What "peepholes" exist for donors to see your non-profit organization?

For the remainder of 2015 on the first Thursday of each month, I plan on featuring a fundraising video snippet from Henry Freeman.  Why? Because I’ve come to see Henry as one of our country’s more talented and accomplished fundraising professionals. I just love his teachable point of view on most resource development topics. In this first installment of “Hangin’ with Henry,” he talks about how donors see your non-profit organization and how they extrapolate many things from those periodic “peephole” views.
I’ve embedded a YouTube video of Henry talking about “Small Windows into Life: How We Experience the World Around Us.” Before clicking through to view the video, you may want to download the discussion guide first. It will save you time from taking notes and includes thought-provoking questions to help you make this video experience more actionable for your organization.
(Note: If your email subscription doesn’t show the embedded video clip, please click the aforementioned hyperlink.)
So, what did you think? What views of your organization are you providing your donors through those “peepholes“? What can you do to improve what they are seeing? What role will technology and social media play in creating “peepholes“? What old-school, non-tech “peepholes” are you using to introduce donors to the “real you“? Please scroll down and share your thoughts and experiences in the comment box below. We can all learn from each other!
If you want to purchase a complete set of videos or other fundraising resources from Henry Freeman, you can do so by visiting the online store at H. Freeman Associates LLC. You can also sign-up for quarterly emails with a FREE online video and discussion guide by clicking here.
Here’s to your health!
Erik Anderson
Founder & President, The Healthy Non-Profit LLC

Get your ducks in a row if your non-profit accept government grants

govt funding2The news last week that the Justice Department will freeze grant funding for Big Brothers Big Sisters (BBBS) should send a chill up the spine of every non-profit organization who accepts government funding.

Here is the CliffNotes version of what is going on:

  • BBBS co-mingled its federal grant dollars with its general fund,
  • Oversight of disbursements from the national organization to its local affiliates was allegedly lacking,
  • Documentation required by the grant agreement allegedly wasn’t well or is missing, and
  • Grant dollars were allegedly spent on things it shouldn’t have been.

If you’re interested in more information, here are a few links you may want to click on:

As I said in the title to this blog post, I see this as a cautionary tale for all non-profit organizations who accept public funding from any level of government (e.g. local, state or federal).


govt fundingI believe that when money is abundant controls are less strict. Conversely, when resources are scarce . . .

  • every penny is watched,
  • those agencies that don’t have the money are making the case for why those who do have the money shouldn’t have the money (e.g. classic have’s versus have-not’s),
  • there is a debate occurring among policymakers about the “role of government” and whether or not government should even be in the business of allocating money in this manner (e.g. redistribution of wealth versus letting private philanthropy markets do so), and
  • decision-makers are looking for reasons to take money away because it is easier to tell voters that funding was eliminated when there are good reasons (and alleged mismanagement of funding is always a great reason).

Here are a few simple and cheap things you can do to ensure your agencies doesn’t end up in the same place as BBBS:

  1. Assemble a task force of board volunteers to help you conduct an internal review of your government contracts.
  2. Pull out your grant agreements and carefully review the items you are contractually obligated to deliver.
  3. Randomly conduct spot checks of documents you are contractually obligated to keep.
  4. Randomly conduct spot checks of expenditures charged to the grant and ensure they were allowable expenses.
  5. If you find discrepancies, put together action plans to fix the problems and monitor implementation. If money was inappropriately used, re-appropriate / re-budget the money and use it in the manner that it was intended.
  6. Document this process simply by keeping meeting notes. This way, if you get audited, you’ll be able to demonstrate your due diligence and commitment to internal controls.

Are you concerns about the recent developments between the Justice Department and Big Brothers Big Sisters? Are you taking special precautions at your agency to get your ducks in a row? Do you think I am overreacting? Please scroll down and share your thoughts in the comment box below.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC

What are you doing with your non-profit data?

286709039If you are collecting data on your non-profit organization’s performance and doing nothing with it, then you should be tarred and feathered. You are too busy to be doing things that don’t get you a return on investment on your time. Unfortunately, data collection can be time-consuming if you haven’t built good systems to make collection easy, and there are too many small non-profit organizations who are under-resourced and haven’t built those systems.

