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 17^th 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’état 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

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.

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

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.

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 Cliché 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.

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.

The "business" of non-profits

Should non-profits be operated as a business? Or does their mission-driven nature somehow exempt them from such a standard?

I am a big fan of the writings of Peter F. Drucker (1909-2005), the author of 39 books about organizational effectiveness. Often called a “management guru” – a term he hated (remarking once “that we are using the word ‘guru’ only because ‘charlatan’ is too long to fit into a headline”) - he was particularly appreciative of the importance and difficulty of work in the non-profit field. One of his legacies is The Drucker Institute at Claremont Graduate University (CA) where he taught for years. Each year the Institute sponsors three Nonprofit Innovation Awards, the winner of which receives $100,000.

In 1973, I received a MBA degree from the Harvard Business School. I entered the two-year program from the non-profit music field with the intention of returning to non-profit work, which I did. As far as I could tell only a handful of the 750 students in my class had the same background and goal. Harvard teaches using the case method and at that time there were very few cases dealing with the nonprofit field, so I had to engage constantly in mental translation of, say, a marketing case about Smucker’s jams into the not for profit arena. There were very few instances where I found this was impossible.

Here’s a provocative idea from the excellent “The Daily Drucker” (Harper Collins 2004). Drucker was fond of the concept of what he called “systematic and purposeful abandonment.” He was referring to casting off old and non-productive products and services in order to free up resources, especially people, to focus on the opportunities of tomorrow. It is especially difficult for an organization to abandon the “cherished” activity, one that has been in place for years.

He urges a systematic approach where regularly and dispassionately, if that is possible in a non-profit organization, programs are reviewed - and the question is asked: which one should we abandon? Whether it be the profit or non-profit world inevitably there are activities that are no longer as productive as they once were, yet are still being operated, because they have been going for years and/or have their internal adherents. This exercise next begs the question: OK, What do we replace it with? Drucker believes the point is that abandonment makes it possible for staff to concentrate on finding new and more productive program (s) instead of managing or providing life support to the old tired enterprises.

An abandonment analysis might be easier for the profit-making world using measures such as sales and profit/loss figures. But nonprofits can look to audience/ clients served and, even better, study program evaluations.

Here’s a distinction Drucker made that helps clarify the non-profit as business issue: “In the case of business enterprise, the end is economic; in the case of a hospital (for example), it is the care of the patient…” He always comes back to the importance of management, the task of which is: “ …to make people capable of joint performance, to make their strengths effective and their weakness irrelevant. That is what organization is all about..” Management is the critical and unifying factor that bridges any gulf between “bottom line” and “mission.” No wonder Peter Drucker called himself as “social ecologist.” He understood deeply that management is about human beings. And that is why he greatly valued and supported the non-profit enterprise.