Eight years ago, ACORN, a national grassroots community organizing nonprofit, was the victim of an embezzlement of almost $1 million from an employee who was the brother of the organization’s founder. The fraud was never reported to their board of directors or legal authorities, but a small internal group negotiated a restitution agreement and then kept the perpetrator on staff. The situation just became public after pressure from a whistle-blower and was reported this week in The New York Times. Quoted in the article, ACORN’s president said, “We thought it best at the time to protect the organization, as well as to get the funds back into the organization, to deal with it in-house.”
Can we make a list of the problems with this scenario? Among other reactions, I want to thank the whistle-blower, though I would like to know why it took eight years for anyone to think this was not OK. Yesterday, ACORN released a statement from the president apologizing for their handling of the situation and announcing that the founder (brother of the embezzler) had stepped down. The most alarming phrase in the statement is that “The ACORN Board recently learned …” How comfortable would you be if you sat on that board – with fiduciary responsibility – and learned that you had been sitting for years on this ethical powder keg?
The statement says, “We want to assure our many friends and supporters that ACORN’s Board has taken additional steps to ensure increased transparency and accountability” (emphasis mine). It seems to me that they need to start with basic transparency and accountability. They can start with a basic accountability overview from Independent Sector.
There is a lesson here for every nonprofit organization. Public trust really is the most important asset for each individual nonprofit and for the whole sector. It’s too easy to mess it up, which is why we all get asked to answer questions and fill out forms and certifications by donors, foundations, the IRS, state Attorney General, etc, etc, etc. As long as these kind of egregious situations occur, and especially when they are mishandled, nonprofits will be subject to deeper scrutiny and misgivings about trustworthiness.
How can you appeal to donors at a time when costs and demands for services are increasing? How about a letter or email detailing your line by line budget increases? Probably not – because what it costs to provide services isn’t compelling. It’s what results from the services that makes the case. By results, though, I don’t just mean a nice story or picture. I mean results. I’ve been reading and hearing more and more frequently about measuring, quantifying, and communicating the results of nonprofit programs, but somehow we (as a nonprofit community) still seem to be coming up short in public perception.
Once again, a study reports that public confidence in charities is declining. Less than 20% of respondents expressed the highest level of confidence in charities’ practices in using financial resources or in managing programs and services. This annual survey, conducted by Professor Paul Light from NYU’s Wagner School of Public Service, was recently summarized in The Chronicle of Philanthropy. Professor Light was the speaker at Charities Review Council’s Annual Forum in Saint Paul last week. After summarizing the survey results and trends, he focused on two key factors related to confidence. The essential question about confidence, he said, is whether or not the public (and your donors) believe that charities spend their money wisely. Not about what line items are in your budget, or how much is spent on program vs. management – the concern is whether money is spent wisely to accomplish something of value. The second, parallel question is how a nonprofit conveys and demonstrates their value. What benefits occur because of your program? Harlem Children’s Zone’s annual report, for example, is full of data about results, progress, and success. The data demonstrates that money is spent wisely because the results are so real. Professor Light repeated his mantra several times - measure something!
A headline last week in Philanthropy Today read “Mass. Charities Urged to Merge and Pool Resources”. The story comments on a report just released by The Boston Foundation on the financial status and condition of nonprofits in the state. The online story offers a few nuggets from the report and summarizes that “Its findings follow what officials at the foundation have been saying less formally in the past several years: that some of the state’s nonprofit groups should merge or pool resources to reduce overhead and offset cuts in state money and waning private donations.” This summary of the report’s recommendations is accurate, but it’s incomplete. The report itself, Passion & Purpose: Raising the Fiscal Fitness Bar for Massachusetts Nonprofits, offers so much more in information, analysis, and recommendations that are important for nonprofits everywhere.
In their analysis, the authors group nonprofits in three organizational/financial categories: small Grassroots Organizations, mid-sized Safety Net Organizations, and large Economic Engines. While it is a budgetary distinction, the authors dig into the financial profiles of these three groups and point out some systemic issues. They raise alarms, for example, about the vulnerable financial condition of the essential Safety Net Organizations caused by reliance on public funding that does not cover the cost of delivering services or building infrastructure and reserves. The report also acknowledges that the growth in the number of young Grassroots organizations can be seen as evidence that there are too many nonprofits, but that this group is often the source of new ideas and direct responsiveness to niche community needs.
The report concludes with three recommendations billed as “A Call to Action” on page 15 of the Executive Summary. The first recommendation, which earned the headline, is for Restructuring and Consolidation including mergers and/or alliances to efficiently provide some administrative and operational foundations. A great Minnesota example of this is MACC CommonWealth. The other recommendations that weren’t headlined are also important. The second is Repositioning nonprofits as an influential group in the state and region through collective action, policy work, and organizing for common goals such as cost savings, efficient regulations, and access to capital. In my view, the third Call to Action is most important – Reinvention and Reinvestment. This broad recommendation encompasses three themes: appropriate program funding structures that cover the cost of services, adequate funding for organizational capacity and stability, and healthy financial management practices. These structural questions are urgent. Nonprofits can’t merge their way out of recurring deficits if the formulas and expectations continue to demand more services for less money. The three recommendations have the most impact as a set – not an either/or choice. The challenges to stable services in the community and healthy nonprofits spring from various practices, systems, and perceptions and require multiple approaches. I hope you read this report and join the call to action.
