Panel Report, Part 2

Today I want to react to two parts of the Panel on the Nonprofit Sector's report and Recommendations:

Structure, Size, Composition and Independence of Boards of Directors

and

Travel Expenses

First, boards. Boards need to be independent, have a large and changing skillset, and be free of "the appearance of impropriety". With that background, I agree with the Panel's recommendations, including increased disclosure, a good definition of independent, and the need to exclude convicted criminals (if the crime was in relation to their work with nonprofits)

I also agree with the panel NOT agreeing with the Senate's proposal that all nonprofits have 15 board members. That's nutty. With so much variety in our nation's charitable organization, proscribing a set number is, well, dumb. And I thought a Republican Congress wanted less government, not more! These are good recommendations.

Travel. There is a ton of bad media coverage around travel, usually from excess travel expenses at plush resorts for board and senior staff of large organizations. While I don't recommend that board members be forced to sleep in their cars when traveling for the organization, on the other end of the scale, always staying at the Ritz is inappropriate as well.

First, you need to have and consistently enforce travel policies. SO many organizations have policies and ignore them, or make exceptions for board members, or, or, or. Don't.

The panel makes 5 very common sense recommendations in terms of policies and disclosures. I like all of them, and they are easy to live with---particularly if you are not abusing travel now.



Tomorrow, I'll weigh in on Review of 501(c) status, and performance data disclosure.

We interrupt this program....

I was going to post my second set of reactions to the Panel on the Nonprofit Sector, but instead, this came across my screen...

A terrific article from the upcoming issue of Nonprofit Quarterly, by Clara Miller from the Nonprofit Finance Fund....

The article is really worth your time, and you'll want to pass it on-to your funders, your board, your community. Clara has a great way with words on a critical issue.

The Looking Glass World of Nonprofit Money: Managing in the For-Profit's Shadow Universe.

Back to my Panel reactions tomorrow.

Panel on the Nonprofit Sector #1

OK, time to put up or shut up. The Panel on the Nonprofit Sector has made its second set of recommendations to the Senate public. I've blogged about them before and urged readers to read and comment. Then it occurred to me....I should put my comments on each area here.

So I will, over the next few postings. What you will see is what I'll be sending to the panel when I'm done with all the postings.

Some of the areas that the Panel looked at are outside of my area of expertise. I'll limit my comments to:

Board Compensation, Executive Compensation, Structure Size composition and Independence of Boards of Directors, Travel Expenses, Periodic Review of 501(c)(3) Status, Disclosure of Performance by Public Charities, and Revisions to Forms 990 and 990-PF.

Today, I'll look at the first two areas of interest:

Board Compensation and Executive Compensation. Click on the topic to see the Panel recommendations in that area. I'll limit my thoughts to.....my thoughts.

Board Compensation
This one is simple: board's shouldn't be paid-except for travel reimbursement. Period. End of story. Currently a large number of foundation board members are compensated both for their time and travel. I feel strongly that this is flat out wrong. Foundations are nonprofits, just like direct service providers. Foundation board members are stewards, and their job is to make sure that the most money possible goes to direct service providers, not to their own pockets.

I understand that this has gone on for a long time, and I understand that the rationale for this is that foundation board members are responsible for a lot of money and spend a lot of time at their job. Welcome to the world of most nonprofit board members.....members who get no compensation at all.

So, I don't care if it's tradition, and I disagree with the rationale for its existence. It's wrong, and it should stop. Now.

Executive Compensation.
I have no clients who don't have their executive compensation set by the board, but apparently it occurs, which to me seems a grievous breakdown in the checks and balances designed into nonprofits. I agree with the Panel recommendation here, as well as the recommendation that full exec compensation should be shown on the 990. This is just good transparency.

Setting compensation is a bitch, as everyone who works with salary surveys well knows. I like the Panel's recommendations here, particularly the "rebuttal presumption" since it makes sense, and is less prone to hassle from the Feds for well intentioned organizations (which, as we all need to remember, is 99% of nonprofits).

