Writing in 1995, Peter Drucker, the dean of leadership studies in America, wrote in part, “Many people do not realize it, but the largest number of leadership jobs in the United States is in the nonprofit, social sector. Nearly one million nonprofit organizations are active in this country today, and they provide excellent opportunities for leadership. The nonprofit sector is and has been the true growth sector in America’s society and economy. It will become increasingly important during the coming years as more and more of the tasks that government was expected to do during the last thirty or forty years will have to be taken over by community organizations, that is, by nonprofit organizations.”
Fast forward a decade and we read a quote from Harvard Business School Professor James Austin in the September 2004 issue of Fast Company, “The growth rate of new nonprofits now exceeds that of private business formation and government expansion. Entrepreneurs go where the action is.” And the action is in creating 501(c)(3)s!
The problem is that a great many civic/community minded individuals believe that all they have to do is get a few friends together, send in the forms, become a non-profit, and sit back while foundations and philanthropists provide them with funds for their pet projects. Not so. Forming a non-profit means one thing and one thing only: responsibility.
The primary responsibility of a board member is his (or her) fiduciary responsibility. All non-profits must have financial oversight committees. The most scandalous nonprofit failures have been because of financial irregularities which resulted from board members not asking questions or from accounting firms not doing their job. Board members can be held liable for the actions of a nonprofit if they do not exercise due diligence. So ASK QUESTIONS!
Choosing the organization’s chief executive officer is the most public decision a board member can make – along with the CEO’s removal. Of course, hiring the CEO is not the be all and end all of human resources. The important thing, when hiring the CEO and all other staff is, as the saying goes, “hire talent, not skills.” If you hire skills, you will get someone who can do the job. If you hire talent, you will get someone who will grow and take your organization along with her (or him). One of the most ridiculous exercises I was ever involved with was my annual employee review. My boss took a copy of my job description and by each item marked a 1, 2 or 3. Since it was against the rules to give all of one number, in addition to the 3s I also got a couple of 3 pluses. Nonsense!
If over the past year an employee has not been doing her job then her boss should have known it and dealt with whatever the problems were. Grading someone on job description is grading the supervisor not the supervisee. (In fact, it’s the supervisor grading himself!) More importantly, it is a formula for stagnation. The proper performance review is to look at what the employee has done above and beyond the job description. That is the only way an organization will grow, and that has to be the goal of all board members, the growth of their nonprofits.
Board members need to bring with them to the board table their professional skills (knowledge and expertise) and contacts. If their expertise is, for example, in marketing, they should assist in that capacity. They should never be compensated. If they “volunteer” their company’s facilities, for example, in providing printing services, it should be clearly documented that they are not profiting in the least from the relationship. While it would probably be lawful for them to make a reasonable profit, it would not look good. Looks are impressions and impressions are reality. It is never worth it.
Many board members cannot “write the check,” but they have to be willing to open the doors to those who can, or who know someone who can. Board members are a crucial source for networking. If they are uncomfortable in this capacity, they should not be on the board.
Boards, working with the CEO, must establish the organization’s agenda, priorities and expectations, in other words, policy development. All of this is necessary within the context of formulating the organization’s mission and seeing to it that the organization, top down, acts in accordance with societal morals and values.
Finally, Board members need to be aware of the organization’s structure. Who is responsible for what? What is happening on a daily basis? This is not micromanaging, but macromanaging. Make certain that the organization is receiving proper legal and financial counsel. Make certain there is a conflict of interest policy in case any board member is directly benefiting from the work of the organization.
Sadly, a good case study is that of the Gloria Wise Boys and Girls Club. The Bronx-based Club, which has subsequently lost its affiliation with the Boys and Girls Clubs of America, apparently (remember, there are always three sides to every story – if you’re lucky!) gave a loan of $875,000 in municipal funding to liberal talk radio station Air America. The transfer was allegedly made by the executive director, without the knowledge of the Board, but with the use of a signature stamp of one of the Board members. So what did they do wrong?
First, if improper use of municipal funds (or any other type of restricted support) is not a felony, it should be. Second, non-profits are supposed to be non-partisan. Giving a loan to a political radio station is a partisan act. Third, an executive director must report to his board about all financial transactions. Fourth, board members cannot have stamps of their signatures made as that, by definition, violates their fiduciary responsibility. Fifth, board members must ask finance related questions. Sixth, the bank should never have permitted a check to go through with a stamped signature. And seventh, where were the Club’s accountants?
