Posts Tagged ‘grants’

Existing forever versus doing some good

March 28, 2012

An op-ed piece a few weeks ago in the Wall Street Journal (behind a paywall)  argued that donors should construct their foundations to spend down assets as rapidly as possible, lest the foundations end up supporting causes their donors would revile.  This familiar argument comes with a familiar whipping-boy: the Ford Foundation, whose enthusiasm for assisting the poor and marginalized was certainly not shared by its eponymous founder Henry.  The op-ed piece, like many of its kind, focuses on the question of donor intent, arguing that only a brief payout period can assure that the donor’s intent is served.

The Nonprofiteer has never cared particularly about the intent of dead donors.  First of all, they’re dead, and while death may not extinguish intent as a matter of law it certainly does as a matter of common sense.   Second, how much better off do we really think the world would be if Ford’s foundation had spent all its money on Ford’s enthusiasms, such as promoting publication of the scurrilous anti-Semitic tract The Learned Protocols of the Elders of Zion?   Third and most important, the  tax-free status of foundations is supposed to encourage philanthropy, not the accumulation of permanently idle tax-free money.

The Nonprofiteer has long argued that the minimum expenditure required of foundations is way too minimum, and that setting up a structure to give away 5% of income shouldn’t entitle a donor to a 100% tax shelter–whatever his/her intent.  Most likely that intent was to escape from taxation, without too much more thought than that.

So let’s think about the issue not from the standpoint of donor intent but from the standpoint of social good.  Which is more useful for a philanthropy: remaining around in perpetuity, to grapple with issues that may arise a generation or three from now, or spending down in the present and relatively short-term future on issues the donor understands and cares about and which in any case are currently urgent?  From the phrasing you can tell the Nonprofiteer’s position: spend it down.

Julius Rosenwald saw the wisdom of this approach when he created a program of fellowships for African-American artists for their professional development.  Rather than keep the fellowships around in perpetuity, he ordered that the principal be awarded completely within 5 years of his death.  As a result, virtually every mid-20th-Century African-American artist you’ve ever heard of received a Rosenwald Fellowship: Ralph Ellison and Romare Beardon and Katherine Dunham and Gordon Parks and many others.   The value of what Rosenwald did, giving artists enough money so they could work without fear or distraction, is literally incalculable.

But also as a result, virtually no one remembers Julius Rosenwald, or at least not his fellowship program.  So that presents the question: are we in the business of fostering greatness, or memorializing it?  Is remembering a donor as important as creating work through a donor’s generosity?  Again, to the Nonprofiteer the answer is self-evident.  She’d rather be grateful for Ralph Ellison than to Julius Rosenwald.

Look, here’s the deal: people will make money in every generation, and in every generation some people will make a lot of money.  If we tax them properly they’ll look for the opportunity to shelter their money in philanthropy.  Why shouldn’t we tax them so that they’re motivated to spend it philanthropically, too?  Like the proverbial Fifth Avenue bus, another chunk of  money will be along any minute.

Sure, there’s a risk of spending too rapidly and with insufficient research (or “due diligence,” as people are fond of saying when they want to pretend that the nonprofit sector is really just like a business).  But the greater risk is the situation in which we find ourselves now, where philanthropies give out amounts insufficient to make any significant change.  No, philanthropy isn’t supposed to be society’s primary source of support, but while people are busy starving government so they can drown it in the bathtub, private wealth can and should step into the breach.

Consider the contributions of the Gates Foundations to the Global Fund to Fight AIDS, TB and Malaria. Can anyone really argue it would be better to hold back on eradicating those diseases, in case there’s some bigger plague later on?  If there is, as AIDS itself demonstrates, we’ll mobilize and raise money for it.  Meanwhile, in case of every ailment, time is our enemy: the later we provide resources, the harder it will be for those resources to have impact.  Thus wasting money is a less significant risk than failing to spend enough to make a difference.