So, why do so many agencies still invest the time to collect data when it is difficult to do and so incredibly time-consuming? In almost every instance that I’ve seen, it is simply because a donor is requiring it or they are affiliated with a national organization that makes it mandatory.

Here is a thought . . . if you are going through the effort, then why not benefit from it?

What should you measure?

The “WHAT” is hard to answer unless you know the “WHY”. In other words, you should measure things relating to board engagement and performance if you want to improve those things. You should measure things relating to money and donor behavior if you want to improve your resource development.

One national organization with whom I am very familiar (wink, wink), developed an entire organizational scorecard full of key performance indicators (KPIs) that breakdown into the following five ares:

  • strategic growth
  • increased impact
  • financial health
  • resource development
  • board of directors

2964298027I know that a number of subscribers to this blog aren’t members of this “unnamed national organization,” and you are probably wondering what are some of the KPIs listed under these categories. While I don’t think I’d be violating any major trade secrets in sharing those KPIs with you, I want to be respectful of their work. So, I’ll only share a few of those KPIs to give you an idea and a start:

  • net change in number of clients service
  • average days cash on hand
  • net change in total income
  • percent of board volunteers that attended 75% of meetings
  • percent of board volunteers who make a personal unrestricted financial gift
  • percent of board volunteers who make a face-to-face solicitation on behalf of the agency

If you are interested in developing KPIs and a scorecard for your non-profit organization, here are a few resources I’ve found online that may help you:

What next?

4775722590I point you back to my inflammatory opening sentence:

If you are collecting data on your non-profit organization’s performance and doing nothing with it, then you should be tarred and feathered.”

Collecting this data isn’t rocket science, but it is time-consuming and you’re too busy to invest that time and get nothing back in return. Right?

If you are measuring program-related KPIs (e.g. outcomes data, impact data, etc), then you should share that info with the staff responsible for those programs. If you are measuring fundraising-related KPIs, then you should share that info with your fundraising staff and fundraising volunteers. If you are measuring board engagement related KPIs, then you should share that info with board volunteers.

I believe all KPIs should be shared with all board members in all instances (but at the appropriate time and setting) so they understand whether or not the organization is healthy or unhealthy. I also believe that where possibly, KPIs should be directly tied to performance management systems and evaluation tools.

The big idea here is that collecting this type of data, sharing this type of data, and integrating this type of data into systems like employee performance appraisal and board evaluation will drive change because it creates urgency, accountability and the assessment information necessary upon which organizational plans can be built.

Has your agency developed KPIs? If so, how do you use them? With whom do you share your data? What has been the result? Please use the comment box below to share your experiences.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC

Do we need a death penalty for non-profit organizations?

Have you ever watched something on television that made you so angry that you stewed about it for hours on end? For me, this happened last night while channel surfing, and I caught a news story on The Rachel Maddow Show on MSMBC titled “A Special Place In Hell“. This 17 minute story talked about people who use non-profit organizations as a front to scam donors out of their money

If you didn’t catch Rachel’s report and you have a few minutes to burn today, then click here to watch her report or click the graphic below.

rachel maddow

Every non-profit professional should be fuming this morning because all of our brands get damaged when atrocities like this are perpetrated against donors.  This story should also prompt a lot of questions. For example, I find myself scratching my head and asking:

  • Is there a watchdog keeping and eye out for things like this?
  • If you think the IRS, Guidestar and Charity Navigator are those watchdogs, then are your expectations of those organizations unrealistic?
  • Should there be a watchdog?
  • Does the IRS need to get more involved in compliance and monitoring issues? If so, who pays for THAT?
  • Should the non-profit sector get more serious about policing itself? If so, what does that look like?
  • Should Congress enact legislation that focuses on improving transparency and accountability for non-profit corporations (a la Sarbanes Oxley post-Enron)?
  • Should Congress pass a Donor’s Bill of Rights? (After all, there is similar legislation protecting people who fly on airplanes)
  • Should there be a death penalty for non-profit organizations that violate certain laws and perpetrate fraud against donors?

