Friday, September 26, 2008

Give until it hurts

As all of us observe one financial disaster after another and as we worry about how the suffering US economy will impact each of us and our loved ones, the question that keeps getting asked of Charity Navigator is - What does all of this mean for the charities we care about? As noted in earlier Charity Navigator blog entries, the future is not looking good for most charities for quite some time to come. Certain sectors, such as food banks, health care, housing providers and community development agencies are expected to be especially hard hit. Unless an agency has socked away a rainy day fund of working capital, layoffs, acquisitions and closures are expected to rise.

Public charities are critical to service provision and knowledge generation in this country. For us to grow the economy up and out of its doldrums, charities will be needed to play a critical role. They will be needed to provide a net to catch those who suffer as a result of job loss and associated miseries, as well as provide a voice to help educate the public and policy makers regarding the best directions for us take to resolve our problems as quickly as possible.

When adjusted for inflation individual charitable giving fell slightly last year. Imagine what this year is going to be like. You might think that charities will do fine without your giving as much as in the past. That is not the case! I know from 30 years of providing human and health care services that private dollars are the most important part of agency funding, because those dollars can be used for the unexpected surges in demand for services as we are seeing now. As government and corporate giving continues to decline, when services are needed more desperately than ever, it is individual donors that can make the difference to save the day.

So as we enter the fall giving season, which is when the largest share of individual contributions are made to charities, you as a donor are needed more than ever to step up to the plate. As scary as these times are and as much inclined as you are to cut back on your giving, I implore you to be as generous as you possibly can. American generosity, which is far greater than that of any other country in the world, needs to continue to shine in these dark financial times.

Wednesday, September 17, 2008

What do you do when the CEO is only in it for the $?

As I noted in last week's blog entry, I believe the problem of self interested CEOs is significant. However, for many I suggest that this is kept in check by their commitment to the mission. Today I want to talk about that minority who do not have any real compunction to hold back their greed. They are the ones you end up hearing about on the news. Invariably, when CEO personal gain becomes central, unethical abuses of power go hand in hand with it. In those cases, personal greed has risen to such heights that their agency or government regulators are forced to take action to get rid of them. What can you do if you observe such a CEO?

If you are a staff person, I refer you to the advice I gave in my suggested rules for public charity work (part 1 and part 2). The bottom line is this: unless there is a whistle blower policy at the agency that you think can truly protect you (have an attorney check it out), find a new job! The reason I recommend an attorney is because the laws in each state vary as to what is covered and federal whistle blower laws are quite narrow in focus. If you can not afford an attorney to do the review of the policy, find a new job! Once you get that new job, I urge you to report the abuses of authority.

I also noted last week that the CEO has tremendous influence. Unless you are truly protected while you are working at an agency, a self centered CEO can squash you like a bug! The Board may be taken in by the lies of the CEO and will rally around him or her, rather than dealing with the problem. However, a whistle blower policy may force even a reticent Board to consider the allegations you bring forward.

Assuming the agency does have a good whistle blower policy; write up the facts of what you have observed. If possible, have that same attorney who reviewed the policy review your document before you send it in. Also, if you have others who can corroborate your facts, encourage them to come forward as well. Submit the information to the designated person, per the agency policy. Then wait. If the agency is good to its word and you have identified real abuses by the CEO, the results should be positive. However, it is quite likely that the process will be long, expensive and painful to all involved. You may have to endure multiple interviews covering the same ground and shunning or harassment (report this immediately too!) by those who are allied to the CEO. On the other hand, if the CEO is truly bad, it is likely that you will have opened the floodgates and others will soon follow your lead. Hopefully they can be your support group as you go through the ravages of the process. Have your attorney get involved if the policy is not being followed.

If you are a donor or a person who receives services from the agency, you should follow the same procedure that the staff follows. Write up the facts and forward them to the person responsible for investigating the matter. If you are a donor, you usually do not have to worry about the kind of problems I described above. However, if you are a client of the agency, such worries may be even greater. You may not have the luxury of being able to find another place to receive services. Furthermore, the smaller the agency, the scarier this process can be as it is often easy to figure out who made the allegation. So proceed with great caution. Perhaps you can find a staff person you trust to take the matter to the next level.

If you are a Board member of the agency and you receive reports of unethical CEO behavior, you have a responsibility to act. It is likely that you will be shocked and find the allegations hard to believe. A CEO like this can often give the appearance of being a caring, super star. However, you need to take the allegations seriously and follow your whistle blower policy to the letter. If you do, the facts will usually come out quickly and you will find out if the super star is a giver or a taker.

In conclusion, I have seen this kind of situation in action up close. I think the analogy of a serious illness fits well with what an agency goes through in this process. You are the antidote to the disease. However, wrenching pain and suffering occur as the healing process begins. Exhaustion follows as the disease (bad CEO) finally leaves and rebuilding begins. Hopefully the agency can return to full health quickly, but sometimes the healing process can take years. Regardless, in the long run it is critical for the charity to go through all of this if it is going to truly meet its mission once again. You have my deepest respect, if you act to address the problem.

Wednesday, September 10, 2008

Who profits from a non-profit?

Long ago and far away, when I was in business school, there was a professor who discussed the difference between for-profit and non-profit organizations. He said that the difference was, in many cases, slim to nil. To justify his position, he went on to describe how a number of organizations were making the transition from for-profit to non-profit as a strategic business move to gain access to more private dollars. In addition, they no longer had to account to shareholders, but the executive leadership could still make out quite well financially. He concluded his presentation by stating that, although non-profits call it a surplus when revenues exceed expenses, it is profit just the same in his book.

