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Dear Nonprofiteer, Should I look before I leap, or not leap at all?

January 25, 2012

Dear Nonprofiteer:

I recently joined the board of directors of a small nonprofit (4 staff, $200k budget). Within a month of my joining, our executive director announced she would be leaving as her partner has a new job in another state. In addition, while she won’t move for a couple of months, presumably giving the board plenty of time to find a successor, she wants to study for the bar exam in the new state and requested to work half-time until she leaves.

There are a couple of complications (aren’t there always). I was approached by two board members about taking the ED position. I initially said no, but reconsidered and have let the board know of my interest. I have recused myself from any discussions of the search and said I would resign from the board if selected.

The current ED has said that one staff member is interested in the position as well. Since going part-time, the ED also said this same employee is fulfilling many of her duties, and requested a bonus for the employee equivalent to the 20 hours a week the ED is not working. She said he is, in effect, an interim executive director, and should be compensated. I and other board members doubt that the current person is actually doing the extra 20 hours a week, and/or doubt he can sustain it. (I was present for this discussion, but said nothing and abstained from the vote on his compensation).

I feel I cannot make many obvious suggestions to the board (like that we hire an outside interim ED, either full or part-time) without it appearing that I’m trying to better position myself for the job. It could appear that I don’t want a competitor to have the interim job for fear that it would give him an advantage. There is also the matter of whether I take the interim position. I can’t bring it up, of course, but what if someone else does?

I guess the big question is that having even expressed an interest in the ED job, should I resign until the search is complete and a new ED hired? That means I would stop all my board work for a period that could be months. And if I’m not selected, do I come back on the Board and pick up where things left off? Obviously I’m concerned about all the lost time on major initiatives. Having a half-time ED is bad enough. We don’t need to lose board members, too.

Signed, Conflicted

Dear Conflicted:

The short answer is “Yes.” If you’re going to be a candidate for Executive Director, you must resign from the Board of Directors–not if and when you’re selected, but right now. There is no other way the Board’s search committee can consider you without favoritism, or at least the appearance of it. And in a circumstance like the one you’ve described, in which a current member of the staff is interested in the Executive Director position himself, the appearance of fairness in the process is absolutely essential to the continued functioning of the organization.

Imagine the staff member’s spending the couple-three months minimum required for a search grumbling to his two remaining fellow employees about how unfair it is for you to compete with him for the favor of a group of your peers.  The effect on morale would be disastrous. And if you got the job under those circumstances, you would walk into a hornet’s nest: hostile employees, shame-faced Board members, and thus a host of troubles you don’t need while the agency is working on the new initiatives you mentioned.

You’re already experiencing the extent to which your Board duties and your hoped-for staff duties embroil you in conflict of interest, and it will only get worse. Either withdraw your name from consideration or submit your resignation to the Board chair–-today.

If you don’t get the job, the question of whether you can return to the Board of Directors is one to be decided by the Board of Directors, not including you. That is, you are rolling the dice that your erstwhile colleagues will want you to return after you’ve failed to impress them sufficiently to get the job. And even if they do, won’t you feel awkward under those circumstances? Won’t you be looking around the Board room wondering who voted against you, and why?

So the question becomes whether you in fact wish to become Executive Director enough to make a do-or-die fight for it, knowing that your relationship with the organization will most likely be at an end if you lose the fight. That’s up to you–you haven’t told the Nonprofiteer anything about your current professional situation but it’s presumably unsatisfying if the Executive Director post beckons so strongly–but consider the costs to the agency no matter what the outcome, and maybe think better of it.

If you do think better of it, and decide to remain on the Board, you could do two things that would strengthen the agency immeasurably: first, persuade your colleagues to hire an actual interim Executive Director, preferably someone who’s been trained in the particular tasks of that very difficult role and certainly someone who is not under any circumstances a candidate for the permanent job. A trained interim ED can make sure necessary initiatives move ahead, clear up any personnel issues that may have been festering under the ex-ED (such as, why is she so concerned about his getting a bonus? More favoritism, perhaps?), and relieve the time pressure the Board would otherwise feel while filling such an important spot. In most major cities the Executive Service Corps operates an interim ED training program and will be glad to provide you with the names of candidates. Choose one to spend between six months and a year guiding the agency while you and your Board colleagues figure out what you want in a new leader and how to go about finding it.

Second, whether or not you hire such an interim ED, persuade your Board colleagues not to confer that title on the candidate-staff member. The title makes him heir-presumptive, which if true means you won’t be conducting a thorough and genuine search and if false means you’ll have a justly disappointed employee in a position to do a lot of damage.

If you decide to pay the current ED only half her salary for working only half-time, fine; that has nothing to do with whether any- or everyone else on staff deserves extra compensation. It may be that their burdens are lightened rather than increased by having a less-engaged ED.  That may be why you distrust the ED’s claim about how hard this guy is working.