Two things need to happen: philanthropists themselves need to organize their giving so that it ends within a reasonable time after their death, and Congress needs to modify the tax code to require philanthropies to pay out more each year to retain their tax-favored status.  A 10% annual payout–double the current rate–may end up causing philanthropies to dip into principal, maybe even until they’re empty.  But remember the words of Citizen Kane as he contemplated the financial difficulties of his newspaper empire: ” I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars *next* year. You know, Mr. Thatcher, at the rate of a million dollars a year, I’ll have to close this place in… 60 years. ”  Let’s take a Kane-like risk of running out of money.

One more story: Some time in the ’90s Joan Kroc stood up at a Ronald McDonald House benefit to announce her annual gift.  Rumor had it she was actually going to make a five-year pledge, and the Nonprofiteer’s table indulged in the parlor game of trying to figure out just how much that would be.   We figured the previous year’s gift ($5M) plus a little bump (so $6M) for each of 5 years, and settled on $30 million.  And then she rose to speak, a little woman holding a torn-off piece of yellow legal paper in her hand.  And she said, “I was going to make a 5-year gift, but then I thought: ‘The need is now.’  So tonight I’m giving $50 million to Ronald McDonald Children’s Charities.”  Everyone at the table fell back in her seat, literally knocked over by her generosity, and also by her insight: The need is now.

Aside from Ronald McDonald, Mrs. Kroc mostly supported causes her late husband disapproved of.  If only he’d given more in the present, he wouldn’t have had to contemplate a future in which his money went to places he despised.  So the donor’s intention and the sector’s need are in sync:

Spend it now.

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The Joyce Foundation, the Independent Sector and the facts

November 2, 2011

Ellen Alberding’s interview with the Chicago Tribune in advance of the Independent Sector‘s meeting in Chicago earlier this week pressed nearly every one of the Nonprofiteer’s buttons.  Ms. Alberding, head of the Joyce Foundation, described the Foundation’s approach to what even she characterizes as a perfect storm of increased need and reduced resources in the nonprofit sector:

We do what any good business person would do when faced with reduced resources. We have become very focused on first maintaining support of our core grantees. Foundations are required to spend a minimum amount — 5 percent of our assets. On occasion, we will overspend that in order to keep our grantees whole.

In other words, business as usual.  Most likely the Joyce Foundation’s governing documents prevent its Board from spending its assets down to zero, but there’s no reason why the Foundation shouldn’t use more than the statutory minimum 5% of its $800 million in assets to sustain the work it exists to support.  Foundations are NOT businesses; they exist to give their money away, and only in some vague theoretical sense is an institution with $800 million facing constraints preventing it from giving away more than $40 million.

If Joyce gave only 6% instead, that would be another $8 million available to nonprofits in its areas of concern—a not-insubstantial 20% increase.   What is stopping the Foundation from doing this, other than a misguided sense that preserving its capital is more important than doing its job?

And then the cherry on the sundae:

It’s the position of the Independent Sector that a cap [on charitable deductions] will reduce charitable contributions across the board and diminish support for nonprofit organizations. I believe it’s the administration’s view that the 28 percent cap might have some impact, but it wouldn’t have a dire impact. (But) I think we have to listen to the organizations themselves, who feel otherwise.

In other words, notwithstanding reality, the prejudices of self-interested parties will dictate the organization’s behavior.    Their minds are made up—don’t confuse them with the facts.  But as President of the organization, doesn’t it behoove Ms. Alberding to make sure her members don’t make their decisions based on fantasy?

Grrrr.

On Wisconsin! Part II*

August 9, 2011

Boy, this guy is the gift that just keeps on giving:  Wisconsin Governor Scott Walker, not content to interfere with the provision of public services by destroying public-sector unions, has now decided to refuse to sign off on nonprofit grant applications to the Federal government that might “lead to ongoing programs that would need money from state taxpayers later.”   The first wave of grant applications deprived of the state’s endorsement would have supported health services, including programs to reduce binge drinking, an unhealthy activity in which Wisconsin leads the nation.