I could go on and on and on with the questions buzzing through my head this morning, but I think I will stop and invite you to share some of the questions you might have. Please use the comment box below to share your question. Or please feel free to use the comment box to share an opinion on one of the questions I’ve posed.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC

Goldilocks and the three board members: Part 3

On Monday, I posted about boards who fail to review their executive director every year. On Tuesday, I posted about boards that get a little muscular with their executive directors and typically abdicate all of this to one overly aggressive board volunteer. Today, I’d like to finish our discussion by talking about what feels right to me.

First, let me say that I don’t think that there is a perfect process for creating an executive director’s annual performance plan or conducting their year-end evaluation. So, I thought that today’s post could just be a laundry list of things I’ve seen really good boards do and then you should weigh-in using the comment box with things you’ve seen that are particularly awesome. So, here we go . . .

  • The annual performance plan is rooted in the agency’s various written plans (e.g strategic plan, resource development plan, marketing plan, budget, etc)
  • The objectives in the performance plan are very measurable. So, much so that the executive director knows exactly what they need to do in order to move their evaluation score from a “meets expectation” to “exceeds expectation”
  • The executive director writes the draft performance plan, turns it over to a board committee (e.g. Human Resource committee), and after massaging the performance plan they take it to the entire board for input, discussion and approval. This way everyone has touched it and owns it.
  • The performance plan is completed and a final version is the executive director’s hands by the beginning of the year.
  • The HR committee asks the executive director for a mid-year update on how they’re coming along with their performance plan. Any red flags are brought to the entire board’s attention by the committee chair in executive session. The entire board engages in discussions such as: amending the performance plan, increasing oversight of the executive director, creating a corrective action plan, etc.
  • There are 360 degree feedback opportunities from both direct staff reports and the board of directors.
  • The annual performance plan doesn’t just look at “quantitative” success (e.g. fundraising goals achieve, membership targets hit, etc), but it also finds a way to blend into the evaluation “how the executive director” does their job. Do they use scorched earth tactics to get results (which will bite them later down the road) or do they do a nice job using best practices (which might not immediately translate into results but might pay big dividends down the road).
  • The year-end evaluation doesn’t have any surprises because it is based on the exact performance plan handed to the executive director 12-months earlier.
  • Just like the performance plan development process, the year-end evaluation starts with the executive director doing a self-evaluation. The HR committee makes adjustments and seeks input from the entire board.
  • The question of who sits down with the executive director and conveys the evaluation results rarely looks the same from organization to organization. I’ve oftentimes seen the board president do it, but I’ve seen the HR committee chair also do it almost as often. I’ve seen it done in a committee setting (but I must admit that it looked like someone was getting ganged up on). I think the board should recruit anyone they like as long as that person: 1) has a good working relationship with the executive director and 2) has a track record of having successfully done employee evaluations (e.g. they have some HR acumen).
  • The year-end evaluation is always signed by the executive director, and a board volunteer personally witnesses it being deposited into the employee folder.

I have always tried to live my life according to this simple HR rule:

If anyone is surprised throughout this process, then it wasn’t done correctly and there needs to be some serious changes heading into next year.

I am a firm believer that the annual performance plan and year-end evaluation of the executive director is one of the biggest keys to organizational success. If done right, everyone knows far in advance what is expected of them. If done right, there are no surprises and usually very little emotion in the process. If done right, everyone is on the same page and the organization is powered strongly into the future with everyone’s sights set on visionary goals and performance indicators.

So, how does your organization evaluate its executive director? Are there best practices that you think I missed? Please use the comment box below so we can all learn from each other.

I hope you agree that today’s “bowl of porridge” compared to Monday and Tuesday’s posts tasted “just right”.  😉

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC

Goldilocks and the three board members: Part 2

Yesterday, my post titled “Goldilocks and the three board members” talked about a very cold bowl of porridge that involves non-profit boards who fail to evaluate their executive director every year. In doing so, they set their agency up for failure, liability and <gulp> perhaps even personal liability if the D & O Insurance carrier deems coverage null and void because the board failed to make a “good faith effort” to carry out its fiduciary responsibilities.