While I do not entirely agree with the good professor, he certainly did provoke a lot of discussion and thinking on my part about the engine that drives a non-profit. In theory, a non-profit is to be driven to do things based upon its mission. However, in the real world, that is often not the case. I have seen many people in charity leadership roles, who only care about their own self interest. They will mouth allegiance to their charity's mission, but in reality they could care less. They will spend all their time on self promotion and trying to carve out a bigger and bigger piece of the agency pie to go into their compensation package, while getting their ego stroked as they claim most of the responsibility for any and all organizational achievements.

I have also observed that, absent the profit motive in non-profits, the motive that usually replaces it is growth. This motive can align well with the mission of an organization in that, the more you grow your programs and services, the more you can do to fulfill your mission. In fact, as is evident from our rating system, we consider such growth vital to the ongoing financial health of a charity. However, as noted in the preceding paragraph, growth can be just another tool to be used for the underlying motive of providing more of a pie from which to draw CEO and other executive leadership compensation.

For better or worse, how this all plays out usually flows from the values and perspective of the CEO. That person invariably sets the tone for the organization and the parameters of what is important on a day-to-day basis. If they spend half their time in the office playing with their stock portfolio on the Internet or don't show up until noon or later each day, others will notice and morale will suffer. Staff who are truly committed to the mission will likely become disgusted and move on. Sometimes, the staff will remain and become cynical and eventually lose their passion for what they are doing. In other cases, staff will just quit the field entirely. The end result of all this is that over time the agency will invariably slide down the path of diminshed quality and service.

I have just given you the extreme case. I suspect that many more agencies fall into a gray area. They are in constant tension between the selfish ambitions of the leadership and the mission of the organization. It is often a never ending tug of war. Perhaps that is the best we can usually hope for, given human nature and the fact that most of us are not a Gandhi or Mother Theresa? We have stated in another blog entry and in our FAQ for Donors that we believe that most CEO's are well-meaning, dedicated and deserving of their compensation. In other words, in the tug of war between selfish ambition and mission, a majority of CEO's end up doing the right thing, but there are also a quite sizable number who do not!

This is one of the reasons why I believe Core Values must be more than a sign on the wall in order for a charity to thrive. As I have noted in an earlier blog, the CEO has to live and breathe the Core Values. Those values are supposed to capture the culture of the organization. The CEO must truly have a heart for the mission of the organization that outweighs his or her own self interest (the self interest may still be there, but the values are given greater value!). I am happy to say that I have seen CEOs who are like that. Yet, I am sad to say that I have seen many who are not.

So who profits from a non-profit? As noted above, sometimes the person who profits is the CEO. Those who SHOULD profit are the persons or cause that the charity's mission serves. The CEO is the linchpin around which way that "profit" revolves. In next week's blog entry I will suggest what to do if your CEO is "revolving" badly.

Wednesday, September 3, 2008

A CEO is not a Rainmaker

In times of economic downturn, many public charities are between a rock and a hard place. Donations tend to decrease from practically all sources while the demand for their services increase. Many agencies expect their CEO and/or Director of Development to do a magical fundraising dance that will open up the heavens and bring money raining down on the cash needy agency.

I am finding it more and more common to see job ads for CEOs that are almost entirely focused on this one thing - raising money. Furthermore, if I had a nickel for every agency strategic plan that calls for huge increases in raising private money, I would be a wealthy man. Such a one dimensional Board focus on their CEO recruitment and planning is dangerous, because all agencies have needs for CEO talent in other critical areas including:

1) Program/Service Quality, Development and Implementation
2) Public Relations
3) Financial Management
4) Board Administration and Support
5) Strategic Planning
6) Human Resources Management

When the CEO is tasked with raising an impossible amount of money, all of this other critical stuff can fall by the wayside. What happens then? The agency can deteriorate in all of the areas listed above and become an empty shell of its former self. If the CEO does happen to be one of the lucky few who succeed at this herculean task, the money ends up being shoveled into an agency more concerned with inputs than outputs. Financial margins reign supreme and program quality is trivialized. Of course the financial health of an agency is vitally important, but not to the exclusion of service quality!

At the same time, given that the task is nearly impossible, most will fail with a shrinking pie and ever increasing pressure to draw a greater amount from it. As a result, there is increasing turnover in the CEO and/or Director of Development positions as they do not fulfill the unrealistic expectations placed on them.

So what is our recommended solution to this problem? To begin with, one of the critical variables we consider in rating Organizational Capacity is an agency's working capital. Generally speaking we recommend that a charity have a year or more of liquid assets on hand for down times such as we are currently going through. This is a process that takes years of planning and hard work, not a Rainmaker a minute before the witching hour. Agencies must understand that they need to make strategic use of the good times to lay the foundation for withstanding and even thriving through the tough times.

The fundraising plan must be developed JOINTLY by the Board and staff. The staff must be willing to speak plainly and clearly about what is realistically achievable and the Board must be willing to LISTEN. The starting point for the plan should be the agency track record, followed by conservative projections for adding revenue based on a level headed SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. Furthermore, CEOs have a responsibility to make sure that their job descriptions include all of the functions noted above and that the Board understands that adequate time must be allocated to each of them. These realities need to be factored in when planning the amount of CEO involvement in fundraising efforts.

Sadly, most agencies are not that forward thinking or willing to face current realities. Therefore, the CEO or other executive staff becomes the fall guy/gal until the economy rebounds and more money for programs and services is available. At the point of rebound, Board expectations at least have some chance of once again being grounded in the "earth" of reality, rather than the "rains" of fantasy.