The hard Right has long argued that government services were unnecessary because nonprofits could step into the breach.  This claim was always nonsense; but at least its exponents didn’t also take on themselves the task of interfering with the charities’ overwhelmed attempts to do so.  Wisconsinites will pay the same Federal taxes whether or not the state receives Federal grants to support its nonprofit sector.  So clearly the point is not to shelter the state’s citizens from confiscatory taxes but to punish people who need help.   Governor Walker’s ideology apparently requires not just that people in need of assistance seek private charity but that private charity be deprived of the means of assisting them.

And let’s be clear about the legal antecedents of what’s going on here.  Groups of citizens of a single state are being deprived of access to something available to all other citizens of the United States—just as groups of citizens of the states of the Old Confederacy were once deprived of the vote.   Then, “states’ rights” was a buzz-phrase meaning “the opportunity to mistreat black people without interference from those durned Feds.”   Now, in Governor Walker’s view, the phrase is even more expansive, meaning “the opportunity to mistreat unhealthy and/or poor  people of every color to make the point that those durned Feds have no right to interfere.”   Anyone who’s enthusiastic about the states’ rights claims in the governors’ lawsuit against the Affordable Care Act should check out Wisconsin for a foretaste of what states’ rights really mean to the rights of states’ citizens.

The good news is, the Voting Rights Act of 1965 made clear that states’ rights are trumped by citizens’ right to vote.  Thus—and despite many recent efforts to enact barriers to that right-there’s a reasonable chance that Governor Walker will lose his legislative majority in the next few weeks, whereupon the appropriate state-federal balance can be restored.

Or, should I say, the Constitution can be restored.

——————

On Wisconsin! Part I appears here.

Holiday music to the ears

December 8, 2010

H/t the indispensable Nonprofit Quarterly‘s Nonprofit Newswire: a congregation in Anchorage is running a “Mitzvah Mall,” at which what’s for sale is donations to nonprofits.   A Festival of Light indeed!

And h/t the equally indispensable You’ve Cott Mail, a clipping service about arts and arts management: United States Artists has created a Website to allow patronage of individual artists by individual donors, without the embarrassment of face-to-face requests or the notion that you have to be a Medici to support artists.

What an elegant and lovely idea for the season—individual philanthropy, organized collectively.

The 5 Ws of Individual-Gifts Fundraising

November 1, 2010

As all budding journalists know, every story can be told through judicious use of the 5 Ws: Who? What? When? Where? Why?  Here the Nonprofiteer employs this efficient system to tell the story of how reluctant volunteers can become enthusiastic and successful individual-gifts fundraisers.

For most small- and medium-sized organizations, everything about this story is a blank.  So here’s a primer on how to fill in that blank.

WHO to ask?: Only two types of people should be asked individually for gifts: people who’ve given to your group before, and friends of your Board members.  With anyone else, it’s sheer impertinence: “Hi, nice to meet you, open your wallet.”  Ask friends (of the agency and the Board), and ye shall receive.

What to do when your Board members say, “I don’t want to ask my friends for money”?  Reply: “You don’t have to ask your friends.  Just ask each other’s friends!”  So Angela asks John’s friend, and John asks Angela’s.  All they ask of their own friends is to come to a meeting, and all they have to do at that meeting is wax enthusiastic about the group and listen while the other one solicits the gift.

WHAT to ask for?: If they’ve given to the agency before, you’re asking for more.  You have to make the leap of imagination (from $250 last year to $1000 this year) before the prospective donor can think about making it.

Don’t worry about being too ambitious in your monetary goal.  Very few prospective donors are offended by being mistaken for rich people.  (Women, though, are more likely to be taken aback than men, so ask for slightly less from women.  They’re more likely to say ‘yes,’ so it all evens out.)

If you’re asking a Board member’s friend, ask for slightly less than the Board member gives him/herself, because the first thing the prospect will do is turn to his Board friend and say, “What do you give?”  If the Board member doesn’t think the agency’s worth $500, the friend is unlikely to think it’s worth anything.

What if your Board member’s friend is a gazillionaire?  (We should all have this problem.)  Then prime the Board member to say, “I give $200, because that’s what I can afford.  We’re hoping you’ll likewise consider a gift based on your capacity.”  Again, few people mind being suspected of success, so if your Board member is prepared to say, “Listen, I know you made a killing last year when you sold your Google stock . . .”  his friend is unlikely to want to correct him!

