Last week, BoardSource, a leading resource on nonprofit boards and governance, hosted the BoardSource Leadership Forum 2010, “Open for Innovation: Governing in a New Era,” in San Francisco. I was particularly excited to attend this forum because it is unique for its main focus on governance – a topic that is often scary for or avoided by nonprofits. As Linda Crompton, President and CEO of BoardSource, announced at the beginning of the day, she hoped for the forum and participants to embrace “disruptive creativity” – to challenge what we do and ask questions that test our assumptions in order to pave the way for innovation. This year brought individuals from 45 states and six countries together to discuss, learn, and provoke. In this four-part series, I will share my reflections and key takeaways from the forum.
Governance for the Future: The Leadership Opportunity
“There can be no place for half-hearted interests or half-hearted efforts.” – David Packard, shared by Carol S. Larson, President and CEO of the David and Lucile Packard Foundation
In the opening plenary, Carol S. Larson, President and CEO of the David and Lucile Packard Foundation, continued this idea of disrupting the status quo. Larson described the all too common state of nonprofit boards: collectively having our heads in the sand. She challenges the practices of boards that collectively, constantly, and mutually reinforce each other. Instead, “boards need dialogues, not monologues” and need to listen to people who disagree with the majority.
For Larson, the five key qualities for a successful board are to:
- Have a relentless focus on mission and impact
- Create a culture of inquiry
- Look for innovative solutions all of the time
- Be willing to take risks
- Be willing to collaborate in new ways
Does a 98% repayment rate on microloans sound successful? Not according to Larson. At Hewlett Packard, she was challenged to view a 98% repayment rate to mean they weren’t taking enough risks. They reworked their approach to improve the microloan program and reach more individuals even if the repayment rate decreased. As she poignantly observed, boards must work toward making good things happen, and not just to avoid bad things from happening.
Politics and Budgets: Legislative Events and Their Implications for Nonprofits
“Have a board that is both bold and nimble.” – Tim Delaney, President and CEO of the National Council of Nonprofits
Tim Delaney, President and CEO of the National Council of Nonprofits, presented a session on the various public policy challenges to the nonprofit sector at the federal, state and local government levels. In thinking about the future of the sector and where public policy threats will emerge, Delaney shared an interesting fact that managers have a one year vision into the future; leaders (Board and CEO) have a three to seven year vision into the future; and national leaders have a ten to twenty year vision into the future. However, in addition to the unstable economy, Delaney notes the difficultly in having such forethought is compounded by the general lack of experience in the majority of nonprofits: more than half of all nonprofits have existed less than twenty years (Delaney calls these “sophomores in college”), and a large percentage of nonprofits are “pre-teen or younger.” Furthermore, despite the harrowing facts and circumstances of the economy, Delaney advises against demonizing the government and advocates for a cooperative relationship between nonprofits, government, and business. He says the biggest enemy to change is not the government but a lack of information.
Delaney suggests the legislative events happening at the state and local level are the main challenge for nonprofits right now. He believes any threats to the nonprofit sector at the federal level are only a “yellow” level threat due to the predicted gridlock for the next couple of years between political parties. The greater, “red” threat to nonprofits is at the state and local level. He describes state and local governments as “fighting for survival” on the lowest level of Maslow’s Hierarchy of Needs, and therefore, state and local government are not giving attention to the higher needs that produce things like love and care. Delaney listed some of the effects at the state and local level:
- Off-loading programs onto nonprofits
- Taking money from nonprofits (e.g., assessing new fees, eliminating tax –exempt status, or imposing new taxes)
- Withholding money from nonprofits (e.g., failing to pay full costs, changing agreements mid-stream, imposing complex approval processes or complex reporting requirements, or paying late)
- Demanding payments in lieu of taxes (PILOTS)
Delaney pointed to an example of the first effect, off-loading programs to nonprofits, that occurred in March 2010 when Arizona became the first state to eliminate its Children’s Health Insurance Program (CHIP) in addition to rolling back Medicaid coverage for childless adults due the state’s worst financial crisis. As the New York Times reported, this left 47,000 low-income children without coverage and was expected to cut 310,000 people from Medicaid. In turn, Arizona nonprofit community health centers bore the weight of that decision. As the Arizona Republic reported, these centers operate in mostly rural and underserved areas and rely mainly on state and federal insurance and federal grants. With insurance programs cut, centers will no longer receive reimbursements from these programs to cover the full cost of providing care.
