Monday, May 12, 2014

Keeping Quiet About Wrongdoing at Nonprofits Only Makes Matters Worse


Originally published in The Chronicle of Philanthropy on May 8, 2014.


Keeping Quiet About Wrongdoing at Nonprofits Only Makes Matters Worse 1
By Ken Berger and Jeremy Kohomban



New momentum has been growing to create activist organizations that defend nonprofits from public attacks and from regulations and laws they believe would harm their operations.  Witness the efforts of CForward, an organization that seeks to influence local and state politicians and went so far as to organize a PAC; and the Charity Defense Council, an effort to thwart unfair criticism. Both of those groups are trying to give nonprofits more political muscle and also responding to the sensationalist news media, which more and more recognizes that controversy sells and often presents information about charities that lacks context and in some egregious cases, intentionally distorts information.


The result has been that some well-functioning charities have been depicted by prominent journalists as incompetent or deceitful and sometimes both. To the extent that these efforts defend nonprofits that need defending and educate the public on the complexities and challenges facing the nonprofits world, we say, Bravo.  But we fear that too often, allegations of true mismanagement and scandal at nonprofits either get no response from charity and foundation leaders or even worse, a defense that is unwarranted.


Cases of mismanagement abound, some researchers have estimated that tens of billions per year are lost due to unethical behavior, typically by the leadership of nonprofits. For example, last month William Rapfogel pleaded guilty to stealing more than  $9-million from the Metropolitan Council on Jewish Poverty, an organization he  led for more than 20 years. Mr. Rapfogel said he been involved in a complex scheme with other top executives of the charity where they systematically overpaid  the council’s insurance and then obtained kickbacks from the insurance company. 


One can’t pretend the news media sensationalizes nonprofit corruption when it comes to such cases.
In our opinion, based on our 60 years of collective experience, a culture of constructive self-criticism has yet to embed itself in the ethos of most nonprofits, their staff leadership, and their boards of directors.


The reasons for these poor responses are varied.  Nonprofits, like other organizations, often follow a commonly held view about the best way to handle an attack:  If you ignore it, the public will forget and move on. The media thrives on controversy, so just don’t discuss it and don’t highlight it in any way and the will move on.  But many nonprofits also think because they are doing important work that serves society, the public should focus on the end result and little else. What’s more, many nonprofit leaders believe it’s unnecessary to speak out because bad deeds are so rare at charities. Just like in business or government, wrongdoers exist, but nonprofits don’t see any reason why they should be held to a higher standard than any other institution in our society when it comes to punishing bad players.


The result is a sense of denial and defensiveness throughout the nonprofit world that is damaging our credibility with the public. We recognize the deep commitment of people who work in the nonprofit world, and the great good they do for society. But we strongly disagree with those who believe “results are all that matters” when assessing how a charity operates. Financial management, good governance, ethics and high operating standards must continue to be vital measures of a nonprofit’s worthiness.


If a charity mismanages its finances, today’s results can be tomorrow’s bankruptcy. If a charity has poor governance, an unethical and unaccountable chief executive or board might embezzle funds that won’t go toward producing results. And if we persist in saying results as all we care about, we will continue to see a never-ending series of scandals and mismanagement that will rock the nonprofit world and damage the public trust. We need to look at both performance and accountability for financial, operational and results to assess nonprofits.


Charities should also be held to a higher standard of ethics because of the way we are structured and how we raise money. We benefit from tax exemptions and the charitable deduction and we are governed by volunteers. The public expects independent oversight of our organizations to ensure that tax-exempt money benefits society as a whole and not the institution or its leadership.


No nonprofit should tolerate serious ethical failures, and we must all be outspoken when somebody violates our trust. We therefore urge nonprofit leaders and boards of directors to step-up and take the risk of confessing to abuses of funds and other serious misdeeds. This is not easy for anyone to do know. We know that those who speak out could face ostracism from movers and shakers in the nonprofit world, donors, and powerful political leaders. 