The Nonprofiteer doesn’t understand at all the concept of bonuses in the nonprofit world. If your Executive Director does a great job, reward her with a raise. If she does a lousy job, don’t. But bonuses are based on outcome metrics, and those are rarely a direct reflection of an ED’s skill. If you tell an ED you’ll give her a bonus if she puts on five concerts this year, she’ll make sure to do so–-whether or not they’re any good. Or if she expects a bonus for serving x number of clients, you can be sure that x clients will go through the agency’s doors; but whether they’ve been served is a whole ‘nother question. A Board which gives bonuses to nonprofit executives is mistaking what’s measurable for what’s valuable.

So, to recap: if you want to work for the agency, quit its Board to level the job-hunting playing field. Be prepared for the likelihood that you won’t be able to return. Consider whether you’d all be better off if instead you withdrew your name from contention and focused on helping to find someone else to provide the able leadership, both interim and permanent, the group requires and deserves.

Posted in Boards of Directors, Conflict of Interest, Evaluation, Executive Directors, Management Advice Day tip, Nonprofit management, Nonprofits--General, Personnel Issues, Succession planning | Leave a Comment »

Dear Nonprofiteer, Should I face the music, or dance?

December 16, 2011

Dear Nonprofiteer,

If you could stand one more letter asking about Boards of non-profit arts organizations — or even point me in the right direction — I’d be very grateful!  I’ve been the school director for a small non-profit music organization for several months. The organization has two parts — there are performance choirs and then there’s the school.

But maybe it would be more accurate to say that there are two organizations, because I’ve been told that the school is “technically” for profit, meaning that only the performance choirs can receive grant money.  I’m not sure why, or even if, this is so, though I understand that we make more money charging for music lessons than we do sending out the performance choirs, whose members are paid a pittance that nonetheless exceeds the amount companies and civic organizations are willing to pay for being entertained by them.

The main problem: the performance-choir conductor is also Artistic Director of the entire organization, AND is Chair of the Board of Directors.  He is paid $20,000 a year for what’s supposed to be a 12-hour-a-week job, but in fact he doesn’t work nearly that much.  He lives a couple of hours away, so he only comes in once a week to rehearse, and not even that during the summer (or the Christmas holidays, or the Easter holidays, or St. Swithens’ Day!).  And whenever he can he schedules performances near his home rather than near the school, which means we’re not really serving our community.

Meanwhile, I work full-time (theoretically 40 hours a week but actually closer to 90, what with teaching as well as administrative work).  This huge job pays me $34,000 with no benefits.  The Board sees itself as my “BOSS” and reminds me of that often. In addition to the Chair, the Board members are 1.) one of the school’s teachers, who’s also the Board treasurer; 2.) a member of one of the performance choirs who writes the grant applications; 3.) the mother of a former student, who is paid to be secretary; 4.) the mother of a current student, who is paid to be DIrector of Development; 5.) another one of our teachers; and 6.) a lawyer who takes voice lessons from the treasurer.  In other words, NOBODY is without connections to the school and thus a personal agenda.

The school went downhill financially during my predecessor’s tenure, to the point where we’ll probably have to give up half of our space.  But when I say I need help with fundraising, I get, “Sallie Jo managed it.”   I’m expected to do everything Sallie Jo did but with more “Board oversight,” which means micromanagement and no actual help.  That’s not their role, apparently—their role is being my superiors, scrutinizing me, complaining to each other about me, and occasionally sending me a condescending note giving me reprimands and further orders.

As a seasoned professional who is keeping the place together single-handedly, I consider these missives insulting at best. But there is no one I can appeal to. Do you have any suggestions? Advice? Articles you could point me to? (Templates of letters of resignation?)   I’m near the end of my rope.  Signed,

Hanging on By a Thread

Dear Hanging:

This is like one of those children’s puzzles, “Can you spot what’s wrong with this picture?”  There are so many things wrong that even the youngest child can detect some of the problems, while others are so subtle that older children will be challenged.  Or, in other words: what a mess!

Once you’ve said that the Artistic Director is the chair of the Board, you’ve already described an organization in trouble.  One function of an arts Board is, indeed, to support the vision of the Artistic Director, but the other is to counter-balance that vision with business acumen and an awareness of what a nonprofit arts organization owes the community.  Even if every single member of the Board weren’t compromised in the way you’ve described, the organization itself would be hopelessly compromised by having a single person leading both the Board and the staff.

If the Board were independent, the fact that you and the Artistic Director both report directly to it would provide a healthy balance: he would say “I want to do blah-blah-blah” and you would say “blah-blah-blah costs three times as much money as we’ve raised in any year in the history of the organization” and the Board would weigh these competing points of view and make a decision.  In those circumstances, it would be a good thing that the Board knows it’s your boss—that would mean the Board knew that you and the Artistic Director were co-equals reporting to a common authority rather than an inferior (you) reporting to a superior (him).