Today,  I would like to talk about that VERY HOT bowl of porridge. This, of course, is when a board goes way overboard with the annual performance plan and year-end evaluation.

In this scenario, the board president thinks they “own” the organization and take their leadership position way too seriously. They decide that their time at the helm of the ship will go down in the history books as the “Golden Age” of your non-profit organization. They see the executive director as a “direct report” and use the performance plan and year-end evaluation processes to micro-manage OR change behavior of the person occupying the executive director’s chair OR drive the executive director screaming from the room (so either they or a friend of theirs can take over).

If this seems far-fetched, please trust me when I tell you I’ve seen it happen more often than I care to admit.

It is typically true in my experience that the board member who is being very aggressive usually has some very legitimate issues. However, their aggressive approach makes them look like an egomaniac or a big jerk. Sadly, those issues never get dealt with because the focus becomes personal rather than organizational. As a result, the organization and the clients it serves end up the big loser.

The interesting thing I’ve seen is how the other board members in the room deal with this individual. The group usually tries to “pacify” and give them total authority to do whatever they want with the executive director’s performance plan or year-end review.

This “accommodating move” by the board is meant to shut the instigator up, but it never seems to work out that way.  The annual performance plan and year-end evaluation resemble something straight out of a carnival fun house with those weird mirrors. Annual performance objectives turn out unmeasurable and read something like this:

  • Improve staff morale
  • Be a leader in the community
  • Move all of our accreditation scores up one level

It looks and feels really muscular and accountable, but when you peel the layers of the onion back nothing makes any sense. How do you measure improved staff morale? Is it realistic to focus on all accreditation categories (even the ones you’re already doing well in)? What is a leader and how do you determine that?

Next thing you know everything feels subjective. Feelings get hurt. Emotions run high. And the board volunteers who thought they solved the problem by “brushing off” the loud squeaky wheel in the board room, find themselves in a much worse situation. It always turns into a trust issue between the board and their executive director. However, it sometimes turns into impending legal action involving things like: harassment, hostile work environment, or retaliation.

Trust me when I say the really hot dish of porridge is not the solution. Please tune in tomorrow, and we’ll talk about what a normal situation might look like.

Have you ever been involved in a situation where one board member is really “hot to trot” about the annual performance plan or year-end evaluation for the executive director? Have you ever seen it turn out OK? Do you have any examples of just “horrible” performance plan objectives that just didn’t make sense?

Please share . . . we can all learn from each other.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC

Goldilocks and the three board members: Part 1

I suspect we all remember the story of “Goldilocks and the Three Bears“. This porridge is too hot! This porridge is too cold! This porridge is just right! I’ve recently stumbled upon a very similar version of this story involving non-profit executive directors and board volunteers around the related concepts of annual performance plans and year-end evaluations. For the next three days, I thought it would be fun to look at each of the bowls of porridge and talk about the pros or cons.

Today’s bowl of porridge deals with when board volunteers shirk their fiduciary responsibilities and fail to evaluate their executive director.

I have run into a number of friends recently who confided in me that they haven’t been evaluated. In some cases, they haven’t been evaluated in a number of years. Of course, in many of these cases, it has become an issue because it is a tough time to be at the helm of a non-profit organization. As criticisms increase and board volunteers try to ratchet up accountability, up pops the ugly revelation:

“Ooooops, if things have been getting so bad, why haven’t you felt the need to evaluate me. We might have been able to make some course corrections if you had taken your fiduciary responsibilities seriously before we got to this point.”

The other side of this coin, of course, deals with the executive director’s annual performance plan (e.g. chart of work). In my experience, when executive directors aren’t getting evaluated, they typically don’t have a very well-defined performance plan with measurable metrics. This management tool is developed and handed to the executive director 12-months prior to their review. This way they know exactly what they need to do to succeed and how to proactively affect their year-end evaluation.

Again, in my experience, boards end up passing on the year-end evaluation because they didn’t do a good job of developing a performance plan, and now they don’t feel like there is anything concrete to measure their employee against. So, they end up taking a pass.

