Nonprofit Board Crisis

Nonprofit Lay Leadership "Overvalues" Professional Leadership

I got a recent comment about a situation in Atlanta and we maybe should be scratching our heads or at least try to understand all the positions around the issue. 

The CEO in the Atlanta United Way raised a huge amount of money last year (not I assume without the help of her lay volunteers).  Her board, likely corporate big-whigs used to big bonuses for being successful, gave a huge raise -- some $800,000 + in benefits that I believe pushed her annual package to over $1 million this year.

Now of course the grumbling on the streets is that this is way to much money for a nonprofit exec to be making.  And I of course don't like mega salaries but for anyone -- I think that for-profit folks are waaay overpaid but that's not what their peers and owners say so it doesn't really matter that I don't like the practice.  And no, I don't like huge salaries for nonprofit folks either -- it comes from charitable money after all -- people who want to see their dollars make a difference to the cause, not the CEO pocket book.

But let's look at the other side - big-whig corporate guys get paid a lot and some of them think the principle of paying a lot for big results makes sense.  In the case of our Atlanta U.W. CEO it's good to note that Atlanta has some pretty huge companies (e.g. Coke and Home Depot) paying pretty huge wages.  For sure the nonprofit sector should appreciate that the for-profit folks are viewing the nonprofit sector, symbolized through this payout, as at least being peer-like.  And, the sector has been working for this recognition for years.

Do I like $1 million nonprofit CEO salaries - no, not in principle.  Do I like that the corporate folks in Atlanta value the nonprofit success stories -- absolutely!

Values conflict with Values

Nonprofit Hospital an oxymoron?  That's certainly my impression based on articles I've posted here and additional readings. 

Anyway, what's fueling my thoughts about nonprofit hospitals not being nonprofit is a June 28-29 Wall Street Journal article on the Amish's experience with healthcare and the inflexibility and lack of responsiveness of the healthcare community.

The article centers around the specific experiences of "Old Order Mennonite farmers in Pennsylvania who pretty much live the way of their 17th-century Dutcht ancestors."  They don't use electricity or cars.  They believe in self-sufficiency and in turn, oppose insurance and government aid.  "They won't buy health insurance: They believe it is the religious duty of their communities to provide for one another when sick.  They don't pay Social Security taxes and reject Medicaid or Medicare benefits, as well as farm subsidies."

All of this would be quite fine except that for some reason Old Order Amish and Mennonite farmers suffer from "epidemic proportions of certain deadly genetic diseases."  As such, they must turn to the health care system for really expensive "life-saving" treatments.  The resulting question: shouldn't hospitals cut these folks a break recognizing that big treatments result in big bills and the more bills, the more threatening to the ability of these farmers to hold-onto their land, the collateral they use to finance the overly-priced and nonprofit hospital providers of services.   Of course, with the loss of land is a loss of life-style and the subsequent loss of a special community.

There's a lot more detail in the article and the position of the two parties certainly raises many of the questions that in the end, for me, challenge the validity of assigning nonprofit status to hospitals and/or not maintaining universal, community-based health care. 

Helmsley Money To Go To The Dogs: Or Will It?

According to the New York Times, Leona Helmsley's estate will go to the dogs -- or at least a big wad of it could. 

Actually there's a lot of speculation as to what Ms. Helmsley intended but it's possible that $5 to $8 billion, the value of her estate, will indeed be spent for the "care and welfare of dogs".  That's definitely a lot of dog food.

But the real question appears to be: what did Ms. Helmsley actually want done with her estate?  In America, is not donor intent sacred and literally, the final word?  Anyway, there's certainly room for opinion about what the intent is or was and this will all be flushed out in the probate process. 

Does make you wonder what the purpose of a will is if it can be discussed, for quite some time, in the courts.  Will the dogs be ok in the meantime?

Foundation Wisdom to Government, and others

In Governing: Managing Insights Peter Hutchinson, president of the Bush Foundation in Saint Paul , MN offered some words of advice particularly directed to gvoernment entities but helpful I believe to the nonprofit sector as well.

According to Mr. Hutchinson:

1. Foundations don't fill gaps saying: "if something is not a priority for you, why should it be a priority for us?"

2. Foundations don't fund government: Foundations "don't see government as trustworthy or effective.  They don't want to waste their limited resources with organizations that can't or won't get the job done."

3. Foundations can help: Foundations "are independent and can say and do things that others cannot.  Our independence gives us flexibility."

4. Foundations can be demanding: "Most foundations are committed to improving outcomes for the people we serve.  We are always on the lookout for opportunities to use limited resources to get much bigger things doen.  If you want to partner with us, help find those points of leverage.  We want results."

Thanks Peter.  Helpful insights for those who just think of Foundations as pocketbooks.