WHEN to ask: The Nonprofiteer is a prompt—some might say premature—fundraiser.  As a cautionary tale, she offers the story of how her alma mater took her out for coffee repeatedly to soften her up for an ask, despite her saying, “Guys, I’m a fundraiser.  I know what we’re doing here.  Just ask me for the money!”  By the time they were ready to ask her, she’d been reminded that the school’s investment philosophy would have permitted owning shares in slave-ships, and did permit investing in companies propping up genocidal regimes; and therefore she declined to give, though she wouldn’t have reneged on a preexisting pledge.  So don’t delay; get the yes!

“What about cultivation?” you ask.  The Nonprofiteer believes that lots of what passes for “cultivation” in individual-gifts fundraising is nothing more than stalling.  Don’t hold “cultivation” events and plan to ask for money later; if you hold an event, either get contributions through the ticket price or ask forcefully that night.

All you need to do to “cultivate”  people is to demonstrate that you’re thinking about them on a regular basis, and you can do that by forwarding something you think they’d like to read.  Better yet, send them invitations to your activities, whether performances or client graduations or river cleanups.  People give where they feel they belong, so be on the lookout for “belonging” opportunities.  For this purpose, the less special the event, the better.    If you do something special for a donor, make it an ask.

One word of caution about WHEN: don’t ask too soon after the last gift.  May and June may be two separate fiscal years to you, but your donors probably think (and give) on a calendar-year basis.  So they’ll think you bizarre and ungrateful if you respond to their May gift with a June ask.

WHERE?: Over breakfast, lunch or dinner (or possibly bedtime snack).  The Nonprofiteer is a firm believer in the power of food to facilitate fundraising.  In any case, the advantage of a meal is that it requires the prospective donor to sit still for about an hour, during which time you can a) learn about her; b) educate her; and c) ask her.

WHY?: Why bother with individual gifts?  Why not just write some more grants?  (asks your Board.)  Three reasons:

  • Because grants come and go.  Institutional funders have the attention span of fruit-flies: this year they’re interested in AIDS but next year it will be architecture.  If you’re not the fad, you’re out of luck.
  • Because even if they continue to embrace your work, very few foundations or corporate giving offices will give money to support your operations.  They want to support programs, the newer the better, often leading agencies to elaborate their programming beyond what their infrastructure can sustain.  If you need to pay your light bill—or your employees—you need individual gifts.
  • And finally, even if they love you to pieces, most institutional funders want to sustain you while you find broader support.  They’re not interested in being your permanent sugar daddy.

By contrast, most individuals give because they’re asked, and what they’re asked for is support for a cause or an agency (not a single program), and once they’ve agreed they keep giving out of habit.  So you have to actively offend them before they stop.

So that’s the story of successful individual giving.  And if who-what-when-where-why merely piques your interest, you can learn how right here.

Well, duh!

October 26, 2010

England’s Financial Times reports concern that cuts in government grants to charities will impair the charities’ ability to provide services, and particularly to pick up the slack produced by cuts in direct government services.  The Nonprofiteer wonders what this is doing in the newspaper, as it falls into the category of Dog Bites Man.

Defenders of the cuts argue that they’ll provide incentive for government-dependent charities to raise money from the private sector and individuals.  While the Nonprofiteer yields to no one in her insistence that charities become less dependent on grants of any kind and spend more time asking for money from individuals, she also knows that this defense is crap—at best irresponsible, at worst deliberately false.

No one can realistically suggest that charities which have essentially been created by the government to provide services it funds (probably for the purpose of evading unions) can somehow instantly replace 95% of their operating budgets with contributions of a pound or ten, or even a hundred. It takes time to develop individual donors, and surely no one would seriously suggest that charities have neglected this task for lack of “incentive,” because government grants keep them in the lap of luxury.    There’s never enough money, as a result of which there’s also never enough time to raise money if you’re also going to serve your clients.

