(The following was prepared for presentation at the 2006 Solomon Schechter Day School Association Biennial Conference, December 11, 2006, Boca Raton, Florida.)
Good afternoon.
This afternoon we are going to answer two interconnected questions: First, why should you hire a specific candidate for any position at your school? And, second, why should a candidate want to work for you?
The way we answer those questions will lead you to a way to differentiate yourself from the competition. And just to make it clear, the nice people sitting around you, your colleagues from other schools, they’re you’re competition! Throughout my presentation I will be suggesting a reading list. One book that you should read – although the title says it all – is Jack Trout’s Differentiate or Die: Survival in Our Era of Killer Competition.
I’ll just quote two sentences from the jacket cover. “For marketers, differentiating products today is more challenging than at any time in history – yet it remains at the heart of successful marketing. More importantly, it remains the key to a company’s survival.” Make no doubt about it; your schools are companies. And remember, your students’ first example of how a company/organization runs, is your school!
For sake of argument, we’ll be talking about hiring a new principal. But everything that I will say during our time together is equally applicable to anyone else from the custodian all the way down to the head of school, principal or executive director.
Before we begin I just want to remind you of one thing that you all know. An interview is a two-way street. The crucial component from the perspective of the candidate is the way you conduct the interview, which includes how that candidate is received and treated. The way you reach your decision about hiring her, will tell her how she will be expected to make decisions at your school.
Do you procrastinate? Do you keep her informed as the process proceeds? Do you need an excessive number of people to interview her? Everything you do begs the question, Is this how all decisions are made? That can be a positive or a negative question. If it’s negative, you won’t get a star to work for you.
Additionally, before you even begin the hiring process, ask yourself this question: Why are you hiring anyone for the position? Are you trying to fill a chair? Are you looking for someone who will continue where her predecessor left off? Or are you going to use the opportunity to hire someone who has no loyalty to your history and will move you to a new level without carrying the burden of your past?
In his book Only the Paranoid Survive. Andrew Grove, chairman of the Board of Intel, identifies this as “a key point.” He writes, “The replacement of corporate heads is far more motivated by the need to bring in someone who is not invested in the past than to get somebody who is a better manager or a better leader in other ways.” Take his advice. He knows of what he speaks. Don’t just look for a new model of what you had. View all hirings as opportunities for fundamental change. That does not mean that the past was bad. All it means is that the future will require something different. Just as the technology you use must be constantly updated, so too must your management philosophy and approach.
Let’s get started.
First question: Why should you hire a specific candidate to be principal of your school?
You tell me. What are you looking for? What are the top two or three concerns about which you ask a perspective candidate?
· Advanced academic/administrative credentials
· Experience administering educational institution
· Familiarity with level of instruction and current trends in education
· Staff development
· Curriculum development
· Human Resources
· Teaching experience
· Administrative experience
· Statistics: size of school, teacher/student ratio, graduation rate, percentage of students going on to ivy league colleges
· Fundraising experience
· Budget control/cost cutting
· Expected/desired compensation package
If those are your key concerns around your questioning, then you have a guaranteed formula for mediocrity. All of those issues are secondary. What I am now going to present are the main issues that you must address if you want to differentiate yourself from the crowd. And remember, your questions are half of what will differentiate you; the other half are your answers to the candidates questions.
Without exception, every successful company owes its success to the fact that it holds all of its employees accountable. GE is a success because GE’s executives are accountable for their decisions. Enron was a failure – to put it mildly – because its executives were accountable to no one.
All employees need three things to be successful – responsibilities, authority to carry out those responsibilities, and most importantly, accountability, to their supervisors, to their peers, to themselves and to their stakeholders.
If you have not done so yet, read Gary Neilson and Bruce Pasternack’s book, Results: Keep What’s Good, Fix What’s Wrong and Unlock Great Performance. While they mainly use examples from the corporate world, one of their case studies is of the Special Olympics, which, they emphasize, is an excellent organization that just needed some improvements.
What was improvement number one? What they refer to as “decision rights,” meaning who has the responsibility and authority for what decisions, were, and I quote, “Unclear, both in terms of accountability and process. People did not understand what they were accountable for and how they were being measured.”
Following their reorganization, Special Olympics instituted, and again I quote, “a rigorous performance measurement system that reinforces accountability and control at all levels.”
The same, of course, is true in the corporate world when reorganizations are called for. Caterpillar had the second highest shareholder return among companies on the Dow Jones Industrial Index in 2003. The Financial Times named it the 27th most respected company in the world. And in 2005, Forbes magazine listed it as the best-managed industrial corporation in America. So what did Caterpillar do after it survived losing a billion dollars in the first half of the 1980s and once again became profitable? It reorganized. And what was the first step in that reorganization? To quote from Neilson and Pasternack, “It moved accountability dramatically downward in their organization by reorganizing Caterpillar into ‘accountable’ business units that would have P&L statements and be judged on divisional profitability.” The results? From a $2.4 billion loss in 1992, to $2 billion in profits in 2004. From $10.2 billion in revenues in 1992, to $30.3 billion in 2004.