As noted by John Hawks in For A Good Cause? How Charitable Institutions Become Powerful Economic Bullies, “As long as an officer or director exercises ordinary diligence and care, no personal liability will arise, even when actions or decisions made in poor judgment cause injury or damage.” What it all comes down to is this: Use common sense, be aware of what is happening, ask questions, demand reports and accountability, and you won’t have to worry about being embarrassed when you see the morning newspaper.
Thursday, January 26, 2006
QUALITY ASSURANCE AND CUSTOMER RETENTION
Former GE CEO Jack Welch made many things famous, not least of which is the quality assurance program knows as Six Sigma. As explained by Martin Kihn in the September 2005 issue of Fast Company, “Sigma is the Greek symbol used to denote deviations from the mean. And so Six Sigma is essentially a set of procedures and tools designed to measure and analyze ‘defects’ in a process and help determine what’s causing them. The goal – the ‘six sigma’ part – is 3.4 defects per million, or 99.997% perfection.”
Ever wonder how the Japanese took over TV, stereo, electronics and automobile production from us? In the US manufacturers were willing to accept 5% rejects per million. In other words, for every 1 million anything that was Made in America, 50,000 would be no good. The Japanese lowered that number to 200 and gained industrial leadership. As Jay Levinson notes in Guerilla Marketing, “Every error that could possibly be construed as a mistake was noticed by people actually hired by industry to count mistakes. In the category of mistakes included shoddy workmanship, tardiness, breaks that lasted too long, minor flaws in detail work, low morale, and anything at all that impeded production.”
So how many errors does your organization make? How can you implement a Six Sigma program at your agency?
How often do you send out a mailer that is improperly folded? How many of your employees arrive at work late (begin the day eating breakfast) and leave as the clock strikes five? How often do staff go out shopping on their lunch hour and return, purchases and food in hand, and then take an additional 20 minutes to actually eat lunch? How many typos are there on your publications? How proud are your staff of where they work? How much bureaucracy do you have which stifles creativity?
J. Edgar Hoover had a rule that phones had to be answered by the third ring. If I call your offices, how long is it going to take for the phone to be answered – dare I dream? – by a real person?
How long does it take for a receipt to be sent to a donor? How long does it take for a stock letter to arrive?
Here’s one: How much failure do you encourage? Do you let your staff try new things? Do you celebrate the attempt, regardless of the results? Do you see failure as a learning experience? At IBM a manager was given $10 million to start a new program. After a year the attempt was a total failure. He went to his boss and offered his resignation. His boss refused to accept it on the grounds that they had just spent $10 million educating him!
Of course it does not need to cost anything, let alone millions, to get it right. It is all a matter of recognizing for whom you really work.
When working at a nursing home, a colleague and I made a presentation at the Greater New York Hospital Association. In passing she mentioned something about working closely with hospital discharge planners and I said something about having stories about the home appear regularly in the local newspapers. They were just passing remarks of seemingly no great importance.
After the formal presentation was over, she was asked how long it took her to respond to a request from a discharge planner. She said about 10 minutes. I was asked how often stories about the home appeared in the newspapers. On average it was 15 times a month.
Our colleagues were shocked. And so were we. One hospital discharge planner said that he was happy if he got a response for a request for a bed in two days. One community relations director said that her boss was thrilled if she got them into the paper once a month. They wanted to know the secret:
There is a saying in the Talmud, Know before whom you stand. In other words, know who your clients are.
The nursing home where we worked was a good nursing home. It had been before the new admissions director arrived, and was after she arrived. But her predecessor could only keep the occupancy rate a few points above 90%. The new director had us at 99%. Same nurses, same certified nurse assistants, same doctors, same therapists, same housekeepers, same maintenance staff, same food, same everything. What was the difference? Her predecessor felt that her clients were the potential residents and family members. The new director saw the discharge planners as are her clients. Instead of going to the hospitals to interview patients, family members, doctors and nurses, she stayed at her desk to answer the phone when the discharge planners called.
As for press coverage, colleagues at other facilities told me that their bosses had them sending out long press releases going into great detail about this that or the other thing that was happening at their facilities. For them, their bosses were their clients. Not for me. I explained to the boss that we had little control over what actually happens to our press releases. The longer they are, the more editing will be needed and the more mistakes will be made. So all I would do is send out a 3 to 4 paragraph press release with a photo. Basically, they were fillers – photos with long captions. That is what my clients, the newspaper editors, wanted. And what my boss really wanted was to see the home being recognized in the press.
