The Billionaires' Pledge

A lot has been written over the past couple of weeks about the request made by Warren Buffet and Bill and Melinda Gates to their peers that they each pledge to give away 50% of their fortunes before they die. Here's an article from the New York Times. Frankly, I'm not sure what this means.

Many of the people quoted as having made the pledge had already made arrangements to give away most of their money, and are just now announcing it. Even Mr. Buffet concedes, “It’s not like all or half of the money represented is added money, but some of it is added.” And I suspect that much of the money being given to charity will be given to charitable foundations. That's not necessarily a bad thing - it adds to the charitable assets available - but it doesn't immediately help nonprofit organizations, and it limits the amount available to those organizations in any given year.

Perhaps the most important factor in the pledge program is that it brings the idea of charitable giving to the front pages of newspapers for a couple of weeks. If this announcement encourages just a few people to give more philanthropy than they would have before, then it has done some good. And maybe that's all we can ask.

If you would like some ideas about how you can do some good, or if you are an organization looking for help in finding new donors, give me a call.

When non-profits become for-profits.

The North Shore Music Theater has reopened, and many people in this part of Greater Boston are delighted. There's nothing like live musical theater, and the "in the round" stage at North Shore is especially appealing. (See this article from the Boston Globe.)

There's just one thing different - North Shore Music Theater was a non-profit organization. You may remember that last winter they went bankrupt and shut down. The property was taken back by the bank that held the mortgage, and that was the end of that. Until a Rhode Island theater owner, Willam Hanney, decided to buy the property from the bank, and re-open North Shore as a profit making venture.

This is good news for the community, but what does it say about non-profit theater? Why couldn't North Shore survive as a non-profit? They were saddled with debt due to a fire a number of years ago, and weren't positioned financially to weather the downturn. They tried raising the money they needed to survive, but with the economic disaster, and a late entry into fundraising, their efforts were doomed.

If they couldn't survive as a non-profit, how will Mr. Hanney make a profit? One way is staff size. The article noted above mentions that North Shore laid off 50 people when they closed down. Mr. Hanney plans to operate with a full-time staff of six. And I would guess that the education programs that were a big part of the theater's mission will no longer be offered.

So theater comes back to the North Shore of Boston, but a half-century old non-profit organization has disappeared. This can't be good for philanthropy.

Let me know if your philanthropic organization needs help building support. Let's keep non-profits non-profit.

Does the board raise funds from business contacts?

There was a really odd short posting on the Boston Globe website last month. It says that the union representing health care workers asked the board of a hospital to consider whether a trustee "should have disclosed that he helped raise money for the hospital from at least one person with whom he had done business." This makes it sound like raising money for a non-profit medical center is somehow wrong or at least underhanded. At this particular hospital, being a trustee is an honorary position - the board of directors has fiduciary responsibility, and a hospital spokesman said that only directors must disclose conflicts of interest. Further, the spokesman said, "while trustees cultivate relationships with donors, they do not ask for money; that job is handled by hospital staff." This response is what I find so odd about this story. (Aside from the issue of why the union is making these kinds of requests at all.)

I've always understood that the entire role of trustees on non-fiduciary boards is fundraising. And if they aren't fundraising from people they've done business with, they aren't doing their jobs - it's not a conflict of interest - it is the job! Fiduciary board members have a major role in fundraising, too, but they also have some other responsibilities.

A number of years ago, I served as chief development officer for a university foundation. My board chair told the board, "it is our job as volunteer board members to raise funds for this organization. The staff is hear to support us in this vital role." I have always agreed with him. If the board won't, or for some reason is prevented from, raising funds for the organization, the staff will find it very difficult to succeed, no matter how hard they work.

Does your board help with fundraising, and do they cultivate and solicit business contacts? If not, would you like them to? If your board needs some help in understanding their responsibilities to your organization, let me know. I'm happy to help.

What does it mean to serve on a non-profit board?