But with a Board that’s essentially an extension of the Artistic Director’s personality, you have the worst of both worlds: multiple superiors and no equal colleagues.  No wonder you’re feeling besieged and insulted: you were hired with the title of a director and the status of a secretary.

That’s what the salary situation means: they’ll pay you less than half (on a per-hour basis) of what the Artistic Director makes, because he has more than twice your power.  The fact that you’re also earning less than the singing lawyer’s administrative assistant is just icing on the cake.

And now we get into the subtle stuff: what, exactly, is this nonsense about the school’s being “technically” for profit?  It either is, or it isn’t; it either files a Form 990 informational return with the IRS, or pays taxes on its profits like any other business.  It’s hardly unusual for an arts organization to run a school whose earnings help sustain the actual performances: most likely that’s the real function of the School of the American Ballet.  It’s a prestige training program for the New York City Ballet, and as a result it’s also a cash cow for the company.  But the Nonprofiteer strongly doubts there’s any ambiguity in the status of either the ballet company or the school, whether they’re independent or intertwined.  All the hair goes up on the back of her neck when she hears the word “technically;” in the nonprofit sector it almost always means some corner is being cut that shouldn’t be.

So let’s review: you’re overworked and underpaid in an organization where your input is ignored but your grunt labor is expected and taken for granted.  This may also be an organization with a dodgy relationship to the laws of your state concerning nonprofits and community benefit, and the laws of the United States concerning nonprofits and taxation.  Given all this—surprise!  You’re having a terrible time.

The Nonprofiteer ran a small nonprofit herself—a choir, as it happens—back before the glaciers melted.  It was a complete debacle, though it did provide one of the world’s fastest educations in nonprofit management.  It took her nine months to realize that she was on a dead-end path, and to quit.  She urges you to be more expeditious.

It’s a terrible economy and no doubt you want to work in the music world that you love.  But you’d be better off working as a temp and looking for a job with a functional school or music group than staying where you are and having your spirit ground down by fighting against impossible odds.

The Nonprofiteer’s advice: give two weeks’ notice and start the New Year off fresh.  As for templates of resignation letters, the simplest are the best.  Justifiably angry as you are, don’t burn any bridges.  Just write, “Ladies and Gentlemen: I’m sorry that I will be unable to continue as the director of [Name] School.  My last day will be [date].  Thank you for having given me the opportunity to work with you.  Sincerely, [you].”  If you just can’t stand the thought of writing something so polite, write a letter that expresses how you really feel—and then put it under the chestnuts and roast away.

Submit your letter today, and you’ll have yourself a merry little Christmas.  You deserve no less.

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Posted in Arts Organizations, Boards of Directors, Conflict of Interest, Executive Directors, Management Advice Day tip, Nonprofit management, Nonprofits--General, Personnel Issues | Leave a Comment »

How not to handle succession in the arts

November 17, 2011

There could be worse ways to handle succession planning than the one chosen by the Miami City Ballet, but it would be hard to think of one. The Board of Directors, concerned that the ballet company would collapse when its famous artistic director Edward Villella retired, decided to test its own theory by forcing him out before he was ready to leave. Some Board members blame the outcome on Mr. Villella, who apparently refused to greet several of them at the company’s gala; but it’s hard to blame him when one of them called a meeting with him for the purpose of handing him a book on succession planning.

The Times article reaches for the classic suits-versus-artists narrative, saying that Villella’s ouster reflected the Board’s determination to place business stability above artistic product; but that’s unfair. The Board is responsible for the continued health of the company, and a failure to consider new leadership when the current leader is 75 would be a dereliction of duty. But what we’ve got here is failure to communicate.

As Chicago’s Victory Gardens Theatre Board learned back in 2000, you don’t call in the company’s artistic engine and hand him his walking papers–or even the sort of broad hint contained in the gift of a book about succession planning. You’re talking to someone about his life’s work and his passion, and you can’t talk to him as if he were a CEO who had been recompensed all these years in cash and expected to be recompensed the same way in retirement. An artistic director who is compelled to retire–and yes, indeed, some of them need to be–has to be offered a form of compensation congruent with what he’s been receiving up until now, something involving artistic control–even if it’s only the control inherent in leading the search for his own successor.

And even if the artistic director’s retirement creates the opportunity for the Board to step into its proper role of leadership–say, supervising the managing director instead of having the artistic director do so–that’s an opportunity to be pursued once the new artistic director begins. From the Board’s standpoint, having the managing and artistic directors report co-equally is a way to lighten the artistic director’s load while assuring that the Board itself receives comprehensive information. But from the standpoint of the incumbent artistic director, it’s a slap in the face, and suggests that the Board wants to interpose a business person (and a businessperson’s veto) between the artist and his vision.