Remember, your clients are not your bosses and board members. They are only the ones who hire and fire you! Your real clients are the persons who allow you to succeed at your work. They may be donors. They may be hospital discharge planners. They may be newspaper editors. They may be politicians. They may be organization members. They are the ones who utilize your services and the ones whose cooperation you need. Whoever they are, if you keep your clients happy, your bosses will also be happy. And the secret to doing that is quality assurance. There are literally thousands of other nonprofits to where they can turn. Don’t encourage them by being sloppy.
Ever wonder how the Japanese took over TV, stereo, electronics and automobile production from us? In the US manufacturers were willing to accept 5% rejects per million. In other words, for every 1 million anything that was Made in America, 50,000 would be no good. The Japanese lowered that number to 200 and gained industrial leadership. As Jay Levinson notes in Guerilla Marketing, “Every error that could possibly be construed as a mistake was noticed by people actually hired by industry to count mistakes. In the category of mistakes included shoddy workmanship, tardiness, breaks that lasted too long, minor flaws in detail work, low morale, and anything at all that impeded production.”
So how many errors does your organization make? How can you implement a Six Sigma program at your agency?
How often do you send out a mailer that is improperly folded? How many of your employees arrive at work late (begin the day eating breakfast) and leave as the clock strikes five? How often do staff go out shopping on their lunch hour and return, purchases and food in hand, and then take an additional 20 minutes to actually eat lunch? How many typos are there on your publications? How proud are your staff of where they work? How much bureaucracy do you have which stifles creativity?
J. Edgar Hoover had a rule that phones had to be answered by the third ring. If I call your offices, how long is it going to take for the phone to be answered – dare I dream? – by a real person?
How long does it take for a receipt to be sent to a donor? How long does it take for a stock letter to arrive?
Here’s one: How much failure do you encourage? Do you let your staff try new things? Do you celebrate the attempt, regardless of the results? Do you see failure as a learning experience? At IBM a manager was given $10 million to start a new program. After a year the attempt was a total failure. He went to his boss and offered his resignation. His boss refused to accept it on the grounds that they had just spent $10 million educating him!
Of course it does not need to cost anything, let alone millions, to get it right. It is all a matter of recognizing for whom you really work.
When working at a nursing home, a colleague and I made a presentation at the Greater New York Hospital Association. In passing she mentioned something about working closely with hospital discharge planners and I said something about having stories about the home appear regularly in the local newspapers. They were just passing remarks of seemingly no great importance.
After the formal presentation was over, she was asked how long it took her to respond to a request from a discharge planner. She said about 10 minutes. I was asked how often stories about the home appeared in the newspapers. On average it was 15 times a month.
Our colleagues were shocked. And so were we. One hospital discharge planner said that he was happy if he got a response for a request for a bed in two days. One community relations director said that her boss was thrilled if she got them into the paper once a month. They wanted to know the secret:
There is a saying in the Talmud, Know before whom you stand. In other words, know who your clients are.
The nursing home where we worked was a good nursing home. It had been before the new admissions director arrived, and was after she arrived. But her predecessor could only keep the occupancy rate a few points above 90%. The new director had us at 99%. Same nurses, same certified nurse assistants, same doctors, same therapists, same housekeepers, same maintenance staff, same food, same everything. What was the difference? Her predecessor felt that her clients were the potential residents and family members. The new director saw the discharge planners as are her clients. Instead of going to the hospitals to interview patients, family members, doctors and nurses, she stayed at her desk to answer the phone when the discharge planners called.
As for press coverage, colleagues at other facilities told me that their bosses had them sending out long press releases going into great detail about this that or the other thing that was happening at their facilities. For them, their bosses were their clients. Not for me. I explained to the boss that we had little control over what actually happens to our press releases. The longer they are, the more editing will be needed and the more mistakes will be made. So all I would do is send out a 3 to 4 paragraph press release with a photo. Basically, they were fillers – photos with long captions. That is what my clients, the newspaper editors, wanted. And what my boss really wanted was to see the home being recognized in the press.
Remember, your clients are not your bosses and board members. They are only the ones who hire and fire you! Your real clients are the persons who allow you to succeed at your work. They may be donors. They may be hospital discharge planners. They may be newspaper editors. They may be politicians. They may be organization members. They are the ones who utilize your services and the ones whose cooperation you need. Whoever they are, if you keep your clients happy, your bosses will also be happy. And the secret to doing that is quality assurance. There are literally thousands of other nonprofits to where they can turn. Don’t encourage them by being sloppy.