I most fully agree with the provision that penalties for excess compensation should accrue personally to board members who agree to such compensation. This will, more than anything, put a stop to it.



Tomorrow, we'll look the Structure, Size, Composition, and Independence of the Board of Directors, and Travel Expenses.

Good book, better letter....

I read "Ethical Ambition; Living A Life of Meaning and Worth" by Derrick Bell last week for my book clubs. Liked the book a lot, particularly the chapters on relationships and spirituality. It's a fast read, and I don't think anyone can go through the text and not have their enthusiasm for advocacy renewed. But then....

A couple of times in the book Bell mentions meeting and working with Martin Luther King, Jr., and twice refers to King's "Letter From Birmingham Jail". I hadn't read the letter since college, and went back and looked at it again. Wow. If only our current political leaders could write like that; could express their positions, their desires, their dreams for our nation. I know I got more out of the reading this time, not only because I'm older, but also because I so much more appreciate well reasoned, well written pieces than I did in my twenties. And King's morals and ethics smack you in the face. Not a perfect man by any means, but I long for more leaders of his courage.

Reading the Letter also made me go back and think through my commitment to the things I believe in and advocate for, which is certainly a good exercise for everyone periodically.

If you have 30 minutes, it's well worth your time.

Panel Report on Nonprofit Sector---

In previous posts, I've talked about the importance of the work that Congress is doing on regulating nonprofits. Independent Sector put together a panel working on responding to and engaging Congress on this issue, and they've done a great job. Their second draft of work is available for review and comment I urge you to take the time to read and comment on this work.

It is your future, so pay attention now.

Capital posting

In D.C. to do a set of presentations and see some friends. Had a terrific afternoon yesterday in Chicago at the Axelson Center for Nonprofits at North Park University. I did a pre-conference workshop on marketing for a wonderful crowd that had really good questions.

One question stuck with me on the plane: "Quick question", the woman asked, "How do I motivate a board that doesn't want to do its job?"

Of course the answer isn't quick...but what was intriguing was that the other execs jumped in and said things like "Hold them accountable to do their job,", "Get them off the board!", and "Raise the bar on their job description and the ones you want to leave will self-select out."

Good advice. There is no place in a nonprofit today for a board that doesn't work. Boards need to be engaged, knowledgeable, and accountable for their time and stewardship. If they can't do that, they need to leave, both for the good of the organization and their own personal protection: they are fiduciaries, personally responsible for the actions of the nonprofit.

Oh, and thanks to Kris Maldre for all your help and for reading the blog!

A code of ethics?

This entire issue saddens me. In a recent post I noted the recent rush in requests for speaking on ethics. Yesterday I got a breathless call from an exec in Arizona, telling me that her lawyer had told her that her nonprofit needed ethics policies or there would be hell to pay with the IRS. I tried to calm her down, sent her to a couple of places online with sample policies, and told her that there will little likelihood that the IRS would be banging on her door, at least in this fiscal year.....

The whole issue of having to discuss and codify our ethics as organizations depresses me. Not because we shouldn't behave ethically, but because it should be second nature. I know, I know, ethical issues are not black and white--there is a LOT of gray, but that's just the point--you can't codify gray. The famous quote from Justice Stewart on obscenity which more or less was: "I know it when I see it" applies here: we nearly always know what the right thing to do is, the tough part is actually doing it.

In a related but total aside, I laughed out loud at the news of a Texas legislator who is trying to ban sexually suggestive moves from high school cheerleading. Good luck. While I don't think I qualify as a prude, I too am unhappy about some of the stuff I see from 15-year-old teenagers at football games, but could I define it? In writing? No chance. And would my definition be the same as someone 20 years older than me or 20 years younger? Nope.

So it is with ethics. You know it when you see it, and you get uncomfortable when you see unethical behavior. But to put it in a policy? What are you going to say? Let's not lie, cheat, or steal? Well, duh, I would hope not. Let's act ethically toward everyone? Again, I would have already hoped so......

