The Butterfly Effect
Taking a good look at someone else’s unfortunate situation before a scandal happens could head off a problem for your organization tomorrow.
Asking tough questions today can save deep trouble down the road.
Our local news has brought us more nonprofit scandals in the last few months – financial mismanagement, executive directors run
amok, programs ruined.
If this has happened in your area, consider this is an important learning moment for your board of directors. At your next board meeting, schedule some time to talk about the scandal and how vulnerable your organization might be to a situation like this.
Here are five questions to get your discussion started.
- What temptations led to this situation?
- Could this happen in our organization? How?
- What would our board have done in this situation?
- How can we prevent this from ever occurring here?
- How can we support and enable courageous questioning by our board members?
If you take our advice, we’d love to know how this conversation went for your board.
What other questions would you add to our list? Drop us an email.
For more on this topic, read
An essential part of any strategic plan or fundraising plan that we are working on are the community interviews.
There are benefits to doing community interviews yourself.
You don’t have to have your consultant do all of the community interviews. While our team is very proficient at interviewing, we still insist that our client’s board and staff members conduct most of those conversations.
Here are a few of the benefits that I have seen:
- These are your relationships, not mine. You need to strengthen those relationships, not me.
- You can respond to opportunities or requests immediately… and you assume personal accountability to the asker. If I pass the request along, it’s too easy for you to ignore it.
- Board members are often too myopic, wrapped in your organization’s bubble. A view from the outside is a nice breeze of fresh air.
- For board members reluctant to talk to other people, structured questions are a safe way to exercise the schmooze muscle.
- People tend to remember what they hear directly rather than what they read or heard in a report.
- Community members or donors like to hear from board members, or our executive director, or even other staff members, depending on who they are.
- There is a lot of wisdom out there you are likely missing if you don’t ask for it.
Did you know that only 16% of US adults qualify as an active visitor to cultural institutions? To be an active visitor, you just have to visit something once every two years.
By this definition, a cultural institution is a museum, historic site, nature center, zoo, aquarium, ballet, botanical garden, theatre or science center.
This data and the other data in this post comes via the amazingly informative Colleen Dillenschneider and her great marketing analytics website KYOB. I’m obsessed with this data and share it as frequently as I can. That’s why I’m sharing it with you as you may find a lot of valuable information there even if you aren’t running a cultural institution.
I share a lot of the characteristics of these active visitors… though not all.
Unfortunately, the active visitor does not reflect the diversity of our country. And, active visitors are dying off or aging out of in greater numbers than they are being replaced. Are you on the staff or board of a cultural institution? This data is mandatory reading. Read more
1. Intent focused
2. A systems perspective
3. Thinking in Time
4. Intelligent Opportunism
These are the five elements that make up strategic thinking as described by Dr. Jeanne M. Liedtka, a faculty member at the University of Virginia’s Darden Graduate School of Business and former chief learning officer at United Technologies Corporation.
The July 2019 news brought another case of employee theft. The Executive Director, Controller and a business partner of the Boston Center for Adult Education have been charged with stealing $1.7 million over the last seven years. Time to share this advice. once again.
Another news release about significant employee theft at a nonprofit rolled across my desk. A quick internet search on embezzlement at nonprofits turned up a myriad of cases. Time to talk to an expert in the field.
An attorney by trade, Michael has been in the insurance business for 20 years. We had a long discussion about many aspects of risk management at nonprofits, specifically in the area of employee theft.
GG: What can you tell me about employee theft at nonprofits?
MS: Employee theft is one of the most common areas of risk for nonprofits. Unfortunately, nonprofits don’t always have the level of controls that many private companies have.
According to a 2014 report by the Association of Certified Fraud Examiners*, Nonprofits across the US lose approximately 5% of annual revenues to fraud.
GG: Could you tell me some of the ways this happens.
MS: Unfortunately, there are lots of ways this can happen. Bookkeepers often create dummy invoices, ghost vendors or kickback schemes.
Take kickback schemes. In this case, an employee at the nonprofit works out a deal with the vendor. Let’s say the employee orders supplies, say 100 of some item. The vendor only ships 80 of that item and then kickbacks part of its profit to the employee on the 20 items that were not shipped. While the amount might be small, this type of theft adds up over time if it’s never caught.
Other types of employee theft are very innovative. For example, the office is being renovated so the employee slips in their own bills for renovation supplies for their own property. An employee can prepare dummy invoices, where the check is written to themselves and then fudged later. This happened at Roman Catholic Diocese in NYC where a long-time, trusted employee in the accounting department, who was obsessed with purchasing expensive Madame Alexander dolls, was arrested in 2012 for embezzling more than $1 million over seven years.