Of course the Board IS the boss of the company, including the artistic director. But the most effective bosses wear their power lightly, in cooperation rather than conflict with the artists they mean to be serving. By this measure, the Board of the Miami City Ballet just fell on its face.

A word to wise arts Boards everywhere.

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Posted in Arts Organizations, Boards of Directors, Coverage of nonprofits, Executive Directors, Management Advice Day tip, Nonprofit management, Nonprofits--General, Personnel Issues, Succession planning | Leave a Comment »

“L3C” spells “caveat emptor”

March 17, 2011

Here’s something strange: a concept thrown around routinely and casually in conversations among nonprofits and philanthropies is simultaneously the subject of fierce debate and sometime disapproval by the Internal Revenue Service, a committee of the American Bar Association, and other experts. What is going on?

The notion of Low Profit Limited Liability Corporations (L3Cs, for short) is that they’re a vehicle for doing well by doing good and therefore an improvement over the typical nonprofit structure. L3Cs are permitted to earn profits but proponents claim that their praiseworthy intentions—to end hunger or provide clean water or whatever—make those who lend to them eligible for the special tax benefits attached to program-related investments. In other words, this is a legal structure presented as a technique for gaining access to capital (always a struggle for nonprofits) by providing a tax benefit to lenders.

Of course, foundations already get a tax benefit for program-related investments in regular nonprofits, so what, exactly, is the appeal? In theory, foundations might be more interested in program-related investments that generate a reliable flow of capital (in the form of profit) than in program-related investments that generate nothing but additional nonprofit programs and services. Likewise in theory, regular venture capitalists outside of foundations will be more interested in making investments in profit-making entities than in pure nonprofits. This—the notion goes—will increase the amount of capital available to support general good-guy behavior.

However, a number of scholars and lawyers (Daniel Kleinberger of William Mitchell College of Law prominent among them) see the L3C as, at best, redundant and, at worst, an invitation to fraud. They point out that regular limited liability corporations can be organized for any purpose, including public-spirited and low-profit ones. They point out that the IRS has not yet issued (and does not seemed inclined to create) a rule awarding automatic program-related investment status to any investment in an L3C. So anyone who invests in an L3C on the basis that it provides a higher return than a regular nonprofit with the same tax benefits will find out to his/her sorrow that this is not the case.

What strikes the Nonprofiteer as peculiar, though, is that in the many discussions she’s heard and read about L3Cs, only one mention (specifically, Professor Kleinberger’s Nonprofit Quarterly article) has ever surfaced of this opposition from the bar and Federal regulators.  Not until her tax lawyer Stuart Levine asked about the [successful] efforts in Illinois to create L3Cs did she realize there was anything controversial about the phenomenon.  After bringing her up to speed Levine wisely said,

L3C’s don’t work unless there is a change in federal tax law.  In other words, L3C’s are a little like Oreo-Tycin-Myacin—the wonder drug for which there is no known disease.

L3C’s raise difficult issues of fiduciary duty and the inherent conflict between “charitable” purposes and “business” purposes.  At the least, these conflicts cannot be dealt with via a quick-fix state statute.

Doubtless the Nonprofiteer spaces out on frequent occasions and misses aspects of what’s said or done in the sector.  But she suspects there’s also a disconnect between what nonprofit executives and L3C promoters expect and describe and what lawyers and regulators understand.

So if you’re considering investment in an L3C, be the aware buyer of whom you’ve heard.

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Posted in Coverage of nonprofits, Current Affairs, Earned income, Executive Directors, Finances, Foundation Hall of Shame/Stupid Foundation Tricks, Fundraising, Investment, Nonprofit management, Nonprofits--General, Philanthropy and Taxation, Private Philanthropy, Relations with funders, Social enterprise | 8 Comments »

Ownership and its Discontents

February 16, 2011

Many years ago the Nonprofiteer lived briefly in a cooperative apartment building, which looks like a condominium building but differs from it in a fundamental way. In a cooperative, owners don’t own their units: they just have long-term leases. What they own instead is stock in the landlord—a corporation whose sole asset is the building.

Being landlords, coop boards act like landlords: they determine who may move into the building, and what sort of alterations may be made to the units, and even how much heat any individual owner receives. As a result, coop owners are deeply involved, monitoring Board actions closely because those actions may intrude significantly on their lives. At the same time, they’re favorably disposed to any regulation promising to maintain or enhance the value of their units. They’re prepared to accept considerable restrictions on their own freedom of action for the privilege of restraining others’ freedom of action. The entire system is like living in the United Nations—for better and worse.

This came to the Nonprofiteer’s mind because in the past week she’s facilitated two Board meetings at which people have threatened to quit. (Perhaps this suggests she should alter her style of facilitation, but she prefers to think that she’s just making people face the hard questions.) At the first meeting, a Board member confronted for the first time with a clear statement that he was expected to make a personal financial contribution announced, “If I don’t get credit for using my corporate connections, I quit!” At the second, the Executive Director responded to a consensus that individual counseling was outside the agency’s mission by saying, “If you’re telling me I can’t listen to people’s problems and try to solve them, I quit!”