Of course, that’s on the company-wide level. What about the individual toward the bottom of the organizational chart? Jim Despain headed Caterpillar’s manufacturing operations in East Peoria. He recalled the following incident after the reorganization:
“When people feel accountable, they do wonderful things, if they really are accountable. I’ll never forget, it was down in the fabrication buildings where all the really tough guys hang out, the welders.
“One of the more cooperative people down there was given some responsibility to look at saving money in the weld-repair area. We had this little red lens that you put on the eye of the welding robot so the robot can follow the weld route. And we burned those up pretty quickly, because the fire was hitting them with pellets all the time. These lenses were costing us sixty-two dollars apiece, and he found a way to make them in our own tool room here for six cents. Sixty-two dollars to six cents. And there were many other things the same way.”
The bottom line for Despain’s division was that it became profitable in 1995, for the first time since 1990, when the reorganization went into effect. The number of employees dropped from 4,500 to 2,000. As he remembered, “We never invested a dime in more technology, never did any outsourcing. We just changed the way people worked together. They were putting their own creativity into the opportunities they were provided. They forgot about themselves and started looking at the bigger picture.”
Accountability works!
So the first question for your candidate is, How do you hold staff accountable? What do you do when an employee refuses to be held accountable? How do you reward accountability? How do you hold yourself accountable? To whom do you feel you are accountable?
Accountability is first. Mission is second.
Read Jim Collins’s books, Built to Last: Successful Habits of Visionary Companies and Good to Great: Why Some Companies Make the Leap…And Others Don’t. Also read Bill George’s autobiography (he’s the former chairman and CEO of Medtronic), Authentic Leadership: Rediscovering The Secrets to Creating Lasting Value.
I’m going to spoil the ending for you. The key is that all decisions are based on the companies’ mission statements. If a company lives by its mission statement it can make the tough decisions, survive, and grow to greatness.
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 government or international organization was willing to pick up the tab. What to do? Quote: “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.
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. But having a moral foundation to one’s decisions is good business.
To quote Bill George, the purpose of his book 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!”)
So what is the second question you ask your candidate? How does the mission statement of your present employer impact your decision making? Ask what the mission statement is. If she doesn’t know it, don’t hire her! Is this someone who just talks the talk or does she also walk the talk?
So we have accountability and we have adherence to a mission statement.
Here’s another book for you to read. In Search of Excellence: Lessons from America’s Best Run Companies, by Thomas Peters.
And I’ll spoil the ending for you again:
“The excellent companies seem to have developed cultures that have incorporated the values and practices of the great leaders and thus those shared values can be seen to survive for decades after the passing of the original guru. … it appears that the real role of the chief executive is to manage the values of the organization. “
Values-centric decision making is the only effective type of decision making. Case in point, the Four Seasons. Neilson and Pasternack quote the chain’s Regional Vice President, Stan Bromley, as follows:
“We advise all staff to make sure that every decision they make squares with our goals, beliefs and values … and they honor that obligation, because they feel they are respected. If we were seen as only caring about profits and prestige, rather than our customers and employees, they would not believe in our values, and we would be communications across a trust gap.”
And for the record, he was not talking just about managers. He was talking about housekeepers, bus boys, and bell hops as much as anyone else. And that’s why the Four Seasons is the Four Seasons and not Motel 6 (which, I hasten to add, I have frequented far more often than a Four Seasons!).
If you have a position that needs to be filled and you are looking for someone to fill that position, make certain that you have clear guidelines for what to do in case your school goes out of business, because it will. Never hire for today. Always hire for the future. That means the individual must leave a legacy. To do so she must be respected. To be respected she must have values.
Never forget, in every candidate you are looking to hire, you are looking for a leader. There is only one definition of a leader; all others are just a description of the attributes of leadership. I think I am quoting Peter Drucker, “A leader is someone with followers.” And not followers by coercion; but followers by conviction. And the only way someone earns followers, is by displaying admirable personal qualities. In other words, he has to have values.
So the third question for the candidate is, What are your values? How do they impact your decision making? Give us an example of a decision that you made which was not necessarily in your self-interest but was in the best interest of your school.
Accountability. Mission Statement. Values.
Hand-in-had with values goes ethics. And this leads to the issue of transparency. Accordingly, this is the one place in the interview where you have to volunteer sensitive information. And, when it comes time for the candidate to ask questions, you have to be forthcoming. (And, not to get ahead of myself, a key to your decision about whether or not to hire someone should be based in part on the questions that the candidate asks!)
Who are your stakeholders? How do you share information with them? Are staff, students, parents and donors invited to board meetings? If so, why? If not, why not? Do you issue an annual report? Do you invite dialogue with your stakeholders? How transparent are you?
