Managing nonprofits in an “age of hope”

December 29, 2008

obama

– Prof. James Post, an authority on corporate governance, teaches “Strategies for Nonprofits” at the Boston University School of Management. The views expressed are his own. –

I am inclined to think the Bernard Madoff affair has blown the lid off the financial madness of this decade.  We have been living in an age of fraud, and now must rethink the way we do business.  As John Kennedy once appealed to the nation’s better angels to call us into public service, Barack Obama’s inaugural address should instruct us on our obligation to serve the greater good.  It’s not just a moral concept; it’s good business.  I offer a corollary as well: Without good business, how far will a moral concept take you?

The management cliché about nonprofits goes something like this: What they lack in business savvy or operating budgets they make up for in passion and vision.  This notion was especially apt in an age of decreased governmental support.  And there’s a private-industry parallel declaring that firms may have a wealth of professionally trained managers but run in the red when it comes to inspiration.  Few organizations have it all, so private and public industry must continue to collaborate to serve the community.

If Obama can keep the lives of real Americans in his sights, despite the overwhelming urge to obsess over Wall Street and Baghdad, he can have a profound effect on reversing the destruction wrought by the age of fraud.  He can strengthen the bond between public industry and the private sector in ways that benefit all of the stakeholders.  In many ways, the time is ripe for nonprofits to set a new example, one that marries sound management and ethics, and proves they can stay together for the long haul.

How do nonprofits rise to that challenge?

For starters, Obama’s Social Entrepreneurship Agency for Nonprofits and Social Investment Fund Network purportedly will “build the capacity and effectiveness of the nonprofit sector.”  Not exactly a trillion dollar cash infusion, but a seat at the policy table.  That means better lobbying access, governmental R&D/capacity-building support, a streamlined grant-making process, more explicit encouragement of civic involvement, and greater accountability.  More attention will be paid to the energy, education, and training sectors, meaning added incentive for people to get involved in these areas.

Nonprofits, you need to dust off your gym bags.  If you’re finally going to have that equal playing field in the competition for governmental attention and support, you need to hone your skills and get your team into shape for the upcoming season.  Whether a senior manager looking to move up the professional ladder or a new executive director seeking more effective ways to guide and manage your organization, you need to strengthen your skill set, increase your confidence to lead, and join a focused network of people who share a vision of management excellence.

For instance, when was the last time you stepped away from the day-to-day tactical management of your underfunded, overburdened organization to think about long-term strategic planning, more efficient project management practices, or funding innovation?  How often do you network with your peers in other organizations and report best practices?  What steps have you taken to insulate yourself from the consequences of our unhealthy economy?

Most importantly, you must avoid scandal (or the appearance of scandal) by having unquestionable ethics and demanding the same from your team.  You must engage in new and innovative partnerships — with other nonprofits and with corporations; think like an entrepreneur — creatively, resourcefully, relentlessly.  And you must improve your accounting and assessment practices.  These are just non-negotiable, and if I have to explain why, you’re more out of shape than you thought.

In short, nonprofits are not exempt from Obama’s call to change.  Reject low standards.  Raise your sights.  Find new ways to be heard and taken seriously in a communications landscape that seems to have the bandwidth for only two to three stories a week.  Most importantly, get the training you need to run your organization efficiently.  You can’t capitalize on any of these opportunities if you’re out of breath before you even warm up.

27 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

In many ways, the convergence among the non-profit, public, and private sectors should benefit our society and maximize the globe’s scarce resources. I began working after college as a financial examiner for a state regulatory body and appreciated safeguarding consumers’ interests early in my career. This appreciation helps me daily in the private banking sector and tempers short-term, poorly planned, and greedy decisions; moreover, many top tier management consultants have begun touting managers who have experience in the non-profit, public, and private sectors as the new gold standard.

Business schools should begin focusing on holistic education, embedding the public’s best interests with corporate profitability needs. We can do better…

Posted by E. Blake Mendez | Report as abusive

The first thing to do with the “Nonprofits” is to clean up that act so it is no longer some sort of cash cow and tax dodge, for real “profits”.. Until that swamp of fraud is drained, nothing changes and all the calls for “integrity, honesty etc” is just blowing in the wind.
Tht above probably applies across the board in these 2000′s which could be labeled (so far) as the “USA Golden age of fraud and incompetence”.. but before we all bay at the Moon of “nonprofits”..
Time to examine these “nonprofits” and ID exactly whom is “nonprofit” and whom is at end of yellow brick road behind the curtain welcocming all the land of “nonprofits”.. some one small step ahead of “offshore mailbox”.. Clean that one up first, then discuss “nonprofit”, as there are now quite enough tax dodges for well off without polishing up this one.