If people threaten to quit while talking about difficult issues like money and mission, what does that mean? It’s obviously necessary to press on the most sensitive spot, the issue that needs to be resolved before anything else can be accomplished; but is “I quit!” (whether acted upon or not) the only possible response?

People who serve on nonprofit Boards do so out of passion for the agency’s cause, and what they get in return for their commitment of time and energy and money and belief is a sense that they own the agency. When an “owner’s” understanding of the agency is challenged or contradicted, naturally it feels as if his/her property is being stolen. “I quit!” means “I’ll throw this in the trash before I let you take it from me.”

It’s good that Board members consider themselves owners of the agency, but bad that so many of them misunderstand the nature of that ownership. They don’t own their own little condominium understanding of the agency’s mission or its means of achieving it. Rather, they co-own the agency with the rest of the Board, and it’s the whole Board that owns the understanding of mission and means.

This often makes Board membership difficult for people who are natural leaders. They’re accustomed to acting without consultation, or with the kind of consultation that acknowledges their superior knowledge and/or power. But on a nonprofit Board, those who act without consultation risk either distorting the mission to match their private vision or provoking the adoption of significant restrictions on everyone’s freedom of action to prevent that distortion from taking place. Neither is a good outcome.

The ideal circumstance is for all the owners to realize that they’re members of a cooperative group whose sole asset is the institution, and that securing that asset’s well-being is the task they all face together. When that’s clear, disputes about what the institution is or does or deserves from its Board members can be negotiated among all the owners, and no one says “I quit!”

Now, how to get there?

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Posted in Boards of Directors, Executive Directors, Mission, Nonprofit management, Nonprofits--General, Private Philanthropy, Social Service Agencies, Strategic Planning (and the tactical kind, too) | 4 Comments »

A delicate balance

January 27, 2011

If fundraising is concentric circles, as consultants often say (you ask your friends and then their friends and then their friends’ friends), then it seems to make the most sense to start asking right in the bosom of the family: from your staff and volunteers.  Indeed, this is what most nonprofit executives think of when they hear the phrase “Charity begins at home”!

But staff and volunteers are in quite different positions with respect to your organization, and so they can’t be treated alike in terms of asking for money.

Often agencies are afraid to ask their volunteers for money on the grounds that they’re already getting the volunteers’ time, and it would be greedy to ask for more.  But in fact no one is in a better position to appreciate the value of the work you do, or the scarcity of resources under which you labor, than a volunteer.  Further, though not all volunteers are privileged, they are at least people who have leisure time to donate, which suggests they’re not grindingly poor.  If your volunteers show up at the office with a cup of Starbuck’s in hand, consider what that represents: 1 Venti/day@$2.50 x 5 days/week x 52 weeks/year = $650.  So they’re probably spending more on coffee than you’d think of mentioning in an initial ask.

Will any volunteers take umbrage at being asked to give money as well as time?  Sure; a certain percentage of the population finds discussion of money distasteful and crude, and such people may well be represented in your volunteer corps.  But you’re not any poorer for asking them, and there’s very little reason to think they’d stop volunteering at an activity they enjoy because you asked them a question to which the answer was “no.”

Don’t extend this blithe attitude, though, to asking your volunteers to ask for money.  Direct-service volunteers are apt to be offended if they’re asked to do other kinds of volunteer work, such as fundraising, because the request suggests that they’re not already working hard enough.  You understand the difference between time and money, and your need for both; your volunteers are equally sophisticated.  So ask them for money, not for more time.

Staff members are a different issue.  People who work in nonprofit agencies are already donating enormous sums to the agency, in the form of foregone income–-the money they could be making working in the for-profit sector.  In this sense they are almost certainly the top donors to the agencies at which they work.

The Nonprofiteer took a nonprofit executive job for half the salary she had been earning as a practicing lawyer—a not inconsiderable sacrifice, though one she was glad to make.  But when members of the Board suggested that she also write a check to the agency, her attitude was, “The very second the Board gives $25,000 a year to the agency–-collectively, let alone individually!—it will have the right to come back and ask for something more than the $25,000 worth of lost wages I’m already giving.”

To be fair, hers is a minority view.  Many agencies regard staff donations as some sort of measure of staff commitment to the agency.   But staff members indicate commitment every day through the work they do, the salaries they accept, the health insurance they lack.  At some agencies they even demonstrate their commitment by working overtime for which they don’t get paid—and by not ratting out their employers to the U.S. Department of Labor or the state agency charged with regulating wages, hours and working conditions.  The fact that our agencies do socially valuable work doesn’t entitle us to exploit our laborers, though of course for many years nonprofits have survived their lack of financial capital by consuming human capital instead.

