The Center for Ethics, Governance, & Accountability

People with an interest in non-profit governance are aware that May 15, 2010 will be a sad day for thousands of non-profits who have forgotten to file their IRS Form 990 for the third straight year. (Actually, the problem date is May 17, 2010 since the 15^th falls on a Saturday this year.)

The purpose of this Non-Profit Tip is not to brief you on the details of the federal regulation that has resulted in this reality – you can do the research via the Internet – but, rather, the idea here is to give you a simple, easy-to-follow ‘fix’ that will keep you safe and sound – every year – on the filing deadline for your Form 990 filing.

Tip: use whatever ‘reminder’ mechanism you have at your disposal to make a note of the annual due date for the filing of the 990 for your non-profit.

If you use a pocket calendar, write it down! If you use Microsoft OUTLOOK, enter a reminder for the deadline! Calendars and reminder features come in so many forms that there is something out there for you, no matter what your technology preference. Even if your non-profit is large enough to have a staff member responsible for the 990 – or, even if you outsource the responsibility to a CPA – you must write it down! In the end, whether you are the executive director or the chair of the board, the ultimate responsibility for the filing of the ‘Number One Most Important IRS Document of the Year’ rests on YOUR shoulders!

The IRS guideline is simple and easy to remember, so you can quickly set your reminder notice: the 990 is due every year on the 15^th day of the 5^th month following the end of your fiscal year.

For calendar year-end accounting periods (December 31), the filing date is May 15 – the 5^th month (May) and the 15^th day (or the first business day after the 15^th if it falls on a weekend like this year). If your accounting period is June 30, then it’s still the same rule: 5^th month after the accounting period (November) and it’s still the 15^th day. This is very straight-forward. There are options for two extension periods, but both still require that you request the extension (i.e. take action) by the original filing date.

Because our organization – CEGA – believes in the importance of ethics, governance, and accountability as a proactive tool to enhance the image of non-profit organizations, let me offer a reminder of the importance of filing your 990 on time. Remember that your non-profit status (as a tax exempt, charitable organization serving your community) is a privilege granted by the IRS. In lieu of paying taxes and filing say, a Form 1040 (like you file for your personal income taxes), your non-profit is required to file, annually, a Form 990. It’s the law. And, it’s your responsibility. While everybody knows April 15^th is the magic deadline for your personal taxes, the non-profits have varying deadlines related to their year-end accounting periods, which makes forgetting all too easy.

The recent news stories tell us that thousands of non-profits will lose their status because they have forgotten to file their 990 for three years in a row. Three years?! Good grief!! I would submit that they deserve to lose that status: they failed to live up to their end of the bargain. And, again, in keeping with our recommendations at CEGA, wouldn’t you prefer that your non-profit be known as one who lived up to its responsibilities and did NOT forget to file? Doesn’t that say a lot about who you are?

Be proactive. Don’t trust your memory. Don’t rely on anybody else. Follow our tip: set a reminder – do it right now – for next year. I assure you that you – and your stakeholders – will be glad (and very proud) that you did.

Good articles need to inspire you to think, question, and take action. It is my hope that this article can be one of those.

Throughout my article series over the past couple of years, I have sought to give advice and encouragement to nonprofit organizations and their leaders about the important role they play in our communities. Nothing about my commitment to that effort has changed. However, today it has struck me that there is a ‘reckoning’ that all of us must ultimately address: is it time to walk away? That is the question. And, it must be framed as different from quitting – anybody can do that – and, walking away must be seen as different from walking away mad. With purpose and appropriate discernment, how do you know when it is time to walk away?

This article is devoted to laying the groundwork for you to explore this challenging – and oft ignored – issue. I would invite you to spend some quality time pondering this issue and, importantly, to share your thoughts with other readers. By creating a dialogue, you have an opportunity to harness the power of the written word and utilize the Internet to share your thoughts with others.

I’ve been thinking about this particular issue for years and discussing my opinions with people in dozens of meetings, but I always wanted to share my thoughts in writing. Yet I refrained. A recent piece of state legislation caught my eye and has helped push me to write this article. Believe it or not, a state code (it does not matter which state) was recently amended to allow a non-profit to set aside mandated term limits for certain board members. I read the amendment, was frankly surprised at the wording (while intentionally not a quote, the above paraphrase is extremely close!), did some research, thought about the issue for a few days, talked to several people, and I still cannot find any well-reasoned justification for ever needing such legislation. In fact, I feel very strongly that term limits on a non-profit board are healthy.

