When is Local Intrusion into Nonprofits Too Much?

The relationship between a local government and area nonprofits is often complex. There is a continual push-and-pull between control and autonomy; it plays out each day across America.
One such story comes from Hamilton County, Tennessee; Chattanooga is the county seat. The board of commissioners took a big step encroaching on the independence of the tax-exempt groups there. The organizations promptly and forcefully pushed back.

This overreach by a government entity gets at the heart of the importance of nonprofit self-governance—the power of independent nonprofits to name their own board members, who then bear responsibility for overseeing adherence to bylaws and articles of incorporation.

  More Control Over Funded Nonprofits

In late June 2017, the Hamilton County Commission debated imposing new controls on local nonprofits that receive a certain amount of county funds.
What prompted this proposal was “months of publicly scrutinizing the Chattanooga Convention and Visitors Bureau” which was the beneficiary of all of the county’s lodging tax revenue since 2007. The Bureau receives some $8 million or so from this tax, which accounts for more 80% of the organization’s total income.
As a result of this study of the region’s lodging tax and its beneficial effect on the Convention and Visitors Bureau, Commissioner Tim Boyd introduced a financial-oversight regulation designed to “give a board seat to a county commissioner” and require submission of expense records to the county and adoption of the county purchasing and travel policies.  But the proposed regulation applied not just to the Bureau but also to any other nonprofit if it received county money exceeding 25% of its operating revenue. The vote was 6-3 in favor of adopting these broadly applicable new requirements.

   Backlash From Nonprofits

It didn’t take long for opposition to develop strong enough to force the county commissioners to reverse this unpopular and overbroad decision by early July by a vote of 7-2.
While the original regulation was “aimed squarely at the Chattanooga Convention and Visitors Bureau,”  an agency relying on millions in county funds, the policy nevertheless swept up “many other nonprofits, including numerous local volunteer fire departments” with the “constricting demands.”

Both the CVB and the Humane Educational Society pushed back against the resolution. While unaffected by the new rules, the Dallas Bay Volunteer Fire Department also responded to the new oversight measures, citing the need to clarify its commitment to transparency.

Greg Martin, one of the commissioners who voted against the resolution both times, understood and expected the immediate blowback from these overbroad rules. He “realized the implications and potential unintended consequences of this move.”  He said: “I don’t have a problem with transparency, but I believe we have added another layer of government to these nonprofits with this resolution.”

   Conclusion

More and more, local nonprofits may be imposed upon – unfairly – in this or other ways by government funders “who want transparency and accountability of public funds” but who go overboard with unreasonable and unwarranted demands for governmental intrusion and control.

This is an area where nonprofits must remain vigilant and exercise advocacy. According to the Urban Institute’s 2013 report on nonprofit-government contracting, a full third of nonprofit revenues in the U.S. flow from government coffers. While nonprofits and government historically have partnered to deliver important services to communities, it is vital that the concepts of self-governance remain intact.

In any event, local government should be responsive to the legitimate views of the nonprofits in the community who – while receiving some governmental support – nevertheless, also give back by providing needed services that, otherwise, the government would have to offer.

A New Way to Diversify Nonprofit Boards

A frequent criticism of the nonprofit world is that boards of directors are primarily populated with people far removed in wealth, background, circumstances, and experience from the people these organizations are formed to serve.
There’s talk, of course, that this should change, but discussions about increasing board diversity often lead to little action.
Now the City Attorney of Chattanooga, Tennessee, Wade Hinton, has created a model that may work well not only in that city but can also be used as a prototype in other regions.  A new nonprofit website called Board Connector has been created: Its purpose is to connect people – especially women and people of color (and those who are both) – to nonprofit boards.

   Diversity on Nonprofit Boards

“The [ethnic] disparity continues in governance, where nonprofit policies and programs are set,” according to the author of a 2014 article in “The Nonprofit Quarterly” titled The Nonprofit Sector Has a Ferguson Problem:

BoardSource’s most recent survey reports that only eight percent of nonprofit board members are minorities, and 30 percent of boards lack a single member of color. Despite diversity rhetoric, nonprofits have made no progress in recruiting racial and ethnic minorities. The BoardSource survey found that while 63 percent of organizations say that diversity is a core value, the percentage of people of color on nonprofit boards has not changed in 18 years.

Board Connector is designed to meet head-on the all-too-familiar “excuses of ‘can’t find candidates’ or ‘candidates don’t have leadership and governance experience.’”

  How Does it Work?

Board Connector uses a “headhunter” model similar to that used by businesses to reach out and find talent.