And the vicious circle continues until the non-profit organization skids into the ditch and fingers start getting pointed.

While it is easy to throw board members under the bus, I also want to hold my executive director friends accountable, too. Good non-profit professionals know how to support a board and keep them from falling down on the job. I’ve seen many non-profit CEOs pencil draft their own performance plans and year-end reviews and hold their board’s hand through these processes.

All of this also ties into fundraising and resource development. Rest assured that when fingers start getting pointed, donors ask tough questions and judgements get passed. Remember, the executive director is probably the face of your non-profit organization and many of your donors have likely fallen in love with this person.

I’ve seen it too many times. The organization fractures, accusations get made, donors ask tough questions, and everyone comes out looking bad. In the final analysis, public trust gets violated and donors put their checkbooks away until things get cleared up.

There is one cautionary word that I need to toss out there to board members about this very cold bowl of porridge. I know many of you think you don’t have any personal liability that comes with sitting on a non-profit board of directors because your agency purchased Directors and Officers Insurance. However, it is not outside of the realm of possibility that your D & O insurance company will not cover you in an employment related lawsuit if you failed to complete annual performance reviews of your executive director. It is foreseeable that the insurance company will say “there was a lack of a good faith effort” on the part of the board, and then you will be personally on the hook.

So, get off the couch and take that cold bowl of porridge to the microwave oven and warm it up before it is too late! For those of you who might be looking for a resource guide, click here for a great manual from The Enterprise Foundation. Tomorrow, we’re going to look at that next bowl of porridge which is way too hot. So please stay tuned.

Does your board of directors struggle with evaluating its executive director? If so, what strategies are you using to bridge this gap?

Please use the comment box below and share your thoughts. We can all learn from each other.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC

Non-profits and Sunshine Laws?

Have you ever participated in an interesting conversation that inspired you enough to go do some research? Last night I had one of those moments, and what I found was so interesting I just had to share it with you this morning.

So, last night I was out enjoying a nice dinner with a non-profit board volunteer when the conversation turned to the subject of board meetings and how the local newspaper covers their agency.

He said, “Erik, the problem with making difficult discussions in the board room is that we’re subject to the Open Meetings Act.”

I said, “Really? I don’t think so. The Open Meetings Act is aimed primarily at government and public institutions.”

He responded with, “Erik, with as much government money as our agency takes, we are covered by this law and have to let the public and press into our meetings.”

If you know me well, then you know that not knowing an answer to something like this just drives me crazy. So, when I got back to my hotel room, I just popped open Google and started digging.

Ah ha! The first thing I found validated my point of view. The Illinois Open Meetings Act specifically exempts non-profit organizations. Click here to read more.

However, as with most things in life, nothing is simple or that clear cut. The next thing I found online was from Ann Taylor Schwing. She provided a dizzying number of bullet points pointing to various numbers of possible scenarios when the Open Meetings Act might extend beyond government entities and into board rooms of private organizations.

Click here to read more and see if your agency might fit into some these exceptions. After I consumed Ann’s work, my head started spinning and went into overdrive. For example:

  • One of the exceptions that Ann points out is: “whether the functions performed by the private entity would otherwise  be performed by a public body, or were performed by the public body before the creation of the private entity“. Well, this certainly should give many agency’s a moment to pause and consider.
  • Another of the exceptions Ann highlights is: “the extent to which public entities may control the entity in question and the extent to which the entity is autonomous“. This got me to start counting the number of non-profits in my hometown who were recently quoted in the newspaper as saying, “If my city funding gets cut, we’re going to end up closing our doors.” As the Church Lady used to say on Saturday Night Live, “Well now. Isn’t THAT interesting?”

