofit sector – cannot afford to blow this opportunity.  We are an aging workforce, and a tired workforce.  We need new blood and enthusiasm.  The majority of our leadership is on its way out.  We need to develop that bench strength.  We are a sector in increasing demand.  We need to be able to meet it.  There is a true gift horse waiting at our door; it is no ruse.

Seize the opportunity—but do it the right way!

Recently, I wrote asking whether nonprofits need to take a higher moral ground because of the public’s perception of nonprofits.  If, as so many assume, that the nonprofit sector is all about helping others and making the communities in which we live and work better places for all, oughtn’t we, I asked, adhere to the highest of moral and ethical standards?

Not being naïve, and wanting to be realistic, I am willing to lower expectations of others (though not of myself or those with whom I associate).  But that does not mean I have to give up standards altogether.   Recognizing that there is ample room for debating (which I do not want to do here) the notion of whether being moral and ethical is an absolute—you are or you are not–or allows for degrees—action a is less moral than action b–I do see degrees of immorality in people’s behavior.  I know this by my “appall meter.”  When I hear of the questionable behavior of an individual or organization, my reaction registers on the appall meter.  The further to the right on the meter the needle goes, the more infuriated and appalled I am.

Thanks to a study by Consumers Union (publisher of Consumers Reports), I am practically seething, and definitely seeing red!  Consumers Union looked at the cash reserves of 10 Blue Cross Blue Shield affiliates and found that in 2009, seven—yup, 70%–had a surplus three times the amount regulators say is needed for the organization to remain solvent.  Three times!  And as you no doubt recall, depending upon where you are sitting, if you were a Blue Cross Blue Shield client, starting around 2006, your nonprofit was getting notices of increase in your insurance premium anywhere from 8% to as high as 35%, so I heard.  Gosh, wonder where they got those surpluses?

Lest the reader forget, Blue Cross Blue Shield is, technically, a nonprofit.  (While it has allowed some of its affiliates to convert to a for-profit model, this is not the case of the ten affiliates that Consumers Union studied.)  As such, and as any nonprofit, Blue Cross Blue Shield has a legal and moral responsibility to serve its mission, which in the case of this health insurer is to provide affordable and accessible health care.   And, as is once again true of other nonprofits, Blue Cross Blue Shield has a moral responsibility to run a sound business that allows for long-term delivery of that mission and, equally important, sustainability.  It is unquestionably a best business/nonprofit practice to have six to twelve months of reserve to ensure organizational solvency during lean times. It is not a sound nonprofit practice, however, to garner those reserves on the backs of clients by raising fees beyond a reasonable standard—such as the cost of living.  And at some point, the acquisition of reserves by sticking it to the client becomes morally repugnant.  Those seven affiliates have arrived.

The Blues say it needs such a large reserve to pay its operating expenses, citing, in particular, the cost of accreditation and technological improvements.  I just wonder how many of those nonprofits that paid Blue Cross Blue Shields increased rates needed to dip into their reserves when it came time to pay its accreditation fees or the cost of making technological improvements.  Or did they forego seeking (re-)accreditation and/or make do with the current technology available to them because their reserve policy prohibited them from touching that money or, worse, they had no reserves in which they could dip?

Let’s be mindful:  Blue Cross Blue Shield is not alone.  There are other nonprofits out there that are protecting themselves at the cost of their clients, and therein forsaking their missions.  But at some point, word gets out, and the needles on the appall meters of Americans everywhere start moving to the right. What will reserves buy then?

We talk all the time about business partnerships—we must find the win-win for the nonprofit and the business, we must develop these valuable partnerships, etc., etc., etc.  (I can never say that without thinking of Yul Brynner).  Most of the times, however, it is the nonprofit approaching the business with that win-win proposition.

While not at all the same win-win proposition mentioned above—as those are more like the theatre approaching restaurants in the town to provide a discount to theatre goers showing a ticket for that night’s show—these two ideas about which I just learned have their own, very decided win-win.

Sovereign Bank Stadium in York, Pennsylvania, is now available—rent free—to nonprofits hosting community events.  Last week, the owners of the Stadium, the York County Industrial Development Authority (YCIDA), and the Stadium’s primary tenant, the York Revolution, a professional baseball team that is a member of the Freedom Division of the Atlantic League of Professional Baseball, made the announcement of this new program.