My real fear here is that organizations will develop a policy, adopt it, and breath a sigh of relief, saying "Whew, that's done!", and then forget about actually behaving ethically. Then, when something bad gets brought to light, they'll say, "But we had a policy!" as an excuse from having to do good oversight.

I dunno, it just bothers me.

On another note, Firefox now has a security hole. Blah.

Tick, Tick, Tick.....

I turned 53 Wednesday. Birthdays have NEVER bothered me, or even been particularly important to me. In fact, my wife had to remind me that mine was coming up.

This year, though, I am in the throes of reseaching a book on the issue of aging in the nonprofit sector, and all of its implications. As I've noted in previous posts, the Brits are concerned about older board members, and not getting enough new volunteers. Here, we have a retiring baby boom that will stress out a huge amount of our human services network, being new meaning to the term transition on our staff, and require a huge effort to accommodate.

We can accommodate it, of course. Then again we have no choice.

As I flew over yesterday (I'm in Emporia Kansas as I write this) I was just thinking more about it. Expect more posts as the work takes shape.

Who's Who in Online Nonprofit Evaluation

I assume that every reader knows about the many online rating services that look at nonprofits' 990 forms and come up with a rating scale. Donors and reporters use these sites to take a first (and sometimes only) look at a nonprofit.

The National Council of Nonprofit associations and National Human Services Council has a paper out on Rating the Raters that I highly recommend you read.

You can find it here.

In the summary introduction to the paper, the authors note:

Our concern, as responsible nonprofit organizations, is not with the concept of ratings or rankings of Charitable Nonprofit Organizations (CNOs), since we agree that donors should be well-informed about the CNOs they are considering as recipients of their donations. Our primary concern is that donors fully understand the information they are receiving from such ratings and rankings so they can make well-informed judgments and not be misled and/or misinformed. There is great potential for these ratings to be misinterpreted and misused, which would cause more harm than good to both donors and CNOs. In the worst case scenario, donors could withhold vital contributions from a worthy organization based on inaccurate, incomplete or misunderstood information they received from an evaluator.

They go on to list a number of excellent findings (some of which are scary) and make eight very solid recommendations on how to fix the system.

Worth your time.

Interesting week, good books.

Just realized how long it's been since I posted. Well, interesting week.

Had a terrific time in Fargo, talking to an annual statewide conference of providers of services to people with disabilities. What nice people, not only at the conference, but in the town in general. Great airport, too.

And, I got to pick up my son from UMich in Ann Arbor as part of that trip. Nice to have him home for about a month.

I'm really taken by my book club books this month. I'm just about done with the Contrarian's Guide to Leadership by Steven Sample. So much good stuff, clearly written, some mind-bending ideas. This is really a great read for anyone interested in leadership and new ways to think about it. For example, Sample provides a long well argued position that Machiavelli was not a bad guy--and not wrong, ethically huh?

Speaking of ethics, I'm just a quarter of the way into the second book, Ethical Ambition, by Derrick Bell. It has some really good "re-thinking of what you're doing" ideas.

But, it's Sunday, and the sun is out, so I may not get as much reading done as yardwork....

Last thing--keep track of what the Senate and House are doing. I use the Independent Sector to monitor events. This stuff is important to all of us!

A deal for your board

A bad pun, but whatever. You should take a look at the new board tool from Carol Weisman at Board Builders. It's a deck of 52 cards each of which has a great idea for board development and/or support. You can give them to your board, and they can use them to self-improve, or rely on staff to get the ideas implemented.

I really like this idea, and it's not expensive.

Check them out!

A meeting worth making....

I just got back from Chicago, where I attended a meeting on the upcoming annual conference of the Alliance for Nonprofits and the National Conference of Nonprofit Associations, which will be held in Chicago July 14-17.

I've seen the full agenda, and it is chocked full of great materials, workshops, discussion groups. If you are interested in nonprofits and their development, this would be a great way to spend three days of your summer. You'll come away with your brain full of new ideas, and having done some great networking as well.

