Tuesday, December 18, 2012

Fiscal Cliffhanger for Nonprofits

Who would have thought the scholarly Federal Reserve Chair Ben Bernanke would have been cast in the role of a catchy phrase-maker, the envy of any marketing brand guru? That he did in February of 2012 when he described as falling off a "fiscal cliff" the economic effects of severe tax increases and spending cuts mandated to take place on January 1, 2013 by the Budget Control Act of 2011, passed by Congress after the legislative and executive branches failed to reach agreement on deficit reduction that summer. It was a classic case of "solving" problems using a manana approach. Now, unless the Obama administration and the Congress, chiefly the House, can agree on alternatives, it is over the cliff we go.

Vats of ink have spilled on this issue, so I will be brief. As of this writing, it would appear that, although the scene changes daily, President Obama and Speaker of the House Boehner are not yet in accord. Some pundits ( from the Sanskrit meaning "learned" although that should not apply to all) suggest even if they reach agreement, the Speaker may have a hard time selling it to his colleagues - or even that he may want to wait until January in order to save his Speakership. Others even posit a strategy that a voluntary dive over the cliff may be desirable in order to compel action to mitigate the effects of the austerity mandates (c.f. Samuel Johnson's "Nothing focuses the mind like a hanging.").  All of this conjecture is swirling around in the whirlpool of politics.

Whatever the actual details on the outcome, there is no doubt that the result will affect nonprofits. At the top of the list is the allowable tax deduction for charitable gifts, adjustment to which some believe has traction at both the White House and Congress. Capping the deduction in some fashion seems to be favored. There is some disagreement as to how much impact such an action would have on giving. Nonprofits should  know that there has been a very active lobbying--yes lobbying--campaign undertaken on their behalf by the umbrella group Independent Sector and such powerhouses as the American Red Cross -with the deduction matter at its core. Still, some charities are even suggesting to their larger donors that they uptick their giving in 2012 to take advantage of the deductability regulations in place.

Then there is the matter of large tax increases, especially on the wealthy, cutting into disposable income, some of which presumably would be directed to charitable giving. Changes in entitlement programs, such as Medicare, would bring further pressures on those nonprofits that provide social services.  Specialized federal programs, such as the Arts/ Humanities Endowments and PBS, long on the far right's chopping block, are facing curtailment at least. There is no shortage of grim scenarios.

Nonprofits, by their nature and necessity, have had to be resourceful. Adversity is not novel to them. This case however, may present challenges of historic proportion because its impact is potentially both deep and widespread. Organizations and their donors alike will feel pain, the degree of which is not yet known, regardless of whether or not we are forced off the cliff's edge. We will know soon enough.

Finally, I am reminded of Shakespeare, from "As You Like It" (Act 2) : Sweet are the uses of adversity/Which , like the toad, ugly and venomous/Wears yet a precious jewel in his head..."  May we, in the end, find the jewel.

Stay tuned. Courage! Best wishes for the holidays and the New Year. See you then.

Thursday, November 15, 2012

Getting the dog back...

I'll get to the dog in a minute (it's not Mitt Romney's dog by the way). Thankfully the 2012 presidential and congressional elections are over. Millions of dollars, words, and volunteer hours have been expended. Our democracy has once again done its job, whether or not you like the outcomes.

The election has prompted this post, which is about politics, politicians and nonprofits. Tip O'Neill, the late Speaker of the House, famously said: "All Politics Is Local." In other words, politicians at their peril ignore local issues and concerns of their constituents. By the same token, nonprofits, at their peril, ignore politicians or "elected officials" - at all levels of government. Too often, once an election is over, the need to be engaged with politicians and the political process fades from consciousness.

The fact is elected officials can have an ongoing impact on the fortunes of nonprofits. There is of course the possibility of legislative funding that, although shrinking, will likely continue to exist in some form or another. There are also issues of policy and regulations at every level of government.. Nationally, as we edge up to the "fiscal cliff," on the negotiating table will be the level of tax deductibility for charitable donations, the existence of federal agencies that directly fund cultural organizations (NEA, NEH), the Public Broadcasting System, etc. At more local and regional levels, are zoning regulations and, as government budgets shrivel, growing scrutiny by cities and counties of nonprofits' property tax exemptions.

I am not going to lay out a grand scheme here but simply to suggest nonprofits should get to know their elected officials and vice versa as soon as possible. There are bound to be new players in the game. Don't get acquainted with them at the cusp of a crisis -that may be too late. Here's an example. Say you have just heard  your county government intends to widen the road that goes by your organization and that you fear that will impede client/audience access to your facility. You call your appropriate county supervisor. You don't want to hear the response: "You' re who, and with what again?"

