Thursday, July 14, 2005


There is nothing more dreaded than change. That is so with organizations as well as individuals. We cherish the familiar. “Better the devil you know” is a personal credo to many. The problem is, that just as individuals must evolve, so must non-profits. Leaders recognize this. What they must also be aware of is that the end result may be totally different from what was expected.
An excellent case of unexpected results was the 1992 reorganization of the Jewish Federation of Greater Clifton-Passaic, New Jersey, which merged with two of its sister agencies, the Jewish Family Service (JFS) and the Passaic-Clifton YM-YWHA (Y), and became Federation divisions. The aim of the merger was to enable the services offered by the JFS (social services, primarily counseling) and Y (recreational and educational programs) to continue to be available to the community, without increasing their burden on the Campaign that was about to suffer an $800,000 loss.
The classic definition of a Jewish Federation is the “central fundraising, planning and budgeting arm of the organized Jewish community.” In reality, as is said more often than not behind closed doors, “We raise money on the back of Israel for local needs.” In other words, putting Israel at the top of the marketing campaign, Federations receive donations which, classically, were distributed with over 50% going to Israel and the remainder being used by the Federation, local and national agencies.
In its heyday, the Clifton-Passaic Federation raised over $2.4 million. In 1991, 17.1% of the annual Campaign went for Federation expenses, its uncollectable pledge reserve, and its Joint Endowment Foundation (with the North Jersey Federation); local and regional agencies received 28.3% of the Campaign; national organizations got 1.1%; and Israel/overseas beneficiaries were allocated the remaining 53.3%. In 1997, the division was 25.7% for the Federation, 70.4% for local and regional agencies (including the JFS and Y), 2.2% for national organizations, and 1.7% for Israel/overseas. (This included deficit funding of $17,768 which was to be taken from the 1998 Campaign.)
As these figures indicate, the annual Campaign following the reorganization was focused on building mounting local needs. That was positive. The negative, from the perspective of the original goals of the reorganization was that while in 1991 the JFS and Y received 30.9% of the funds that were available for general distribution, in 1997 they received at best 63.37% or at worst 71.50%, depending on the math. The JFS and Y had taken over the Campaign.
Those agencies were located in the Jewish Community Center (JCC), which was owned by the Federation. Also present in the building were the Holocaust Resource Center and the Jewish Community News. In the year prior to the merger 40% of the annual Campaign went to agencies in the JCC (including the Federation). By 1997, that percentage had risen to over 90%.
While a multitude of interpretations can be given to any set of statistics, the important points are (a) that the result of the reorganization was to double Campaign support for the “merged” agencies, and (b) to practically eliminate any connection with Israeli/overseas activities – arguably the primary motivation for giving by a majority of donors and definitely the motivating factor behind the contributions of the largest and oldest contributors.
The above statistics are all based on Federation financial reports. Not reported in the 1995 report was that the $200,000 allocation to Israel/overseas was given to the Y to cover its deficit. Moreover, primarily because of the non-payment of pledges over a period of almost 10 years, the Federation’s Board, in accordance with the advice of its accountants, wrote off in excess of $1.3 million in debt to the UJA, through which donations are sent to Israel. (The proposed overseas allocation for 1998 – the year I left Federation, was $50,000.)
According to the Federation’s 2002 IRS Form 990 (the latest available on Guidestar), the Federation raised $1,673,997 (line 1d) and allocated $159,907 (Statement 6) to “Various Jewish Organizations.” Since salaries of the executives of the Federation, JFS and Y are reported, it is clear that the 990 represents the financials for all activities conducted at the JCC. The percentage of donations to local, national and overseas organizations was therefore 9.55%, 90.45% going to the Federation and its divisions. The distribution percentages have thus remained constant since 1996 and 1997.
Clearly, the Clifton-Passaic Federation has become a local agency that sends some money to other community organizations and abroad. It is no longer a “communal” fundraising organization, a “community chest.” While that is to be welcomed, it was not the intent of the merger, which saved local community services at the expense of the Federation’s historic purpose.
The moral is this: Be prepared for unexpected results. You never know where change will lead. And just because the end result was not what you wanted, it may still be for the best.