Posted by
Bruce Hurwitz
WHAT "NON-PROFIT" MEANS
Back in 1991, Governor Richard Lamm of Colorado told his state’s Association of Nonprofit Organizations Ethics Conference, “there are a large number of us nationwide who are looking at the reasons why we give tax-exempt status to organizations. America is filled with nonprofit hospitals that give practically no charity. Certainly they give far less charity than their tax exemption is worth to them.”
That’s the concern. Here’s the history:
One of the things of which we as Americans can be most proud is our tradition of creating non-profit organizations to help the less fortunate. Alexis de Tocqueville wrote with admiration about the “associations” that our forefathers formed. As eloquently stated by Larry Kennedy in Quality Management in the Nonprofit World, “An organization that attains tax-exempt status is the beneficiary of a profound opportunity to apply entrepreneurship, compassion, and practicality in fulfilling social motivations while remaining exempt from any responsibility to underwrite the nation’s infrastructure through taxes. We are exempt from these burdens because we operate under the public perception that what we do is important to society and that we are managing a business that provides services for reasons other than personal financial gain.”
In 1939 the House Ways and Means Committee noted, “The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that the government is compensated for the loss of revenue by its relief from financial burden which would otherwise have to be met by appropriations from public funds, and by the benefits resulting from the promotion of the general welfare.” As stated by the US district court in Washington, DC in the 1972 case of McGlotten v. Connally, by granting tax-exempt status “the Government relieves itself of the burden of meeting public needs which in the absence of charitable activity would fall on the shoulders of the Government.”
Tax exempt status, therefore, is granted to enable a spirit of entrepreneurship to blossom in areas serving the public good, by saving the government the burden of funding programming that charities are able to provide for the benefit of society, and not for the benefit of any one individual. (Not to confuse the issue, there are tax exempt organizations that are not 501(c)(3)s. For present purposes I am only discussing tax exempt non-profits recognized by the IRS as 501(c)(3)s.)
Today, in fact, there are two type of non-profits. The first are the classic non-profits. For example, any disease related organization that provides advocacy and education, and conducts research to rid humanity of the evil of Alzheimer’s, autism, cancer, Parkinson’s or any other true scourge on humanity. Relying on some government funding and charitable donations they offer free services to the community.
Then there are those of a different type, as mentioned by Governor Lamm. Today the government in many cases provides both tax-exempt status and 100% funding for these very organizations. That gives these non-profits an unfair advantage over for-profit competitors which could eventually lead to for-profits lobbying to have their non-profit competitors non-profit status revoked. In fact, these organizations would be better described as government subcontractors.
Far from unique, there is the example of a New York nursing home that received $32,702 in private contributions and $46,866,827 from the government according to its most recently available 990. Their CEO’s compensation totaled $578,524 or 1.2% of the total. All nursing home residents must either have government or private insurance, or be private payers. No services are provided gratis.
This charity provides important services. It pays no taxes. Should it? Its for-profit competitors do. They offer the same services. Why the difference? Does the fact that one employee receives over 1% of all government and charitable revenue bring into question the issue of “personal financial gain?” (To keep things in perspective, taxpayers pay $20,000 less to the above mentioned CEO then they pay the president and vice president of these United States, combined!)
Of equal importance is the prohibition on partisanship. Because non-profits are to serve society as a whole, they cannot support one political movement at the expense of another. That’s why during an election year non-profits refrain from honoring politicians or inviting them to events, as all candidates would have to be invited. Take the infamous case of the former Bronx-based Gloria Wise Boys and Girls Club. While there are usually three sides to every story, it appears that the Club, either with the knowledge or apathy of its Board, transferred some $875,000 to the anti-Bush liberal Air America radio station. Forgetting about everything else – including the improper use of municipal funds – that alone should be enough to have its 501(c)(3) status reviewed and possibly revoked.
Non-profits are tax exempt because it is recognized that there is a tradeoff between the non-profit’s work and the need to support society through the paying of taxes. In exchange for its providing services for the betterment of the community which, in its absence, the government would have to offer, non-profits do not have to pay taxes in support of local, state and national services. It is thus a win-win for everyone but only if all non-profits remember that they are to serve the public by saving the public an expense. If there is no tradeoff, if the non-profits receive government support (tax dollars), pay no taxes, and provide no charitable services, does not society lose? Is not the purpose of the law establishing non-profits defeated? And does this not endanger the status of all non-profits if for-profit competitors protest?
“Non-profit” does not mean not making a profit. By all means, make one. But that profit must be used for charitable purposes. It certainly cannot go to the aggrandizement of an individual, which may be the case when exorbitant salaries are paid. As Governor Lamm warned, it needs to go, at least at a minimum, to offsetting the nonprofits savings by being exempt from taxation. That’s what “nonprofit” really means.