In mid-career I was actively involved with the political process, as executive director of the National Assembly of State Arts Agencies, then as chief of staff for a U.S. Congressman  and later as Director of Government Affairs for the American Association of Museums. I learned that Tip was right and that politics is also about people (the same can be said about fundraising). 

In the late '80s, there was a big battle in the U.S. House Ways & Means Committee about the Unrelated Business Income Tax, which if changed would have resulted in taxing income of museum shops for example. The big guns rolled in - the Metropolitan Museum of Art et al., some armed with paid lobbyists.  I happened to discover that the lady volunteer president of a small roadside historical society in Texas might be acquainted with Rep. J.J.(Jake) Pickle, the Ways & Means Subcommittee Chairman hearing the issue.  I called her, outlined the situation and she drawled: "Why sure I've known  Jake for years, we were schoolmates, I'll call him - they shouldn't be taxing our postcard sales!"  The taxing matter died. I can't say the "lil 'ol lady" in Texas provided the tipping point, but she certainly helped.

Speaking of Texas, it's time to get back to the dog, At a meeting I attended with a constituent group lobbying then U.S. Rep. Pat Williams of Montana, a great supporter of the arts and humanities, Williams told a story that originated with LBJ. Johnson loved to tell about the sign he'd seen over a storefront in an east Texas town that read: "H.H.Wilson- Veterinary and Taxidermy - 'Either Way You Get Your dog Back.' " The moral was that you might not always get exactly what you want; close might have to be good enough.

Either way it's best if you know your elected officials and they know you. If you don't, start now

Comments always welcome below. 





Wednesday, October 10, 2012

The Duct Tape on the Carpet

After a few weeks at a new job directing a nonprofit, I noticed a pattern. There seemed to be a pride taken by some staff in being "on the cheap." The fraying administrative office carpeting had duct tape covering the rips. When the 10 year old Hoover quit, it had been routinely sent out for repair.  The organization, though not awash in cash, did have an endowment well into the millions. I thought  the shabby carpet sent a wrong signal to visitors/donors and the the person who operated the vacuum cleaner might find her job easier with the latest model. That begged the question: Might there be a benefit derived from employees in nonprofits having a pleasant work environment?

The question goes to the heart of an issue in current discussion these days: the value in judging the effectiveness of nonprofits by their low administrative costs. Since the advent of rating organizations such as Charity Navigator, such judgements can be made based on indices, such as program/administrative cost ratios. But is this fair or accurate?

In an article in The Los Angeles Times last April, retired community foundation executive Jack Shakeley answered the question in the negative. Although he admits low administrative costs might indicate prudence, they might equally demonstrate inadequate staffing and sub par salaries, which can affect turnover and/or  performance. He believes that the rise of evaluation through analysis of overhead costs is based on the human propensity for "quick answers and gut reactions."  That, plus the difficulty in assessing the merits of nonprofits programmatically, has created what he calls the lazy pseudoscience of judgment by level of administrative costs. In fact, he claims some nonprofits have under-reported overhead costs to gain a competitive advantage.

The writer/consultant Don Pallotta has weighed in on the subject. He is the author of the book "Charity Case: How the Nonprofit Community Can Stand Up for Itself."  He was the guest October 2 in a Chronicle of Philanthropy Online Discussion entitled "How Charities Can Fight Overhead Myths. "  The solution he offers lies in systematic education of  the public in the mission and programs that drive the organization. He states "low overhead will never inspire anyone" and that "maintaining low overhead at the expense of mission is a betrayal of the donor."  The nonprofit must make clear its goals, the progress it is making in reaching them and how it measures that progress.

A regular target of the overhead detectives is the cost of fundraising. Pallotta challenges a popular perception - that donors don't want to fund fundraising. Does a donor want to be the only one? If the donor believes in the organization's programs wouldn't he want others to join in?   If the organization has been boasting about low overhead in its appeal to donors, then the outcome of the "ask" is up for question.

I have experience regarding this issue. When I started at Maymont Foundation in Richmond in the early '90s, there was no development department. I asked the board to fund a development director. A debate ensued within the board - one faction saying fundraising was the director's (my) job; the other saying yes, but there had to be staffing for that function as well. The funding to start what was to become a powerful development engine (6 years later completing a $18 million capital campaign) came about because the board was persuaded by the argument that it was an investment that would eventually pay off - and it did. The board leader in that fight used to say "You have to spend it to get it."