Now it’s the candidate’s turn. Question number 4: How transparent is your decision making? Do you share the rationale behind your decisions with stakeholders? Which decisions? Which stakeholders? Why or why not? Do you invite dialogue throughout the decision making process? Or do you guide the so-called decision makers to the decision that you wanted all along? How do you implement decisions? What level of credibility do you have when you make a decision? And if this sounds like accountability, it is!
And thus from accountability, to mission statement, to values and ethics we arrive at transparency and return back to our start, accountability.
But let’s stay with transparency for a little while longer.
When someone has a success it is critical that it be shared with others. It’s called “best practices.” It’s important to explore with a candidate how she relates to best practices.
The other side of the best practices coin is failure. We all do it! Bill Cahill, the head of human resources at FedEx goes so far as to say that “success is when you learn from your failures.”
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!
So our fifth question is, What is your experience with best practices and failures? Does one department share amongst itself? Does it share with some other departments? Does it share with the entire staff? And does the school share with other schools? When it comes to failures, how do you encourage risk taking? When do you pull the plug on a failed project?
Accountability. Mission Statement. Values. Ethics. Transparency. Best Practices.
Of course, the most important best practice is the one concerned with the industry of which we are all apart: customer service. If you don’t treat your customers well, you will be out of business.
Former GE CEO Jack Welch made many things famous, not least of which is the quality assurance program knows as Six Sigma. In the September 2005 issue of Fast Company, Martin Kihn explained it in the following terms:
“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.” (Don’t ask me to explain the math!)
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.”
Yes, this is relevant to you. You also produce a product: students. Your students are your widgets. 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 in 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 donation letter to arrive?
The key to customer service is recognizing who your clients are. And in a way, the key is not forgetting that your clients are really your bosses.
When working at a nursing home, a colleague and I (she was the admissions director and I was the director of development), 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 hospital discharge planner for a bed. 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 because we did not think these were special results. One discharge planner said that he was happy if he got a response for a request for a bed at a nursing home within 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 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 were, the more editing would be needed and the more mistakes would be made at the newspaper. 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 recognized in the press.
Remember, if you are an employee, your clients are not necessarily your supervisors 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 may be vendors. And, of course, they most definitely are your parents and students. A client is anyone who utilizes your services and they are 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.
So the next question for your by now exhausted candidate is, What do you do to assure the quality of your services? How do you minimize errors? How do you deal with a disgruntled stakeholder?
Accountability. Mission Statement. Values. Ethics. Transparency. Best Practices. Quality Assurance.
Finally, it is a fact, not a truism, that the most important resource of any organization is its human resources, its staff. The candidate should be a personal example of professional development. So here the final question is easy:
What is the difference between your job description today and when you first got the position? If it has not changed, don’t hire him! And, What do you do to assure the professional development of staff? This does not just mean traditional staff development: holding seminars and the like. And this is something that schools are uniquely qualified to exploit: mentoring.
When was the last time you assigned a student to mentor a teacher or administrator at your school? Companies do it all the time. Junior staffers mentor senior staffers. If memory serves, Jack Welch had an intern teach him how to use the Internet. He learnt about the Web and, while talking with her, about her perspectives of GE. She received an education that money truly could not buy: seeing the view (literally, but more importantly, figuratively) from the head office.
The two most important jobs of a CEO are succession and hiring the right people. As Jim Collins puts it, if you don’t have the right people on the bus, you will not get where you’re going. And if, as CEO you do not identify and train – and see to it that everyone else does as well – your successor, then what is going to happen when you leave? Will the place fall apart? It happens everyday.
So a final, final question for your now comatose candidate is, How do you go about hiring the best people and keeping them? Do you interview, or at least meet, all candidates for all positions? If not, which ones don’t you? Are there any new hires that you do not interview? When you leave your job is there anyone who can take over? Did you train her? If there is no one, why not?
Now we come to our second issue. Why should the candidate want to work for you?
What’s your sales pitch?
Why should anyone want to work for you?
1. Your Board is committed to the future of the school and the success of all hires, first and foremost the principal.
2. Admissions are rising steadily over the past decade and are projected to continue.
3. You have a state-of-the-art facility.
4. Your teachers come from the finest institutions.
5. You have the largest library for a private school in the county.
6. Your students have the highest average GPA of any other school in the state.
7. Your students win numerous awards in local, regional, state and national competitions.
8. More of your students are accepted to ivy league universities than any other private school in the state.
9. Your teachers are paid a highly competitive salary and have a benefits package second to none, including paid sabbatical leave.
If you want the best you have to appeal to them on a different level. The following four-part justification for why anyone should want to work for you will differentiate you from your competition:
First, what is your employee turnover rate? If it’s low, that means you have good professional and lay leadership. Your best ambassadors are your staff. If they stay that tells the prospective employee everything he needs to know.
Second, show that you have the right people in the right jobs. Granted, this is a logical extension from the previous point. However, emphasize it. Show how all departments work as teams. Give concrete examples of professional growth. Mention promotions and expanded job descriptions.
Third, revisit the issue of values. As we have seen, the greatest companies are those that place values above all else. The most successful companies are those that have a track record of values-based decision making. They live their mission statements. Give examples of why that is true for you.