So which is it, Mr. Cameron?  Do you want charities spending their time providing services that your government now won’t, or do you want them spending their time raising money to provide those services?  “Both” is not a realistic answer.

Conservative governments should really have the courage of their convictions.  If you’re going to cut public services, then say to the public, “We’re not going to provide these services.”  It’s just dishonest to say, “We’re not going to provide them, but don’t worry, someone else is,” when no one else has anything like the resources necessary.

Apply as appropriate to the American situation.

Chase: What matters?

July 23, 2010

[An excerpt of this posting appears on the Huffington Post, in the Impact section.]

The Chicago Tribune’s Chris Jones notwithstanding, the problem with the Chase Community Giving program isn’t that it lets “civilians”–non-expert non-critics–decide which theater companies deserve a $20,000 one-time no-strings grant.  The problem is that it pretends to do that–Let the People Decide!–while actually turning theater companies into marketing satellites of Chase Bank.  Institutions poor and weak enough to be moved by a $20,000 carrot–to which the competition was explicitly restricted–recite the bank’s name relentlessly to their audiences.  That’s a lot of advertising for very little money.  Of course, all corporate giving is advertising–but this is of a special, insidious kind.

The Nonprofiteer doesn’t believe in “crowd-source philanthropy,” because it’s not philanthropy at all: it’s “crowd-manipulation marketing.”  Chase has gotten hundreds if not thousands of little charities to demand that their audiences provide contact information to the bank and subject themselves to commercial targeting for the good of the cause.

These crowd-manipulation marketing programs (pioneered by Pepsi and American Express, doubtless with many more corporate behemoths yet to come) also set up a system which rewards the nonprofits with the greatest Internet presence or savvy, which is not the same as giving the money to the neediest, or best, or most diverse, group of people doing important work in society.  Again, the issue isn’t who gets to define “best;” it’s whether the agencies competing for that designation have a fair and equal opportunity to receive it.  Upper-middle-class people may imagine that “everyone” has access to the Internet, but in fact if you reward clicks and responses to e-mail and Facebook postings, you reward organizations with wealthy white audiences and disadvantage those whose audiences are nonwhite and/or poor.  Way to magnify the digital divide.  Way to make sure that the rich get richer and the poor have babies.

This lazy and manipulative approach to corporate giving diverts nonprofit attention from real fundraising–which involves relationships over the long term–to point-and-click fundraising, which costs “donors” nothing and therefore gives them no stake in the institution.

The argument about who’s entitled to judge art is a side-show, doubtless one Chase would be happy to have theaters and critics debating from here to eternity.  Meanwhile, the bank laughs all the way to–the bank.

[Unable to resist, the Nonprofiteer dons her critic’s hat and argues that, though she believes her opinions about theater are better-informed and therefore more useful than those of the guy standing next to you on the train, she’s also open to the possibility that her prejudices and blind spots make this false in a significant number of cases.  In any case, if she didn’t believe theater was the essential human art form–because it involves words, the very thing that separates us from all other species–and therefore belonged to everyone human, she wouldn’t spend so much of her life seeing and reviewing plays.  So she refuses to concede that others’ engagement with theater–in whatever form, and without any credentials whatsoever–is unwelcome or inappropriate.]

“Crowd-source philanthropy” doesn’t mean the people get to decide; it means they get the illusion of deciding while actually being used to serve someone else’s commercial purposes.  We know that’s a bad thing when the issue is what corporations give to, and get from, politicians.  Let’s not fail to notice when the issue is what they give to, and exact from, us.

See also Barbara Talisman’s posting on the subject, which links to an entire discussion of the pros and cons.

Dear Nonprofiteer, What to do when foundations slam the door?

July 21, 2010

Dear Nonprofiteer:

We are a small non-profit music school. We have been running into a problem with grants strategy–as in, we aren’t getting any.

I am consistently getting feedback:

1.    “Lovely program but we are only funding projects that can promise to reach 500-1000.”  We are small with 350 students and while I can conceive of a program that would reach a larger audience, I don’t feel I can creditably offer that in a proposal.

OR

2.    “Great ideas but we only fund people who we funded before.”