I am not preaching profligacy but some nonprofits have such a tradition of mendicancy that they risk developing a self-image of martyrdom. Such an attitude is not conducive to raising funds or to promoting positive community perception of mission and programs. Donors prefer to give to opportunities rather than to desperate organizational need. If the latter is the central message, success will be limited. The key concept to hold is the appeal to donors of investment in mission and the definition of the return on that investment.

As for the vacuum cleaner, the staff housekeeper was consulted. She was pleased to be asked and chose repair- she liked the Hoover. The carpet was replaced and the offices spruced up. Both external and internal image were enhanced. "Poor little me" and "judge us by our frugality"  became attitudes connected with the past.

Friday, September 7, 2012

Spend It All?

 "Spend it all Jay!" - opposition bumper sticker seen during U.S. Sen. John D. Rockefeller IV's first Senate run in West Virginia.

An article by Jim Dwyer in the August 8 edition of The New York Times profiled the remarkable philanthropist Charles F. Fenney and his efforts to do just that - spend it all. "All" includes the $6 billion he has already given away since 1982 through his group of foundations called Atlantic Philanthropies. His goal is to dispose of the remaining approximately $1.5 billion by 2016.

Mr. Feeney, now 81, made his fortune by inventing and operating airport duty-free shops internationally. He sold the business in 1997, at which time he revealed that his wealth was the source of Atlantic Philanthropies,which he had managed to run anonymously for 15 years, even though it was one the largest grant makers in the world. Gradually he has opened himself up to publicity in an effort to encourage others of great wealth to become major philanthropists. Warren Buffett has termed Feeney the "spiritual leader" in that effort.

He resembles Mr. Buffett in his eschewing the trappings of wealth. His clothes come off the rack, he lives simply, on a side street in Manhattan, not on Park Avenue in a penthouse, and until recently he flew coach. He believes the problems of the world need attention, now before the solutions become even more expensive. Dwyer quotes Mr. Feeney: "When you've got the money, you spend it. When you've spent it all, let someone else get going and spend theirs." And so,with the exception of bequests for his five children, that is what he intends to do, or as he puts it: "I want the last  check I write to bounce."

It probably won't surprise you then that no building made possible by a gift of his bears a inscription with his name. Furthermore, he set up his philanthropies in Bermuda to avoid disclosure requirements, but because he did, he could not take tax deductions for his contributions.

This completes the counter cultural picture of Charles Feeney's philanthropy. For one thing, it is counter to the culture of "naming" as a reward for contributions. Who hasn't seen capital campaign appeals that list naming opportunities, sometimes even before making the case for support of the project. Paving bricks, exhibits, theatre seats, wings, entire buildings, etc. In a recent visit to a Boston museum, I even rode in an elevator named for a donor.

Please don't misunderstand me. As an administrator of nonprofits who has taken part in helping to raise some millions of dollars for capital projects, I know the power that the opportunity for public recognition brings to attracting contributions. It works. Certainly it can be overdone, where donor names clutter up space in a kind of philanthropic wallpaper. And occasionally  the background of a major donor  causes embarrassment. In the late '80s the Saudi Arabian international arms dealer Adnan Khassogi pledged millions to American University, where he was a trustee, to build a sports and convention center. When finally constructed it bore his name.  An outcry ensued and the name was removed only after he reneged on the remainder of his pledge.

Sports stadium naming has become a huge income source for both professional and amateur teams. It is a form of high profile marketing. In 1999 the internet service provider PSINet spent $100 million to have the new Baltimore Ravens stadium named PSINet Stadium. Then the company went broke and M&T Bank got the stadium name. Just as well, as apparently many Baltimoreans had trouble pronouncing PSINet and resorted to nicknaming it the "Piss Bowl." 

Finally, in a bizarre use of naming influence, Penn State University suggested last April to the Paterno family that it would rename Beaver Stadium for Joe Paterno in exchange for the family agreeing not to sue the university. The family declined.

The selfless philanthropy of Charles Feeney is rare.  How many have or will follow his example? The important message that everyone in the nonprofit field hopes will stick is that the very wealthy will want to open up their wallets wide to support nonprofit missions. A naming here and there is welcome and appropriate. Spend it all? Charles Feeney raises the bar, challenging especially those at his level of wealth to join him in making a big difference to society.











Tuesday, July 31, 2012

How Far to Stickle

I am readying to leave the first week of August for two weeks "Down East," so I will join in the spirit of summertime by being brief, if not breezy, this month.

