The Gift with a Catch

June 14, 2011

 

Today’s nonprofit board tale is from the state of Maryland, home of the Preakness, Chesapeake Bay, and, apparently, at least one very assertive potential philanthropist.

Let me explain. According to its Web site, Equality Maryland works to secure and protect the rights of LGBT Marylanders by promoting legislative initiatives on the state, county and municipal levels. Recently their board rejected an offer of $500,000 by an anonymous donor….

Let’s breathe that in for a moment, shall we? They turned down half a million dollars.

Why? Because the gift came with a catch. The anonymous donor offered the money contingent upon the board’s giving up its voting power; the donor would be allowed to select a new board. Characterized only as “a gay man out of Montgomery County” by his representative, Darrell Carrington, who is himself a current board member of the organization, the potential donor was apparently concerned about the organization’s sustainability. It is currently in financial difficulty and has made plans to lay off all but one employee if contributions do not increase.

The story, reported in the Washington Blade, a Washington-based news source for and about the LGBT community, offers important lessons for board members pondering their gift policy. First—do you have one? You should; all boards should be proactive about what kinds of donations—and from whom—they will accept. For example, a recent article in the Nonprofit Quarterly proposed a suggested policy for when your organization is presented with an offer from a potentially dictatorial regime.

Worrying about receiving funds from despots might be a little over the top, but the fact is, gifts come with restrictions all the time. I liked what one of the responders to the Blade article, “KW,” had to say:

Any time there are “strings” attached to a donation, that is a red flag. A restricted gift (meaning that the gift is designated to fund a specific area of interest) is one thing, but “you will only get this gift if you take this action” is another. Any conditions and contingencies placed upon a gift should be reviewed VERY carefully.

That seems like the right way to look at it. Donors may place restrictions on their gifts, and your board’s gift policy should state whether restricted gifts are acceptable. But accepting a gift that essentially holds the organization hostage, even if in financial difficulty, is a devil’s bargain and creates far too slippery a slope for my taste.

Another responder, Jenna Fischetti, wrote: “The board was right in rejecting the offer, if the offer was in fact as described. A better response would have been to counter with the opportunity to present the concept to its membership base upon the full disclosure of the interested donor.” A nice bid for the transparency that was sorely lacking in this inchoate transaction.

I’m happy to give the potential donor the benefit of the doubt and assume his charitable impulses were pure, but accepting an anonymous gift that comes with a big, fat catch? It’s just not worth it.

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In my last two posts, I have asked that (sadly) perennial question, “Where was the board?” In each of those organizations I wrote about — the Central Asia Institute and the Fiesta Bowl — the board appeared to be on the lam from any serious oversight or even, it appears, much interest, relative to their chief executive’s activities.

In today’s situation, we know exactly where the board was — and that’s the problem. Let’s take a mental stroll into the boardroom of the City University of New York, where the board of trustees was tasked with approving the conferral of honorary degrees for John Jay College. Tony Kushner, the Pulitzer Prize-winning playwright of “Angels in America,” was up for one of the awards selected by the faculty. (CUNY makes podcasts of its board meetings available to the public.) One of the trustees made an impassioned speech against Kushner’s receipt of the award because of his political opinions, which he characterized as anti-Israel. Without further debate, the board approved all the degrees except Kushner’s; the vote on his degree was tabled until after the graduation, and…the world took notice, very quickly. After a public uproar, a letter from Kushner, and a letter from a prior degree recipient wanting to give hers back, the board’s executive committee reconvened a week later and unanimously voted to confer the degree upon Kushner, who accepted the award.

If I were tasked with illustrating the Culture of Inquiry concept we teach at BoardSource, I might consider using this board as the “before” example. The vote was the last item on the agenda and Jeffrey Wiesenfeld, the dissenting trustee, apparently surprised the board with his remarks. It appears that the “culture” is to rubberstamp the faculty’s selections, which raises the question, “why bother?” An institutionalized rubberstamping process begs for re-examination. But given that the board was expressly tasked with approving the nominations, Wiesenfeld was quite within his rights to question Kushner as a nominee, for any reason he chose. It was the responsibility of the rest of the board to enter into the debate, rather than passively tabling the nomination and killing Kushner’s chances. This is no referendum on the substance of Wiesenfeld’s remarks; rather, on the board’s silence in the face of them.

And speaking of silence, Wiesenfeld has continued to speak out in the media, defending his position on Kushner.  While that’s fine from a legal standpoint, far better from a governance standpoint for the board to have chosen one spokesperson to address this kerfuffle.

Think of it this way – the board should have several voices inside the boardroom, but only one voice outside of it.