Fourth, risk taking. Celebrate mistakes and failures. The FAA rewards pilots who immediately inform on themselves when they make an error. Pilots actually carry the “self-reporting” form in their flight kits. There are 3,000 such reports filed every month, and 150,000 subscribers to NASA’s monthly newsletter, Callback, read about the most important ones. Residents at the Mayo Clinic publish on an internal blog their errors. The US Department of Energy has a “lessons learned” database for contractors. And, of course, the Marine Corp has a culture of celebrating honesty in admitting mistakes.
So what mistakes and failures can you celebrate with a prospective employee? Just imagine the individual’s shock of hearing about the chances that you allow your staff to take, fail at, and then move on having learned and benefited from the experience. That’s differentiation!
Thank you for attending, for your participation, and for your attention.
Monday, December 25, 2006
Tuesday, October 17, 2006
CEO COMPENSATION: A BRONX TALE
The Bronx, New York is a great borough. In a relatively small geographic area you can find the wealthy and the poor. If I remember correctly, there are more institutes of higher learning in the Bronx than any other similar sized region of the country. And, according to Guidestar, there are 928 non-profits. That is a testament to the caring and compassion of Bronxites. It also makes the Bronx a good “laboratory” for looking at non-profits which all share the same geographic area and, for the most part, the same client base.
CEO compensation, by which I mean the total pay packages of the top executives of non-profits, is a continuing bone of contention. Is anyone worth a $2 million salary? Should half million dollar salaries be paid by non-profit tax-exempt organizations, like nursing homes, that receive almost all of their funding from the government? Can anyone find fault with organizations that pays their top salaried employee less than 1% of their gross receipts?
There are 93 non-profits, out of the 928, who have 990s on Guidestar that show that they have a minimum of $1 million in revenue, and at least one paid employee. As someone who worked in the Bronx for 5 years, I know that the list is incomplete. For some reason my former employer, Morningside House Nursing Home, did not appear on the Guidestar generated list. I added it. There are others missing as well. While incomplete, it is an interesting academic exercise if nothing else. Look at the salaries and look at the percentage of the total gross receipts that they represent. Draw your own conclusions.
The salaries listed are of the highest paid employees. That may be a president, a CEO, CFO, executive director, director, principal, doctor, nurse, coordinator, or administrator, just to name the most common.
Again, draw your own conclusions… (and apologies for the lack of columns... E-mail me if you would like the Excel spreadsheet and I will be happy to send it to you.)
Organization Gross Receipts Salary Percentage
1215 Seneca Ave. Houses $2,106,513 $70,000 3.32%
Abraham House $2,167,695 $80,500 3.71%
Aging in America Community Services $3,959,650 $86,169 2.18%
Aguila, Inc. $4,871,147 $65,000 1.33%
Argus Community, Inc. $8,362,503 $156,848 1.88%
Belmont Community Day Care Center $4,886,449 $175,185 3.59%
Bronx Aids Services $6,611,505 $122,111 1.85%
Bronx Arts Ensemble $1,009,349 $55,753 5.52%
Bronx Charter School for Better Learning $1,135,518 $96,703 8.52%
Bronx Charter School for Children $1,628,159 $102,818 6.31%
Bronx Charter School for Excellence $2,028,828 $100,000 4.93%
Bronx Charter School for the Arts $2,685,487 $94,500 3.52%
Bronx Council on the Arts $1,462,867 $98,085 6.70%
Bronx Defenders $5,318,231 $148,534 2.79%
Bronx House, Inc. $3,766,020 $134,988 3.58%
Bronx Jewish Community Council $1,990,187 $88,760 4.46%
Bronx JCC - Home Attendant Services $17,702,429 $62,150 0.35%
Bronx Museum of the Arts $2,462,020 $65,768 2.67%
Bronx Overall Economic Development Corp. $3,666,734 $126,104 3.44%
Bronx Preparatory Charter School $4,753,853 $108,191 2.28%
Bronx Lebanon Hospital New Directions Fund $1,078,654 $32,176 2.98%
Calvary Hospital $78,910,500 $458,336 0.58%
Cancer Service Network $3,080,573 $142,228 4.62%
Casita Maria, Inc. $1,929,677 $162,522 8.42%
Christian Community in Action $25,559,793 $66,118 0.26%
Citiwide Harm Reduction Program $2,997,359 $63,558 2.12%