But, term limits could be the subject of another article. This article is about knowing when it is time to walk away. Obviously, the board that sought this state code change has a very different mindset for running its operation.

It’s no secret that I believe the non-profit sector holds tremendous potential for solving a myriad of community challenges. I believe that sentiment is truer now than ever before. Just this past week, in an hour-long telephone conversation with a trusted colleague about a non-profit gone bad, I asserted my standard non-profit governance observation: where is the board and, more specifically, is there no true leadership on the board that can address the problems that have been identified? Sure, executive directors can act up, make mistakes, upset folks – so can board members and even the constituents they serve – but, at the end of the day, the board runs the organization, so I always ask: where is the leadership? I suggest that, try as you might, you cannot get around the importance of the key governance issue of leadership.

I have observed over the years that true leadership on a non-profit is often in very short supply. Sometimes it does not exist at all. It saddens me; it concerns me; and, it often makes me irritable. I fear that too many board members want to feel good about their board service without investing the time and energy required to make a true difference. Come to the meeting (or not?), listen to what is said (maybe?), seek to understand the issues (really?), and be willing to offer genuine opinions, advice, and suggestions as to how to improve the organization (rarely?). In my opinion, a board member needs to work hard if he or she wants to feel good – and, the ‘feel good’ needs to be motivated from within, not without (as in seeking admiration from others for the board position they hold). Albeit anecdotal, my experience leads me to guess that 90% of non-profit board members are unqualified to serve and they make no genuine effort to engage. Everybody seems to want to feel good without doing the work.

Maybe this article is more about what to do if you are among the proverbial 10%, have done your best, moved things forward as far as you can, and need to make an informed decision about your own best interests and your future role. Yeah, maybe that’s the way to think about this issue. If, and I do stress IF, you are an enlightened board member and have done all you can, then you will recognize that you are nothing magic, or special, or required. This article is intentionally written to the person who is at peace with themselves – and, knows who and what they are not. We are not talking about making a decision based on pride but, rather, based on what is right.

A lot is being written right now – current day – about non-profits and the surrounding governance issues that are being raised. Examples include the de-funding of ACORN, the questionable spending practices of Feed the Children, and the high executive salaries at the national headquarters of Boys and Girls Clubs, just to name a few and make a point. So, I would suggest that non-profit governance is clearly an important and timely topic.

Let’s make this very personal: it’s about you; it’s about me; it’s about all of us. As you analyze the issues surrounding your own particular situation, you will find there are only a few categories: (1) you have messed up in some gigantic way and a wrong should be corrected; (2) you have incorrectly been accused and there is nothing that needs to be righted; (3) you have neither messed up, nor been accused, but your best efforts are increasingly falling on deaf ears and you question your ability to make any further positive contribution. Doesn’t this pretty well sum up your possible categories?

This article is NOT about either of the first two categories. If you have messed up, then endeavor to fix it; maybe you can – but maybe you cannot – and your decision to walk away will be revealed as you work through the process. If you have been wrongly accused, then either speak up about it or let it ride – whichever way works best for you – and you can walk away or stay at the table, whichever you choose.

The biggest challenge, in my opinion, is determining when your role is no longer relevant. The key word here is relevant. Have you ever had somebody look to you for leadership, count on you to do the right thing and, when you do, that same somebody is unhappy because you did not do what they wanted you to do? Have you had experiences relevant to the discussion at hand, been brave enough to share them, only to have folks think you are trying to show off your knowledge and dismiss your thoughts without even giving you an opportunity for meaningful discussion? How does that make you feel? What if that seems to be happening over and over again – i.e. it’s not an isolated incident and you’ve consulted trusted advisors to make sure you are not being overly sensitive or paranoid? What if you are a past chair of the board, filled with knowledge of the organization (its good things and its bad things), and are genuinely trying to help the current leadership avoid the same mistakes of the past, but you are thought of among your fellow board members as ‘out of touch’ and living in the past? What if the organization gets itself in genuine trouble over an issue that you tried to counsel it to address differently, and you had the grace to keep your mouth shut when you were ridiculed and outvoted, but now everybody wants you to solve the problem?