The site catalogues expertise and recommends individuals whose skillset will enhance a given nonprofit. Candidates are asked to indicate their areas of interest, career status, and goals and upload a resume.

It’s a win-win: A nonprofit has easy access to a pool of diverse individuals that will enhance the accomplishment of the mission; the board candidate has a more targeted opportunity to give back to the community, use important skill sets, and gain valuable connections.
“Participating nonprofits register their interest in candidates” by indicating their organizational interest-areas and also agreeing to the following:

By checking the box below, you are representing that your organization is committed to having an intentionally inclusive board of directors. Further, you are stating your commitment to diversity as an organization.

In addition to this key function of connecting candidates with organizations, Board Connector has important strategic partners including BoardSource, Executive Leadership Council, and African American Leadership Council, all of which are resources for board training and preparation.

  Conclusion

Wade Hinton and Board Connector “plan to introduce and launch the web platform in cities throughout the United States” and are interested in getting input from other interested city officials.

Controversial Decision for Berkshire Museum

“What kind of ‘ethical code’ tells struggling museums it is better to go bankrupt than sell even one artwork to cover operating expenses?”
That’s the question posed by University of Kentucky law professor Brian L. Frye, MFA, JD, in a recent Twitter thread about a controversy involving Berkshire Art Museum of Pittsfield, Massachusetts.
Reports of a decision by the financially beleaguered institution to deaccession some 40 works of art have prompted howls of protest from various quarters along with spirited defense from others.

  Wrenching Choice for Museum

For over 100 years, the Berkshire Museum has been “the cultural beacon” of its community. It was founded by a family member of the owners of the Crane & Company stationery firm that still supplies paper on which United States currency is printed. But, now, that venerable institution “is overshadowed by the Berkshire region’s world-renowned museums, including the Clark Art Institute, the Massachusetts Museum of Contemporary Art and the Norman Rockwell Museum.”
Executive director Van Shields explains that “(t)he cultural landscape has changed dramatically and the Berkshire Museum has not adapted to that change.” The financial woes that developed have worsened; the institution’s annual deficit has been around $1.2 million for the past decade.
Money is needed to “help establish a  $40 million endowment and pay for $20 million in renovations as the museum refocuses its mission to become a more interdisciplinary and interactive institution more dedicated to history and science.” Shields characterizes the Museum’s stark choices as “an existential threat.”  The organization must “adapt, migrate or go extinct.” A sale of many works of art, he explains, “is necessary to ensure the museum’s very existence.”
Not a decision taken lightly, it was a two-year process featuring multiple focus groups, many retreats by the board of trustees (which includes a member of the Crane family) and input from hundreds of community members.

  Backlash from Museum Peers and Others

As soon as the sale decision was announced in July 2017, waves of criticism and “intense national and local pressure” surfaced. Opponents of the proposed move argue such an art auction violates “a cardinal rule of museums: Don’t sell stuff to pay the bills.”  Works of art, according to critics of the Berkshire Museum’s plan, are “usually sold only to fund further acquisitions.”

‘One of the most fundamental and long-standing principles of the museum field is that a collection is held in the public trust and must not be treated as a disposable financial asset,’ the American Alliance of Museums and the Association of Art Museum Directors said in a joint statement. The sale would be an ‘irredeemable loss,’ they added.

The important works of art selected for auction include two by Norman Rockwell, a resident of the region for some 30 years before his death, as well as certain pieces that were gifts to the Berkshire Museum from Rockwell himself.
Leslie Ferrin operates a local firm that represents artists. A vocal opponent of the artwork sales, she started a Facebook page for other members of the local arts community opposed to the sale. Members of “Save the Art at the Berkshire Museum of Natural History and Art” are working to persuade the Museum leadership to reverse this plan. “Selling gifts is against every moral and ethical standard” of museum operation, according to Ms. Ferrin, who believes that the artwork will likely be sold to private collections, precluding public access.
Laurie Norton Moffatt, director of the nearby Norman Rockwell Museum, also opposes the sale. “For the museum’s leadership, the potential price that these irreplaceable artistic treasures could fetch seems to have obscured their very rich role in the life of the Berkshires,” Ms. Moffatt wrote in an opinion piece in The Berkshire Eagle newspaper.

‘To think that selling the art will save the future is simply to push the challenge down the road while diminishing the strength of the institution. Disassembling the unique treasure that is our regional museum to save it, is not saving it,’ wrote the nearby Norman Rockwell Museum’s director in her op-ed. ‘Selling these treasured assets actually poses a debilitating economic ripple effect beyond the museum, not to mention would be a profound spiritual loss to the community.’