But there is more.  There is a competition involved, and having use of the Stadium rent free is the prize for all runners-up.  First prize—or what they call Diamond status—comes not just with free rent, but a $5,000 marketing package, $500 donation to off-set the other costs of the event and a 25% discount on the cost of lights and sound.  Platinum status will receive free rent, the marketing package and the donation, while three organizations will receive Gold status and get the free rent and $500 donation.  Not shabby at all!

Without taking anything away from the YCIDA and the York Revolution, there is something in this for them—as well there should be.  As their press release announced, YCIDA wants to “increase community visibility” of the Stadium and maximize its use for “public and community purposes.”  Again, not only is there nothing wrong with that, it is a great idea.   How many days of the year and how many hours of a day does a Stadium—or any other locus of entertainment–go unused?  But there are costs involved for unused space; why not get some good civic credit for those bucks?  Certainly, YCIDA could rent the space out and try to recoup some of the costs of unused space, but it has chosen not to do that.  And, in fact, the YCIDA and the York Revolution are taking this good deed one-step further by adding, for the winners of the competition, some other costly benefits.

Across North Carolina, malls with empty spaces—know any malls like that?—are letting nonprofits use the spaces for free or nominal rent, and sometimes even free utilities are included, making the malls’ gifts even greater.  Granted, in exchange for free or nominal rent nonprofits face a very short turnaround for moving out should a full-paying tenant be found.  But in the meantime, rent money is saved.  And equally, if not more important, great exposure is gained.  (Imagine the price tag for that!)  People walking by see the nonprofit at work, drop in, learn, volunteer, donate, whatever.

Again, this is a win for the mall owners.  Mall owners don’t like empty spaces.  Done: space filled, responsible tenants found.  Like all businesses, mall owners reap the reward of being (perceived as) a good corporate citizen.  Done:  nonprofits are helped with an in-kind donation and good citizenship easily displayed and noted.  Associations develop in consumers’ minds:  nonprofit X and mall Y.  Mall owners do better with consistent tenants and low tenant turnover.  Done:  nonprofits can turn into paying tenants.

As with Sovereign Bank Stadium, this civic goodness is costing mall owners some bucks.  But they, too, recognize that subsidizing rent or the cost of utilities is in their own best interests and the interests of the community of which they are a part and which they serve.  Kudos all around!

Let’s hope other businesses will follow suit.

This is a most vulnerable time for nonprofit executive directors.  Already stressed by having to do more with less, too many now are threatened by the very thing that should be their greatest partner—their board.  Yet, in too many cases, rather than providing that vital assistance, boards are using executive directors as the scapegoat to hide their own ineffectiveness.

I have railed before about boards failing to do their job, either in whole or in part—and I am sure I will do it again in these pages.  But when their failure leads to capable and exemplary executive directors losing their jobs, my blood truly begins to boil.

But first, let’s get one thing straight:  there are quantities of executive directors who do deserve to lose their jobs because of their performances.  Those executive directors who delegate more than they do, are absent more than they are present, who blame others for problems and failures, have excuses for everything that happens, who don’t understand the basics of running a business or managing people, who can not lead and/or manage, should absolutely be removed from their positions.  Unfortunately, however, too many of the boards with this kind of executive director haven’t yet awakened from their somnolent state, or the one thing these executive directors are doing well is snowing their slumbering boards.  So, if you are a member of one of these boards:  please, wake up! Develop a performance review process for the executive director, with clear benchmarks, preferably tied to your strategic plan, and start holding your executive director accountable.  If s/he is found lacking, develop and implement an improvement plan.  And if that doesn’t work, then let him/her go.

The ineffective executive director, however, is not my concern today.  Today, I am concerned with the performing executive director who is doing her/his best in an extremely tough economy that for so many nonprofits has produced diminished funds for increased delivery of services, and a board that is not pulling its weight.  With increased focus on just what nonprofit boards are actually doing, brought on by the new Form 990, watchdog groups and just heightened awareness by donors of all shapes and sizes, boards are coming to understand that they need to be actively—even proactively—engaged in their roles and responsibilities and not just absorbing information and rubber stamping what the executive director suggests.  So more and more boards are getting engaged:  they are beginning to really look at those financials, to ask questions about program performance and achievement of goals, to assess the executive director’s performance, to look at the diversification of income streams, etc.  And in so doing, they are realizing that the organization may be falling short:  the financials may not suggest a rosy, sustainable future; the programs may not be cost effective or meeting those promised outcomes; raised dollars have fallen sharply off (beyond what the economy would predict); even the executive director’s performance may not be as strong as they would like.

This is all very fine and good, as recognizing a problem is the first step in fixing that problem.  But too many of these boards are seeing the solution at as letting go the executive director.  This, however, is totally a knee jerk reaction; additionally, it is completely lopsided reaction, completely freeing the board from taking any responsibility for the organization’s less than wonderful position.  And let’s face it:  if it was totally the executive director’s fault, we wouldn’t need a board of directors in the first place.  But we do.

Let’s remember:  the structure of a healthy nonprofit is one part board, one part executive director and one part staff and volunteers.  A healthy nonprofit needs each of the three legs of this three legged stool functioning to its fullest so that the synergy that happens when those three totally functioning legs work together can be realized.  When the reaction of the board is to fire the executive director without assessing its own performance and contributions to the current status quo, without holding itself equally accountable for performance, it turns a three legged stool in a two legged one.  And that isn’t a stool at all!

A colleague here in Philadelphia (though he consults internationally), David Curry coined what I call a rallying cry:  “disruptive governance—be responsible, provoke performance.”  I’ll add to it:  save the truly hard working executive director:  be responsible, provoke performance and accountability for all legs of your nonprofit.  For that is the only true way to become a high performing organization.

It is not often that the IRS gives us a clear “heads up” as to what are some of its favorite things to “catch” nonprofits doing wrong.  But such a heads up has come in its interim report (released May 2010) on research it has been conducting on how well colleges and universities comply with reporting regulations.  DO NOT STOP READING THIS JUST BECAUSE YOU ARE NOT A COLLEGE OR UNIVERSITY; THIS APPLIES TO YOU!

The IRS sampled 400 public and private colleges and universities offering four year degrees or higher; they received responses from 344.  When I initially read this number, I thought to myself—“Hmm, the other 56 weren’t spooked by the IRS?  Wonder what will happen?”  The answer?  Thirteen of these nonresponders are receiving a full examination by the IRS!  (No clue what is happening to the other 43).

So, message #1:  when the IRS asks you for something, respond!

While the subjects of this current research were colleges and universities, the IRS has made it clear that the issues uncovered by this research are not unique to this portion of the nonprofit sector.  Most importantly, it intends to apply the lessons learned through this research to the whole sector.

So, what piqued the IRS such that it is now going to pay greater attention to these areas for all nonprofits?

1. In responding to the survey, colleges and universities reported more unrelated business income—advertising, corporate sponsorship and facility rental—than they reported on their 990-T.  (Form 990-T must be completed by every nonprofit earning $1000 or more in gross unrelated business income.)  The IRS is now conducting “full examinations” of those schools with discrepancies!  Message #2:  when sharing information with the IRS—provide the same data to the same questions, regardless of how many times the question is asked or on how many different forms.

1. In reporting how much they were paying their highest paid “officer, director, trustee, or key employee” (otherwise known as ODTKE, in the report!), it seems the majority of schools claimed a “rebuttable presumption” in determining the compensation.  (Arguing a rebuttable presumption means the school—or any nonprofit—used “an independent body to review and establish the amount of compensation in advance of actual payment, use of appropriate comparability data to establish the compensation, and contemporaneous documentation of the process used to establish the compensation in the particular instance.”)  And what this means is that the burden of proofing that the compensation awarded the ODTKE is “excessive” falls to the IRS.  (And it seems that everyone and her and his brother want to cry “Excessive compensation!” when it comes to how much the head of a nonprofit is earning.)  Obviously, therefore, the IRS would not like an over-reliance on that rebuttable presumption.  (Which probably explains why the IRS is also doing a “full examination” of those schools!)  Message #3:  Truly do your homework in determining your highest paid ODTKE’s compensation, and should you claim a rebuttable presumption, a) be prepared for your “full examination” and b) make sure your rebuttable presumption is solid!