Ask yourself: is your organization currently relevant and is your board service currently relevant? Is it time to walk away?

This is a good place to insert a disclaimer. I do not advocate running away! Walking away is the issue here – never running away. If there are issues which need to be resolved and if there are opportunities for legitimate service, then I do not suggest walking away. I believe that you should not walk away until the circumstances have been made right – and, for better or worse – only you can know when that time has arrived. This is not about being ‘holier than thou’ – nor is it about being selfish or uncaring – but neither is it about being untrue to yourself and your beliefs. It is about doing the right thing at the right time for the right reasons. Your thing; your time; your reasons. It may even be considered to be the ultimate act of leadership that you can demonstrate – both to yourself and others. And, almost certainly, it will not be understood by many people. That is precisely the point. It is also the challenge.

Let me provide an example. For those of you who have followed my previous articles, you know that I like to call these ‘case studies’ because the truth of the matter is that an actual example is always more instructional than anything I could possibly make up. I believe that we can learn a lot by studying examples. As it turns out, this example is about an experience I had – which I could have chosen to disguise in some third-person manner – but I have decided not to bother.

One of the first leadership opportunities that came my way as a young professional was to serve as president of a community service organization. I would like to think that I had worked hard on various projects over the years and risen to the leadership position because I had genuinely earned it. Who knows? It does not matter. The position was elected by the entire membership, so arguably the majority of the members thought I was worthy (at least at some point in time). Following my year as president, as was the custom, the immediate past president became chair of the board. I should mention this was an all-volunteer organization and there was no executive director, although we did employ a secretary to assist with administrative matters. She was sort of a ‘den mother’ or ‘fraternity mother’ – wise beyond the sum total of all of us members. Chair of this board was purely an honorary position – ostensibly an attempt to keep some continuity at the table as the natural leadership transition unfolded – and I cannot even remember whether the chair had a vote. It doesn’t matter.

But, I do remember that my first meeting as chair involved at least one challenging issue that caused the membership to look to me – not the president – for leadership. As my new role as chair, I was unsuccessful at pitching the issue back to the president. And, I remember it did not feel right. It was awkward. The current president was fully capable of leading, but the membership seemed not to have made that transition quickly enough. It was awkward, I did not like it, and I did not feel that I had handled the situation very well.

I sought the opinion of a trusted elder statesman, one who was himself long familiar with the organization, and his advice was (at least in my recollection) very sound. The advice served to build the foundation upon which I began to act, almost always, at the conclusion of all of my future community leadership positions: he advised me to get out of the way because my time was up (those were his words).

It took me quite a while to understand the importance of getting out of the way – or, as I have called it in this article, walking away – but, I was finally able to understand the concept well enough to proactively articulate it in future situations that I found to be similar. While getting out of the way is hardly a new concept – everything has its season – only change is constant – it still takes some doing to figure out if and how and when to get out of the way. Perhaps getting out of the way is not a very natural action for us to take. After all, we all want to be wanted; we want to matter.

My little speech went something like this. I would call my successor – or, depending on the situation, actually meet with him or her – and I would explain my decision to walk away, step aside, allowing him/her to fully enjoy the opportunity to lead, just as I had. I would explain that I had served my time, tried to do my best, hoped I had made a difference, still cared deeply about the organization, and would always be just a phone call away if I were needed. I would explain that I did not wish to run the risk of interfering with new ideas, being misunderstood for stating my opinions, or – even worse – running any risk of derailing opportunities new leadership had to make even better changes for the future of the organization.

I must admit that my little speech may never have been fully understood. Or, maybe it was better understood than I will ever know. Who knows? But, the point of the story is that I found – with the advice of a trusted advisor – and with my own inner counsel – the approach that seemed to be mutually beneficial for me and the organization. I walked away – I did not run away, nor did I walk away mad. I did not make myself unavailable to those who wanted a sounding board, or an opportunity to vent their frustrations, or the safe harbor to bounce around a wild idea in confidence.

I believe I now have about a dozen of these experiences. Do I ever worry if I did the right thing? Sure. Do I ever find it hard to let go and are there times when I wish I hadn’t? Of course. Do I feel a bit guilty, especially when folks call me up and talk to me about the way things used to be and they wish it could be that way again? Yep.