Information on the conference, and the full agenda are at www.allianceonline.org/annual_conference/2005_conference.page

Take a look.

Measurement and ethics

I'm getting lots of requests to speak on ethics, or help with ethics policies, or consult on ethics. Seems to be a bit of a fad, sadly. It certainly is regrettable that Sarbanes, and the Senate Finance Committee are what it takes to motivate people to double check their ethical behavior. Let's think optimistically: Maybe it will be a long term trend, and not just a fad with a short half-life.

My class at Kellogg was, as predicted, very enjoyable. It was about the reasons for and ways to measure performance in nonprofits. It actually ran through this morning; I just did the kickoff session. But at that session, the issue of ethics surfaced.

A participant (we'll call her Lynn) asked a question about proving that what she did (in this case, develop young leaders) was actually having an effect, noting that to prove such a thing might take ten years. We agreed that it might, and that if Lynn could develop such a research project (and fund it), she could tell her other funders and community that she was really working on showing the long term effects of the program.

Then I asked the group; "But what should Lynn do if 5 years into the 10 year project, the preliminary data show that her program doesn't work, that it doesn't have any positive effect on leadership?"

There was a long, uncomfortable silence. You see, everyone believes that their program is wonderful, and worth their life's work. Otherwise, why would they do it for low pay and long hours? Mission motivates. But if the method we use to accomplish mission is shown invalid, what's our responsibility?

All this reminds me of Project DARE, the anti-drug effort that you may well have in your town. The idea was that by having intervention/education in elementary school, drug use would be reduced. DARE has been around for a long time (my 23 year old went through the program) and funds a huge number of police officers (Project DARE Officers) who come into the school twice a week. Kids get lots of drug education, and have a big graduation, take a DARE pledge, etc.

Sounds good? Doesn't work. Absolutely, positively doesn't work. Kids who go through DARE are no more or less likely to use drugs as kids who don't, at any age or stage in their growth. This is not news. We've known this for YEARS, and DARE keeps getting studied and keeps getting shown to have no effect, and we keep spending money on it.

Don't believe me? "It's SUCH a good program!", you say. So did I. Why do parents love this program? I think it's because we can rationalize that we don't have to talk to our kids about drugs (which is hard) since the school is doing it.....but it doesn't work: Here's a quote from a review of research published by the National Association of School Psychologists.

"When we examined use of tobacco, alcohol, marijuana and other illegal drugs at age 20, we found no differences between those participants who received the DARE program and those who did not. Similarly, our analyses revealed no effect of the DARE program on individuals' positive or negative attitudes towards these drugs. Also, there was no difference in individuals' ability to resist peer pressure as a function of having received Project DARE. The only significant effect for the DARE program that we observed was on self-esteem; counter-intuitively, at age 20, participants who received the DARE program in the sixth grade had lower self-esteem scores than participants who did not receive DARE."

Here's a link to the entire article: http://www.nasponline.org/publications/cq314projectdare.html

And we keep throwing money at this loser.

What if this kind of results had been for your program? What do you do? It's a tough, tough issue. How soon do you amend the program, pull the plug, go public? Very dicey stuff.

When you measure outcomes and performance, you almost certainly will get different results than you expect. Sometimes good, sometimes bad. But in every case, you have an ethical responsibility to let people know what you've found, and deal with the data in ways that make your program(s) better for the people you serve.

Two things for you....

Long week, not many posts. Had a good trip to Houston to talk to groups about Stewardship and Marketing. Good questions, good discussion. I head to Chicago tomorrow to teach the opening session for an Exec Ed program on outcome measurement(called Performance Counts!) for Kellogg. Should be fun.

So, what two things are for you? First, Tech Soup is running a weeklong forum on using online learning as one of many options for continuing education. Their promo information includes the following issues and questions:

What are the issues and challenges involved in using online learning? What does it mean to collaborate and learn online? How can you and your organization use online learning and collaboration to achieve your organizational mission?