So don’t ask your staff for money, and do ask your volunteers.  Maybe they’ll donate enough to make it possible for you to offer the staff health insurance, or paid sick leave, or even a raise.

Well, one can dream, anyway.

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Posted in Boards of Directors, Executive Directors, Fundraising, Management Advice Day tip, Nonprofit management, Nonprofits--General, Personnel Issues, Private Philanthropy, Relations with funders, Social Service Agencies, Volunteers/Volunteerism | 7 Comments »

Dear Nonprofiteer, Who quit and made me president?

November 4, 2010

Dear Nonprofiteer:

Recently I started serving on a board of a small social service organization.  In the last six months our board president has slowly retreated from his leadership duties due to a variety of personal issues that he’s facing and I find that I’m essentially left driving the bus.  What resources are there that you would recommend for those seemingly newly anointed to oversee a nonprofit?

Signed,Nickeynewguy and Lost

Dear Nickey,

Of course the best resource is the Nonprofiteer it/herself–the site has no search function, I’m sorry to say, but if you just keep trolling backwards you’ll find numerous bits of advice for Board presidents.  But here’s the central thing to remember: even if you’re suddenly the Board PRESIDENT, you’re not suddenly the whole Board.

So the first thing to do is call a meeting of the Board (with the Executive Director in the room—s/he will be your most valuable partner) and say, “Well, I appear to have become president by default.  This wasn’t your choice and it certainly wasn’t mine; so let’s figure out what has to be done and divide up the tasks.”  In other words, make it clear from the word Go that you’re not going to be in this alone.

Second, if you’re the sort of person who ends up leading by default, that means you’re a natural leader in one way or another.  I’m going to proceed on the assumption that your leadership flows from quiet competence rather than noisy charisma (otherwise you’d have been Board president to begin with).  So use that quiet competence to help the Executive Director and your fellow Board members think through:

  • What do we have to do that’s urgent?
  • What do we have to do that’s important?
  • Are we letting the urgent get in the way of the important?
  • If so, is the urgent really so urgent?
  • If so, do we need more people to address things, urgent and important alike?
  • If so, who will lead a brainstorming session to identify and recruit prospective new Board members?

Note that I’m not suggesting you do the recruiting, though you may be the most motivated to do so, having suddenly awakened to a whole set of unasked-for responsibilities. Nor should the Executive Director do it—s/he’s got plenty to do already.   But the only way you can do your job is to make sure other Board members do theirs, and the best way to get them activated is to give them the fun job, namely, thinking about who else would just love the work you’re doing if only they knew about it, and then talking to those people with great enthusiasm about what you do.

Any Board member who can’t run, or at least participate whole-heartedly in, a recruitment campaign should be given some essential but boring task like reviewing budget vs. actual expenses or assuring compliance with the Federal and state filing requirements.  That person should have to report at the next Board meeting, as will the recruiters.  As soon as you’re having Board meetings where Board members talk to each other (instead of sulking, or reporting to the Executive Director or to you as though you were the only responsible parties in the room), you’ve got this presidency stuff down pat.

For more detailed guidance, the Nonprofiteer strongly suggests checking out any of the sites on the blogroll (in the right margin), as well as going to boardsource.org, which as its name suggests specializes in making Board service as straightforward and resource-rich as possible.  The Boardsource “Knowledge Center” is chock-a-block with guidelines, forms and checklists to help you make sure the essential bases are being covered—even in the center fielder’s absence.

And as further questions arise, please feel free to write again!

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Posted in Boards of Directors, Executive Directors, Management Advice Day tip, Nonprofit management, Nonprofits--General, Personnel Issues, Social Service Agencies, Strategic Planning (and the tactical kind, too), Volunteers/Volunteerism | 2 Comments »

Dear Nonprofiteer, How many roles does it take to screw up an organization?

October 21, 2010

Dear Nonprofiteer,

Several friends and I have started a new musical arts ensemble and are seeking to incorporate as a non-profit.  There are 8 artists in the ensemble, so we are a very small organization.  Since starting the ensemble was my idea, I have been serving as “Artistic Director,” choosing music, organizing rehearsals and performances, etc., as well as being an Artist in the ensemble.

We are currently working on our Bylaws and so have been thinking about how to structure our Board.  We have decided to have all the usual positions (President, VP, Secy, Treas) plus an Artist Representative, and a variable number of at-large Board members (no more than 5).  We have a provision in our (in-process-of-being-written) Bylaws where the Board can only select or remove the Artistic Director with a 2/3 consensus of the Artists.

At this point, all of our Artists will serve on the Board in some capacity (either as Officers or as at-large members), though we want to allow for a future time when the Artists get to be just Artists and let other people run the business side of things.  The other Artists want me to have a say-so in the running of the organization since the group was formed by my “vision”.