But, I walked away.

Let’s face it, the Non-Profit Sector enjoys a unique role in our communities. And, there is no time like the present to offer the hope that a non-profit’s mission can bring to the people you serve. By definition, your organization has a unique mission to share – were it not so, the IRS would not have granted your charitable status!

In a time where our communities are reeling from the effects of the economy, harsh rains, snow, wind, fire, floods, and the like, we would recommend you take a moment to rekindle your mission. What does your mission say? What does your organization do? Are there some community needs within your mission that can provide hope in your community? Is it time to reintroduce your organization to your community?

You do remember that you have a mission statement, right? While it was likely conceived a good while ago, and while it is probably a little broad or maybe too vague or the words don’t say exactly what they should, we are living in a time when your organization is needed more than ever to bring new hope and ideas to your community. That’s why you exist!

To ‘rekindle’ your mission, as we say, start with finding it and reading it. Actually, spend some quality time studying it. Does it give you hope? Does it empower you to instill hope and take action on issues of importance in your community? If the words are not clear, then ponder how you could tweak your mission statement and make them clearer – actually, really clear – so that your constituents readily understand why you exist and what your role can and should be.

You have a truly wonderful opportunity in the midst of challenging times.

Although the focus of this article is serving your community, through hope, within the unique mission you provide, we suggest that you not miss the opportunity to reinvigorate staff, volunteers, and board members as you rekindle your mission. We know that without dedicated workers and volunteers in your non-profit, you will fall short of your mission, so the act of providing hope and a renewed level of excitement within your organization is an important key ingredient to achieving your mission in the community.

So, exactly how would you go about organizing a ‘rekindling activity’ inside your organization?

We will only suggest an example that you can control entirely, that will cost nothing, and is guaranteed to work – if for no other reason than it has probably not been done before!

After you, presumably as the board chair or the executive director, have studied your current mission statement and developed some initial thoughts about how to rekindle it, call a meeting of your key internal advisors – that may be key staff, all staff, a few board members, devoted volunteers, whatever is appropriate for your unique organization – and conduct the meeting in a way that is intentionally different from the norm in your non-profit. For example, if you have staff meetings on Wednesdays at 10 a.m., call your special meeting at some other time! If your board meetings are always at lunch, then call a special meeting for breakfast! You are trying rekindle excitement, dedication, and commitment, so make sure you do something that is very obviously different from the norm.

Prior to your meeting, send out your mission statement, with your thoughts and notes on what jumps out at you that can provide hope to your community at this precise moment. We are not particularly suggesting that this exercise results in a revision of your mission (although it might) but, rather, we are suggesting that all missions provide room for creativity and excitement when intentionally interpreted in that manner. In your cover note, tell the participants that you are excited about some opportunities you have been thinking about and that you want to get their input. Remind them of the importance of your organization and your mission of community service. In short, prepare them for an exciting meeting that will have one or two specific outcomes – opportunities for hope – that will get done.

What are those outcomes? Let them flow from the meeting participants! To be realistic, monkeying around with a sacred mission statement can be a tricky thing, so you really want to rise above all of that. Quite simply, you are looking for a much-needed, easy-to-implement idea, which fulfills your mission in the community in your own unique way. You know your organization can make a difference and you are about to provide the leadership to make it happen. So, while you may arrive to the meeting with a couple of ideas, or you may have some participants that have some other ideas, let the group flow toward consensus. If you facilitate properly, this will happen. The main ingredient in this meeting is excitement (an attitude) that leads to hope (by a specific doable thing).

Who knows? You might get lucky and end up with several great ideas. But, the most important thing is that you come away from this special meeting with one solid idea.

Our organization teaches through case studies, or examples, so we will provide an example. Let’s say your non-profit is a museum. Any museum. You have a mission to share your collection and your unique way of educating the public within your community. You already know that. Is there a constituency within your community that is underserved? How about an event that brings in a group from a local retirement home? Imagine the excitement and hope that such a visit could instill! What does it cost? Probably nothing. Most retirement homes have transportation for groups of residents. If not, call a bus company and ask for a one-time donation of services. It is pretty amazing how donors are willing to make a one-time gift of their services for an unusual idea that will bring hope to the community. There’s a certain good will component for the donor. Ah, and for your organization. After all, that’s why you exist.