In the past, other museums making the same decision to sell off artwork “have found themselves ostracised by their peers.” In a 2008 case, the Association of Art Museum Directors – for the first time ever – censured an art institution, “instructing its 180 members to stop lending to and collaborating with the museum in question, and releasing a hardline policy on the selling of works.” The fear, according to an AAMD representative, is that “a board of trustees will see the museum as a bank.” Similarly, in a 2014 situation, the punishment by the museum world was severe.
Berkshire’s executive director Shields and the Museum’s trustees “knew [they] were going to be pilloried,” but made the deal final despite the vocal (albeit) minority opposition. “By switching its focus to science and history — and yes, some art will remain — the Berkshire Museum can fill a currently empty cultural niche in the region,” according to Shields.

  Conclusion

So – who gets a say in a decision like this? If the people with the fiduciary duties towards the Museum have pursued all reasonable due diligence, and thoughtfully and carefully made this painful decision, are there any other possible stakeholders? Are there overriding considerations that can be raised by colleagues and community members?  And if a decision to deaccession some of the artwork is the only reasonable path, in light of financial realities, would the trustees violate their fiduciary duties by caving to the community or peer pressure from the museum community? 
Are there additional arguments pro and con? For example, as OSU Professor Brian Mittendorf, CPA, asks in a tweet, is this “a cautionary tale to donors about not restricting gifts? Hard to argue this plan is consistent with donor’s expectation.”
 

Nonprofit Boards: How Effective Are They?

How well a nonprofit board performs is a critical factor in the ultimate success of the organization.
Do nonprofit directors believe they are doing well enough? How do the experts evaluate the overall quality and performance?
An important project from not too long ago is the “2015 Survey on Board of Directors of Nonprofit Organizations” by the Stanford School of Business. The findings suggest there is considerable improvement needed. Researchers outlined nine steps that boards can implement.

   Study of Nonprofit Boards

In late 2014, the Stanford Graduate School of Business signed on with BoardSource and GuideStar to launch a survey of over 900 directors. Respondents were asked questions about the “composition, structure, and practices of their boards.”
“Our research finds that too often board members lack the skill set, depth of knowledge, and engagement required to help their organizations succeed,” according to lead researcher David F. Larcker, CPA, a professor in Stanford’s accounting department.  
In particular, “boards could benefit from more formal governance structures and processes.” And while 80% of those surveyed indicated their organizations formally evaluate the performance of the executive director, “less than half have explicit performance targets”  by which to evaluate the ED. Notably, a whopping 70% reveal they have no succession plan in place for management.
Study co-author, William F. Meehan III, also of Stanford, adds that “(n)onprofit organizations need to do a better job attracting board members with substantive, relevant experience who will deeply and personally embrace the mission ….”

  Recommendations for Board Success

“To help improve nonprofit board governance, the Stanford study made nine recommendations, including ensuring the organization’s mission is focused and its skills and resources are well aligned, establishing explicit goals and strategies tied to achieving the mission, and developing rigorous performance metrics that reflect those goals.”  Specifically – 

  1. Ensure your organization’s mission is focused and its skills and resources are well-aligned with it.
  1. Ensure your mission is understood and embraced by the board, management, and other key stakeholders.
  1. Establish explicit goals and strategies directly tied to achieving your mission.
  1. Develop rigorous performance metrics that reflect those goals and strategies.
  1. Hold the executive director accountable for meeting those performance metrics and evaluate his or her performance with a sound, objective process.
  1. Compose your board with individuals with the skills, resources, generosity, diversity, and dedication that address the needs of the organization. This includes ensuring that there is a small group of committed and cohesive leaders.
  1. Define explicitly the roles and responsibilities of board members to best leverage their leadership, time, and resources.
  1. Establish well-defined board, committee, and ad hoc processes that reflect your organization’s needs and context and ensure optimal handling of key decisions and responsibilities.
  1. Regularly review and assess each board member’s leadership contributions as well as the board’s overall performance. This includes ensuring that board members view their time as well spent.

   

Nonprofits in Bankruptcy Must Plan Carefully

“Although it’s a step rarely discussed in the philanthropic community,” we explained in “Yes, Nonprofits Sometimes Do File Bankruptcy,” “filing for federal bankruptcy relief is not uncommon and is a way to resolve the status of a nonprofit in serious financial difficulties.” Sometimes – for individuals, for businesses, for charities – “this drastic remedy is necessary.”