I recently had the pleasure of participating in a roundtable conversation with leaders from several Minnesota foundations about the Big Topic of general operating support. The meeting was convened by Minnesota Council on Foundations and published as the feature story in the new issue of Giving Forum. This issue includes the roundtable discussion as well as related stories about trends in types of support, current practices, and additional thoughts from other leading foundations.
I left the roundtable with a sense that this may be a good time to start moving on from this endless discussion/argument. As Juliet remarked, “What’s in a name? That which we call a rose, by any other word would smell as sweet.” Today’s version is “General operating support, by any other name would help as much.” It was notable that the participants didn’t have a “line in the sand” definition of general operating support. The distinction didn’t seem to be nearly as important as you might think with these foundations that understand that program grants have to include all the costs of the programs. The foundations were not very concerned with tossing out gen op requests. They were focused on working with nonprofits doing good work in the community that matched their foundation’s areas of interest, and providing support – program, project, organizational – to help them to do that work. We talked a lot about flexibility, long-term relationships, trust, and shared community goals.
What are the goals? Foundations want and need to understand how the funds they provide are helping to meet needs in the community that match their priorities and interests. Nonprofits want and need funds to support programs that further their mission with some flexibility to respond to the changes that might occur. Both foundations and nonprofits want to help the community. Both also want to have trusting, honest relationships. Too often, unfortunately, these priorities have led to battles in the general operating vs. program grant war. Are the goals really all that different? I suggest that we move the last goal into first position – both foundations and nonprofits want to have trusting, honest relationships. These relationships require clear information, reliable decisions (no surprises on either side), real numbers, and a good match in mission and community vision. I know that you might say that the particular foundations represented at the roundtable are some of the most committed to creating these relationships (and they are). Fortunately they are also leaders in the foundation community.
By the way, it’s interesting to read your own words in a transcript, as I got to do with this Giving Forum. I cringed a little when I read this verbatim excerpt: Barr, “I hear [nonprofits] say that general operating pays the rent and program support pays for the work; that’s the worst accounting I’ve ever heard.” Harsh – but I stand by it.
Last week, I unplugged from email, Blackberry, and voicemail for a nine-day vacation. I’m sure you’ve all enjoyed the times when you change pace, slow down, and relax. It was indeed a great break – but interestingly, I was not taking a break from nonprofits. They’re everywhere – and that’s a wonderful thing. Our trip started with a few days in Virginia in the Shenandoah Valley and the Blue Ridge Mountains and ended with some time in Washington, DC. With that itinerary, I’d expected that our time would be dominated by businesses, like hotels and restaurants, and by the National Park Service for our visits to the Skyline Drive, the National Mall, and other historic sites. What I hadn’t really thought about was how much nonprofits would be woven into the trip. Both Thomas Jefferson’s home at Monticello and George Washington’s Mount Vernon are owned and operated by nonprofit organizations, and are supported by fundraising, fees, and gift shop sales. In DC, the National Mall is a public park, but many of the events and special features are created and supported by nonprofits. We were lucky enough to be there at the peak of the cherry blossoms and the (nonprofit) National Cherry Blossom Festival. I know that this photo looks like a postcard, but I really did take it myself! To round off our nonprofit immersion, we had dinner at the funky Busboys and Poets restaurant, operated by a nonprofit, Teaching for Change.
It’s probably not a surprise that nonprofits are everywhere – and that’s a good thing, right? So maybe we should push back the next time someone brings up the argument that there are too many nonprofits, or that “someone” should prevent new nonprofits from forming. While I was on my nonprofit tour, in fact, there was a blog exchange on this very topic that you can find at Give and Take. I’ll confess that I’ve contributed to this idea on occasion, but my trip and the time I had to reflect on the presence and role of nonprofits has made me re-think this. Come on in! If a group of people have the commitment and passion to help the community, and are entrepreneurial enough to pull together an organization and programs, then I hope they can find their role and support. It isn’t easy. The field may be crowded, and funding is competitive, but important work is being done. Thanks.
I was at breakfast last week with the founding executive director of a nonprofit and he made an off-hand, joking comment about how he supposed that that meant the organization had “Founder’s Syndrome.” It did make it sound like a disease, like Carpal Tunnel Syndrome. This isn’t the first time that I’ve heard this annoyance from a founder about this term that is used so frequently. Is it really fair, or even accurate, to label all founders with a pejorative term? It doesn’t sound very appreciative – like, “Thanks for having the guts and moxie to start this organization.” Most founders who I know didn’t fully realize what they were getting into when they started the nonprofit. Most start nonprofits because they feel deeply about the program and mission. They didn’t anticipate needing to fundraise, recruit and develop a board, manage staff, and make dozens of decisions every day. They did what they needed to – and now they have this Syndrome.
I won’t deny that there are organizational development issues that frequently occur in organizations with a strong founder/leader that impact decision-making, control, knowledge, and direction. When we call it a Syndrome, though, it sounds incurable. I think it needs a better identity as a leadership problem that can be corrected. I also take issue with the description of Founder’s Syndrome since I’ve worked with many nonprofits with all the same poor practices that were led by a second, third, or fourth director. Whoever the director is, these characteristics describe a common leadership problem that becomes an obstacle to effectively sharing responsibility, authority, and building a strong organization.
Does the founder, or strong leader, have to leave the organization to “cure” the Syndrome? I hope not, and I have seen plenty of examples of founder/leaders taking part in an organizational transition. It takes commitment, effort, and lots of trust – and requires that the board and staff respect the leader for what they have done in the past and what they are capable of in the future.