On July 20,  the Harvard Business Review blog site posted an entry by Kyle Wiens entitled: "I Won't Hire People Who Use Poor Grammar. Here's Why." Wiens, CEO of Ifixit.com, the world's largest online repair manual and Dozuki, which helps companies write technical documentation, requires every job applicant to take a grammar test, regardless of the nature of the position. Wiens admits "we write for a living" and perhaps has higher standards about language usage than most (by the way he takes into account extenuating circumstances such as dyslexia and English as a second language). Poor test scores or errors like mixing up "to" and "too" means the application goes into the circular file. Period.

Wiens would be known as a grammar "stickler" the term Lynne Truss uses in her delightful book "Eats, Shoots & Leaves - the Zero Tolerance Approach to Punctuation."  Wiens defends his stern policy as being a way to ferret out sloppiness and inattention to detail. He claims that those who do better in the grammar test will make fewer mistakes even in non-writing tasks, such as labeling parts or stocking shelves.

I have reviewed hundreds of resumes and cover letters in my career and sympathize with Wiens's position. Improper spelling and screwy usage is an effective filter, for reasons Wiens outlines. These days, with tweets, emails and real time online chats, the chances grow that sticklers will be faced with greater challenges.

Added to spelling and punctuation whoppers are the odd phrases that have cropped up in everyday life. For instance, "you're welcome," as a reply to expression of gratitude or a compliment for good service, has been replaced by "no problem." I keep wanting to respond that I was not aware of there having been a problem in the first place. And what about that supremely irritating "Whatever..."  This dismissive word,with its tone, indicates the speaker can't be bothered with further discussion. If we ever see this written at the end of a Supreme Court opinion, we are in trouble.

Job applicants can't depend on computer spell checking either. It has been long corrected, but in 2008 when I happened to type in "Obama" in a document, the dreaded yellow outline was superimposed and suggested I should correct it to "Osama."  Ironic, no?

My friend and mentor the New Orleans attorney Thomas B. Lemann (see my blog of January) deserves a place in the Stickler Hall of Fame. He is well known to newspaper editors, including The New York Times, who have received any number of complaints regarding improper usage. On his desk is a plaque given to him by an admirer: "Which Hunter."  The frequent misuse of "which" for "that" is a favorite target of Mr. Lemann.

Sticklers enjoy debates among their number. James Thurber and his editor (THE editor) of The New Yorker Harold Ross had a famous long-running battle over the use of commas.  Ross favored them; Thurber did not. An example of this style dispute can be found regarding the description of our flag. Thurber wanted red white and blue; Ross insisted on red, white, and blue. Thurber complained: "All those commas make the flag seemed rained on. They give it a furled look. Leave them out and Old Glory is flung to the breeze as it should be."

How far to stickle? The Wiens approach is not an academic exercise; it results in action, unfair or not. He believes that good writing is important and indicates clarity of mind. If its basic rules are violated, then that sends a behavioral signal.  It is arguably an extreme position. By the way, his blog prompted 2400 comments, ranging from Boo to Bravo. Quite a few even challenged his grammar.  Perhaps you will want to take a crack at mine. I would be delighted. It means you have read the blog and I can always stand corrected. Now I must return to my packing.

Comments always welcome below ot at: info@geoffreyplattconsulting.com



Thursday, June 28, 2012

Cavalier, Indeed



Some weeks ago I posted a blog about proper treatment of volunteers in nonprofits (“With Volunteers, Thank, Don’t Spank” 4/23). Here the lesson regards proper treatment of CEOs.

The University of Virginia (UVA) sports teams are known as The Cavaliers, and their logo is a crossed sword.  The original Cavaliers (the word means horsemen, from the French) were Royalists supporters of Kings Charles I and II in the 17th century English Civil War. I am not sure why UVA took on that moniker, but Virginia does have an Anglophile tradition.
“Cavalier” also means haughty or disdainful, as in treating someone in a “cavalier manner.” Ironically that’s what best describes how the UVA governing board leadership recently handled the removal of UVA president Teresa Sullivan. The ouster was masterminded (or miniminded if there is such a word), by UVA Rector (UVA’s term for board president) Helen Dragas, who informed  Dr. Sullivan on June 10 that she had enough board votes to oust her. However, the full board was never convened to take a vote.  The popular Dr. Sullivan, in office for only two years, resigned. 

Then the proverbial excrement hit the fan, as much regarding the decision-making process as anything else. Students protested en masse, the faculty Senate demanded Sullivan’s reinstatement, some donors threatened to exit, and the media erupted into a high frenzy. The Board appointed an interim President from the Faculty, who later announced he would refuse to serve.  As a former Virginian (1992-2006), I know how passionately UVA grads feel about their school, and well they should, as it is one of the premier universities in the country, with fine sports teams to boot.