GG: So what can an organization do to protect itself?
M.S. While criminal background checks are important, unfortunately, about 87%* of fraudsters have never been charged with a prior offense and that holds for both for profit and nonprofit organizations.
Nonprofit organizations need to be vigilant and take preventative measures to minimize the risk of theft or catch it early.
It is pretty hard to spot an executive director engaged in this type of activity. Never let one person be in charge of everything.
For example, make sure that you segregate duties for the folks paying bills and those handling money, have surprise audits, make sure that you have counter signatures on checks, and conduct fraud training for your employees.
Often the way many organizations catch the thief is to make the employee take vacation and then someone takes look at their work.
Know your employees. Keep an eye out when something seems out of line… be astute about suspected changes. Have a confidential hotline for employees to report suspicious activity within your organization.
GG: What if a theft happens anyway?
M.S. The good news is that an organization can transfer the risk by buying an insurance policy. For example, a crime insurance policy covers theft such as forgeries, alteration, counterfeit, burglary or robbery. Most mid-sized nonprofits could generally buy a policy for around $5000 for comprehensive coverage. A tiny organization could buy one for a few hundred dollars.
GG: Thank you Michael for opening my eyes to this uncomfortable world of employee theft. But both boards and executive directors need to be aware that not only can this happen, that it does with some regularity, even in our nonprofit sector. Be prepared.
*2014 Association of Certified Fraud Examiners: http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf
I am ever so thankful for a donor moment of insight.
When I’m working with a client on a strategic planning project, with their board and staff we routinely interview a selected group of stakeholders. They might be colleagues, political or government leaders, relevant businesses, funders, donors, volunteers … anyone with special insight. And it’s super great when two or more of those categories overlap.
A few days after a recent interview, I received a follow up email from a community leader-donor. They remembered something else they wanted me to share.
The donor had received the latest annual report. Like most of these reports, it included a list of donors. In this list, the organization had made a special effort to note donors who had given continuously.
Unfortunately, what was recognition for some was a rebuke for another. My donor felt hurt by not being included in this list. You see, this donor had been a donor for many long years. But, due to a few years of tight finances, there was a gap in their giving.
They were no less loyal. They started giving again when their finances improved. But that didn’t seem to matter. And now they were reconsidering future giving.
I completely sympathized. I feel this way whenever my college sends out its annual report with the same listing. Though I’ve been giving for many many years, I’ve missed a few now and then. Once I gave two gifts in the same fiscal year which knocked me out of the continuous recognition.
Think! What are you trying to accomplish with that public list of donors?
In this case, the intent was to reward some donors and inspire others to similar continuity. But it unexpectedly caused hurt feelings on the part of another long time donor.
Penelope Burk documents a number of concerns learned from donor research in her book Donor-Centered Fundraising. One that stands out are listings by gift range. A small donor might be making a huge stretch to give what they do. Yet they will never seem as valuable as those big donors for whom the gift that got them top recognition might be a drop in the bucket.
As the folks who care most about our donors, we’ll do better if we set aside convention and think of more creative ways to recognize and acknowledge our donors. The Audubon Society of Rhode Island’s complimentary membership is a good illustration of the return when you put donor needs first.
So, using that donor moment of insight shared above, here’s a simple solution:
As I was getting ready to write this post about the need for more moral capital on the board, the higher education scandal broke in the US. Sadly, thirty-eight people were taken into custody as of noon on March 12th in this bribery scheme.
What was the scandal? Wealthy and prominent parents from business and the media bribed administrators, coaches, test proctors and others to grease their kids into elite private colleges and universities. What, their large direct donations weren’t already enough?
Shamefully, this was done through Key Worldwide Foundation (KWF). KWF was a 501c3 public charity led by William “Rick” Singer who is pleading guilty to the charges against him.
According to its 2016 Form 990, KWF has just three directors. Singer served as President and CEO along with a secretary and one other director. (Their treasurer is not a director.)
Not only were the donors to KWF offering bribes for college placements, they were likely getting tax deductions for making those bribes through the nonprofit.
We can’t say it enough: you need a moral compass.
Every organization has to have a philanthropic or moral compass, most assuredly within the board. Yes, you have well-crafted bylaws, job descriptions, and director expectations. Yes, you reference ethics, the rule of law and conflict of interest. Really, all is crap if your directors or staff lack a moral core to do what is right.
People as capital
Yes, talking about people as capital seems contrary to discussing a moral guiding light.
Remember, I’ve previously pitched Professor Elizabeth Castillo and her typology of capitals. Using her list, you can begin valuing people for more than their financial capital when you consider what you need in the way of the human capital you recruit to your board.