Your local media might even find your project of hope to be of interest! Your community needs your non-profit now more than ever. Good luck. Make it happen. And, please let us know how it goes.

I continue to urge the study of ethics as a proactive exercise for all non-profit organizations. In my previous articles, I have stated that I find ethics to be among the most important business issues of our time (and all time). The purpose of this article is to draw distinctions between the options for ethics introspection and to urge an active and thoughtful approach to the study of ethics and its resulting application to your organization.

Simply stated, nobody can define ‘ethics’ for your organization. Sure, it’s a pretty easy thing to provide you with a list of things that are obviously wrong that you should avoid, but the power of a ‘study in ethics’ lies primarily in the active study of the issue, not in the passive reading of standardized prescriptions, books, or series of articles. In other words, to really study ethics, you must truly give it some thought and, most importantly, you must apply your thoughts to the particular circumstances of your own organization. If you take the time to do that, you can raise the issue of ethics from the level of ‘compliance’ to ‘excellence’ – and, your non-profit will have an opportunity to positively distinguish itself in a time of unprecedented funding competition among your contributors and grantors.

Fairly common is the notion that ethical behavior may be defined as ‘doing no harm’ and, while I do not disagree with this premise, I do not believe it is appropriately proactive for the kind of study in ethics that I advocate. There is just something about the phrase ‘doing no harm’ that immediately leads me to wonder about going a step beyond. And, in any commitment to excellence, going the extra distance is always the determining factor. It just seems that the notion of ‘doing no harm’ only take us to a point of achieving some minimum standard, of erring on the side of caution, of not stepping across the line, of playing it safe. This interpretation of ethics falls short of its full potential.

If your study in ethics leads you to adopt a mantra of ‘doing what’s right’ then it becomes considerably more proactive. While only you can define what ‘right’ means for your non-profit organization, it is entirely logical that discerning what is ‘right’ becomes a more aggressive and positive study than avoiding what is ‘wrong’ (i.e. the notion of ‘harm’).

I was once consulting with a quasi-governmental housing agency and was in a meeting with a number of its top managers. The issue at hand was the development of a relocation policy for residents about to be effected by the renovation of a housing development. The management staff was struggling with the specifics of the development of the policy – which was a very appropriate subject for discussion, debate, and decision – after all, the policy would need to be fair, anticipate all manner of unforeseen contingencies, and be applied consistently among several hundred affected residents. In other words, although unspoken, the policy needed to be ethical (however that was to be defined). It needed to either ‘do no harm’ or at least minimize the amount of harm inherent to the naturally disruptive activity of relocating a household. The challenges of developing the policy were real and the angst surrounding the discussion was appropriate.

After a healthy and open dialogue session, the enlightened executive director summed up staff’s various concerns, issues, and suggestions by simply stating that he wanted the organization to be firmly grounded in ‘doing what’s right’ in the application of the policy. To this day, I recall the positive and transformative shift that occurred in that meeting once the notion of ‘doing what’s right’ was introduced as the guiding principle.

Now, of course, ‘right’ means something a little different to everybody, so how does ‘right’ really provide direction for staff when determining proper policy interpretation? Well, I can tell you this, without any reservation, I do not recall a single incident when ‘right’ did not result in exceeding expectations and tipping the scales in the appropriate direction whenever an interpretation of that policy arose. The person selected to head the activity had no experience in that area – nobody on the staff did – but she understood the concept of ‘right’ and she applied it fairly and consistently. She also completed her tasks on time and on budget, so the daily performance of her duties required difficult decisions; it was never intimated that ‘right’ would always be easy. The notion of ‘right’ turned her daily application of a much-dreaded relocation requirement into an award-winning, unprecedented fulfillment of a critical activity that was a very early step in the scope of work for a large multi-year project. Had the initial relocation part of the project gone poorly, the success of the overall renovation would have been potentially irreparably jeopardized. Quite simply, though, it worked. And, it worked very well. Through this case study, I now have a realistic understanding of ‘doing what’s right’ and knowing that it works.