Citizens Advice Bureau $21,910,573 $166,632 0.76%
Claremont Neighborhood Centers $1,823,849 $94,821 5.20%
Comm. Resource Center Develop. Disabled $10,763,204 $154,636 1.44%
Com. Care Man. Diagnostic & Treat. Cntr. $6,150,887 $228,445 3.71%
Concourse House Housing Development Fund $2,605,453 $57,982 2.23%
Creative Lifestyles $5,364,153 $168,169 3.14%
Diego Beekman Mutual Housing Association $13,192,715 $81,544 0.62%
Downtown Bronx Medical Associates $65,249,865 $412,408 0.63%
Dreamyard Drama Project $2,248,431 $53,334 2.37%
East Bronx NAACP Day Care Center, Inc. $3,757,638 $62,800 1.67%
East harlem Council for Community Development $6,681,837 $150,000 2.24%
East Tremont Alumni Day Care Center $3,959,099 $78,593 1.99%
Families Reaching in Ever New Directions $2,639,035 $61,010 2.31%
Family Care Services $21,426,143 $84,080 0.39%
Family Life Academy Charter School $2,476,685 $96,397 3.89%
Family Support Systems Unlimited $14,761,303 $122,872 0.83%
Fordham Bedford Housing Corporation $4,456,798 $151,238 3.39%
Fordham University $526,706,428 $316,244 0.06%
Friends of Bronx Preparatory Charter School $4,017,568 $46,745 1.16%
Geel Community Services $4,709,690 $118,899 2.52%
Health People Inc. $2,981,536 $90,106 3.02%
Highbridge Advisory Council Family Services $15,889,748 $124,136 0.78%
Highbridge Community Life Center $4,371,561 $65,543 1.50%
Horace Mann School $68,030,265 $385,988 0.57%
Hunt's Point Mult-Service Center $23,420,220 $182,145 0.78%
Institutes of Applied Human Dynamics $33,285,736 $231,683 0.70%
Kinneret Day School $1,782,646 $76,500 4.29%
Kipp Academy Charter School $4,409,458 $115,945 2.63%
Kips Bay Boys' and Girls' Club, Inc. $13,967,572 $331,815 2.38%
The Learning Tree $1,093,111 $12,310 1.13%
Life Adjustments Center $5,322,711 $235,251 4.42%
Marc After-School Program $1,114,212 $87,765 7.88%
Morris Heights Health Center $29,340,109 $374,824 1.28%
Mid-Bronx Senior Citizens Council $5,394,667 $130,702 2.42%
Montefiore Medical Center $1,502,034,230 $1,979,453 0.13%
Morningside House Nursing Home Company $49,149,935 $497,845 1.01%
New Era Veterans $1,411,210 $103,714 7.35%
New York Botanical Garden $86,333,767 $382,336 0.44%
New York Harm Reduction Education $2,713,593 $96,740 3.57%
New York Institute for Special Education $68,848,475 $377,478 0.55%
New York Medical Alliance, UFPC $102,766,373 $612,448 0.60%
New York Westchester Square Medical Center $69,742,164 $477,987 0.69%
North East Bronx Day Care Center $5,412,024 $175,000 3.23%
OP & CMIA Local 530 - Welfare Fund $9,879,985 $180,333 1.83%
Paraprofessional Healthcare Institute $7,506,990 $125,929 1.68%
Pibly Residential Programs $7,786,799 $119,422 1.53%
Puerto Rican Home Attendant Services $11,968,687 $60,796 0.51%
Readnet Bronx Charter School $1,164,372 $93,022 7.99%
Riverdale Country School $58,416,025 $374,289 0.64%
Riverdale Neighborhood House, Inc. $1,802,183 $111,647 6.20%
Sammon Build Center Housing Development Fund $1,269,317 $66,444 5.23%
SEBNC Quality Vending Services $15,085,383 $53,939 0.36%
Seventh Avenue Center for Family Services $1,637,120 $81,261 4.96%
South Bronx Housekeeper Vendor Program $4,517,181 $57,920 1.28%
South Bronx Overall Economic Devel. Corp. $9,475,809 $116,586 1.23%
St. Ann's Corner of Harm Reduction, Inc. $1,240,233 $87,234 7.03%
St. Peter's Children's Network $3,574,152 $54,627 1.53%
These Our Treasures $3,246,390 $135,650 4.18%
Tolentine Zeiser Community Life Center, Inc. $5,281,764 $85,133 1.61%
Tremont Crotina Day Care Center $4,655,869 $90,782 1.95%
Tremont Monterey Day Care Center $3,370,326 $65,120 1.93%
Union Community Health Center $16,257,607 $89,070 0.55%
United Bronx Parents $10,111,701 $150,040 1.48%
University Consultation & Treatment Center $4,652,848 $74,246 1.60%
VIP Community Services $16,114,551 $235,000 1.46%
Wave Hill Incorporated $7,579,059 $104,400 1.38%
YM-YWHA of the Bronx $4,907,517 $183,210 3.73%
TOTAL $3,231,350,245 $15,613,768
AVERAGE $34,745,702 $167,890 2.64%
CEO compensation, by which I mean the total pay packages of the top executives of non-profits, is a continuing bone of contention. Is anyone worth a $2 million salary? Should half million dollar salaries be paid by non-profit tax-exempt organizations, like nursing homes, that receive almost all of their funding from the government? Can anyone find fault with organizations that pays their top salaried employee less than 1% of their gross receipts?