Posted by chuck | Report as abusive

The comments by James Post are most appropriate and timely. Another justification for this approach is that business has treated money as a measure of all values. Profits need not be measured only in money measure. There are other values as well in life that are more of a driving force of living, that makes life more menaingful for oneself and his/her family. Many people are aware of many of them, but business schools can now consider setting programs which places money in the right place and bring other values as competing values.

Posted by Kamaljit Sood | Report as abusive

Non-profit hospitals always have the ten or fifteen highest paid people in every small town. Too many people in non-profits started out to do good, and wind up doing well.

Non-profits are give a free ride on taxes in the towns, the state, and the nation. This is not done so that they can have exorbitant salaries, but so they can provide very cost effective service to those who need it. The culture of hospitals was this sort of giving culture seventy-five years ago. Despite the various positive initiatives that they may currently provide, it is not the culture now. While hospitals with their stream of cash (yes, there are problems with medicare and medicaid receipts, but everyone else compensates for it, much to the delight of private insurance companies who love the extra costs that provide them with extra margin.)

There are non-profits that do wonderfully great things for their communities. And a few do it cost effectively. But there is a great need of non-profit personnel to return to community service as a vocation, not a career.

Posted by jim wellehan | Report as abusive

I have worked as a fundraiser for large international NGOs that have strong accountability, reporting, cost-effectiveness, and ethics. I have also worked for some small to medium-sized nonprofits that turned out to be little more than tax dodges for their founders, and I got myself out of there as soon as possible once I discovered that. I continue to wonder how they retain their nonprofit status, and I wholeheartedly agree with this article that we need to tighten this up. I would also like to ask that we not paint all nonprofits with the same brush – some are highly accountable, effective organizations.

On the question of salaries, many people who work for nonprofits are paid far less than they could have been if they had pursued a career in the corporate world. By deciding to follow their mission, they have accepted that they will make less money. But they too need to support their families and cannot be expected to be semi-volunteers just because they work for a nonprofit. If we don’t pay them well, we will lose the brightest staff. Thanks for covering this important issue.

Posted by Rebecca Lake | Report as abusive

A lot of these organizations are just a way for the Executive Director to pull down a salary. They’re unnecessary. And often detract from less-egregious organization.

Posted by Pete Cann | Report as abusive

A nonprofit – I’m a survivor of two – may very well discharge its mission statement with alacrity. Certainly it employs workers dedicated to the cause and pays them poorly. It often excels in rendering services under which the grant(s) was awarded garnering the community’s appreciation. It also redistributes operating costs in an often blatantly unfair and dispropotionate manner, crying POOR and freezing raises while rewarding executives for reeling in another remunerative grant. The corporate culture of non-profit is not primarily about championing a better community-that’s their rhetoric, of course, but also their bread-and-butter, too. Nonprofits are often more about taking credit for selling its services whereby the community rewards the agency with a contract and the agency rewards its salespeople. Nonprofits can not be content on rest on just one laurel, their supply side ecomonics urges them on to secure yet more viable contracts. In this, nonprofit sector differs little from its for-profit brothers and sisters. Probing nonprofits from the top-down is essential prior to endorsing them, awarding contracts. This Dilbert knows.

Posted by boredwell | Report as abusive

The tenets of this article are misleading. Business schools already state as a central principle that action which harm the community in which the business is embedded are mismanagement. I earned my MBA about 6 years ago. I remember those parts well.

Our problem here is not business school or business principles. Our problem is careerism. That is when individual actions are taken to advance one’s own prospects to the detriment of everyone else’s. Our business culture is a cesspool of careerism and until we face up to it, the balance between excessive individual greed and the health of the community will continue to slide at great harm to society.

Posted by Jonathan Cole | Report as abusive

Non-profits are tax dodges posing as a substitute for social programs. Tax funded social programs deliver real benefits to all eligible citizens. Non-profits first support their administrators and then randomly hand out meager benefits to a few selected clients.

Posted by steve langston | Report as abusive

It is true there are many folks working for nonprofits that are low paid and by the comments posted here – under appreciated. I challenge you to find nicer, ethical and more dedicated staff dealing with the forgetten – disabled, at risk youth, addiction, family services, etc.