For example, wealthy donors and connectors to other money aren’t the only desireables for your board. Open your doors to other people with assets that strengthen the board – e.g. intellectual, social, political, and cultural capital. And yes, moral capital.
Moral capital isn’t someone who can thread the needle of what is or isn’t ethical or legal. I want steadfast voices defending doing what is right. I want directors with justice in their hearts. DIrectors who are courageous enough to call out when something is bad, smells bad or just doesn’t feel right.
Our sector needs to stands strong for honesty, truth and transparency. We can’t afford to risk the public’s trust. Unfortunately, trust has been on a downward slide for many years.
How much moral capital sits on your board?
When I’m trying to get my head around the complexity of an issue, I’ll often use the graphic note taking technique known as Mind Mapping.
I first learned about mind mapping in graduate school when I was introduced to this technique credited to Tony Buzan. One of my fellow graduate students took all of his class notes this way. Jack carried a large pad and many colored pencils to class with him. I was intrigued.
The big idea behind mind mapping is that it aligns with the way our brain works, making it easier to scan and memorize a lot of data. It is also a great way to organize thoughts that you can then see at a glance.
The technique is relatively simple. Key concepts radiate out from a central topic.
I drew the map you see here when I was starting strategic planning with a tourism council. By creating the map, I was able to capture my understanding of the tourism ecosystem or tourism landscape and check that out with my client. I developed this map for a particular geographic region. Your tourism map might look slightly different depending on where you live. With the map as a guide, I was able to help my team evolve a list of key informants for community interviews and to help drive data collection.
Mind maps use this radiating approach, with color and lines showing connections. If I had more artistic talent, I might put images into my map to make them even more memorable.
You can find software to create mind maps for yourself and to share with your colleagues. I use those now and then. But sometimes, just getting out the pens and colored markers are quite enough to organize my thoughts.
Mind mapping calls to me in part because it reminds me of the sentence diagramming I was taught to do in junior high school. (I admit it. I was such a geek).
Do you use mind mapping? For what purposes? Do you have software you’d recommend?
I’d love to hear from you.
When I’m working with boards of directors, one of the most requested changes is to help them set up a good process for recruiting new directors.
Process may be one of the most undervalued resources your organization possesses. Would you value good process more if you knew that it was truly a resource – or form of capital — available to strengthen your organization?
I may have spoken to you about my mad love affair with the work of Professor Elizabeth Castillo from Arizona State University. Professor Castillo is on a mission to have organizations begin to value all their forms of capital, not just the financial ones. And I’m one of her apostles.
We recently collaborated on a workshop for the Alliance for Nonprofit Management called Capacity building as capital building. The workshop introduced this idea of multiple forms of capital to consultants, and funders and researchers.
On the exhaustive list of 20 types of capital available to organizations that she has assembled, you’ll find this one: process.
What is capital and why is it valuable to your organization?
So what is capital and why are there so many different forms of it. One definition of capital is “any enduring asset capable of producing additional assets.” If you have money in the bank, you grow interest. Capital can accumulate.
Capital can also morph from one form to another. When you take that money in the bank and buy a building or van with it, you’ve converted it from financial capital to physical capital. Read more
Are you struggling with recruiting your board of directors? Take a look at the newest addition to our Toolbox: Recruiting your board of directors.
First, what do you want of your board members?
- First and foremost, to be great governors (I hope that is first). When you consider the right composition of your board to exercise its role in governance, you’ll need a mix of members demonstrating attributes such as strategists, systems thinkers, nonprofit, issue and community knowledge, diverse worldviews, wise stewards, moral and ethical folks, collegial, disciplined, and courageous, among others.
- Second, we have come to expect that our board members should be leadership volunteers. As volunteers who help the organization move forward staff functions as appropriately called upon, look to recruit to the board individuals who will use their skills and connections in service to particular functions of the organization, such as government relations, or fund development, or expertise in marketing, communications or evaluation. The need for these volunteer skills is highly dependent on the number and types of professional staff in your organization and your business model.
Consider your board members as vital components of the human capital your nonprofit needs to function.
So, in developing a great board, you need to consider what you have set forth in your strategic plan and what it will take to get from here to there. What is the ideal profile of the board to achieve your desired future?
Second, where can you find these folks?
I’ve written before about the benefits of keeping a running list of board members. IMHO you can’t have too many candidates to choose from. To get there, look everywhere. Start with your donors and volunteers. Consider asking for help. Read the newspaper and local (or national) magazines or other sources to find the folks that suit your profile. Leave no stone un-turned.
Share your best recruitment stories with all of us. We’d love to hear from you.