OK, you’re probably wondering what all this means and if it necessitates any action on your part. Here are just a few of my thoughts:

  1. I would click the aforementioned links and do some research. No one wants to be surprised by a newspaper report or a disgruntled donor or client who demands access to your board room. I like to live by the general rule that “Prior Proper Preparation Prevents Piss Poor Performance”.  🙂
  2. If the second bullet point sounds like it might describe your agency (e.g. your agency is so reliant on government money and your ‘independence’ is compromised), then you should engaging board members in a discussion around whether or not this is OK with them and what to do about it. After all, this is a quintessential “board governance” issue that the law calls on them to wrestle with. Right?
  3. There is a bigger picture issue here as it pertains to non-profit transparency. You might want to start engaging board volunteers in a discussion around whether or not opening your board meetings to the public (e.g. donors, clients, neighbors, etc) is a good idea. And if it is, then how do you function in that public space and still get sensitive board business accomplished.

Some of you are probably thinking “Erik, are you crazy?” Well, maybe I am, but ask yourself this: “do donor have a right to attend governance meetings as an investor in your organization?” More to the point, I’ve seen some non-profit organizations model themselves after publicly traded for-profit organizations by hosting an annual meeting that is open to the public and is seen as a stewardship opportunity for donors.

Does your agency host an annual meeting that is open to donors and the public? If so, please tell us what it looks like and what is discussed in the comment box below. Has your agency ever been pressured by the press or the public about the Open Meetings Act? If so, please share with us what happened.

Come on folks! We can all learn from each other. Please take a moment to weigh-in.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC

Nothing up my sleeve! What about yours?

I started this week off by talking about government funding for non-profit organizations and how it might not be all that it appears to be. We transitioned mid-week into a discussion about executive compensation and now we’re ending the week totally focused on non-profit transparency. These topics are all related and go together as well as peanut butter and jelly. However, the issue of non-profit transparency still seems to be a murky subject for many of us including me.

What is transparency? How far should a non-profit organization go with transparency (e.g. should the executive director tatoo their salary on their forehead)? What are the best ways to share a large volume of organizational information if it wanted to be 100% transparent? I don’t know about you, but the more I think about this topic the more questions I seem to end up with.

I recently ran across a great blog post by GuideStar that dates back to November 2006. They asked their readers to define transparency, and I found a number of very interesting ideas. You should click the aforementioned link and read the post. Here is one of my favorite thoughts on this subject from one of their readers:

“. . . everything we do must be clearly understood and open to review and thoughtful discussion by all stakeholders to gain their complete confidence and respect.”

While getting a clear idea of what we’re talking about is important, it becomes equally important to wrap your arms around how to achieve organizational transparency. I’ve had a number of random thoughts about what I might do differently if I were on the frontline again as an executive director. Here are just a few of those ideas:

  • I would create a “transparency corner” of the agency’s website and post documents such as:
    –  most recent 990 tax return
    –  most recent financial audit and management letter
    –  a list of the agency’s Top 5 highest paid employees with their salaries and value of their
    benefits package published
    –  board roster with contact information for each volunteer and a copy of the agency’s
    whistleblower policy
    –  regularly updated program outcomes data and impact report
    –  updated financial dashboard that illustrates the current financial health of the organization
    –  most recent copy of the strategic plan along with a regularly updated scorecard that reports
    on progress towards implementation
    –  if the organization is accredited, then a copy of the documentation from the last accreditation
    visit (or if you’re a Boys & Girls Club a copy of the Club’s most recent SOE assessment from the national office)
    –  a list of government grants, program deliverable associated with those grants, program
    outcomes data linked to those deliverables, and a way for the average citizen to contact the governmental agency
    administering that grant to report questionable activity
  • Everyone seems to have a newsletter nowadays with an “Executive Director’s corner. I  would focus every one of those “corners” on a different aspect of organizational transparency.
  • I would publish an “annual report” every year (even it is wasn’t glossy) and include a wide variety of transparency topics such as a list of people who support your agency; a thumbnail picture of how revenues and expense breakout; a snapshot of who the agency serves, a list of the organization’s biggest accomplishments in the last year; and much more.
  • I would produce and mail a quarterly “Community Impact Report” to ALL donors that answers the big picture questions of: “What are you doing with my money? What results is my charitable investment achieving? What have you learned and plan on doing differently?”

I am confident that this list can endlessly go on and on and one. So, I am going to stop here. However, I would encourage you to use the comment box below to answer one or both of these questions: 1) How do you define “transparency”? and 2) What additional transparency idea do you have that should be added to the list above (or what idea from this list should be removed)?