Personally, neither of us has always been so bold. We have failed to speak when we should have and we wish to begin by noting the missed opportunities in our careers. Just last year during a scandal in New York City, Jeremy raised the need for a public statement from a well-regarded nonprofit membership association where both Jeremy and the perpetrator were Board members. The refusal was almost instantaneous. In this case, the excuse was that this “happens” and because of the powerful parties (allegedly, including politicians) involved, it was best to say nothing.  Rather than pushing for further discussion and an open discussion, Jeremy simply backed-off because he feared alienation.


A few years back, Ken witnessed a CEO stealing a large amount of money from a charity.  Although the CEO was eventually caught and removed due to a reporting system Ken helped create, the length of time the theft went on should never have been tolerated.  Ken’s fear (and that of others within the organization) of retribution for reporting the problem, permitted this situation to go on for far too long. For some time now (since the above events occurred), we both have been committed to being more forthright about our own errors and missteps, as well as speaking out when we see scandalous and unethical behaviors.


However, we believe it will take this generation of nonprofit leaders, and likely the ones who follow us, to truly breed the type of culture that celebrates the notion of openly discussing these things.


The nonprofit world has already lost enough time and credibility, now is the time to start doing better.

Ken Berger is president of Charity Navigator and Jeremy C. Kohomban is chief executive of the Children’s Village, in Dobbs Ferry, N.Y.

7 comments:

samwardjr said...

We are thankful that Charity Navigator does not hesitate to speak out about non-profit wrongdoings and mismanagement. This year we notified the charities that we support that our donations are made annually, once a year, and that we desired that our once-a-year contribution be spent wisely - not on repeated mailings to us asking for additional funds. Those that comply with our request, providing they retain their four star status, will remain on our annual donation list. Those that do not, regardless of their Charity Navigator status, will be replaced with organizations that do not waste our donation dollars on fruitless solicitations.

Larry Campbell said...

Charities are unlike business entities who have customers for their products and services. If a business for profit entity does not provide a valuable product for the price, the public does not buy and the financially inefficient business fails; with a degree of "self-regulation."

However, when a charity receives tax-exempt funds on the promise to benefit the public, the donors who provide the funds are not the same members of teh public who receive the services of the charity. So, someone has to monitor the operations and output results of charities to verify that public benefits are being delivered. Public disclosure of both good and poor results is the most effective method to inform public donors so they can make wise giving decisions.

Ken Berger said...

Larry

We agree that results are the most important measure of a charity's performance. However we also believe that keeping an eye on financial health and good governance are needed for ongoing success at achieving those results. If we only look at results, we may miss potential bankruptcy, corruption and other challenges that can thwart what we agree matters most.

Best,
Ken

Anonymous said...

Does Charity Navigator have any information on UCP of Greater Suffolk. If not, please look into it.

Ken Berger said...

Anonymous,

I looked it up on our site and it is unrated. The reason indicated is:

Why isn't this organization rated?
This organization is not eligible to be rated by Charity Navigator because, as a service for individual givers, we only rate organizations that depend on support from individual contributors and foundations. Organizations such as this, that get most of their revenue from the government or from program services, are therefore not eligible to be rated. Visit the Methodology section of our site to learn about our criteria for evaluating charities.

However, if you have information you think we should know about unethical activity at this organization, please contact our office 201-818-1288.

Regards,
Ken

Ken Berger said...

Ken, you mentioned situations where you and other people knew of wrongdoing at a nonprofit but waited for the investigation process to get underway, instead of pressing for immediate action by, for example, publicizing your findings in the media
In our country's efforts against terrorism, everyone is asked "If you see something, say something!" That includes reporting what you saw to authorities who are committed to taking quick action. With the clout of Charity Navigator, perhaps you could help to set up a similar reporting process for non-profit wrongdoings.

Toni Goldfarb

Ken Berger said...

Toni,

I like your idea a lot and will discuss this with my colleagues as something we should consider pursuing. Please bear in mind we are a small organization so this may take us a bit of time to do.

Best,
Ken