Three Cups of Oversight

April 25, 2011

So much has been said and written already about the 60 Minutes segment on Greg Mortensen, author of Three Cups of Tea and builder of schools in Afghanistan under the auspices of the Central Asia Institute,(CAI) a Bozeman, Montana, nonprofit that Mortensen leads. Reporter Steve Kroft has been investigating complaints that Mortensen has lied about his activities, unreasonably enriched himself, and mismanaged the organization. Since the segment aired last Sunday, reactions have ranged from total support for his mission, to calls to extract $20 million in taxes. For a great overview of those opinions, I recommend Nicholas Kristof’s article in The New York Times; Kristof is a friend and supporter of Mortensen and the comments run the gamut from idolatry to evisceration.

It will take some time for all this to be sorted out and I don’t have any special insight into the truth of the situation except to ask, yet again, where was CAI’s board? According to Jon Krakauer, who knows Mortensen well and was interviewed for the story, in 2002 the board president, treasurer, and two board members quit and recommended that Krakauer no longer donate to the charity because, Krakauer said, that Mortensen uses CAI as “his private ATM machine.” He said there was no accountability, and no receipts for Mortensen’s expenditures. The reporter said that over the years six staffers and board members had quit over similar issues.

The organization’s 2009 Form 990 lists four board members, three of whom are independent. Today its website lists three—one chair, one treasurer—and Mortensen. That board issued a statement in response to the 60 Minutes segment expressing support for Mortensen and reporting a legal opinion that he had received no excess benefit from the organization.  

What are the lessons here? At the very least, from where I sit at BoardSource, I would suggest that having two board members in addition to the chief executive for an organization with over $14 million in revenue, while legal, is minimal at best. Especially considering Mortensen has a vote on the board. BoardSource recommends that chief executives serve as ex officio, nonvoting board members—remember, one of the critical jobs of the board is to oversee the chief executive—and there’s an inherent conflict, sometimes perceived, sometimes real, if that executive has a vote.

Three cups of tea? I like mine with lemon. Three board members? One’s the chief executive? As a chief executive myself, I like more board members, more voices, more oversight.

Fiesta to Fiasco

April 7, 2011

Where do I begin?

That ‘60s Erich Segal book, “Love Story,” opened with those words, remember? It was about a college romance that ended in tragedy.

The Fiesta Bowl debacle is about college, all right, but there’s no romance in it, and the tragedy is that there has been so little oversight by the board for so long—if one believes the findings of the 276-page Final Report of the Counsel to the Special Committee.

Some background for those of you who may not be up on your U.S. collegiate sports: I certainly am not, but believe me, this governance nightmare transcends any “football versus soccer” debate. The Fiesta Bowl is an Arizona nonprofit that runs, among other things, the Tostitos Fiesta Bowl, a postseason football game that pairs up top college teams. It’s one of five postseason games that alternate hosting the “national championship” of college football, through a consortium called the Bowl Championship Series, or BCS. The organization came under investigation when allegations surfaced that it was reimbursing employees for political contributions, a violation of election law.

The Fiesta Bowl board fired their CEO, John Junker, following release of the resulting report that, in addition to detailing such contributions, describes years of egregious practices. But where was the board all along? According to the report:

  • Junker and other employees were reimbursed for tens of thousands of campaign contributions, grossed up to net the amount of the contribution.
  • A lobbyist who worked with the Fiesta Bowl chose the investigator for an earlier investigation into allegations; the lobbyist chose which employees the investigator would talk to and coached them in their answers. The investigator paid the lobbyist a third of his fees. Result: no fraud uncovered.
  • When the Bowl planned a political fundraiser and couldn’t send out invitations to it from their organization’s e-mail because of campaign laws, they asked a board member to send the invitations from his company.
  • The Fiesta Bowl paid for four private golf-club memberships for Junker, plus cars and monthly auto stipends for him and his wife, a non-employee.
  • The Bowl paid $33,000 for a 50th birthday party for Junker.
  • One board member’s company received a no-bid $300,000 contract to perform construction work for the organization.

I could go on and on. There’s much more in the report, and some of it is even more titillating than what I’ve written here. But there are so many more questions than answers: Who was watching over the Bowl’s tax-exempt status to ensure there was no personal benefit to any employee? Whose job was it to know enough about campaign law? Who was worried about conflicts of interest?

One sad statement stood out in the report. An executive committee member said, referring to Junker and his staff, “they don’t tell the board members anything.”

Just one more question: If the staff doesn’t tell the board anything, whose responsibility is it to find out?