The board, known formally as the Board of Visitors, is composed of sixteen members, all appointed by the Governor for  four year terms, with legislative approval. As Virginia governors themselves are limited to one four year term, in this case eight of the Board members were appointed by either Democrat former Governors Tim Kaine, now running for U.S. Senate, and Mark Warner, a U.S. Senator, and the other eight by the present Republican Governor Bob McDonnell, mentioned as a possible Veep choice for Matt Romney. Thus this fracas took place in a politicized environment.  Governor McDonnell finally announced the Board had to take action at its specially called meeting on June 26, one way or another, on any possible reinstatement of Dr. Sullivan or he would fire them all.  Tim Kaine on June 22 called for the reinstatement of Sullivan.
As the matter unfolded, it became clear Ms. Dragas, a successful real estate developer from Virginia Beach, had co-conspired with some other big money board members, notably  Vice Rector Mark Kington (who subsequently resigned),  to effect the ouster.  I guess they believed in the golden rule: “Whoever has the gold, makes the rules.” 

But they underestimated the passion of UVA supporters and their outrage at foul play. Slate’s John Dickerson writing on June 22 suggested the Rector’s coup d’√©tat entailed an unreasonably high degree of risk and advised: “When you’re climbing a tricky pass on El Capitan, don’t wear an anvil.”

The denouement of this drama took place at the special meeting of the full Board on June 26, where, by unanimous vote, Dr. Sullivan was re-instated as President. At the same time the Board expressed confidence in Ms. Dragas’ leadership. This apparently was a compromise, as Dr. Sullivan had previously declared she would not accept reinstatement unless Ms. Dragas resigned. Outside the Thomas Jefferson-designed Rotunda where the meeting was held, student and faculty awaiting the result broke into cheers at the news that Dr. Sullivan would regain the presidency.

The brouhaha drew national media attention, questioning the manner of dismissal, while musing on the financial strains faced by universities in general and public universities in particular.
Finding and retaining superior talent to run not only universities but any nonprofit these days is difficult enough without the example of a board such as UVA’s engaging in shabby and underhanded behavior. Some may lay blame on the fact that the UVA board is politically appointed and/or that is made up largely of big donors.  But any governing body in the nonprofit world, however constituted, can ill afford to make decisions in such a manner, which runs the risk of alienating the very constituencies - in this case, students, faculty, and alumni - it is pledged to support.

At a high cost to UVA’s reputation, it took sixteen days for the Board to right the wrong.  Let the Biblical admonition of reaping what one has sown be taken to heart.
Comments always welcome

Tuesday, May 29, 2012

Hire a milkshake??



A recent New Yorker profile (5/14/12) of the prominent management expert Clayton Christensen, Harvard Business School professor and author of the widely hailed book “The Innovator’s Dilemma,” described an interesting approach to how a business, profit or nonprofit, can better understand its customers.

One of the big fast food chains hired his consulting firm to help improve its sale of milkshakes. The company marketers had previously done thorough research on the profile of the typical milkshake consumer and made improvements accordingly. But sales did not increase. Christensen decided to take a different tack, summarized, in his words, in finding the answer to the question: “I wonder what job a customer is trying to do when he hires a milkshake?”

Now, please stay with me. You have first to digest (sorry…) the novel concept of hiring a milkshake. Christensen sheds some light when he quotes another marketing icon, Professor Theodore Leavitt who advised his students that “A person doesn’t want a quarter-inch drill, he wants a quarter-inch hole.” In other words, consumers don’t necessarily search for a product but rather a solution to a problem or a need for a certain job to be performed.

Back to the milkshake: Christensen and his crew spent 18 hours in a restaurant observing milkshake- buying behavior- who bought them, what time of day, alone or with someone, consumed on premises or off. They discovered that almost half of the shakes were sold to a single person, in the very early morning and consumed away from the restaurant. The next day they asked the people as they were leaving with their milkshakes to go to their cars: “what job were you trying to do when you hired that milkshake?” Not, why did you buy one or what flavor? The phrasing of the question got their attention.

The answers had to do with the purchaser having a long, tiresome drive to work. Because of their consistency milkshakes take a good while to drink, they are not messy or tricky to handle, like crumbly muffins. You can answer your phone when it rings. So the job that needed to be performed was occupying a commuter’s time along with providing some nourishment and the milkshake filled that bill. The recommendation to management was to make the shake even more viscous (add fruit), move the dispenser to the front of the counter and allow for quicker payment method. Sales went up.