Delaney referred to separate events in Hawaii and Minnesota as examples of the second effect, money being or attempted to be taken away from nonprofits. Earlier this year, as reported by the New York Times, Hawaii considered eliminating “a wide range of exemptions from the general excise tax, including the one held by nonprofit organizations… and increasing the property tax on the groups” as part of an effort to close a budget deficit of $1.2 billion as of January. Sometimes, the money being taken away is subtler as was the case in late 2009 when the city of Minneapolis updated its streetlight assessment fee. Minnesota recognizes state property tax exemption for nonprofits and, as reported by MinnPost, many nonprofits were alarmed by the trend of “increasingly being hit with fees and assessments to pay for elevator inspections, waste water, fire inspections and other local government functions” which causes nonprofits to rearrange their resources and affects their level of service.
The third effect, withholding money from nonprofits, is what he describes as “silent but deadly.” For example, the recent Urban Institute study "Human Service Nonprofits and Government Collaboration" (Oct 2010) reported that the State of Illinois has the highest percentage of nonprofits reporting issues with late payments at 83 percent. Additionally, Delaney states Illinois owes almost $0.5 billion to nonprofits for just the first six months of this year.
Delaney noted the last effect listed, a PILOT agreement, was recently seen in Baltimore. In June 2010, Baltimore Mayor Stephanie Rawlings-Blake officially announced that sixteen nonprofit hospitals, colleges, and universities, agreed to provide more than $20.4 million in direct payments to the Baltimore City Government over 6 years in order to stop the enactment a new $350 annual bed fee on these nonprofit institutions.
Delaney likened these threats to the Wicked Witch of the West in The Wizard of Oz. As he described it, we are living in a “wicked economy” with household incomes dropping for the second straight year, poverty levels shooting up again, unemployment levels close to ten percent, and populations of the uninsured, underinsured, and homeless on the rise. Although only one week after the midterm elections, he encourages nonprofits to already think about lobbying, advocacy, and other action steps to address these challenges as we embark upon on the yellow brick road to recovery like Dorothy and her traveling companions. In identifying action steps, Delaney says nonprofits should be shooting for 4 arrows:
- Stronger networks
- Public policy
- Capacity building
- Improving public understanding
The biggest takeaway for me was the importance of encouraging nonprofits to look at the systemic issues that hinder the causes they champion and to explore permissible lobbying and advocacy as a tool for addressing these underlying problems. Government contracts and fees generally account for the second largest source of nonprofit revenue at approximately 28 percent while the next largest source, private funding, accounts for approximately ten percent. If the amount of government funding continues to erode, nonprofits face a serious question of how to fill the gap. Delaney used the analogy of geese being able to fly 71 percent farther when flying in formation to illustrate what might be possible if nonprofits, governments, and businesses could work together. I think this analogy can also be illustrative of what might be possible when nonprofits mobilize voices through lobbying and advocacy.
Please see previous posts on lobbying and advocacy and political activity for more information about the legal limitations.
More coverage on tax-exemption challenges on the state and local level is discussed in Rick Cohen’s article on Blue Avocado, “Attack of the Tax-Exemption Killers.”
Additional reports on Human Service Nonprofit-Government Contracting by the Urban Institute are available here.
Delaney recommends reading The Leadership Challenge by Jim Kouzes and Barry Posner, and The Source: Twelve Principles of Governance That Power Exceptional Boards by BoardSource.
Part II of this series which covers the "Top Ten Legal Risks Facing Nonprofit Boards" can be accessed here. Part III which covers "Nonprofit Governance Challenges" can be accessed here.