There are 93 non-profits, out of the 928, who have 990s on Guidestar that show that they have a minimum of $1 million in revenue, and at least one paid employee. As someone who worked in the Bronx for 5 years, I know that the list is incomplete. For some reason my former employer, Morningside House Nursing Home, did not appear on the Guidestar generated list. I added it. There are others missing as well. While incomplete, it is an interesting academic exercise if nothing else. Look at the salaries and look at the percentage of the total gross receipts that they represent. Draw your own conclusions.
The salaries listed are of the highest paid employees. That may be a president, a CEO, CFO, executive director, director, principal, doctor, nurse, coordinator, or administrator, just to name the most common.
Again, draw your own conclusions… (and apologies for the lack of columns... E-mail me if you would like the Excel spreadsheet and I will be happy to send it to you.)
Organization Gross Receipts Salary Percentage
1215 Seneca Ave. Houses $2,106,513 $70,000 3.32%
Abraham House $2,167,695 $80,500 3.71%
Aging in America Community Services $3,959,650 $86,169 2.18%
Aguila, Inc. $4,871,147 $65,000 1.33%
Argus Community, Inc. $8,362,503 $156,848 1.88%
Belmont Community Day Care Center $4,886,449 $175,185 3.59%
Bronx Aids Services $6,611,505 $122,111 1.85%
Bronx Arts Ensemble $1,009,349 $55,753 5.52%
Bronx Charter School for Better Learning $1,135,518 $96,703 8.52%
Bronx Charter School for Children $1,628,159 $102,818 6.31%
Bronx Charter School for Excellence $2,028,828 $100,000 4.93%
Bronx Charter School for the Arts $2,685,487 $94,500 3.52%
Bronx Council on the Arts $1,462,867 $98,085 6.70%
Bronx Defenders $5,318,231 $148,534 2.79%
Bronx House, Inc. $3,766,020 $134,988 3.58%
Bronx Jewish Community Council $1,990,187 $88,760 4.46%
Bronx JCC - Home Attendant Services $17,702,429 $62,150 0.35%
Bronx Museum of the Arts $2,462,020 $65,768 2.67%
Bronx Overall Economic Development Corp. $3,666,734 $126,104 3.44%
Bronx Preparatory Charter School $4,753,853 $108,191 2.28%
Bronx Lebanon Hospital New Directions Fund $1,078,654 $32,176 2.98%
Calvary Hospital $78,910,500 $458,336 0.58%
Cancer Service Network $3,080,573 $142,228 4.62%
Casita Maria, Inc. $1,929,677 $162,522 8.42%
Christian Community in Action $25,559,793 $66,118 0.26%
Citiwide Harm Reduction Program $2,997,359 $63,558 2.12%
Citizens Advice Bureau $21,910,573 $166,632 0.76%
Claremont Neighborhood Centers $1,823,849 $94,821 5.20%
Comm. Resource Center Develop. Disabled $10,763,204 $154,636 1.44%
Com. Care Man. Diagnostic & Treat. Cntr. $6,150,887 $228,445 3.71%
Concourse House Housing Development Fund $2,605,453 $57,982 2.23%
Creative Lifestyles $5,364,153 $168,169 3.14%
Diego Beekman Mutual Housing Association $13,192,715 $81,544 0.62%
Downtown Bronx Medical Associates $65,249,865 $412,408 0.63%
Dreamyard Drama Project $2,248,431 $53,334 2.37%
East Bronx NAACP Day Care Center, Inc. $3,757,638 $62,800 1.67%
East harlem Council for Community Development $6,681,837 $150,000 2.24%
East Tremont Alumni Day Care Center $3,959,099 $78,593 1.99%
Families Reaching in Ever New Directions $2,639,035 $61,010 2.31%
Family Care Services $21,426,143 $84,080 0.39%
Family Life Academy Charter School $2,476,685 $96,397 3.89%
Family Support Systems Unlimited $14,761,303 $122,872 0.83%
Fordham Bedford Housing Corporation $4,456,798 $151,238 3.39%
Fordham University $526,706,428 $316,244 0.06%
Friends of Bronx Preparatory Charter School $4,017,568 $46,745 1.16%
Geel Community Services $4,709,690 $118,899 2.52%
Health People Inc. $2,981,536 $90,106 3.02%
Highbridge Advisory Council Family Services $15,889,748 $124,136 0.78%
Highbridge Community Life Center $4,371,561 $65,543 1.50%
Horace Mann School $68,030,265 $385,988 0.57%
Hunt's Point Mult-Service Center $23,420,220 $182,145 0.78%
Institutes of Applied Human Dynamics $33,285,736 $231,683 0.70%
Kinneret Day School $1,782,646 $76,500 4.29%
Kipp Academy Charter School $4,409,458 $115,945 2.63%
Kips Bay Boys' and Girls' Club, Inc. $13,967,572 $331,815 2.38%
The Learning Tree $1,093,111 $12,310 1.13%
Life Adjustments Center $5,322,711 $235,251 4.42%
Marc After-School Program $1,114,212 $87,765 7.88%
Morris Heights Health Center $29,340,109 $374,824 1.28%
Mid-Bronx Senior Citizens Council $5,394,667 $130,702 2.42%
Montefiore Medical Center $1,502,034,230 $1,979,453 0.13%
Morningside House Nursing Home Company $49,149,935 $497,845 1.01%
New Era Veterans $1,411,210 $103,714 7.35%