Ok...so what’s the lesson, you may ask. Not everyone has 18 hours in which to observe customer/client/visitor behavior. Nor might they have a crew to conduct in-depth interviews. But stepping back, what the milkshake story suggests is that nonprofit marketers or leaders need to look beneath the surface of ordinary consumer activity and think about what their organization can do first to identify for its users the job they see at hand and then to help them accomplish it. You can easily ask a museum or performing arts visitor questions that reveal demographic information; more difficult is to discern the deeper motivation for attendance or, in the case of donors, for their gift. What Clayton Christensen offers is a unique format for phrasing the question that in its provocative way might offer up previously buried jewels of information. Try it, and in the process, why not give yourself an excuse to enjoy a milkshake.

Comments always welcome: see below.

Monday, April 23, 2012

With Volunteers: Thank, Don't Spank



Without question volunteers are critical to a nonprofit’s success. But they must be carefully tended, like a fine garden, and sometimes that includes weeding. Several recent incidents reveal, however, the perils of inept volunteer horticulture. The Wall Street Journal reported recently that the president of the Brooklyn Museum convened a meeting last December with the leaders of the Brooklyn Museum Community Committee, a women’s volunteer group that had been raising money for the museum since 1948. At the meeting Dr. Arnold Lehman informed them that the museum board had decided to disband the group.

The committee had started the docent program and planned fundraising events, including the museums’ first gala. It operated under the museum’s tax-exempt status, out of an office at the museum and paid a secretary from the funds it raised. Over the years the museum’s professional development office became more involved with the committee and the relationship seemed positive until last year when, according to the Journal, the Museum began to intercept and open the Committee’s mail, sending the checks directly to the Development office. That move precipitated the meeting where the axe fell.

After the meeting, Lehman sent a note of thanks to each committee member, enclosing a pin from the Museum gift shop. Not surprisingly, there was “blowback.” Memberships were cancelled and the some wills altered, including one with a bequest to the museum of a collection of prints by contemporary artists such as Robert Rauschenberg. Added to these discernible events there is now the sub stratum of hurt feelings and evidence of an insensitive, boneheaded play by management, made worse by it being broadcast in print and online detail by a prominent national newspaper, all of which cannot help but negatively affect what may loosely be called “community relations.”

Closer to home, at Boscobel (the historic site I managed from 2006-2011), late last year the new executive director and board development committee abruptly informed the Friends of Boscobel, which had been supporting the institution since 1995, that they were no longer needed. Although there is some evidence that the source of the upset was a communication breakdown, the results were recriminations, membership loss and a p.r. nightmare for the institution. One of the angry letters to the local paper was even included in the news story last week about the departure of the director after nine months in the post for a job in D.C.

There are some similarities between the Brooklyn and Boscobel stories. Each volunteer organization had its own separate board, received funds on behalf of the parent museum, which received, some if not all of the proceeds. The potential for collisions with the institution’s development staff/policies were there. At Boscobel, the Friends would sometimes without consultation donate a piece of equipment, perhaps needed or perhaps not. As museum development strategies become more sophisticated, this Friends model becomes more and more out of date.

Nevertheless, the lesson here (or “take away” – don’t get me started on that phrase) is in each instance what can ensue by poor handling of volunteer relations. The cavalier dismissal of these groups will have a longer shelf life than envisioned by management. Volunteers represent connection to the community the institution serves, unlike some distant foundation or corporate donor. These people have friends and neighbors, and they talk. Honor them and treat them carefully. As the late House Speaker Tip O'Neill used to say: All politics is local.

The week of April 15-21 was National Volunteer Week. Volunteering has been a part of American life, in fact a hallmark of it, since Benjamin Franklin in 1736 established the first volunteer fire department in Philadelphia. People serve nonprofits and communities in ways too numerous to list. Everyone who reads this blog post has been, or is presently, a volunteer someplace. Thank you.

That’s it. Express gratitude to volunteers, and for goodness sake, if you direct a nonprofit, avoid at all costs, the opposite. These stories illustrate the wages of managerial arrogance. A little diplomacy will go a long way

Friday, March 16, 2012

Ripping off the good guys...

The media stories reporting embezzlement from non-profits appear far too frequently. Just last month a former bookkeeper at a Van Nuys CA adoption charity named Inner Circle was sentenced to 41 months in federal prison for stealing $700,000 from the organization over a seven year period. In February the former executive director of the Waterbury (CT) Boys and Girls Clubs pleaded guilty to charges of fraud and embezzlement of more than $470,000 from the charity since 2008. Sentencing will be in May. And not to pick on Connecticut, in 2011 Donna Gregor the controller of the Mark Twain House in Hartford received a 3 ½ year sentence in federal court for defrauding the museum of over $1 million in the period 2002 to 2010.