Government needs NGOs in the US and outside the US to actually get stuff done. That doesn’t mean getting rid of nonprofits. Scrutinizing applications for new nonprofits – yes. Holding nonprofits (and their boards) accountable and auditing business training for those in staff leadership – yes. Reporting to funders where the money went – yes. What we need is better business behavior whether government, public, private or nonprofit.

The most appalling aspect of this “era of fraud” was the rush to acquire MBAs. What in heaven’s name did they learn there with all this mess surrounding us?

I suggest the majority of ETHICAL and purpose driven unemployed MBAs dumped during the financial scandals apply for a job in the nonprofit sector. We need their talent and they will be appreciated here.

Posted by Chrissy Ward | Report as abusive

I believe some non-profits are receiving a bad name from this scandal. If our economy is to survive then it will take everyone working together. Ethics are a big part yes, but if the cause is just then is it not worth the time? I have my MBA also and yes I do agree that some “mis-managed” non-profit exec’s do use the tax exempt. Those we should relieve of duty. Each non-profit should have a board of directors that the exec’s report to. Those who sit on that board should do so without expecting repayment.

Posted by Jeff | Report as abusive

After 25 years as Executive Director of The Honeywell Foundation, Inc. in Indiana, I favor the advice of Edwards Deming, the quality guru who taught 10,000 managers a year until 1993, when he died at 93, that to improve quality the corporation should be managed by cross-functional teams of empowered workers as a dynamic and complex system of elements that interact with each other and their environment often with surprising consequences. There are several articles on nonprofit management on my web site http://www.systemsandsustainability.com including DRAWING ON THE RIGHT SIDE OF THE BRAIN FOR INNOVATION that will appear in the May issue of NONPROFIT WORLD magazine published by the Society for Nonprofit Organizations.

I agree that independent, professional standards need to be set for NPO/NGOs to follow. I joined the American Institute of Philanthropy so I could determine who I could screen out from my contributions, and I learned a lot. For philanthropic organizations, I highly recommend using the resource, which imposes a decent level of transparency on any group that would join the ranks. The web site is http://www.charitywatch.org/index.html.

I found that medical top dogs made huge salaries, and that very few religious groups were even on the list, meaning they were unwilling to expose themselves or saw no advantage in doing so.

I personally would like to see government oversight of any group that receives NPO/NGO tax status, with a semblance of accountability.

Posted by Dave | Report as abusive

Dear Professor Post:

Thank you kindly for your message about increasing nonprofits’ excellence. I think this statement to be true for any endeavor, nonprofit or forprofit.

You’ll see in UniversalGiving’s recent profile on Business Week it’s exactly what we address. Nonprofits should be able to operate a clear and valued service, which can then be monetized. For example, UniversalGiving helps people give and volunteer with the top performing projects all across the world. It’s a free service for the public. 100% of your donation goes to help those in need.

We then customize our service for companies, UniversalGiving Corporate, helping them with their CSR strategies all across the world. We set up CSR strategies, operations, and vet NGOs, and then cull best practices per each culture. You can see more if you like at http://www.universalgiving.org/corporate .

Here’s the BusinessWeek article:
http://www.businessweek.com/managing/con tent/dec2008/ca20081224_387821.htm

Thank you for encouraging the pursuit of excellence.

Warm Regards, Pamela Hawley
Founder and CEO
UniversalGiving (http://www.universalgiving.org)

UniversalGiving (http://www. universalgiving.org) is an awardwinning nonprofit organization which helps people give and volunteer with the top-performing projects across the world. UniversalGiving Corporate is a customized service, helping companies manage their global Corporate Social Responsibility Programs, expanding their international giving and volunteering programs all over the world. UniversalGiving has been featured in BusinessWeek, Oprah, NBC News, Financial Times, Christian Science Monitor, L.A. Times.

Finally! The problem is not in non profit size. The problem is in business double standards that allow non profits to hide under “charity blanket”, non profits status, faith based status, false moral values and deliver sizzle instead of steak. Non profits never accept any criticism or real feedback or suggestions for improvements and always require good crying story and enormous gratitude to post on their websites.
Non profits giants shut down any competition around them and became non competitive socialistic organizations that will have their grants no matter what. Corruption in non profit sector is enormous. Journalist/media should write more about bad practices and seek for real hard working people that can deliver real things. Non profit sicko =waist of taxpayers money.

Posted by Tatiana | Report as abusive

From Enron to Madoff, the world is tired of listening to what these ‘experienced gurus’ have to tell us – stories after stories, lies after lies, facades after facades. In this age of scams, frauds, story spinning and ponzis, the time has come for real values to stand tall. Be it private, government, or non-profits no one should be exempted, lets move on and ‘get real’. This is the fundamental vision of the Obama campaign. This will be the fundamental key for organisational success for the future.