The Black Swan of NPR

March 9, 2011

NPR CEO Vivian Schiller resigned today after NPR executive Ron Schiller (no relation to Ms. Schiller) was “stung” by a hidden camera, revealing his biases against the Tea Party. The incident came on the heels of a controversial firing of Juan Williams in 2010.

The same morning, NPR issued a press release, which read, in part:
“According to a CEO succession plan adopted by the Board in 2009, Joyce Slocum, SVP of Legal Affairs and General Counsel, has been appointed to the position of Interim CEO. The Board will immediately establish an Executive Transition Committee that will develop a timeframe and process for the recruitment and selection of new leadership.”

That’s fast. And guess why they were able to be so nimble? They adopted a succession plan that could be enacted at a moment’s notice. This was that moment. How many boards tell themselves, “We really need to work on our succession plan”, only to have the day-to-day exigencies of the organization take precedence over something that feels theoretical and nearly impossible-the sudden departure of the CEO.

If you haven’t read the book “The Black Swan” (no relation to the Natalie Portman movie), I encourage you to do so. Author Nassim Nicholas Taleb tells us that the truly important events, what he calls “Black Swans,” are rare and unpredictable. And while you can’t plan for many of these unpredictable events, this is one Black Swan you CAN plan for: you can create a succession plan. Last month I wrote about Steve Jobs’ illness and the Apple board’s refusal to reveal its succession plan to their shareholders. Apple has said they have a plan but will not disclose it.

You don’t have to disclose your plan. But you do have to have one. The NPR board got it right; they were ready.

Is your board?

Boardroom Confidential

February 23, 2011

Have you ever noticed how board members sometimes conflate confidentiality and transparency, two important, but essentially opposite, values? Nonprofit organizations are expected to function in a transparent manner, but if you are supposed to function in an open manner, how can you keep information confidential? It helps to understand the difference between the two terms and how they relate to each other.

Transparency is the disclosure of information to the public and supporters to indicate the organization is managed well, functions in an ethical manner, and handles its finances with efficiency and responsibility. It’s part of your duty of obedience. Confidentiality is the obligation and right not to disclose information to unauthorized individuals, entities, or processes if it would harm the organization, its business relationships, or an individual. It’s part of your duty of loyalty.

We are all constantly aware as board members that our stakeholders – our clients, the government, the sector – want and expect transparency from our organizations. As the Form 990 asks for more and more disclosure – How much does our CEO make? How did we arrive at our compensation decisions? Do we have X, Y, and Z policies? – it raises expectations that all information is fair game for public knowledge.

But transparency does not, and should not, extend to boardroom decision making. Board discussions are confidential. Period. Even if your organization is subject to sunshine laws, there are exceptions for topics of extreme confidentiality such as legal and personnel issues. Your board should have a rigorous confidentiality policy that board members agree to and adhere to without exception.

Why is confidentiality so critical? Board members must feel at liberty to express their ideas and opinions in an open and welcoming atmosphere, and nothing chills candor like the fear that one’s words will be repeated (or worse, misquoted) outside the boardroom. The only way your board can transform your organization is if it feels free enough to discuss the big, audacious issues…to dare to dream…and to challenge each other’s assumptions about how much you can achieve.

Look at this way: A strict adherence to transparency and disclosure ensures that your board is firmly grounded in compliance with the law, while a culture of confidentiality ensures your board has the freedom to soar as far and as high as it may.

Next In Line

February 4, 2011

As you probably know, Steve Jobs, CEO of Apple, was granted medical leave recently so that he could focus on his health. This has created much anxiety about the company’s future as the stock dropped precipitously after the announcement. While the stock has since largely rebounded, the uncertainty is still there. According to The Washington Post, Apple has been fighting efforts by some shareholders to force it to reveal its succession plan. In the Post article, Alexa Perryman, an assistant professor at Texas Christian University, said, “If you’re investing in Apple, you’re not sure who’s leading the company in the long run.”

One of the primary responsibilities of the board is to ensure competent leadership of the organization. But that responsibility doesn’t stop with hiring and firing the CEO. Having a specific, written succession plan is the only way to ensure smooth transitions when chief executives leave, regardless of the reason for their departure.

Just because your nonprofit doesn’t have shareholders doesn’t mean you shouldn’t have a plan in place: the very act of developing a succession plan can be a transformative act for your board and organization. Thinking about who should be recruited to lead next forces your board and chief executive (who should be involved in the process, by the way) to think about the direction you want to take the organization in the coming years. Should you be developing one or more senior staff members who show great potential, or have you identified someone external who might help the organization take a leap forward? Recall that there’s an impending leadership deficit in the sector; not having a plan will only exacerbate the problem for your organization.

Does your organization have a written succession plan? If not, maybe it’s time to put one in place.