All of this is heartbreaking. These non-profits work hard to find scarce resources to support their missions. And the loss of funds in these substantial amounts can have a significant impact. In the Mark Twain case, the museum was struggling and had to lay of two thirds of its staff in 2008, at the same time Ms. Gregor was ripping it off. Some of her colleagues lost their jobs while she was improving her home, going on vacations and buying theater tickets. The fraud was discovered by a bank employee comparing check signatures.

There is a pattern in these and other stories. One is that the criminal tends to have occupied a position involving daily management of the nonprofit’s money. Another is that the techniques for embezzlement have similarities – such as creation of phantom checking accounts, false credit cards, forging signatures, etc. At the Twain house Ms. Gregor also accessed the museum’s payroll system through the Internet where she set about to increase her salary.

Several questions arise. First and probably unanswerable is: why did these people commit these crimes? The second is, might they have been prevented and third is, what should a nonprofit do about them when revealed? As to the first, stealing from a non-profit seems like snatching a panhandler’s cup. But the motive of greed is always a good bet. Added to that is some form of ease of commission, in other words it wasn’t too hard to pull it off, especially if you know the system and the controls or lack thereof.

To address the second question - controls are at the heart of the matter. If the nonprofit hasn’t established a system of checks and balances and oversight in its financial system the temptation to steal will be there for the miscreant. Quite often, responding to news of the crime, someone will say: “Oh I couldn’t possibly imagine X would ever have done that, he/she is a long time trusted employee.” Unfortunately that profile is a likely fit for the culprit.

Establishing controls can be done with the help of your independent auditor, if you have one, or with the advice of a volunteer CPA. It is vital that board members be involved in implementing the controls process as the board is ultimately responsible for the organizations finances. That being the case, having Directors and Officers Liability Insurance would seem to be a necessity.

Now, what should nonprofit do after embezzlement is discovered? According to Bob Carlson in a 2011 article for the Chronicle of Philanthropy there are three steps that seem self-evident but are not always followed: 1) Punish the offender. A 2007 study found that only 72% of affected non-profits actually fired the employee; 2) Report the embezzlement to appropriate authorities and 3) Seek to get the money back.

On the latter point the non-profit, aside from its own financial health, has an obligation to its donors to pursue this course. In the case of Ms. Gregor, the court along with the punishment of a prison sentence ordered her to make full restitution to Mark Twain House of the embezzled funds totaling $1,080,811, and to pay $500,000 to the insurance company, the amount it paid out to the museum.

That’s not all. Ms. Gregor owes the IRS $323,480 in back taxes for under-reporting her income during the time of her crime spree. By law she should have reported the embezzled funds as income!

What percentage of these funds will ever find their way back to their rightful recipients is a good question. In any case, non-profits can guard against internal theft by imposing stringent financial system controls regardless of any inconvenience and additional work that may be involved. Above all, avoid the “it can never happen here” syndrome, because it can - unless the organization is vigilant. Mark Twain once said “the lack of money is the root of all evil.” With that in mind and a lack of controls in place, a non-profit can be vulnerable to fraud.

Wednesday, February 15, 2012

Boxes

It is February 2012, a short month. I want to write briefly about boxes. How often have you heard the admonition to “think outside the box?” In my view, this phrase has won its place in the Clich√© Hall of Fame, Business Section. The meaning is to think both creatively and unconventionally. Its origins are unclear although there is consensus that it derives from a solution to a puzzle first published around 1914 called The Nine Dots, where you are challenged to draw a single line through each dot without lifting your pencil from the paper. The solution is to go beyond the perceived boundaries of the puzzle – hence “outside the box.” A number of consultants and business writers in the 60’s and 70’s claim to have translated this notion into the general management advice employed today.

In any case the phrase is now ubiquitous and I find at times used to disparage the thinking of managers and/or boards who, in the opinion of the “advisor” are too conservative or hidebound. I have been in meetings where the attendees are sternly admonished to think Outside the Box. The reactions are sometimes amusing. Some people almost assume the physical attitude of Rodin’s “The Thinker” –others are puzzled and some are defensive, immediately throwing out ideas they hope might alight somewhere beyond the box.