I would recommend that your own study of ethics include some research and some quiet time. Does your organization have an ethics policy? If so, get it out and review it; if not, find a couple of examples and study them. Then, spend some quiet time and ponder how you would craft your own ethics policy for a presentation to your board of directors. I believe that this approach will provide you with a successful study in ethics and will begin to shape a draft policy that can transform your organization – from ‘safe’ to ‘excellent’ – and, I believe the future of your non-profit depends on it. Endeavor to make it so.

It’s any non-profit’s worst nightmare: a February 18, 2010 CBS News 6 p.m. national story by Katie Couric that highlights a complaint of misused funds by a charity. Where are the policies that guide the governance, ethics, and accountability of the non-profit?

This article will serve as a case study to highlight the importance of several very obvious issues that could have been easily prevented. It is not intended as a review of “Feed the Children” or an evaluation of the need or the effectiveness of its program. Rather, it is a reaction to the elements presented in the news story and an illustration of how proper policies can prevent and/or guide an organization during a time of accusation or investigation, neither of which should necessarily be bad for any non-profit. CEGA believes that all non-profits need ‘a seal of approval’ and the problems highlighted by the “Feed the Children” news story provide an excellent learning opportunity.

By way of brief background, “Feed the Children” was reportedly the fifth largest charity, with annual contributions of over $1 billion. CBS reported on a very public dispute between its founder and his daughter, who is now employed by the charity. Allegations of misuse of funds have been made public in various lawsuits and countersuits. A watchdog organization reports that the charity has been questioned for over a decade about its operation. Among the very serious allegations are that only 15% of the funds raised directly support the need for which the charity was established. Recent allegations include disaster relief efforts in Haiti, whereby camps have been established to feed hungry children. The investigation by CBS into the operation of a Haiti relief camp indicates considerable confusion and misinformation surrounding performance of the charity and the role it was to play. The United Nations alleges falsehoods by the charity. It has been reported that no meals were served by the charity to any children after two weeks of camp operation. Amid the investigative reporting for the CBS story, the Haiti-based coordinator for “Feed the Children” resigned last week.

Let’s start with what we believe is the single most important policy for any non-profit: its conflict of interest policy. Such a policy could be very brief – or very inclusive – or it could include specific subpolicies, but the conflict of interest policy should guide an organization whenever there is an issue, for example, between its founder and family member who is an employee of the charity. Such a policy may rightly prohibit the employment of a family member, and may describe the types of financial transactions that are and are not acceptable by the charity. For example, spending charitable funds on the lifestyle of any employee is not good policy for any non-profit. If such a policy is in place, the governing body, presumably its board of directors, has a working tool in place to measure compliance. And, if the policy has been adopted and is on record, it states, for all donors to see, the intentions of the organization.The absence of such a policy does not mean the intentions were not appropriate, but it sure makes it difficult to prove, to measure, and to govern. Having any policy in place before a problem occurs can only be considered wise and proactive. CEGA believes that such proactivity will become increasingly important as donor contributions become more and more discerning.

While the conflict of interest policy should provide the cornerstone for any set of non-profit policies, many other policies can be customized to meet the specific needs of an organization. Examples include: investment policies, policies that guide administrative costs versus direct services (which are required reporting for non-profits in many states), employment policies that restrict the hiring of family members and, more specifically, establish an arms-length distance between the board of directors and the staff, so that family members cannot serve on the board that appoints other family members as staff.

Other examples include strict guidelines on appropriate expenditures, particularly all that fall under the category of “entertainment and expense reimbursement” and policies that outline the compensation methodology adopted by the board. Absence of such policies leaves open the opportunity for allegations and does not provide the board with the tools for making clear determinations when circumstances arise. Let us hasten to add that the mere adoption of policy does not ensure the proper operation of the non-profit; the intent of the policy must become part of the fabric and culture of the organization, which accrues to its benefit over time.

When a non-profit faces an accusation that would destroy the public trust placed in that organization, it is nothing short of tragic to learn that the operation was not guided by sound policy and guidelines. In the wake of Enron and Madoff, a wise non-profit would do well to anticipate increased regulation of the likes of Sarbanes-Oxley and to move boldly toward self-regulation as a competitive advantage over its peer organizations. Why? Because enlightened self-governance is always the right thing to do. And, compliance with the IRS regulations that enabled the establishment of the charitable organization is the law.