Non-profits can benefit from the bankruptcy process, either by restructuring debts and continuing to operate, or by providing a method to transfer valuable assets to another entity which can continue to make use of them.”  

Good Bankruptcy Planning is Critical
In our earlier post, we highlighted an example in which this sometimes necessary –  but rather painful – step in an organization’s lifecycle was carried out with the greatest possible care and sensitivity to all of the stakeholders.
The Tumbleweed Center for Youth Development had been in operation for some 45 years in the Phoenix, Arizona area. It had provided “hundreds of homeless people ages 12-25 each year with resource centers, emergency and transitional housing, life counseling and other programs,” as well as “services for youth refugees and unaccompanied minors from outside the U.S.”
In December 2016, the nonprofit had reached the point of insurmountable debt after years of severe cash-flow difficulties and turnover of key personnel. Interim leaders taking the helm found that the organization was “grossly overspending”; there was no alternative to bankruptcy.

What made the difference in terms – primarily – of the needy client population about to be deprived of critical services was that a handful of private foundations donated hundreds of thousands of dollars as the bankruptcy was declared to allow for an orderly transition even while programs continued to function.

Under court supervision, all of Tumbleweed’s programs were transferred to other local nonprofits over a period of months “as Tumbleweed liquidates assets to pay off its debts.”
A nonprofit’s bankruptcy – unlike those involving for-profit businesses – affects charitable-beneficiary stakeholders who are often at risk in the best of circumstances. Here, there was good planning as well as invaluable help from the charitable community; Tumbleweed was “able to close up without the pain and chaos that often surrounds an abrupt shutdown.”

   Poor Bankruptcy Planning Creates Undue Harm 

Sadly, not all nonprofit bankruptcies end so harmoniously (relatively speaking.)
A case in point is the Independent Adoption Center (Atlanta, GA).  Its bankruptcy “isn’t going smoothly. “ In January 2017, when “(a)lmost 2,000 families were planning to adopt – from around the nation – this nonprofit “abruptly closed its doors.”
Out of the blue,” the organization sent out a letter to stakeholders, “announcing their bankruptcy and the immediate closing of the agency.” Hopeful couples waiting to adopt were stunned by the news.
“Since then, families have been trying to find answers and help.” But there is a technical complication that is leaving these parents-to-be with no legal option to file claims against the Independent Adoption Center. Because “…another nonprofit has taken over their adoption cases,” they are exempted from the IAC bankruptcy proceeding. They haven’t heard from the new agency, and “no one seems to know anything about the new nonprofit, including its name and contact information.”

The families still on the waiting list for babies not only lost thousands of dollars they entrusted the organization with, but also important personal documents like, birth certificates and marriage licenses. One family in Raleigh, North Carolina, is having trouble buying a new house because mortgage companies are asking for their original tax returns, not copies, which IAC stuck in an undisclosed location.”

Although there is not enough money in the bankrupt agency’s account to repay monies owed, the “trustee hired by the organization that abruptly closed its doors is now planning to sue the agency’s board of directors for failure to properly handle the bankruptcy case.”  It has been a “chaotic bankruptcy”; the trustee alleges that the organization was “losing money every month with no apparent improvement and shut down without giving government regulators notice about confidential records.”

   Conclusion

While the closing of a nonprofit through bankruptcy is always a sad outcome, the effect can be more devastating than necessary without proper planning, careful governance, and – often – some outside assistance.

Charity Board Term Limits: What’s the Best Practice?

“Board governance is often taken for granted in the early stages of creating a nonprofit organization.” There is excitement about “the first steps in achieving the mission of the fledgling NPO” or resolving pressing funding issues.
The recruitment of board members is often a top priority in the organizational phase. Few groups, though, give any thought at that point about a mechanism to cut loose these enthusiastic supporters after a number of years of service. As a matter of good governance, that should change. Many seasoned organizations realize – belatedly – that it’s an issue they should have considered right from the start.

More than ever before, boards are rethinking and reviewing past practices to make sure that the organizations they represent are making progress….As part of the review, non-profit boards are weighing the pros and cons of term limits for board members. In evaluating this issue, non-profit boards are reviewing trends, surveys, and best practices.

Recently, the momentum has been in favor term limits; “conventional wisdom holds that there should be board turnover from time to time.” But is this necessarily so?
There is no “one-size-fits-all answer that is right for the wide range of American nonprofits.  There are legitimate arguments for and against term limits.  Experts and observers have chimed in on this topic; several common themes and arguments emerge.