There was a wonderful article in today's New York Times titled, "Trustees Find Board Seats Are Still Luxury Items." It carries a sub-title on the NYTimes.com website of "To Join the Met's Board, Have a Checkbook Handy." The sub-title is actually unfair. The article does talk about the importance of having board members who bring things other than money to the table.

However, the most important thing about the article, in my mind, is that it discusses openly the importance of having expectations understood when recruiting new board members for non-profit organizations. In particular, the article focuses on the importance of board members making financial commitments to the organizations on whose boards they serve. Two wonderful "cliches" are mentioned: "Give, Get, or Get Off," and "bring your Time, Talent, and Treasure," to the board. While both of these have been said over and over again, it doesn't hurt at all to remind our non-profit board members of their importance.

Board members who believe that "I give my time, so I don't have to give money," must be reminded that time alone is not enough. If for some reason they are not able to make a financial contribution, they must reach out to others for such commitments. If they are able to give and choose not to, they have no business serving on the board, and arrangements should be made for their removal!

The article also talks about the process of involving potential board members in the life of the organization before asking them to serve on the board. It is wonderful to have this reminder of the importance of building relationships - with our board members, as well as with our prospective donors - in the life of non-profit organizations. While the article is specifically written about the "premier" arts organizations in New York City, its themes are applicable to all non-profits.

Too many boards today forget these rules, and don't understand their most important roles in non-profit governance, setting policy and providing money (giving or getting!)

If you need help in reminding your board about it's role, or if you are a board member who wants to really help your organization, give me a call. Let's talk about ways to re-build the expectations of both your organization and your board.

How much should a non-profit executive be paid?

I've seen a number of articles and reports recently (this happens every time a new crop of 990s are filed) bemoaning the "huge" salaries paid to non-profit executives. Here in the Boston area, two of the recent "profligates" were the CEO of the Citi Center for Performing Arts and the President of Suffolk University. In both cases the reports in the 990s included deferred compensation of $1 million or more. In the case of the Citi Center, it was a large payment to the CEO's retirement account, paid as a bonus in recognition of many years of successful work. In the case of Suffolk, it was two years worth of extra contributions to the President's retirement account to, in the words of the board chair, make up for the fact that he "had been woefully underpaid' over his 52-year tenure at the school".

So what should we make of this? First, the media (and much of the populace) is fascinated by big salary numbers - the media wouldn't report on it if they didn't think it would sell newspapers or raise ratings for the TV news. Second, those big numbers at non-profits are seen by many as inappropriate. But are they?

It is not hard to argue that a university with a multi-million dollar budget should be run by someone with the skills it would take to run a multi-million dollar corporation. That doesn't require paying corporate-level salaries, but it does require coming close in order to attract high-quality talent. The same goes for non-profit hospitals and health systems, which tend to be even bigger and more complex than universities (and usually pay more, too.) On the other hand, should anyone working in a non-profit be paid more than the president of the United States? Since 2001, the "leader of the free world" has been paid $400,000 per year. Of course it could be argued that this is worth much more than anyone else's salary since it comes with a house, transportation (limos, helicopters, planes, etc.), expense accounts, and many other perks! That being said, a salary in the $400,000 to $600,000 per year for the CEO of a major non-profit is probably not unreasonable.

But what about the rest of the staff? One of the major complaints about development officers these days is that "they keep moving around." Unfortunately, often true. It's hard to really know an organization and all its parts in less than three years, and that happens to be the average tenure of a chief development officer. Why is that? Part of the reason is that salaries below the CEO level at most non-profits are very low. In addition, they rarely rise. In order to get more than a 2-3% raise in a non-profit organization, you generally need to leave for another position. Then the organization replaces you at a salary you would have stayed for - perhaps 10% more than you were being paid. This is unfortunate and short-sighted on the part of non-profit boards. It is also unlikely to change anytime soon. Too bad. Admittedly, there are other contributing reasons for the high turnover rate for development officers, but pay levels and little or no raises certainly play a part.

So, if you are interested in helping to stop turnover at your non-profit, give me a call. I'd be happy to help you analyze your situation and set up a system to help raise the funds needed to provide the raises to keep the staff!