New York Botanical Garden $86,333,767 $382,336 0.44%
New York Harm Reduction Education $2,713,593 $96,740 3.57%
New York Institute for Special Education $68,848,475 $377,478 0.55%
New York Medical Alliance, UFPC $102,766,373 $612,448 0.60%
New York Westchester Square Medical Center $69,742,164 $477,987 0.69%
North East Bronx Day Care Center $5,412,024 $175,000 3.23%
OP & CMIA Local 530 - Welfare Fund $9,879,985 $180,333 1.83%
Paraprofessional Healthcare Institute $7,506,990 $125,929 1.68%
Pibly Residential Programs $7,786,799 $119,422 1.53%
Puerto Rican Home Attendant Services $11,968,687 $60,796 0.51%
Readnet Bronx Charter School $1,164,372 $93,022 7.99%
Riverdale Country School $58,416,025 $374,289 0.64%
Riverdale Neighborhood House, Inc. $1,802,183 $111,647 6.20%
Sammon Build Center Housing Development Fund $1,269,317 $66,444 5.23%
SEBNC Quality Vending Services $15,085,383 $53,939 0.36%
Seventh Avenue Center for Family Services $1,637,120 $81,261 4.96%
South Bronx Housekeeper Vendor Program $4,517,181 $57,920 1.28%
South Bronx Overall Economic Devel. Corp. $9,475,809 $116,586 1.23%
St. Ann's Corner of Harm Reduction, Inc. $1,240,233 $87,234 7.03%
St. Peter's Children's Network $3,574,152 $54,627 1.53%
These Our Treasures $3,246,390 $135,650 4.18%
Tolentine Zeiser Community Life Center, Inc. $5,281,764 $85,133 1.61%
Tremont Crotina Day Care Center $4,655,869 $90,782 1.95%
Tremont Monterey Day Care Center $3,370,326 $65,120 1.93%
Union Community Health Center $16,257,607 $89,070 0.55%
United Bronx Parents $10,111,701 $150,040 1.48%
University Consultation & Treatment Center $4,652,848 $74,246 1.60%
VIP Community Services $16,114,551 $235,000 1.46%
Wave Hill Incorporated $7,579,059 $104,400 1.38%
YM-YWHA of the Bronx $4,907,517 $183,210 3.73%
TOTAL $3,231,350,245 $15,613,768
AVERAGE $34,745,702 $167,890 2.64%
Posted by
Bruce Hurwitz
Sunday, August 06, 2006
HIRING PROFESSIONAL FUNDRAISERS
General rule of thumb number 2: You never want Mike Wallace to show up at your door with a camera crew. Yes, I know he’s retired but just because someone is changing – or hoping to change – his employment status does not change the rule. Which leads me to general rule of thumb number 1: You never want to receive a letter, call or visit from Eliot Spitzer that indicates that there may be a problem with your policies and procedures. One of the Attorney General’s pet peeves is non-profits that don’t have ethical standards when it comes to their fundraising.
Just look at his website – www.oag.ny.us – and click on “Charities” under “Ensuring the Integrity of Public Institutions.” It’s first on the list. And the list is not in alphabetical order. “Charities” comes before “Broker-Dealers, Advisers, Investors and Securities,” “Franchise and Business Opportunities,” “Lawyer’s Page,” “Opinions of the Attorney General,” “Real Estate,” and “Telecommunications & Energy.” The man takes charities seriously. And you should take him seriously as well.
If you have not reviewed the website, review it! Scroll down and before you spend money on fundraisers, spend time reading the reports under “Pennies for Charities.” Here’s how it works:
You are a charity. You have thousands of donors. For sake of argument, 5% have not made a donation this year. The campaign is coming to an end. You do not want to lose them so you hire a fundraising telemarketing firm to solicit them. They have 500 donors to contact. They do an excellent job and reach 400, obtaining contributions from 350. Well done. Congratulations! Problem is that you are paying them either a flat fee per call, or a flat fee per donation received, or a flat fee per hour and mathematically that means that since these are probably relatively small gifts, the telemarketer keeps the lion’s share. Here’s what the AG reported in 2005:
“A total of $170.6 million was raised on behalf of 440 charities in 2004 by the 555 telemarketing campaigns covered in this report. The $170.6 million includes funds raised in New York and other states during telemarketing campaigns on behalf of charitable organizations registered to solicit contributions in New York. Charities retained $63.5 million, or 37.24 percent, of the funds raised by telemarketers registered to solicit contributions in New York in 2004. While some charities received more, many received less that 37.24 percent, and some received nothing at all. The remainder – $107.1 million – was paid to fundraisers for fees and/or used to cover the costs of conducting the campaigns.”