That’s the concern. Here’s the history:
One of the things of which we as Americans can be most proud is our tradition of creating non-profit organizations to help the less fortunate. Alexis de Tocqueville wrote with admiration about the “associations” that our forefathers formed. As eloquently stated by Larry Kennedy in Quality Management in the Nonprofit World, “An organization that attains tax-exempt status is the beneficiary of a profound opportunity to apply entrepreneurship, compassion, and practicality in fulfilling social motivations while remaining exempt from any responsibility to underwrite the nation’s infrastructure through taxes. We are exempt from these burdens because we operate under the public perception that what we do is important to society and that we are managing a business that provides services for reasons other than personal financial gain.”
In 1939 the House Ways and Means Committee noted, “The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that the government is compensated for the loss of revenue by its relief from financial burden which would otherwise have to be met by appropriations from public funds, and by the benefits resulting from the promotion of the general welfare.” As stated by the US district court in Washington, DC in the 1972 case of McGlotten v. Connally, by granting tax-exempt status “the Government relieves itself of the burden of meeting public needs which in the absence of charitable activity would fall on the shoulders of the Government.”
Tax exempt status, therefore, is granted to enable a spirit of entrepreneurship to blossom in areas serving the public good, by saving the government the burden of funding programming that charities are able to provide for the benefit of society, and not for the benefit of any one individual. (Not to confuse the issue, there are tax exempt organizations that are not 501(c)(3)s. For present purposes I am only discussing tax exempt non-profits recognized by the IRS as 501(c)(3)s.)
Today, in fact, there are two type of non-profits. The first are the classic non-profits. For example, any disease related organization that provides advocacy and education, and conducts research to rid humanity of the evil of Alzheimer’s, autism, cancer, Parkinson’s or any other true scourge on humanity. Relying on some government funding and charitable donations they offer free services to the community.
Then there are those of a different type, as mentioned by Governor Lamm. Today the government in many cases provides both tax-exempt status and 100% funding for these very organizations. That gives these non-profits an unfair advantage over for-profit competitors which could eventually lead to for-profits lobbying to have their non-profit competitors non-profit status revoked. In fact, these organizations would be better described as government subcontractors.
Far from unique, there is the example of a New York nursing home that received $32,702 in private contributions and $46,866,827 from the government according to its most recently available 990. Their CEO’s compensation totaled $578,524 or 1.2% of the total. All nursing home residents must either have government or private insurance, or be private payers. No services are provided gratis.
This charity provides important services. It pays no taxes. Should it? Its for-profit competitors do. They offer the same services. Why the difference? Does the fact that one employee receives over 1% of all government and charitable revenue bring into question the issue of “personal financial gain?” (To keep things in perspective, taxpayers pay $20,000 less to the above mentioned CEO then they pay the president and vice president of these United States, combined!)
Of equal importance is the prohibition on partisanship. Because non-profits are to serve society as a whole, they cannot support one political movement at the expense of another. That’s why during an election year non-profits refrain from honoring politicians or inviting them to events, as all candidates would have to be invited. Take the infamous case of the former Bronx-based Gloria Wise Boys and Girls Club. While there are usually three sides to every story, it appears that the Club, either with the knowledge or apathy of its Board, transferred some $875,000 to the anti-Bush liberal Air America radio station. Forgetting about everything else – including the improper use of municipal funds – that alone should be enough to have its 501(c)(3) status reviewed and possibly revoked.
Non-profits are tax exempt because it is recognized that there is a tradeoff between the non-profit’s work and the need to support society through the paying of taxes. In exchange for its providing services for the betterment of the community which, in its absence, the government would have to offer, non-profits do not have to pay taxes in support of local, state and national services. It is thus a win-win for everyone but only if all non-profits remember that they are to serve the public by saving the public an expense. If there is no tradeoff, if the non-profits receive government support (tax dollars), pay no taxes, and provide no charitable services, does not society lose? Is not the purpose of the law establishing non-profits defeated? And does this not endanger the status of all non-profits if for-profit competitors protest?
“Non-profit” does not mean not making a profit. By all means, make one. But that profit must be used for charitable purposes. It certainly cannot go to the aggrandizement of an individual, which may be the case when exorbitant salaries are paid. As Governor Lamm warned, it needs to go, at least at a minimum, to offsetting the nonprofits savings by being exempt from taxation. That’s what “nonprofit” really means.
Posted by
Bruce Hurwitz
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