Posted by Calvin | Report as abusive

There is an international poverty industry that rose alongside the greed driven corporate culture on Wall Street and other financial centres to shamelessly hoover up any public money or funds available for the disabled and poor for themselves. These organisations systematically deflect money away from need to maintain for profit lifestyles and the excuse that their executives and bureaucrats could earn more in the private sector totally misses the point of the piece as high earnings have not reflected dedication to service or ability at all they have simply reflected a lax attitude to selfishness and fraud.

Many coprorate non profits have head offices in the swankiest parts of town and have basically cut their intended beneficiaries out of the loop and are almost indistinguishable from their Wall Street counterparts that produce nothing but hot air and lavish lifestyles for themselves. The blind trust we’ve had that these organisations mean well has just perpetuated the cruellest and most cynical fraud against people we claim to care for.

We need to direct more money towards the churches and organisations embedded within communities and ensure needs are met through increased monitoring and professional accountability not simply go on funding poverty industry parasites who didnt quite make it into the financial sector.

One reason why companies end up in fraud is they are expected to report quarterly. This short horizon discourages management from taking a long term look at the path a company needs to take to be successful. It won’t be possible to behave ethically until quarterly reports stop being the measure for success, thus goading management into fraud in an attempt to keep their jobs.

Posted by summer | Report as abusive

Obama only gots our backs when:

1 – He stops expensive wars.

2 – He stops expensive bailouts.

3- He orders Financial Disarmament which means dismantling the shadow banking system and freezing the instruments of speculative trade.

All the off sheet balance products will be eliminated which means dismantling the hedge funds, derivatives, naked short selling etc…

This also means democratizing monetary policy by taking their control over the monetary policy which forcefully challenges the hegemony of the Wall Street financial institutions.

(The term “financial disarmament” was initially coined by John Maynard
Keynes in the 1940s.)

4- Reverse the very very bad rules from the past:

Reverse ->1999 Repeal of the Glass-Steagall Act that separated commercial from investment banking by the Clinton Administration.

Reverse ->2000 Derivatives and credit default swaps were excluded from regulation.

Reverse ->2004 The greatest mistake setting aside capital requirements by exempting the investment banks from maintaining reserves to cover losses on investments engineered and This allowed the investment banks to: Leverage financial instruments beyond
any bounds of prudence. (Bear Stearns pushed its leverage ratio to 33 to 1 advised by crappy computer models – even 100 to 1 is heard!.)

5- A; This only can be done if the current failing financial Hanky panky hokes are removed from their offices. The real problem continuous if these criminal greedy dokes stay where they are right now especially when the whole “Fancy Fair” is Nationalized.

B; Make the Illegal FED really Federal. The Federal Reserve is not really Federal but a couple of private banks owned by a hand full of families now! During this process Skip J.P.Morgan out of the equation.Saves the American taxpayer 3%.

FED->2%->J.P Morgan->4,5%->Treasury->1,5%.

C- Start publishing real figures again which are “for real” this time.

6-Separate the bad mortgages from the good ones.
- Revalue the mortgage-backed securities accordingly.
- Completely sort out counter party risk for credit default swaps and interest rate swaps.

Mark my words, mark my words if this is not done, the country will go down!

Posted by Youri Carma | Report as abusive

One of the key reasons America’s nonprofit organizations have not been able to build the capacity they need to accomplish their missions effectively is that the giving public has been inundated by the media and the so-called “charity watchdogs” with a phobia against having any of their dollars used for building that capacity within our nonprofits.

Training, fundraising infrastructure, adequate salary structures are seen by most boards and executives as “luxuries” they are loathe to invest in because they don’t want to offend their donors. Donors often make the mistake of using business ratios when determining where to lodge their gifts. But the ratio of salaries to program or fundraising to program are irrelevant in the nonprofit sector because a nonprofit’s salaries ARE their program, and their fundraising acumen needs improvement so that they can be successful and effective in accomplishing their mission. If they’re not able to raise funds, they are not able to deliver needed services.

What we truly need is for the American giving public to be aware that their stereotypes about giving must change so that nonprofits can build the capacity they need to do their jobs effectively. Boards need to change in becoming willing to invest in capacity-builing and fundraising infrastructure. We cannot let the very few mishaps with charities put us off the mark. Capacity-building in our nonprofits is a critical need.