Term Limits for Nonprofit Boards

In the Chronicle of Philanthropy article announcing the MacArthur Foundation President's plan to resign in one year, there was an important message to the rest of the nonprofit community.

According to the article: "in addition to the rules that apply to the president, MacArthur limits board members to three four-year terms...  Organizations that hold a "privileged position in society benefit by regularly refreshing their staff" says the retiring president Mr. Jonathan F. Fanton.

Kudos to Mr. Fanton and MacArthur for sending the message that change refreshes not retards an organization.  All nonprofits hold a privileged position in society and many fear changing their professional and lay leaders.  MacArthur demonstrates that change is good.

Governance: Duty of Loyalty

An interesting lesson arises from California where public pension fund trustees could be criminally liable if they approve a contract that provides them a personal benefit.

From June 2008 Governing we learn that "public employees, retired employees and even management appointees on public pension boards could be liable if they approve a contract that provides them a personal benefit.  The inherent conflict arises because fiduciaries are responsible for a duty of loyalty, which precludes them from putting themselves and their personal financial interest ahead of those of the plan and the trust.....  Public officials establishing such trusts should build conflict-of interest safeguards into their founding documents."

The duty of loyalty and conflicts of interest clauses are sometimes but not often referred to by nonprofit boards but here's an example as to why the conversation should occur more often -- at least once a year if not when the duty is plainly violated.

For more about the article go to governing.com/xtras (Pension Board Dilemnna).

NY Nonprofit Laws Set Limits on Pay

Once upon a time, not that long ago, in a land called New York, the New York Stock Exchange sat as a nonprofit organization paying the typical salaries one might expect from people dealing with businesses and people who make a lot of money speculating on the value of businesses and people.  And the then nonprofit Stock Exchange paid well -- the CEO earned $3 million a year -- that's "well".

That once upon a time ended and now the New York Stock Exchange's life as a nonprofit ended and it became a for-profit.  The reasons are varied and appropriate and the New York Stock Exchange pays the typical salaries one might expect from people dealing with businesses and people who make a lot of money speculating on the value of businesses and people but actually, not as much money as it paid when it was a nonprofit.

The previous CEO when the Exchange was a nonprofit was not able to collect what he had been promised and, for a number of reasons, has had to take his fight to court.  A ruling noted in the New York Times indicated that one of the basis for why the former CEO should not be denied his pay focused on the NY Attorney General stating that there are rules about what is "reasonable" pay for nonprofit execs.

Likely there are but should there be?  Shouldn't nonprofit salaries be competitive with their counterparts in the for-profit sector?  I can not aruge they shouldn't be competitive.  What do you think?

NY City Councilman's Aides Rip Off 3 Nonprofits for $145,000

Two New York City Councilman's Aides ripped off 3 nonprofits for $145,000.

According to the New York Times, the aides actually "controlled" three nonprofits and redirected funds to themselves.

How can this happen?  I understand how the Aides could get away with transferring money from the Councilman's budget (although I have previously discussed how crazy this practice is) but where was the rest of the board of the 3 nonprofits?  What does "control" actually mean?  And where are the nonprofit's auditors?  Don't they have some responsibility here?

IRS where are you?  New York citizens, where are you?

Community Action Agency Double Bills and Loses Money

This story is just toooo incredible.

The New Haven, CT Community Action Agency has been found to have double-billed the Area Agency on Aging of South Central CT for its Meals on Wheels program for at least three years, and possibly more than a decade.  Yes, possibly more than a decade.  As one state representative said: "If they took in twice as much money as they should have, they should have run a surplus.  Where did the money go?"

I believe that these are certainly some of the questions to be answered in addition to wondering why the Area Agency didn't wonder why their annual bills were more than they originally contracted for and why the State didn't wonder the same.  And one would think that auditors and the state might have been curious about how so much money could be coming in for at least 1/2 the expenses. 

The Area Agency says it has put CAA on notice that it would hold CAA responsible for repaying the funds.  The state has asked the Area Agency to repay.  And of course, something happened to the surplus and that could be on the board if not the auditors.  Whew, what a mess! One body after another has failed its responsibility.  And right now, the taxpayer is the biggest loser.

To see the story, go here.

Nonprofit Board Leadership In Question

Some of you may have caught Francie Ostrower's commentary in the May 29, 2008 Chronicle of Philanthropy where she, Francie, a very bright and thoughtful Urban Institute senior research associate, summarized her findings from her National Survey of Nonprofit Governance.

In brief, Francie says that nonprofit boards really don't do what it takes to support their execs/leaders.  Francie then goes on to give some sugggestions - most of which are ok like thinking twice about making the exec a voting member (I should hope they think twice) and institutionalizing a process for the board to regularly monitor its own performance.

Basically, this is not rocket science but it's good to have the evidence in plain writing. 

I did not find the actual survey but here's a link to the Urban Institute.