  Arguments in Favor of Board Term Limits

Introduces “fresh blood” 

There will be new talent, skills, and ideas along with greater diversity of background, age, and opinion. A “fresh crop” of directors will also bring expanded contacts and networks. And – rather than severing ties completely with outgoing directors – the organization can retain some or all within the fold, albeit in different emeritus capacities: advisers, fundraisers, and advocates in the larger community. 

Eliminates troublesome or nonperforming directors

Having term limits is the easiest, most diplomatic, way to get rid of difficult or ineffective board members. “When long-serving board members are unproductive, it can be difficult to relieve them of their duties, even for the good of the organization.”
Who are “less-than-adequate” directors?  Examples include those who:

  • Have poor meeting-attendance records
  • Are inactive on board committees
  • Don’t represent the organization well to the public
  • Seldom volunteer for any extra duty
  • Don’t donate
  • Disrupt meetings

Term limits are valuable, also, for directors who want or need to leave: an easy, graceful, no-questions-asked exit.

  Promotes good governance

A term-limits policy offers the time to evaluate the type of talent [needed] for a well-rounded, efficient board and to make well-thought-out plans for recruitment”  For directors, it minimizes burnout and encourages them “to complete what they’d like to accomplish during the length of their service.”

   Arguments Against Board Term Limits

Avoids loss of experience, training, and contacts

Not having mandatory term limits at arbitrary intervals avoids the loss of valuable years of experience and knowledge about the organization’s mission and operations. It also prevents disruption of long-cultivated networks and relationships with community or elected leaders, government or regulatory officials, donors, and others. 

Promotes stable, consistent governance

Allowing directors to continue in service for long periods results in a coherent team of passionate and talented people who have a track record of accomplishments.  (Having an effective evaluation process for re-nominations is sufficient to relieve unproductive board members from their terms when necessary.)
Certain predictable problems with arbitrary term limits are avoided; for instance, the need for remaining and new directors to “recalibrate.” Often, “new board members who claim a spot on a board of long-timers may be hesitant to bring their ideas forth for fear of them not being well-received. Seasoned board members may fear that new members will slow down the momentum that they worked hard to achieve.”
Opponents of term limits also point out that a term-limited director’s interest may wane when the period of service is coming to a close.

Keeps dedicated donors 

Allowing committed board members to continue in service maintains steady and reliable streams of donations from directors with long-standing connections to the organization and its mission.

  Applicable Law

Neither the IRS nor California has a law mandating term limits for nonprofit boards.  “The IRS offers nothing formal…. If pressed, the IRS would say it leans toward having limits, on the grounds that a board with static membership might be prone to adopting unhealthy insider attitudes, and begin to govern out of self-interest rather than for the good of the organization.”
California law regarding directors’ terms for nonprofit public benefit corporations is codified at California Corporations Code Section 5220. Directors serve for a period of time specified in the articles or bylaws, up to 4 years (or 6 years for organizations without official, “statutory” members). If there is no specific term mentioned in the articles or bylaws, the term is one year. Directors’ terms can be staggered. The only requirement is that the group hold periodic elections at regular intervals.

  Conclusion

“Despite strong pros and cons on both sides, a 2010 survey by BoardSource Nonprofit Governance showed that 70% of non-profit boards have term limits.  
However, “[w]hile the trend is strong in favor of term limits, the diverseness of non-profit organizations means that term limits may not work well across the spectrum.”

Setting term limits as a stand-alone issue doesn’t necessarily equate to best practices. What does constitute best practice is to regularly review whether the organization needs term limits and whether they fit in with the mission and vision of the organization.

 

Charity Regulators: Focus on Enforcement of Corporate Policies

“When government regulators meet,” we wrote in a recent post, “they make lists of the most pressing topics that keep them up at night.” One such list is a March 2017 article in The Nonprofit Times. There, the authors discussed five hot-topic areas that give regulators apoplectic fits these days:

  • Governance & Compliance: Policy vs. Practice
  • Scrutiny of Fundraising and Overhead Costs
  • Solicitation and Use of Donor-Restricted Gifts
  • Online Fundraising & Technology
  • New Legal Structures for Achieving Social Impact

We started our discussion of these points by jumping right into the fourth topic; see  “Issues in Online Giving.”
Now, we turn back to the beginning: governance and compliance. “One of the longstanding legal problems that nonprofits continue to face is failure by boards to properly implement adopted governance and compliance policies.”

   Governance Focus of Oversight Activities

Governance has always been important in terms of oversight priorities, but federal and state regulators dramatically stepped up interest and scrutiny in the wake of the massive corporate scandals a decade and a half ago. Officials sprang into action, enacting a law commonly known as Sarbanes-Oxley (“SOX”).
It had tough new rules and controls, as well as criminal penalties; the law was written “to prevent wrongdoing and enhance both the integrity of financial reporting and the quality of corporate governance.”