So my question is this:  Is it legal, ethical, practical, etc., for me to serve as both President AND Artistic Director (and an Artist in the ensemble)?  Or should one of the other Artists serve as President and I (as Art Dir) be only ex-officio with no vote?

I should also mention that my husband is also an Artist in the Ensemble, and so would also sit on the Board (for now).

Thank you very much for any advice you can give.  Signed,

Wearing Many Hats

Dear Hats:

Last issue first: it is never a good idea to have a married couple on the Board of a nonprofit, nor is it a good idea for one-half of the couple to serve on the Board while the other is employed by the agency.  (I gather you’re not getting paid as Artistic Director, but if you can be selected or fired by the Board, you’re an employee.)  A husband and wife on the Board stacks the voting since more often than not they will vote together, and the more important the issue the more likely they will march in lockstep.  Majority or not, they constitute a bloc, and blocs or factions create trouble on any Board.

And if your husband’s on the Board and you’re the Artistic Director, you’ve stacked the deck in your own favor on every issue while at the same time guaranteeing the maximum damage to the Board (your husband’s resignation) in case of any disagreement.  Don’t start out your nonprofit life with a built-in conflict of interest.

Further, as you seem to realize, no staff member (including the Artistic Director) should serve on the Board at all (whether President or not) except in an ex officio, non-voting capacity.

But let me suggest that you pause here to consider why you want to create a nonprofit structure at all.  Don’t become a nonprofit because “all arts groups are nonprofit;” the Nonprofiteer did that for a client once and it was a disaster.  As soon as there’s any money involved, you’ll find yourself fighting with the Board over whether those dollars should go directly to you, as Artistic Director; to the artists, in some proportionate way; or back into the institution.  So imagine yourself confronting that question now, and build the structure that will get you the answer that you want.

It’s fine to fill your Board with ensemble members and thus guarantee complete artistic and financial control of the agency by its artists.  But if you do, an “ensemble representative” would be redundant and should be omitted from your bylaws.

You might further consider that if you’re entirely ensemble-governed, you’re missing the opportunity to use the Board for its central purpose, which is to connect the group to the wider community (and, yes, raise money from that wider community to support the work you do).   You do your art for people; perhaps some of them should be represented on the Board—not just to do “the business stuff” but to help you maintain perspective about the relationship of your work to its audience.

In other words, as the Nonprofiteer has said in other contexts: nonprofit and 501c3 status are not mere legal trivialities to permit you to collect donations tax-free.  They’re statements about the kind of organization you are, namely, one answerable to the community through its Board.  You’re trading a certain amount of freedom for a certain amount of stability.  If you’re not ready to do that, skip nonprofit status and live hand-to-mouth til you’re ready to be a full-blown community institution–or until you figure out how to support your art entirely at the box office.

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Posted in Arts Organizations, Boards of Directors, Conflict of Interest, Earned income, Executive Directors, Fundraising, Management Advice Day tip, Nonprofit management, Nonprofits--General, Personnel Issues, Volunteers/Volunteerism, Women's Issues | 8 Comments »

Be careful what you wish for

September 14, 2010

Long ago the Nonprofiteer had a client hire her to manage the transition from the founding Executive Director to—well, to whatever future awaited the agency in his absence.  It was impressive, actually, that the founder himself was the one who realized first (and persuaded the Board) that transition planning was necessary.

But it turns out that recognizing the need for transition planning is quite a long way from being prepared for actual transition.  While the founder was theoretically in favor of Life After Him, in practice he was working to set in stone the practices, policies, goals and programs of Life During Him.  Though he would have denied this, his purpose was to prevent transition.  The person at the helm would change but first the founder was going to assure that the new pilot’s heading would not deviate a single degree from his predecessor’s course.

The only surprise here is the Nonprofiteer’s failure to expect this absolutely predictable occurrence.  (Well, no one expects the Spanish Inquisition, either.)  But even the smartest consultant isn’t a mind-reader, and so we mostly undertake to do what the client articulates as the job.  Of course there will be undercurrents and cross-currents and breakers and riptides, but at least we’re all sailing in the same direction.

Except in this case we weren’t.  When the Nonprofiteer met with the Board and challenged its members to move beyond the founder and take true ownership of the agency as essential preparation for hiring a successor, she found them champing at the bit to do so.  They had little experience with governance because they’d let the founder run things pretty much as he pleased; but that didn’t mean they had little interest in the subject.  In fact, once they began to talk about things that could be done more or less or differently or better, they were neither to hold nor to bind.  And, having gotten precisely what he’d said he wanted, the founder was furious—at, of course, the Nonprofiteer.

So here’s a warning to all you consultants out there: when you’re doing transition planning, assume that any founder who purports to be okay with leaving is lying like a rug.  And to all you Baby Boomer founders out there, approaching retirement faster than we ever thought possible: if you’re serious about transition, find a consultant and go for it, but don’t expect the process to be smooth.  Having a baby taken from your arms is a difficult experience, so don’t go through it til you’re confident that the nanny—your Board of Directors—can be trusted not to drop it.