Previous executive directors in more generous times had decided that grant seeking was not worth the effort. I  think we need to make a big push but I am starting to wonder if they were right.

We have a subsistence existence with only earned income and I feel we are desperately in need of a more diverse income stream if we are ever going to grow or prosper. Operating at less than break-even is not an option with my board.

What’s the small non-profit to do?

Signed, Stymied at Every Turn

Dear Stymied,

The Nonprofiteer suspects, as you’re starting to, that your predecessors were right when they gave up seeking foundation support.  At the best of times, foundations have the attention span of fruit-flies, which means even agencies receiving support spend the whole grant term sweating blood over whether they can get it next time–nonsensical program-officer-speak  to the contrary notwithstanding.  (What kind of response is, “We only fund those we’ve funded before,” anyway?  It’s barely lucid, let alone reasonable–unless it’s just a bald-faced lie.)

And these aren’t the best of times.  (Like you hadn’t noticed.)  Some foundations are stepping up and spending a larger percentage of their income on grant-making to make up for a loss in their portfolios; others can’t, or won’t.  And as aggravating as it is to have a foundation ask you to provide services on a scale beyond your capacity, the Nonprofiteer will defend that point of view: foundations are in the business of trying to have broad impact with narrow means, and your program simply doesn’t meet their needs.

So you have to seek funds from another source.  Earned income is all very well, but of course you’re required to raise one-third of your budget in contributions simply to maintain your 501(c)(3) status.  How?

Well, as the Reverend Mother did not say, “When a foundation closes a door, somewhere an individual donor opens a window.” Stop pounding your head against the foundations’ doors and get thee to an individual gifts program.  This may be your only option; it’s certainly your best one.  Seek small gifts through an annual campaign, and big ones through individual appeals made by you and members of your no-deficit Board.  (They made the rules, now they have to play the game.)

The annual campaign: Ask your students and their families, as well as any alumni you may have, to help you make up the difference between what it costs to provide this first-rate music education and what you charge in tuition.  (If you don’t know that number, figure it out: it’s magic.  Not only does it encourage contributions, it makes future tuition increases easier to swallow.  Why do you think colleges keep repeating, “Tuition covers only a fraction of the cost of educating a student”?  Though at $40,000-plus a year, one might begin to wonder what fraction, exactly.)

Ask at “Back to School” time, and again around Christmas, and again before or during recital/graduation season.  Also, ask at performances.  Don’t be shy: remember that most people say they give because “Someone asked me.”  Your school is just as deserving as any other charity, and with 350 people in the program someone connected to you should be willing to cough up some dough.

Major gifts: Identify anyone who’s already been giving you money and take him/her out to lunch and ask for more.  If your Board members aren’t already giving, conspire with your Board president to get them to do so–and once they’ve given, ask each of them for the name of one person who could be asked.  Remember the Nonprofiteer’s rule: Board members don’t ask their friends for money–they ask each other’s friends for money!

Individual gifts come in smaller chunks than foundation gifts (though not in your case, actually).  Moreover, they’re infinitely renewable and will sustain your school for years to come.  Good luck, and let us know how you do.

Dear Nonprofiteer, If an Executive Director puts her hand in the cookie jar and it doesn’t break, does it make a sound?

May 21, 2010

Dear Nonprofiteer,

The quick and dirty is this: a local AIDS charity has an ED who facilitates a hostile environment. She fires people and then back-fills their employee record with negative things. She makes her assistant accompany her on personal errands, such as to the fertility specialist. The entire executive team has turned over in less than two years, many of us leaving with no job lined up or taking a pay cut of $20-30,000 per year. She gives “presents” to herself and her favorite staff, mall gift cards, in excess of $500. She takes herself and co-workers out for dinner at a $100/head steak house because “we are working so we deserve it.”

In winter 2009, the Board conducted an investigation, wherein one Board member was in collusion with the ED and told her all of the items that were being investigated and in essence helped her to side-step the issues. The majority of the Board resigned, so as not to be tied up with her, with the expectation that her contract would be terminated in Feb 2010. However, the new Board president, her buddy who helped her through the investigation, has asked her to write up her own contract extension. The only reason we haven’t gone to the IRS is because the clients will pay the price.