Respectfully, John G. Fike, CFRE, Fundraising Consultant and President, Association of Fundraising Professionals, Detroit Chapter, and Adjunct Faculty Instructor in Nonprofit Management, Eastern Michigan University.

I completely agree with this article and many of the comments. Too long, in my experience, has the non-profit/charitable sector been immune from serious scrutiny. It needs to be recognized that it has become an industry sector like any other industry sector. The emerging non-profit/charitable business sector needs to come under the same regulation and governance that other for-profits are subject too. In fact, a higher standard needs to be developed since the non-profit/charitable sector can rely on moral sentiments and good will to raise funds, and this in turn should produce a fiduciary duty of the highest variety owed to both the people who give and to those whom the money is intended.

The high wages within non-profits/charitable organizations and the low levels of accountability to both the donor and the recipient of aid have fostered an environment of bizarre financial opportunity for precisely the type of person who is not motivated by the urgency of a social cause or harm, precisely the type of person who should not be working in the non-profit/charitable sector.

Posted by Derek James From | Report as abusive

Isn’t it typical for a bleeding heart liberal to write an article espousing that American give more money away to the poor and other countries..American does more aide around the world that all of the others added together…we are more charitable and caring..I for one am SICK of this liberal agenda of taking our money and dispensing it as the government deems appropriate..I have finally STOPPED donating to charities for this reason..My Taxes are charitable enough..I think more people will start hoarding their money and stop giving if his global inniative is implemented..I will be glad when he is voted out of office in 2012..and congress removed in 2010..they will spend the next two years sticking it to us and people will say enough is enough!!..remember my words

Posted by Jeanne | Report as abusive

Gosh, Jeanne… You seem awfully angry at our new president when he hasn’t even had a day of work yet. Through your barely coherent rambling, I read that you’re mad about all the things the current free-spending administration has done for the past eight years, but somehow you blame it on “the liberals.” The current, outgoing administration has destroyed the economy.

There are many, many, many charities that do not get government funding, that do great work. Instead of complaining about how you’re sick of begging charities sponging off the government and giving all the money away, you should research a little bit and give to the ones deserving of your support. The ones the article is putting the spotlight on.

There are excellent charities out there. But in these economic times, we’ll see many of the less fit disappear, leaving those they serve without help.

Posted by Craig | Report as abusive

Non Profit has become synonymous with charity or foreign aid. This is an unfortunate misconception. At one time broadcast companies were required by law to provide 30 minutes of commercial free news every morning and evening as a public service. News rooms were run as a Non Profit entity. Public health systems here and around the world including nationalized health care are not for profit. Universities are public and private are run the same way.

Perhaps it is time that as a society we weigh in on what services we wish to remain for profit or not for profit. And while we are at it, however we choose, we should demand better from both. I for one am not satisfied with the state of health care or education at any level in this society just to name two. The basket is full of things that need to be fixed.

Posted by Anubis | Report as abusive

The dominant equation seems to be – better pay = better performance. But if this was true, then the sad situation we are in today should not have been. Unfettered worship of mammon will only culminate in the sort of quagmire Wall Street and US finds itself in. If the reward on the other side is too great (read multi million dollar stock options), execs will find all ways, good and not so good to achieve it, the stakes are simply too high and try any means to achieve it attitude prevails, and when this attitude gets engendered on a mass scale, there is a destabilising effect on the society.

Run the company for a few years, cash in on your options and get out, leaving the company in a mess, who cares, the government will bail out anyway, if we are too big.

So probably we need to think of other ways to reward executives rather than money and a disproportionate amount at that. One way, lock their options and let them cash in 5 years after they have quit. This will ensure they make decisions for long term good.

Posted by TS | Report as abusive

I love satire…obahhh-maaaah will fix as much as W after clintoon…
You still don’t get it! There is no difference:
The 2 wings of the demopublican party been having fun at our exspense for decades!

Obama who appointed all Clintoon cronies and voted for the bail out and his handler goes back to Carter days-
the polish immigrant whose ‘children’ worked for both McCain and Obama during the campaign.
Read more, believe less of the offical distraction propaganda, do your own research.
Stop ingesting fluoride!

Posted by birgit | Report as abusive

After Wall Street bail out, and failed regulatory efforts, it’s clear that charities, non profits, nor institutions can or should be tax exempt since together they have the capacity to save and hoard, steal, and waste American assets, income, and jobs, then leave America with the bill – as has happened already.

The price for that inefficiency and neglect must be taxes for those not subject to them previously.

America has no choice, or there will be no America.

Posted by Pat | Report as abusive