Although aimed primarily at publicly traded, for-profit corporations, a few of the SOX requirements also directly apply to nonprofits: ‘They must have a system for accepting and dealing with whistleblower concerns; they must have policies that protect against the intentional destruction of key documents, and their employees must not impede or obstruct governmental investigations.’

This federal activity “ launched some big changes in government oversight of charities, including – notably – the complete overhaul of the IRS Form 900, effective 2008. In newly added Part VI, “Governance, Management, and Disclosure” the agency “…probes how a nonprofit manages critical issues such as the independence of the board and the resolution of conflicts of interest among key players in the organization.”

The Internal Revenue Service believes that a well-governed charity is more likely to obey the tax laws, safeguard charitable assets, and serve charitable interests more than one with poor or lax governance…. [W]hile the tax law generally does not mandate particular management structures, operational policies, or administrative practices, it is important that each charity be thoughtful . . . [about] governance practices…. As a measure of our interest in this area, we ask about an organization’s governance, both when it applies for tax-exempt status and then annually as part of the information return that many charities are required to file.

See our discussions in earlier posts including “Written Governance Policies: Which Ones Should Nonprofits Have?
As a result of these corporate scandals, states acted as well.  Sarbanes-Oxley –

was the model for the California Nonprofit Integrity Act and similar laws and regulations by other jurisdictions focusing on the accuracy and transparency of financial statements and other reporting by nonprofit organizations.  It was also a key factor in the move by think tanks and leading agencies within the philanthropy community like Independent Sector to develop “best practices” standards for nonprofits.  (These organizations consulted and cooperated with federal officials in developing the revised Form 990.)

  Enforcement of Policies is Key

More recently, this focus has switched from an emphasis on drafting corporate policies on good governance to actual enforcement of those written policies.

One of the … legal problems that nonprofits continue to face is failure by boards to properly implement adopted governance and compliance policies. For example, with respect to conflicts of interest, is the board properly considering alternatives when a proposed financial transaction will benefit an insider? Are only the independent directors reviewing and approving such transactions based on the best interests of the organization?

“To ensure effective governance and compliance, nonprofit boards should regularly review their policies in light of applicable laws and best practices, but also take time to ensure that they are being properly implemented.”

  Conclusion

Boards that treat governance as a mere rubber stamp of the executive staff’s decisions do not provide the checks and balances that are critical to their function as fiduciaries of the organization.

What happens if these policies are not observed and implemented? There may be serious trouble with regulators as well as serious consequences including possible penalties and other sanctions, including – at the most extreme – loss of tax-exempt status.

San Francisco Charity Under Fire

She was everywhere on San Francisco’s social scene: the 78-year-old fashion diva with her enormous “statement” eyeglasses. Joy Venturini Bianchi was the face of nonprofit Helpers Community, Inc.
Over 60 years ago, the respected organization was founded to assist people with developmental disabilities. For many years, it operated residential facilities for them in the city’s Richmond District.
More recently, though, it became nationally known for its high-end resale shops, Helpers House of Couture. Ms. Bianchi, executive director-cum-board-member, ran the show, earning a base compensation in 2015 of over $193,000.
Behind the “designer gowns, handbags and fancy footwear,” though, it was all smoke and mirrors. A devastating expose in the San Francisco Chronicle last December uncovered the truth: since about 2003 or so, the nonprofit stopped housing developmentally disabled adults entirely. The resale venture was the means and the end – apparently – to support the glamorous lifestyle and $193,000-a-year salary of its executive director-cum-board-member.  Ms. Bianchi’s “annual compensation package has been larger than the group’s total charitable giving in every year since the homes were closed.”
Volunteers, employees, and others had wondered what was up, and expressed relief when the dodgy setup was finally revealed to the public.
How did it go on so long?
Was this yet-another manifestation of the syndrome of “Bobblehead Boards and Charismatic CEOs,” which we explored in a post last year:

At a [recent meeting] of the National Association of State Charity Officials, these regulators reported to attendees about “what conduct can spook” them ‘into conducting investigations of charitable nonprofits.’  These troublesome examples include: ‘phantom boards’ (… existing only on paper…) and ‘bobblehead board members’ (… who nod ‘yes’ to everything and avoid both conflicts and asking questions’).

“For years,” according to Chronicle reporters, “Helpers had deceived donors, spending scant funds on its stated mission of supporting residential care for people with developmental disabilities while paying an outsize salary to its director … who became a prominent figure on San Francisco’s fashion and social scenes, with little attention paid to her business practices.” What was, or should have been, the oversight role of the board of directors?

  Charity Property Tax Exemption Yanked

The first shoe to drop in this saga was an inquiry about the organization’s right to property tax exemptions.
In March 2017, the San Francisco Office of the Assessor-Recorder ruled that Helpers Community, Inc. will have to pay some $31,000 in back property taxes in connection with the properties used for the boutique operation. “All told, the nonprofit has received about $100,000 in property tax exemptions since 2003, the year it stopped providing residential services to its target clientele.” However, the statute of limitations blocks the City from collecting any more than the monies owed due to the most recent years.
“Bianchi … and the Helpers board have spent the past decade shifting the $6 million organization away from providing residential care for adults with developmental disabilities to raising money for that population through high-fashion resale boutiques.” But there is little evidence that the money raised has been disbursed to help “that population.”

Since the group ended its residential services in 2002, … it has done little charitable work while amassing millions of dollars in assets and donations and handsomely compensating Bianchi as she traveled to red-carpet galas, according to Helpers’ annual public filings to the Internal Revenue Service.*** For 13 years, Helpers gave nothing to residential programs. And between 2003 to 2008, the group gave nothing to any charitable cause at all, financial records showed. Most donations in recent years have gone to a group that repairs facial deformities in children overseas.

Ms. Bianchi has previously said in an interview that “after Helpers closed its residences, she spent years traveling around the country seeking suitable organizations to fund, without success,” adding also that Chronicle’s report “does not reveal the depths of my soul nor the intentions of my heart.”

   Remedial Actions Taken by Board

In the immediate aftermath of this scathing expose, “the Helpers board began a significant overhaul, slashing Bianchi’s salary by about $40,000 and removing her from the board. The board also initiated formal discussions about whether Helpers should continue to exist.” A board representative told the Chronicle that efforts to change the organization’s operations had begun “‘long before’ the newspaper’s inquiries but simultaneously stated those discussions were ‘still  in their initial stages.’”
Critics wonder if this is enough. “The facts are obvious that the foundation has outlived its mission,” according to the niece of the Catholic nun for founded the nonprofit in 1953. “I certainly was surprised and offended to learn that Helpers was still functioning even though its residents had been moved out long ago and no longer received any kind of support.”

   Conclusion

“These changes point to the realization on all parts that the organization suffered from serious shortcomings,” according to OSU Professor Brian Mittendorf, a nonprofit accounting expert.  
According to experts interviewed for the Chronicle stories, “the assessor’s action should raise questions among state and federal regulatory agencies about Helpers’ legitimacy as a nonprofit” and inquiries by the California Attorney General and the Internal Revenue Service are likely to follow. However, “officials with the state attorney general’s office and the IRS declined to comment.”
 

Social Media Policy: Now, More Important Than Ever

Part of the New Year’s recommended checkup for each nonprofit is a review of existing governance policies and a plan to adopt ones that are missing.
A written social media policy is often omitted from suggested governance document lists, because the explosion and huge impact of social media is so new.
In an earlier post, we noted that “[s]ocial media has been described as a ‘Wild West’ that nonprofits must ‘tame.’”  There are many unknown possibilities and pitfalls; so much potential for good communication and connection as well as for inept or – worse still – intentional harm. Even the experts struggle to get a handle on workable sets of rules that can be adapted for charitable organizations.

  Social Media Rule Number One

There is, however, a rule that should be on page 1 of every social media policy document. To paraphrase a famous leader: “Don’t do stupid stuff.”  In other words, think before you hit the “send” button. Don’t post anything you wouldn’t want your mother to see or have blasted on the front page of the New York Times.
And, as a follow-up rule, if you do post stupid stuff, don’t make it worse with a faux apology. There’s an old saying: “When you’re in a hole, stop digging.”
Nothing illustrates these points as well as a nonprofit social media story late last year that made headlines around the nation. It involved a truly offensive (personal) Facebook post about then First Lady Michelle Obama by the executive director of a nonprofit social services agency in a small community in West Virginia. There was a thumbs-up post afterward from the town’s mayor. An image of the disgusting post went viral, all over the local area, and then nationally. There was an uproar that eventually cost these two women their jobs; sparked an investigation into the organization, uncovering long-simmering problems and irregularities; and created turmoil and resentment from citizens and government officials.
Even a post on a personal social media site by a community leader “propelled a small West Virginia town into an embarrassing national spotlight.”  The attempts by the two officials to control the damage were disingenuous and inept, to say the least, and did nothing to help themselves or contribute to healing in the community.

  Resources for Social Media Policies

As the West Virginia brouhaha illustrates, “[t]he clear benefits to a nonprofit of establishing and maintaining an active social media presence can be gone in a flash by preventable mistakes that create public relations headaches and legal disasters.”
Social media policies – like other governance policies – are not “one-size-fits-all.” There are social media manuals and guidelines online. There is a useful workbook to help you evaluate and identity which issues your policy document should cover.
This site includes online links to many good examples by established organizations.

 Conclusion

Whether your organization has an existing social media policy, or none at all, now is the time to tackle this important part of your governance arsenal.

Board Meetings and Minutes and More

As we edge up past the 200-blog-post milestone, we’re proud of the variety of topics covered.
Some areas of interest to nonprofits have been covered a bit more extensively than others.
For example, just last summer, we posted 8 times on the all-important politics ban in section 501(c)(3). After November 8th, though, the landscape changed dramatically; hence, our update in December 2016: “Maybe ‘Never Mind’ About The Politics Ban in 501(c)(3).”
The issue of “naming rights” has also captured our attention, producing copy for many posts including a favorite: “Naming Rights: It’s a Philanthropic Jungle Out There.” It’s so competitive in major markets like Manhattan that donors are happy to shell out big bucks for recognition in even the tiniest spaces in major cultural landmarks; hence, the Jerome and Ellen Stern Restrooms at the New Museum of Contemporary Art (Mr. Stern reportedly enjoyed the joke; “saying he “wanted to see his name ‘in a place I’m going to spend a lot of time.’”  And, of course, there’s the mess that’s created when a revered donor goes from hero to goat because of a scandal. Recently, for example, many buildings around the nation were subjected to emergency sandblasting to remove the name “Bill Cosby.”
Faithful readers may have also noticed our fascination with board meetings and procedures, minutes and resolutions. Some would say we’ve beaten this dry-as-toast topic into the ground.  “Some,” we humbly respond, “would be wrong.”  At ten posts and counting, it’s a good time for a roundup and hints about future posts.

   Corporate Board Formalities: It’s a Big Deal

This series started with “Breach of Duty by Ogling the Doughnuts”: “Admit it. You’ve done it,” is the opening sentence. What is “it”?

The corporate secretary is asking for approval of the corporate minutes from the last meeting. But you’re busy deciding between the maple-glazed doughnuts and the chocolate-topped ones. So is everyone else around the conference table.
That’s the problem. Most charity board members think of the vote to approve the minutes of the last board meeting as a quaint formality, an inconsequential appetizer before the real deal – the meaty portions of the board meeting where business is discussed and debated.
That’s the rub, though. The corporate minutes are not a side dish; they are the official record of the proceedings of the board of directors.  They will likely be reviewed by government regulators, third parties – friends and foes alike – disgruntled employees, and current and future boards whenever a conflict arises.  

So, you must take care to get it right. That’s why we spread out more tasty morsels in a buffet of information and tips:

And –  

Finally – a reader favorite:

Professional parliamentarians love Robert’s Rules of Order, but many nonprofit experts are wary: ‘We have said it before and we will say it again: Most organizations should avoid Robert’s Rules of Order like the plague. . .’  

Why?

In 1863, U.S. Army Colonel Henry Martyn Robert was asked to preside over a public meeting.  But he didn’t know the first thing about how to run one, and it was a disaster. Then and there, he decided never to face another meeting until he learned about parliamentary procedure. There were few books on the subject, so he taught himself rudimentary principles.
Over the next several years, Robert was assigned to military installations around the U.S. where he saw “virtual parliamentary anarchy.” He was more determined than ever to fill this void.
In 1876, then Brigadier General Robert published his Pocket Manual of Rules of Order for Deliberative Assemblies.  Back in the 1860s, he had studied the rules of procedure used by the U.S. House of Representatives, and used it as a guide for his book —  with certain changes that he decided were appropriate for “ordinary societies.”
Of course, the 1860s House of Representatives was the deliberative assembly that couldn’t avert the Civil War, so — perhaps — this was a dubious model for conducting harmonious and successful meetings….

That’s why.

    Conclusion

We haven’t yet fully exhausted this sleepy subject. Stay tuned for more like –

  • How Minutes are Used as Evidence For and Against the Organization in Court
  • How to Handle Minutes for Confidential, Sensitive, or Privileged Proceedings
  • Try Flipping the Agenda