WHERE WAS THE BOARD? Too often, complicit…

by Gayle L. Gifford, ACFRE

In 2006, one of the nonprofit hospitals in my town, along with its chief executive officer, vice president for advancement and a third senior staff member, were indicted and charged with what amounted to bribing a powerful state senator. The government alleges that the state senator (who has pleaded guilty) was paid for a no-show job in exchange for supporting legislative initiatives favorable to the hospital. Two corporations also allegedly had similar arrangements with this legislator, but to date, they have not been indicted.

Now, I’m in no position to say whether the allegations are true or whether the hospital or its staff acted illegally or not. That’s for a jury to decide. I know the VP through professional affiliations and it is heartbreaking to watch this process unfold.

What I do know is that this incident, as well as others like it involving charitable institutions across the US, are highly damaging to our sector. At the very least, these incidents produce a flurry of new regulations that are extremely burdensome for the smallest nonprofits that lack the administrative capacity to comply – the overwhelming majority of our sector.

But what is even more frightening is the danger of losing the bedrock upon which our privileged tax exempt status depends – the public trust in philanthropy and our philanthropic institutions.

This danger increases as evermore media outlets seek to expose nonprofit scandals. Congressional investigations have already led to attempts to reduce the tax-deductibility of certain gifts and to increase regulatory oversight of our sector.

Every time one of these incidents is reported in the press, we are guaranteed to hear the same question raised by the media, legislators and our colleagues:

“Where was the Board? Where were they while this was happening?”

Unfortunately, much too often, the board was right there – aware of and even endorsing the very actions now called into question.

So what’s gone wrong?
Yes, our current system of board oversight is thin and problematic – and this is not just a problem for nonprofits but for-profit corporations as well. Yes, directors need more training about their duties and obligations on nonprofit boards.

Certainly, the need to secure sustainable resources puts enormous pressure on our organizations. Those pressures will only increase as discretionary federal spending is reduced and less money trickles down to nonprofit organizations. As these nonprofits pursue more and more creative funding schemes, they run the risk of entering into shady ethical waters.

However, whenever I read egregious reports of board failure, I keep turning back to two critical bedrocks that can improve board service: 1) a philanthropic moral compass and 2) courage.

The philanthropic compass.
Why do those of us working in this sector keep repeating the mantra, “nonprofits need to act more like businesses.” I just don’t believe it and I think that it does our sector a real disservice. Now, I don’t mean to say that nonprofits shouldn’t strive for effectiveness and efficiency as they conduct their operations. Of course they should. I strongly encourage my clients to study and adapt effective practices whatever their source. But at the core, the mission and values of nonprofit organizations are profoundly different from that of for-profits. The driving force for for-profits is private gain. The driving force for nonprofits is public benefit.

While some businesses have adopted a “dual bottom line” of profit and social responsibility, their numbers are very small. Ultimately, for publicly traded companies, profit will usually win over social benefit. For a nonprofit, public benefit is not an indirect or a secondary objective, it’s the only purpose. Achieving a public benefit requires intentional acts designed to make the world better – whether that’s ending poverty, encouraging beauty, art and ideas, or protecting the most vulnerable creatures among us. And not just for today – but for the long-term.

My worry about nonprofit boards is that as we strive to maximize resources for our organizations, we seek out individuals who may not understand or care about philanthropic values and let them reshape our organizational culture. It is not a philanthropic value for corporate CEOs to encourage their nonprofit counterparts to act like them by assuming the privilege and perks of private corporate America – from country club membership to interest-free loans. Many are asking the question: How is philanthropy well served when some nonprofit CEOS earn more than the President of the United States yet their janitors don’t earn a living wage?

In the rush for “business-like efficiencies,” it’s very tempting to push the boundaries of legality. For example, why bother with the slow and sometimes painful process of achieving high degrees of consensus among a dozen or more trustees when it’s so much easier to make decisions with the two or three minimum directors required by state law? Too many times I’ve heard someone suggest that their organization is too small to need to observe the law — because after all, who would ever notice?

The need for courage.
One of the greatest oversights in board recruitment and development is the failure to tell directors that they will be repeatedly called on to exercise personal courage. This is a tough requirement, because most of us try to avoid controversy and conflict in order to maintain harmonious relationships with our peers.

But good governance calls for courageous acts. Many of the problems nonprofits encounter are evidence of board unwillingness to make difficult decisions, for example:

* An endowment spent down to cover recurring operational deficits
* A board president left in office for years with no replacement in sight
* An organization struggling due to a lackluster Executive Director

Courage includes the willingness to ask difficult questions at a board meeting. It includes a commitment to let values and ethics guide decisions, not expediency. It requires individuals to be willing to serve in leadership roles. It may mean speaking up and challenging the majority opinion in order to act in the best interest of the organization — even if it puts a personal or professional relationship at risk.

Of course it’s hard to be courageous when you act alone. But unless someone is willing to stick his or her neck out, it is unlikely anyone will. There is a useful little parable called the Abilene Paradox that underscores this point – a whole family ends up taking an unwanted trip to Abilene because no one of them was willing to speak up and share what was on their minds.

How does a board find its courage and its philanthropic compass?
Consider replacing some of those time consuming and un-actionable committee reports at your next board meeting with a more substantive conversation. You could use as a case study a questionable practice involving a nonprofit that was publicized in your state or one of the ones that has (unfortunately) arisen to national prominence.

Frame the discussion with questions like these:

* What were the temptations that led to this situation occurring?
* How likely are they to happen in our organization?
* How would our board have acted in this situation?
* Do we have a philanthropic moral compass? What is it?
* How does that compass guide our board’s decisions and agency action?
* When do we expect courage to be displayed by our directors?
* Do we support and enable courageous acts by our directors? How could we?

These are not simple conversations. They are, however, critical discussions to have with your board (and throughout your organization). There is little of more value in our organizations than the good will of the community and its faith in philanthropy. Each one of us needs to do our part to earn and protect that public trust.

This article first appeared in Contributions Magazine.

Gayle L. Gifford, ACFRE and her colleague Jonathan W. Howard at Cause & Effect Inc. help nonprofits from the grassroots to international create strategic change for a more just and peaceful world. With over 30 years of nonprofit experience, Cause & Effect helps nonprofit organizations with strategic planning, board development, fundraising and communications needs.