Please take a moment to weigh-in with your thoughts and opinions. It is just 60 seconds of your time and it could make a difference in another readers’ agency. Remember, we can all learn from each other.

Here is to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC

The case for transparency and non-profit salaries

The President of the United States makes $400,000 per year not including benefits. A member of the Illinois House of Representatives earns $67,836 per year in addition to receiving a $132 per diem for every day they are in session. The CEO of Fifth-Third Bancorp earns $3,144,823 per year and has another $1,572,411 in restricted stock awards and $40,779 in other compensation.

Dale Lonis is the Executive Director of the Elgin Symphony Orchestra (ESO) in my hometown of Elgin, Illinois.  According to his agency’s 2009 990 tax return, his 2009 salary was $122,850 and his benefits package was valued at $8,594.

OK . . . I can hear many of you wondering why is it necessary to post this kind of information. After all, many of us learned at a very early age that talking about money-related topics is taboo in polite society. Well, the reason why a segment of our society has fought so hard for transparency in government, publicly traded corporations, and non-profits is as simple as this:

Those who make a living with ‘other people’s money’ should be held to a higher standard.

Still not sure you agree? Please consider the following:

  • Public servants are paid by “We The People” and we’re entitled to know what they are paying themselves to do “the people’s business”.
  • Publicly traded corporations owe “the market” accurate information about how they transact business because without that information we end up with situations like ENRON, MCI WorldCom, and Tyco. When companies ask for public investment and act in less-than-transparent ways, people can’t make smart investment decisions . . . the free market fails to work efficiently . . . people unfairly lose money.

Can’t the same be said for non-profit organizations? Aren’t donors trying to make wise investment decisions with their charitable dollars? How many donors are happy when they learn their charitable contributions were misused by a nonprofit organization? I suspect that no one is every happy when that happens, which begs the question about the need for increased transparency in this sector. Doesn’t it?

Let’s circle back to the Elgin Symphony Orchestra and look at the facts (which I simply gathered from the organization’s 990 tax return):

  • The board made a decision to pay their executive director $122,850 in 2009
  • This agency brought in $2.5 million in revenue in 2009
    • $696,179 in membership dues
    • $162,269 in government grants
    • $642,528 in direct contributions from donors
    • $1,026,023 in ticket sales
    • $22,000 in program book advertising
    • $19,848 in performance fees
  • This organization didn’t “balance its books” and ended 2008 with a deficit of $471,214 and ended 2009 with a deficit of $322,616

Thanks to laws that require non-profit tax forms to be public information and websites like guidestar.org that publish 990 tax forms, donors are able to easily secure this information and make wise investment decisions. Even though the aforementioned information is just a small slice of what you can pull from an organization’s 990 form, a donor can make a number of judgement calls from it. For example, a donor can weigh how they feel about:

  • this agency’s revenue model (fees vs. fundraising)
  • this agency’s fiscal health
  • this board’s track record with key management decisions around budgeting, executive compensation, business model, etc

Disclaimer . . . I am not suggesting that Dale Lonis is being overpaid (in fact, I would guess it is in line with similar sized organizations in similar communities). I am also not suggesting that the board has made any poor decisions. I will leave all those judgements for each individual reader of this blog. All I am trying to do is make the case for the value of transparency in the non-profit sector.

Do you still think I am off-base? You may want to check-out what is happening in New York’s non-profit community. You might also want to look at what frogloop blog says about a Guidestar study that illustrates how little transparency exists in the non-profit sector.

I started this discussion with yesterday’s blog post by invited you to weigh-in with your thoughts and start a dialog about non-profit executive compensation and transparency.

Do donors deserve this kind of information? If not, then how can they make informed charitable giving decisions and how can they hold agency’s accountable for they promised during the solicitation call? What is your organization doing to become more transparent? Where are yours thoughts on transparency with executive compensation? Do you think a non-profit organization should be required to put its annual 990 tax form on file at your local library or on their website? Is the 990 form too obtuse? Does a non-profit need to be required to publish a small handful of key organization metrics on their website?

Here is to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC