Nonprofit boards need to take charge

By Todd Cohen

The board at United Way of Central Carolinas in Charlotte, N.C., messed up big-time.

Under CEO Gloria Pace King, Charlotte’s United Way became one of the most successful in the U.S. in raising money.

That success must have drugged United Way’s board, which fell asleep at the wheel, allowing King to drive a review of her compensation, and then rubber-stamped the retirement subsidy she wanted totaling $2.1 million.

How the board nodded off and then caved in is spelled out in a report by an independent panel the board created earlier this year after ousting King in the face of a public firestorm that erupted when a local radio station disclosed her compensation.

The panel, which says it was not asked to decide whether King’s retirement package was justified or excessive, found “significant departures from a compensation process based on best practices.”

The panel identified an “undercurrent of concern” that had developed in recent years over “the size of King’s compensation and about her controlling leadership style.”

It also found United Way’s total liability for King’s compensation package “created a risk of its being considered excessive and indefensible in the eyes of the IRS and the public.”

The public was outraged indeed, and its anger, combined with the plunging economy and capital markets, helped prompt a deep decline in donations to United Way in 2008 that likely will reduce funds for partner agencies that count on United Way support to serve people in need.

And that funding fallout simply will compound the damage to local health and human services in a city already reeling from the financial troubles of Wachovia and Bank of America, two hometown banks that have been the biggest supporters of United Way and a steady source of leaders for its board and annual fundraising campaign.

Specifically, the independent panel concluded that:

* A “compressed and late-career infusion” of a $2.1 million retirement subsidy was “predictably unacceptable to at least a significant number” of the volunteers, donors and agencies critical to United Way’s success.

* King “exercised significant control over the compensation process and the information provided to the decision-makers.”

* The board’s compensation and executive committees, “wittingly or unwittingly,” approved a supplemental retirement plan for King “without sufficient information, attentiveness, independence and sensitivity, abetted by a flawed process in which authority and responsibility were ill-defined and broadly delegated.”

* Neither the board’s executive committee nor King communicated to the board and to others, as had been contemplated in the minutes of their meetings, the decision on her retirement benefits, and thus “failed to avail themselves of the checks and balances derived from greater transparency.”

The King controversy has raised two broad issues all nonprofits must address — the need to provide adequate compensation for staff and to make sure boards understand and fulfill their role in overseeing their organizations.

Whether King deserved the compensation she got, a question on which reasonable people can and do disagree, was and remains for the board at Charlotte’s United Way to decide.

The lesson for all nonprofit boards is to make sure they understand they have no more important role than to govern their organizations responsibly.

By her own reckoning, King in her 14 years as its CEO raised over $500 million for United Way of Central Carolinas.

In determining whether impressive results justify generous compensation, a board must consider not only the employee’s performance but also competition and comparable pay in the marketplace, as well as the perception about that compensation on the part of the organization’s volunteers, donors and partner agencies.

Many nonprofits operate as if they expected their staff to take a vow of poverty.

While common in the giving sector, that mindset is short-sighted and makes bad business sense.

Nonprofit professionals are expected to be professional, and they deserve competitive pay and benefits that reflect their skill, experience and performance.

Fundraisers play a critical role in connecting their organizations with givers and generating resources their organizations need to survive and thrive.

Yet many people in the giving sector, while demanding big results, oppose big compensation to attract and retain strong fundraisers.

By treating them as the hired help and rewarding success with low pay, nonprofits risk losing high-performing professionals to other organizations willing to pay what those professionals are worth in a fiercely competitive marketplace.

Regardless of whether King deserved the compensation it ultimately approved for her, the United Way board in Charlotte abdicated its governance role by letting her control the review of her own compensation.

In its report, the independent panel addresses a second big issue for nonprofits by spelling out a comprehensive and detailed series of steps the United Way board should take to strengthen its governance role.

Because no one “owns” nonprofits, their boards ultimately are responsible for their organizations.

Among their governance responsibilities, boards must make sure their nonprofits have the resources they need and are smart about investing and spending them.

That includes making sure employees receive the pay and benefits they deserve, a job that requires considering each employee’s performance and achievement, as well as market competition and the likely reaction within the giving sector to employees’ compensation.

In making those decisions, boards must govern by being smart, realistic, thorough, fair, watchful and clear, and by doing their job in the open and being in charge.

In short, they must lead.

But at Charlotte’s United Way, as the independent panel report makes painfully clear, the board failed to govern.

Instead of leading, it followed.

With the recession slamming nonprofits by increasing operating costs and demand for services, and eroding donations, nonprofit boards must understand their governance role and perform it with the same degree of excellence and attentiveness they expect of their employees.

To keep the stain of the inexcusable board lapse at Charlotte’s United Way from spreading throughout the giving sector, nonprofit boards everywhere should move quickly to clean up their acts and practice leadership that is nothing short of extraordinary.

Charity requires care, clarity, attention

By Todd Cohen

The legal settlement over a gift to Princeton should sound an alarm bell for the giving sector to do its homework better.

Charities and givers alike need to make sure they understand one another, develop relationships rooted in trust, create gifts in terms that are detailed and clear, and make sure their communication is open and ongoing.

Princeton agreed to pay nearly $100 million to settle a lawsuit by the Robertson family, heirs to the A&P supermarket fortune, who argued the university had failed to honor the terms of a gift.

The settlement underscores the need for greater communication between the charity and the giver.

Communication is critical because effective charitable giving represents a complex exchange that depends on trust.

The giver agrees to contribute time, know-how or money to a valued cause, while the charity agrees to put the gift to the use the giver cares about.

For that mutual trust between the giver and the charity to develop, the charity must work hard to cultivate the giver.

Effectiveness in fundraising, as in many other jobs, depends on listening carefully, understanding the giver’s needs, and developing a long-term relationship.

Nonprofits that treat givers like ATM machines may get instant gratification in the form of small contributions but likely will miss the opportunity to develop partnerships that truly engage givers in the organization and generate support that is significant, meaningful and ongoing.

Creating giving relationships requires patience and flexibility; sensitivity to the giver’s needs and values; and attention to detail over how the gift should be handled and tracked, and how its impact should be communicated to the giver.

It also requires healthy skepticism about the giver, as well as brutal honesty about whether the gift truly is a good fit for the charity and not just a source of quick cash to address needs the giver may not care about.

Making or accepting a gift aligns the respective values of the giver and the charity.
It also represents a bargain, and its success depends on the giver and charity each carrying out its responsibilities.

In accepting funds from a giver, the charity must spell out in clear terms how it will use the funds, and then put those funds to that use.

Fundraising is one of the most critical jobs at a nonprofit, and that job requires careful and responsible cultivation and stewardship of givers and their gifts.

It also requires that the giver and charity each do its homework and make sure the gift reflects its respective values and needs.

No giver or charity is perfect, and circumstances that affect gifts can change over time, sometimes in dramatic and unexpected ways.

But charities and givers alike can work a lot harder to better understand one another, develop relationships built on trust, and shape gifts that reflect their respective values and needs.

With the economy in crisis, intensifying social problems and putting even greater stress on nonprofits that work to address those problems, the giving sector needs to be as smart and as effective as it can about fundraising and giving.

Foundations need to kick fixation on themselves

By Todd Cohen

Foundations just do not get it.

With nonprofits and the communities they serve trying to cope with the worst economic crisis in the U.S. since the Great Depression, many foundations still act as if they are the only ones suffering.

A new effort known as the Philanthropic Collaborative says it wants to defend the giving sector from any federal policies that might emerge to address the recession.

But the effort simply continues the war big foundations have been waging for years against efforts to require they give more and disclose more about who they are and how they operate.

A report prepared for the Philanthropic Collaborative estimates the average return on every dollar in grants and support from private and community foundations totals $8.58 in direct, economic-welfare benefits, or a return of $367.9 billion on $42.9 billion in grants and other support in 2007.

While that sounds like a great return on investment, foundations could do a lot more and have an even greater impact.

A separate report prepared for Grantmakers for Effective Organizations says foundations have failed to practice what they preach.

Grantmakers themselves, along with nonprofit leaders, agree foundations should improve the type of financial support they provide, including support for nonprofit operations and multi-year support, and should improve their relationships with nonprofits.

But the report says grantmakers are giving a median of only 20 percent of annual grants to general operating support, and that only 36 percent of foundations surveyed solicit feedback from grantees.

“The study seems to suggest that most grantmakers see themselves as an island,” says Beth Bruner, board chair for Grantmakers for Effective Organizations. “The sense of reaching beyond the intellectual and operational corpus of the foundation is rarely there.”

Charitable foundations and corporate-giving programs are quick to tout their generosity and preach to nonprofits about the need to be more effective, collaborative, strategic and transparent.

Yet a top priority for foundations has been their fierce fight against efforts to require they be more open about their own operations and increase to 6 percent from 5 percent the share of assets they must pay out each year in grants and overhead.

That fight, in which they have invested millions of dollars, argues they can police themselves and that increasing the payout rate would deplete their assets over time and force them out of business.

And now, with the value of their assets plunging, foundations have stepped up their whining.

But now is precisely when foundations should be making good on the investment taxpayers have made in the form of the tax-exempt benefits foundations and their donors enjoy.

Foundations need to pull their collective head out of the sand and take a good hard look at themselves and the needs of nonprofits, and start working harder to improve the operations and impact of the giving sector on the urgent needs our communities face.

Recession is prime time for giving sector

By Todd Cohen

Times are tough and getting tougher, and the giving sector needs to step up and lead.

Even in good times, nonprofits are overworked, underpaid, underappreciated, always scrounging for support, and always under pressure from givers and funders to build their operating capacity and show their impact.

Now, instead of fearing the worst from the sinking economy and capital markets and hiding its collective head in the sand, the giving sector must dig deeper to better cope with urgent social needs that only will get worse.

Nonprofits should be laser-focused on serving their clients, streamlining their operations, minimizing their risk, sharpening their message, and understanding and engaging their donors, funders and partners.

Using passion, metrics and compelling stories, nonprofits must make crystal clear the needs they address and the impact they have, helping charitable foundations, corporate giving programs and individual givers see the need to give more.

And givers and giving organizations need to pay closer attention to the real operating needs of nonprofits and the rising demand they face for services.

In short, the giving sector needs to return to its roots, focusing on the nuts and bolts of serving clients well, running smart shops and securing the right resources.

Coping tools for nonprofits in the recession will be the focus on an online webinar Dec. 9 sponsored by the Philanthropy Journal and featuring a panel of national experts, including Eileen Heisman, president and CEO at the National Philanthropic Trust; Doug Bauer, senior vice president at Rockefeller Philanthropy Advisors; and Jennifer Pryce, director of advocacy at the Nonprofit Finance Fund.

The panel will examine how nonprofits can build their organizational capacity, minimize their risk, make contingency plans, approach givers and grantmakers, build awareness about their cause and their needs, and make their fundraising case.

In tough times, the challenge for the giving sector is to be the best it can be, with nonprofits and givers alike looking for ways to dig deeper and work smarter to help make our communities better places to live and work.

Givers next door have much to give

By Todd Cohen

Below the philanthropic radar that has focused on the gloom and doom of the ailing economy beats an underappreciated resource that offers huge potential for nonprofits.

Family-owned businesses represent nearly two-thirds of gross domestic product in the U.S., according to estimates, yet those closely-held firms are largely invisible to nonprofits, says philanthropy consultant Phil Cubeta.

“There is a tendency for philanthropy to be perceived as high-class and for these businesses to be perceived as low-class,” says Cubeta. “These are often blue-collar people who make good, and make good big-time.”

Many of those business owners are Baby Boomers who are nearing retirement, says Cubeta, who works with a national financial-services company’s advisers whose main clients are business owners with median net worth of $10 million to $15 million.

And if those business owners’ companies survive the economic downturn, they will need to make decisions about their companies’ future and what to do with the wealth and time they will have in retirement, says Cubeta, who in January will become the holder of the Sallie B. and William B. Wallace Endowed Chair in Philanthropy at The American College in Bryn Mawr, Pa.

That transition in the life of boomers’ businesses is “following a wave larger than the current economy,” he says. “It’s a demographic wave.”

So instead of panicking about the impact of the downturn on charitable giving, he says, nonprofits should look for ways to connect with Boomers who own small businesses.

Those business owners are rooted in their hometowns, where they often grew up, went to high school and even college, built their businesses and likely will die, he says.

“They really care about the community,” he says.

When asked, they typically voice a “heart and care for philanthropy, but it doesn’t come out that way,” Cubeta says. “They would like to do it but they’re not connected. They’re isolated from the world of people in town outside their business groups and church.”

One strategy for connecting with those donors might be to work in partnership with professional advisers to develop events likely to appeal to aging Boomers who own small businesses, he says.

Professional advisers who typically work closely with owners of small businesses include life-insurance agents, certified public accountants, estate-tax lawyers, financial planners, and chartered advisers in philanthropy, Cubeta says.

Working with those advisers, particularly those who serve on their boards or their planned-giving advisory committees, nonprofits should aim to develop events that will focus on topics business owners care about, such as “life after business,” “passing on their values as well as valuables to their children,” or “business-transition issues.”

Nonprofits also should work with advisers to find ways to introduce philanthropy, and their own organizations, to the business owners.

“Shirtsleeve businesses are where a lot of this country’s wealth is,” Cubeta says. “Those people still have the same issues this year as last.”