The forum is interactive and invites discussion---and it's FREE. So go to the page about the forum, check it out and register. A good deal for all, thanks again to TechSoup.

Second thing: I've talked before about how much I like Firefox as a browser. It's quick, about a zillion times safer than IE, and has all sorts of cool features. I've been using it since early December and like it more every day.

Here's the feature you need to check out if you are a regular blog reader. If you look at my blog (or any blog) in Firefox, a small orange icon shows up on the lower right hand side of the screen. Scroll your mouse over it and you'll see it says "Add Live Bookmark for this Page's feed" If click on it, you'll add a bookmark for the blog. If you open the bookmark, you'll see the last ten or eleven posts listed separately, and the bookmark updates itself automatically every few hours. Thus, when I post something new, it will show up on your browser bookmark automatically. How cool is that?

Two out of three...

Heard late last week that my newest book, Nonprofit Stewardship, is a finalist for the Benjamin Franklin Award from the Publisher's Marketing Association. There are three finalists, and one of the other two is a great book by my colleague Jason Saul entitled Benchmarking for Nonprofits.... . Jason's book is also published by Wilder Foundation Publications.

Kind of fun that two of three finalists are from the same publisher and know each other. In fact, Jason and I are on the same agenda this coming Sunday in Chicago!

Headed to Houston today. Probably won't line dance with my healing ankle.....

Great financial resource for you

Just got a copy of the a new book you should see if you have any interest in the finances of your organization.
Financial Leadership for Nonprofit Executives by Jeanne Bell Peters and Elizabeth Schaffer is terrific. It combines a great view of nonprofit leadership and financial acumen with very hands-on materials for you. I HIGHLY recommend it.

The book at Amazon.

The book at the publisher, Wilder Foundation Publications.

definitely check this out.

Misinformation

I got an email from a nonprofit exec who had been in one of my training sessions last year. He was just checking on something I had said about starting a new venture or expanding a service: that a: there is no state or federal statute that says a 501(c)(3) can't make money, b: that making money is good for mission, and c: that his organization probably (hopefully!) does something already that makes money--it's called fundraising. The exec (we'll call him Jack) said that BOTH his accountant and his attorney told him that if he started a new venture, in his case a thrift shop, and was budgeting to make money, he had to set up a for-profit corporation, or he might lose his tax exempt status. His question was this: when you (Peter) spoke to us, you said that the vast (99%) majority of nonprofits don't need a for-profit subsidiary, so do I or don't I.

He didn't, and you probably don't either. I find it nearly impossible to believe that this mis-conception is still out there and worse, that people are charging nonprofits to mis-inform them. Facts, please:

First, anything you do that takes in more income than it spends is a for-profit activity, in the financial sense. You're probably doing it for the mission, but if it makes money it's for-profit. And, of course, you can do that inside your nonprofit shell.

Second, if you do something not related to your mission, you have to file a 990T every year to show your Unrelated Business Income.

Third, if you make money on your unrelated income, you are subject to federal taxes, called unrelated business income taxes. BUT, you only pay taxes if you make money and, of course, there is still profit left over! In other words, paying taxes is a good, not a bad, problem.

Finally, none of the above actions is any threat to your tax-exempt status. So, Jack didn't need a for-profit corporation, which saves him big bucks, an annual audit and often, suspicious oversight in his community.

Don't believe me? Go to: www.firstgov.gov/Business/Nonprofit.shtml and nose around the IRS website. Search there for UBIT (Unrelated Business Income Tax).

And please, try to end this misinformation chain letter. It's getting old, and not making anyone a dime.

Worth reading--how we're doing

This is definitely worth your time....a short set of findings from Lester Salamon, the Listening Post Project and the Center for Civil Society Studies. The paper is the preliminary results on a wide survey on current practices in nonprofit financial disclosure. It shows that most of the disclosure requirements included in the Senate Finance Committee bill are already being met by most nonprofits.