My messages have been, intentionally, a little glib.

So, message #4:  be aware!  You are on your own.  It is a rare oversight agency that is about helping the organizations it oversees.  Rather, for the most part, oversight agencies tend to be about compliance:  did you dot your i’s and cross all of your t’s?  And if not, and here they come down hard, why not?  What are you hiding? With what are you trying to get away? How are you trying to cheat?

My final message is anything but glib.  The IRS has put the nonprofit sector on notice:  the 990 is a serious document; treat it as such!  It is reading them—closely.

The world looks to the nonprofit sector as the caring, nurturing sector of the economy.  We think of ourselves in that way, as well.  But honestly, we do not have a lock on those descriptors.  While there are many nonprofits that, regardless of their mission, do truly embrace, and live, a caring nurturing mantra for their clients, employees, volunteers, communities, and the world, there are for-profits that do so as well.  And there are certainly many nonprofits and for-profits where ideas such as caring, compassion, kindness are never discussed, let alone lived.

All of that said, however, I do believe that there is a spoken—“Of course nonprofit employees don’t expect to be paid a decent wage; they work for doing good, not a pay check”—and unspoken expectation that nonprofits will live by a strong(er) moral order and code, where equity, fairness and inclusivity dominate and clear distinctions between right and wrong are noted and abided.  But do we really and fully?  Or, do we pick and choose how and when.

For example, how many scandals that stem from illegal activity happen at nonprofits about which the world—including donors–never knows?  Too many!  (And yes, the same question can be asked of for-profits, and answered similarly.  But sadly, society’s expectations, as noted above, seem to differ for the two sectors).

While your mind may have immediately raced to the abuse scandals of the Catholic Church, I’m thinking of many more examples:  sexual harassment that leads to a dismissal but not a criminal prosecution; embezzlement that leads to a termination and an effort to recoup the stolen assets, but not a criminal prosecution; the theft of organizational property that leads to a firing but no criminal prosecution.  Making these situations even worse is the fact that when called for a reference, many organizations will not reveal the wrongdoing, advised by attorneys to simply acknowledge that the person was an employee from time A to time B.

Thus, unless the terminated employee decides to tell his/her story, the nonprofit never need reveal to the general public the wrongdoing that took place within its organization.  But, by failing to call the wrongdoing what it really was—a criminal act—and prosecuting accordingly, is the organization condoning such illegal activity?  Is silence, in this case, condoning?  By possibly allowing this alleged criminal to find a new place of employment and repeat the criminal activity, is the nonprofit complicit in the wrongdoing?  Has the moral compass of these organizations gone amuck?  Or should we expect nothing other, as organizations’ responsibility are to themselves and their immediate clients and not to teaching lessons to the larger community and taking moral stands?

So, is there a moral stand on this?  Do we, as the expected protector of decency, good and community well-being, have a moral obligation to invest only in socially responsible companies and to accept donations only from socially responsible organizations and individuals?  Is our job, as a board of a nonprofit, to maximize the return on our investments even if we invest in a company not included on the Domini Index of social investments, for example?  Or, is it our job to balance that desired return on our investments with attention to the product, work conditions, employee practices, etc., of the companies in which we are investing?   Should a youth-serving organization invest in Pepsi and Coke or accept grant or sponsorship money from them? Should an organization serving ex-cons invest in Smith and Wesson, a company with a 52 week low and high of $3.75 – $6.98, respectively?  (This provides a very accessible entre into the stock market for many small nonprofits, and quite a nice return if bought and sold at the right time in that 52 week period.)  Do we as nonprofits have a moral responsibility to sacrifice return for cause?

Recently, it was announced that Philadelphia Mayor Michael Nutter’s program to provide a $10,000 tax credit to businesses that hire ex-cons was a failure as no businesses signed up.  Do we, as nonprofits, the sector that is expected to champion the underdog, have a responsibility to lead the way—meaning no incentives needed—in hiring those with checkered pasts?  Do we have a moral responsibility to give people a second chance—even if that isn’t what our mission is directly about?

I end where I started, for I do not have an answer on this.  Which road do we take?  There’s the low road of minimum standards of compliance, the high road of moral integrity, or a hybrid of the two — that leads us to where?