At the risk of being too literal I suggest there should be a first step: what’s in the box right now? Shouldn’t those contents be analyzed so that everyone concerned will understand what might ultimately qualify as being “outside?” And maybe a creative idea is within the present box, like the Peter Drucker’s “systematic and purposeful abandonment” of programs I described in my December 2011 blog. The Outside the Box directive is useful in encouraging new thinking provided the “old” thinking is not summarily devalued. At the core of this approach is THINK, the old IBM company mantra, regardless of an idea’s location relative to the box.

The second box I want to discuss is the sandbox. There are instances where some nonprofit board members are tempted to take advantage of their positions to espouse and even personally act on pet theories about management techniques and programs, often usurping the authority of the CEO in doing so. In these cases the non-profit becomes like a sandbox, open for play. Board chairs in in particular have to be vigilant in confining board members’ activity to the essentials: financial sustainability, policy development and the hiring and/or firing of the CEO. If the weakness of the CEO has invited sandbox play, that becomes a legitimate issue for board review.

My final box is in the nature of a commercial. Not far from where I live and work is the remarkable Dia Beacon (NY), a facility for contemporary art on the Hudson housed in a former Nabisco box printing factory. At close to 300,000 square feet, it is a world –class museum and well worth a visit. When you do so you can witness firsthand the result of thinking “outside the box” - literally.

Wednesday, January 11, 2012

One way to ensure spirited board discussion –“try this at home?”

Before Christmas I received in the mail a DVD that brought back memories including an interesting and seemingly counterintuitive technique regarding board of trustees’ decision-making. The disc was made at a recent ceremony celebrating the contribution of two men, Moon Landrieu and Thomas Lemann, to the establishment of the Arts Council of New Orleans in 1975. Landrieu was then Mayor of New Orleans and is the patriarch of extraordinary political family that today includes his son Mitch, the present mayor and daughter Mary, a U.S. Senator. Lemann is a distinguished attorney and respected arts patron. It was Lemann, as its board chairman, who brought me to New Orleans to be the arts council’s first director.

In the DVD, Lemann reminds Landrieu that one of the arts council’s first achievements was the mounting of an outdoor monumental contemporary sculpture show that placed works by noted artists such as Mark di Suvero and Clement Meadmore in public places around the city. The idea for the show had come from a visit I made to a similar show in Houston. Both Lemann and I were enthusiastic about the project, but the arts council board would have to agree before proceeding. We knew that obstacles to acceptance, both internally and city-wide, might be that the city had then virtually no contemporary art scene and at the same time a reputation for conservative protection of local tradition – and this scheme was hardly conservative. I was worried.

A few days before the board meeting Tommy Lemann called me to discuss the agenda. I would do a slide presentation of some the art to be shown. Then he had invited two guests to speak to the merits and advisability of the project: Bryan Bell, a vaunted civic leader in New Orleans, would be a guest and the other John Lishawa, a British expert in old master prints visiting the city. Oh, good idea I said to myself, although a bit confused about the inclusion of Lishawa, Then he continued: Mr. Bell would speak against the project and the British visitor for it. Lemann went on to say that Bell would say it was just the wrong first move for our infant organization; Lishawa thought it brilliant. I was stunned and to put it mildly, apprehensive.

The meeting began; I made my presentation and left. My position was known and this was a board decision. Like an expectant father in the waiting room, I paced outside the board meeting location. An hour later the board emerged and I learned it had approved the mounting of the show.

What is the lesson here? Or was this simply a canny lawyer acting on the courtroom advice: “Never ask a question to which you do not know the answer.” I like to think – and believe- it was a risky but perceptive way of guaranteeing thorough and lively discussion prior to making an important decision. No one on that board could claim that both sides of the question were not presented and reviewed. The vote was positive and so was the feeling of those participating on how it was reached.

Now, I am not necessarily suggesting you adopt this particular gambit – or as the caption reads in some TV ads “Don’t try this at home.” What I want to propose is that some way be found to structure a critical board decision in such a way to assure airing of full and diverse opinion. It is tempting to “stack the deck” before a meeting, but it can be counterproductive if there is a lingering sense afterwards of a key vote having been rammed through. Boards can be and often are fragile organisms.

The sculpture show went on – something of a miracle as we then only had a staff of two (myself included). But a volunteer crane operator, the help of several of the sculptors and the forbearance of the city on whose property most of the works rested made its installation possible. There were some public cries of outrage, but also applause. The arts council definitely got on the map. In 2010 it celebrated its 35th anniversary. There are those in New Orleans who credit the quality and public nature of the show with laying the groundwork for greater appreciation of contemporary art in the Big Easy. And it may have started because the board chairman decided to try a different – and counterintuitive – approach of reaching board consensus by purposely inducing debate.