The best way to understand a non-profit is to review its mission statement. If the statement is long and convoluted it is safe to assume that the organization lacks focus and direction. It should be short, sweet and to the point, memorable and constantly revisited to assure that it remains relevant to donors, volunteers and staff.
The practical purpose of the mission statement is to remind the agency’s decision makers of their moral foundation. In this regard, there is no difference between non-profits and for-profits. In fact, non-profits can learn a great deal from for-profits.
Leann Cadani may have put it best. In Corporate Mission Statements: A Strategic Management Issue she writes, “The Mission Statement is a crucial element in the strategic planning of a business organization. Creating a mission is one of the first actions an organization should take. This can be a building block for an overall strategy and development of more specific functional strategies. By defining a mission an organization is making a statement of organizational purpose.”
According to Joseph Badaracco in Defining Moments: When Managers Must Choose between Right and Right, “Mission statements and credos can remind managers of the larger purposes their work serves, something easily lost in the hurly-burly of everyday life.” Rudy Giuliani, in Leadership, also speaks about the importance of a clearly defined mission. “Thus, finding the right organizational structure starts with a mission. Then you have to identify your aims, and what you should do to achieve them; find the right people for the job; and constantly follow up to make sure everyone is sticking to the original purpose, that no one’s taken over your team and sidetracked them.”
Remember in 1982 when you couldn’t buy Tylenol? Johnson & Johnson’s mission is to place the priority of the health of its customers above all else. So what to do when containers of Tylenol are poisoned in Chicago and the next day your stock price plunges 20% and you lose $2 billion in company value? Launch a nation-wide advertising campaign pointing out that the cyanide did not come from your plants, that it was an isolated incident of an individual madman, and that the product is safe. Of course that is not what mission-driven Johnson & Johnson did. They pulled Tylenol from the shelves and took a $240 million hit! As their credo states, “We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services.” That’s why their CEO was praised, not condemned, for the decision.
Ever hear of river blindness? Scientists at Merck found the cure for the disease that was decimating the lives of Africans. On average it costs $200 million and takes 12 years to develop a drug. In this case just to market Mectizan, as the cure was named, was expected to cost $2 million in its first year for distribution alone. It was estimated that the annual bill for producing and distributing the drug would be $20 million. The $3 price tag per pill was too high for anyone with the disease to pay. No governmental or international organization was willing to pick up the tab. What to do? “The mission of Merck & Co., Inc., is to provide society with superior products and services.” Merck gives the drug away for free. Every year it takes a multi-million dollar hit so that thousands of Africans can see. Again, the decision was praised by shareholders.
Then, of course, there are companies that take a leadership role when government fails. For example, South African mining conglomerate Anglo American could not get the South African government to approve a prescription drug campaign to fight AIDS which is destroying the country, lowering life expectancy to 48 years. With 25 to 30% of its employees being HIV positive, the company had to act. Against government wishes Anglo American decided to provide its employees with drug treatment, in addition to launching an educational campaign. Where government failed to act, a for-profit company took the leadership role and offered its expertise to local communities and health agencies. (Eventually the South African government decided to follow Anglo American’s lead.)
Of course cynics will say that Johnson & Johnson had no choice but to pull Tylenol from the shelves because no one would buy the product. And Merck may be losing millions on Mectizan but it gains untold millions from good press and good will. And as for Anglo American, it needed to protect its work force. But cynics just don’t get it. Having a moral foundation to one’s decisions is good business.
In his recently published book, Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value, Bill George, the former chairman and CEO of Medtronic, places mission at the center of his formula for success. He clearly states that the book’s purpose is “to show all leaders… that there is a better way to lead than we have seen in the past decade – by pursuing your mission, living by your values, and getting superior results for all stakeholders.”
George describes Medtronic as “a mission-driven company.” The mission statement that the company’s founder, Earl Bakken, wrote was “to restore people to fuller lives.” The full mission statement is literally plastered throughout the company, and a regular topic of discussion among employees.
Bakken wrote the mission statement in 1962. Five years earlier the company had created the first pacemaker. On the verge of bankruptcy the company’s board of directors urged Bakken to write the company’s mission statement. “It gave the company a clear purpose and focus. Within three months the company turned profitable and has been so ever since.”
According to George, “the best-kept secret in business is that mission-driven companies create far more shareholder value than do financially driven firms.” (During his tenure at Medtronic, George “created $60 billion in shareholder value!”)
While few non-profits have the impact on society of for-profits, learning for-profit decision making can serve as a guide to non-profits facing moral decisions to which all too often there is no clear decision. Hopefully when non-profits make those tough decisions, their boards and cohorts will show them the same support as their for-profit counterparts.


When doing executive recruiting for non-profits, it is amazing to me the number of clients and candidates that have not heard of Guidestar – the first place anyone should go when seeking information about a non-profit.
Guidestar ( is a national database providing basic information on approximately one million non-profits throughout the United States, including over 80,000 in New York. The most important aspect of the database is that it includes the 990s for the vast majority of these organizations. (The 990 is the tax form submitted annually by non-profits to the IRS. It includes information on revenue, expenses, senior management salaries, and board membership.)
Before a job interview it is important to download the prospective employer’s 990 as part of any research that you do. While it is important to note revenue and expenses, in reality what any candidate wants to check are the salaries paid to senior management. Anyone earning more than $50,000 should be listed. This is not just important for salary negotiations, it can also be very informative.
I once went for an interview where the proposed salary was $80,000. I downloaded the agency’s 990 and discovered that no one was listed as earning $50,000 or more. Since I was interviewing for director of Development, it was logical to assume that at least the CEO and COO would be making more. I asked the COO for an explanation. He told me that the agency was in fact made up of a network of non-profits. Salaries were distributed among the different constituent agencies. As no single agency paid $50,000 or more to any employee, none was listed. As I found out later, their accounting practices were questionable at best. That said, their books were audited, and distributing the salaries was legal – but it certainly wasn’t kosher!
Then there is a Connecticut educational non-profit. It has annual revenue of $5,766,523. Of this, $1,194,884 comes from contributions, $4,571,639 from program revenue.
The president earns $254,700. The co-president makes $127,169. One program director grosses $57,308 and another employee makes $60,303. Together the four earn $499,480.
Additionally, the agency pays a lease of $461,358. Specifically, $266,601 is lease rent; $103,697 is for lawn maintenance and rubbish removal; $50,477 is utilities payments; and $40,583 is taxes.
The four employees earn 41.80% of donations. Or, they earn 10.92% of program revenue. Or, 8.66% of all revenue. The lease represents 38.61% of contributions; 10.09% of program revenue; or 8% of all revenue.
All of this is perfectly legal. It is also apparently totally reasonable. Just one problem: The president and co-president are husband and wife. The two employees are their children. And they own the land that the non-profit leases. So, in total, the family receives $960,838 from the non-profit. Put differently, they get 80.41% of contributed funds, or 21.01% of program revenue, or 16.66% of all revenue. Again, it may be legal, but it’s not kosher.
The appearance of impropriety is something non-profits have to avoid at all costs. While the two examples cited are clearly exceptions to the rule, they reflect poorly on the industry as a whole. And it is all a matter of public record.
The number one rule of management is this, If you don’t want it on the front page of the local paper, don’t do it.