See the paper here.

Take a look and see if your organization is complying where it should. This is one set of mandates you want to get ahead of.

Time is money.....but time is also time

One trend I keep seeing everywhere is a downturn in attendance at live training. Whether I am speaking for a foundation, an MSO, a United Way, or a state or national association, everyone uniformly notes that attendance is steadily dropping. In some cities, attendance for a particular group may be up as they roll out new training, but in general, numbers per session are falling.

Why? The understanding of the need for consistent renewal and life-long learning is certainly higher than 10 years ago. So why would attendance drop? I think its a combination of three things.

First, competition. Over the last few years there has been an explosion of training opportunities for nonprofit staff and management. Thus there are more choices for live training than ever before, and since nonprofits only have so much time and so much money, attendance is spread over more days of training and thus numbers are down. The other part of this is that nonprofits have more options. There are hundreds of great books written specifically for nonprofits, and an ever increasing set of good online training to use.

Second, money. While training continues to be a priority for many nonprofits, the choice between cutting training for all the staff and cutting a social worker or a teacher is pretty much a slam-dunk for most organizations. With funds tight, particularly for those organizations who are dependent on state revenue, training goes, unless it is supported by a specific grant.

Third, time. I think that this is the 800 pound gorilla in everyone's organization. It's my observation (only anecdotal, not statistical) that about 10 years ago, most nonprofit managers had, say 1.5 to 1.7 FTE living inside their bodies, whereas now it's up to 2.4 to 2.7 FTE. Put simply, there are less people to do more work. This is a result of not only budget cuts, but more commonly an effort to wring those "evil" administrative costs out of the system. Our organizations are flatter, but that means that people have more work to do---and thus less time to take off for training.

Example: I do a lot of standup training for NISH, a national nonprofit that helps local nonprofits that work with people with disabilities get contracts with the federal government and thus employ people with disabilities in competitive jobs. NISH has a fabulous training program, with hundreds of live training sessions every year on a wide range of topics. Numbers for live training have been steadily down over the past 4 years, even with the best evaluation ratings ever. So what's the cause? Well, the training is free to attend, and if you are affiliated with NISH, your travel costs are often reimbursed. Thus, the reduction in attendance is not about it's not the money. Second, since this training is targeted to this very focused set of nonprofits, there is not a whole lot of competition. So it's not that.

Has to be the time available.

This is worrisome on a lot of levels. First, it means that less training is getting into organizations, it's bad for mission and the people we serve. Second, one of the things that good staff want is to grow in their jobs. No training, less job satisfaction, more turnover. Third, this is a very good indicator of what I hear all the time: we're burning out our staff. In a survey in 2003, it was found that 40% of our E.D.'s would never take an ED job again, ever.

The pursuit of lower overhead is good, but I think that, overall, we've gone to far looking at this as the key indicator of good management. As I tell funders, potential donors, and reporters all the time, there is no direct cost that doesn't have an indirect cost with it. Take Finance 101 and you'll learn that.

Stop trying to punish nonprofits for having admin costs....you're really punishing the people we serve.

Recruitment of volunteers - young and old

I've come across two really interesting papers on engaging different populations in nonprofit work. If you are interested in keeping your volunteer pool full, take a look.

The first is from the Harvard School of Public Health and is called "Reinventing Aging, Baby Boomers and Civic Engagement" It deals with how to get people of my age group more involved in civic matters as we retire. It's a .pdf file and is long, but densely packed with great data and observations.

On the other end of the age change, and from the other side of the Atlantic comes The Russell Commission report entitled "A National Framework for Youth Action and Engagement" which was published just about two weeks ago. This report deals with the serious lack of volunteering by young people in the U.K. and has several interesting and controversial recommendations including paying youth volunteers a small salary for "volunteering". My reaction to that one was "Huh. Thought they were volunteers," but my friends in the U.K. seemed nonplussed by it.

At any rate, two pieces of important reading.