The federal grant monies are allocated and spent correctly. She seems, however, to use the private donor funds much like they are her personal discretionary spending. The Board took away her use of the company credit card a year ago. One more issue is the fact that she has been promoted within the ranks to the ED position, and has had a personal bankruptcy that is not disclosed to anyone on the Board; she told me because I was the CFO (quit for ethical reasons) and the company was denied for a corporate credit line because of her personal credit history.

Her statement when she took the reins in Feb 2008 puts it best: “I am the CEO of my own company.” Unfortunately, it is my belief that she has fiduciary responsibility to the taxpayers and donors, a responsibility of which she seems oblivious.

Signed, Escaped From Alligators But Still Up to My Ass in Concerns

Dear Escaped:

The only exception to the rule that employees shouldn’t talk to the Board is when there’s evidence of mis-, mal- or nonfeasance on the part of the Executive Director. What you’ve described seems to include all three: interfering with personnel records, helping herself to unaccounted-for petty (and maybe more than petty) cash, and collusion with one Board member to evade the legitimate concerns of the rest. So even if you were still an employee, the Nonprofiteer would recommend that you draft a fact-intensive letter and send it to every member of the Board of Directors, outlining what you know to be true about the Executive Director’s mismanagement and suggesting that it may endanger the agency’s nonprofit status under state or Federal law.

Make sure the letter contains ONLY what you KNOW to be true; talking about other people’s misbehavior is defamatory if it’s false. Err on the side of leaving out anything you heard from someone else and didn’t witness yourself. Also err on the side of maintaining confidentiality from your days as CFO, which is to say, don’t announce the Executive Director’s personal bankruptcy. If you think it necessary, merely report on the agency’s inability to secure credit and suggest that the Board look into the source of this difficulty.

There’s no question that a nonprofit’s Executive Director–just like its Board members–owes a duty to the agency that precludes her using it as her personal piggy-bank, or even her personal source of doing good. People who find nonprofit governance restrictions too confining are welcome to take their chances in the for-profit marketplace; they’re not permitted to transfer the perks of sole proprietorship to the nonprofit arena.

As for “being the CEO of my own company,” that’s all very well; but any for-profit company with stockholders has a Board of Directors authorized–indeed, required–to keep the CEO under control. It may authorize expense accounts (even $100 steak dinners) but it’s also obliged to keep track of where the money is coming from and where it’s going.

For these purposes, there’s absolutely no difference between Federal funding and funding from private donors–it’s all accepted in trust (as it were) for the agency. Presumably some of that private-donor funding comes from members of the Board, and in your letter advising the Board of the Executive Director’s wicked wicked ways you may want to emphasize that. “I know your own generosity goes a long way toward supporting this agency, so you wouldn’t want to have your money wasted or spent on items that don’t benefit our clients.” You probably also want to emphasize that the agency’s reputation is being jeopardized by the behavior you describe, because eventually murder [i.e. financial shenanigans] will out.

Once you’ve done that, you’ve done all you can. (You’d actually done all you could by quitting, but this is the one extra mile you can go without becoming an officious intermeddler.) The IRS has bigger fish to fry, though your state’s Secretary of State or Attorney General may not. But as you’ve noted, the important thing is to restore the agency to its duties to clients, and that’s better accomplished by sounding a clarion call to the Board than by ratting the group out to the cops.

Hand-wringing over what Kresge hath wrought

April 22, 2010

If the Kresge Foundation isn’t giving matching grants for brand-new arts buildings anymore–and it’s not–the arts-building bubble is over as surely as the housing and financial-industry bubbles.  Granting funds instead for renovation and repair means the new Kresge posture will benefit the arts groups that got while the getting was good (or, perhaps, have some other basis for grantworthiness, e.g. re-purposing of an historic building).  But arts groups which have been thinking about building from scratch are now stuck contemplating Max Bialystock’s mantra: “He who hesitates is poor!”