What if you’re ready to retire and don’t trust the Board?  (You shouldn’t have a Board you can’t trust, but that’s water under the bridge at this point.)  Then shut the agency down.   If the only way it can operate is your way, and you’re about to leave, end of story.

But if you want your creation to outlast your own tenure, brace yourself: with transition, you’re in for the ride of your life.

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Posted in Boards of Directors, Executive Directors, Management Advice Day tip, Mission, Nonprofit management, Nonprofits--General, Personnel Issues, Social Service Agencies | 6 Comments »

Dear Nonprofiteer, Can I borrow working capital from a Board member?

August 30, 2010

Dear Nonprofiteer,

One of our current issues is lack of short-term working capital. As with many organizations, our expenses always precede our revenue by weeks, sometimes months. We were carrying some debt into the recession, which worsened as the economy imploded. We’ve grown fairly organically through the recession and thankfully we have paid the debt down; however, that has left us without much in the way of cash reserves. Which leads us to a short-term crunch on working capital to bridge the gap between the time frames for our expenses and for our revenue.

With the current banking climate credit can be tough to come by so one of our Board members has offered to lend our organization some money to help smooth out our short-term working capital issues. We want to make sure, though, that we are not skirting any legal issues before we proceed. Should an organization accept a short-term loan from a Board member?

Also s/he had a secondary question about interest if we were to accept the loan:

One question I did have is regarding the IRS interpretation of not profiting from board activities.  I should be able to do that as a no interest loan; though, would I still be able to do it as a below market rate loan?  (Not that there is much of a distinction at the moment with interest rates pretty close to 0.5%)  My thinking is that I could lend something around $3-5000 for no more than one year, and I would certainly want fund raising to continue in the meantime, but what would the IRS’s rules direct for this?

What would you advise?

Signed, Board-rich but Cash-poor

Dear Cash-poor:

It would be hard to provide a better summary of the pluses and minuses of borrowing from Board members than the one on Blue Avocado last year; it lays out all possible iterations of such borrowings, along with pros and cons of each type.

As you’ll see, there’s no legal obstacle to your accepting a loan from a Board member (see also this legal guidance, which makes explicit that what’s prohibited is Board members borrowing from nonprofits, not the other way around).  But doing so may alter the dynamics of your Board in a way you don’t particularly want.  S/he who has the gold makes the rules, of course, and a lender is apt to feel that s/he has a greater stake in the financial success of the organization than other Board members.  This may lead to conflicts about whether, e.g., to do something artistically daring or commercially safe, with the creditor putting a heavy thumb on the “safe” side of the scales.  The borrowing doesn’t create a conflict of interest, exactly, but it creates the potential for one.

Given the relatively small sum involved, it might actually be better to have a Board member, or members, co-sign a line of credit at a bank or credit union.  Many reluctant lenders are willing to lend with personal co-signers, and this keeps the day-to-day financial decisions where they belong—with the staff—while keeping Board members in their proper fiduciary role.

As to the interest-rate issue, Nonprofits for Dummies notes that loans from Board members are only legitimate if they are at or below market rates.  The goal is to prevent Board members from looting their agencies by charging exorbitant interest.  To be sure that there’s no question about the validity of the interest rate, the full Board should approve the loan by a vote from which the lending Board member recuses him/herself.  Under those circumstances, the IRS will not question the transaction—though it must be reported on the agency’s 990 form, and of course any interest income must be reported on the lender’s own tax returns.

Again, your difficulties are not legal, but managerial: if there’s truly no other way, you may borrow from a Board member.  But the less you let Board members serve as your creditors, the better governors they will be.

Also—though there’s nothing wrong with borrowing for a defined short-term need like the one you’ve described—if there’s a chronic delay between expenses and revenues, you probably want a longer-term solution (like the credit line) instead of a Board member’s temporary willingness to tide you over.

And please make sure the lending Board member knows that, in the unlikely possibility that you go bankrupt, his/her loan will be the last paid.  As an “insider,” his/her loan will be subordinated to everyone else’s, almost as though s/he were a stockholder.  In short, make sure everyone on both sides of this transaction understands the risk.

None of these gymnastics would be necessary if there were a Nonprofit Business Administration which would lend to nonprofits the way the Small Business Administration lends to small businesses.  But this hobby-horse of the Nonprofiteer’s doesn’t seem to be making any more headway in the Obama Administration than in any previous White House.  Maybe there’s a reason—but she can’t imagine what it is.

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Posted in Boards of Directors, Conflict of Interest, Executive Directors, Finances, Management Advice Day tip, Nonprofit management, Nonprofits--General, Private Philanthropy, Relations with funders | 1 Comment »

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