From the perspective of the charity the situation is like this. We raise millions. The telemarketing campaign is only a small percentage of funds received. We don’t want to lose these donors. So while we may actually only be bringing in a few pennies on the dollar, as part of the overall campaign, this is insignificant. Our overall fundraising costs are still well below the 35% that the Better Business Bureau says is the maximum that a charity should spend on its fundraising efforts. In fact, this is not really fundraising; it’s more like PR.
As far as it goes, the charity is correct. So how do you make certain there is no issue with the AG. Have the telemarketer say the following: Good evening Mrs. Smith. I’m calling on behalf of the XYZ Fund. We want to thank you for your past support. Last year you were kind enough to donate $15.00. Can we put you down for an $18.00 donation this year, with $15.00 going to pay my expenses as a telemarketer and $3.00 going to the Fund?
Full disclosure is what is required. Read the report. The African Wildlife Foundation received –40.20% of the money it raised from one of its campaigns. (In other words, it cost them $1.40 to raise $1.00!) On the other hand, the Association of Graduates of the US Military Academy received 93.70% of their telemarketing efforts. (They paid six cents for every dollar raised!) If your campaign is closer to Africa than West Point, don’t do it. After all, is it really worth it if donors find out what you actually did with their money?
This does not mean that you should not engage professional fundraising services if you cannot afford to have your own development office, or if you need to supplement their activities. Just make certain that whomever you hire is properly registered with the Charities Bureau of the Attorney General’s office. There are four types of professional fundraisers:
A “Professional Fund Raiser” (PFR) is someone who is contracted to plan or run a fundraising campaign, solicit potential donors, or advertise goods or services for the benefit of a charity. A “Professional Solicitor” (PS) is employed by a PFR to solicit donations. A “Fund Raising Counsel” (FRC) is contracted to plan or run a fundraising campaign but does not solicit funds and does not have any access to funds received. Finally, there is the “Commercial Co-Venturer” (CCV) which is defined as, “Any person who for profit is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds or any other thing of value for a charitable organization and who advertises that the purchase or use of goods, services, entertainment, or any other thing of value will benefit a charitable organization.” While a PS, FRC and CCV must be registered with the Charities Bureau, a PFR must also be bonded. It is the responsibility of the charity to make certain that any professional fundraiser hired is registered, and the responsibility of the professional fundraiser to file copies of any contracts/reports with the Bureau.
The exact requirements can be found in form CHAR009 (www.oag.state.ny.us/charities/ forms/char009.pdf). Simply stated, a charity that requires someone to advise them on its fundraising activities, write grants, plan special events, etc., only requires a Fund Raising Counsel. If, however, the charity needs someone to actually ask for donations, collect monies and issue receipts, it would then have to hire a Professional Fund Raiser.
Paid staff, volunteers and board members are not required to be registered or bonded if involved with fundraising activities. The best telemarketers are in fact those same volunteers and board members because they are motivated by passion, while some telemarketers are apparently only motivated by profit.
Just look at his website – www.oag.ny.us – and click on “Charities” under “Ensuring the Integrity of Public Institutions.” It’s first on the list. And the list is not in alphabetical order. “Charities” comes before “Broker-Dealers, Advisers, Investors and Securities,” “Franchise and Business Opportunities,” “Lawyer’s Page,” “Opinions of the Attorney General,” “Real Estate,” and “Telecommunications & Energy.” The man takes charities seriously. And you should take him seriously as well.
If you have not reviewed the website, review it! Scroll down and before you spend money on fundraisers, spend time reading the reports under “Pennies for Charities.” Here’s how it works:
You are a charity. You have thousands of donors. For sake of argument, 5% have not made a donation this year. The campaign is coming to an end. You do not want to lose them so you hire a fundraising telemarketing firm to solicit them. They have 500 donors to contact. They do an excellent job and reach 400, obtaining contributions from 350. Well done. Congratulations! Problem is that you are paying them either a flat fee per call, or a flat fee per donation received, or a flat fee per hour and mathematically that means that since these are probably relatively small gifts, the telemarketer keeps the lion’s share. Here’s what the AG reported in 2005:
“A total of $170.6 million was raised on behalf of 440 charities in 2004 by the 555 telemarketing campaigns covered in this report. The $170.6 million includes funds raised in New York and other states during telemarketing campaigns on behalf of charitable organizations registered to solicit contributions in New York. Charities retained $63.5 million, or 37.24 percent, of the funds raised by telemarketers registered to solicit contributions in New York in 2004. While some charities received more, many received less that 37.24 percent, and some received nothing at all. The remainder – $107.1 million – was paid to fundraisers for fees and/or used to cover the costs of conducting the campaigns.”
From the perspective of the charity the situation is like this. We raise millions. The telemarketing campaign is only a small percentage of funds received. We don’t want to lose these donors. So while we may actually only be bringing in a few pennies on the dollar, as part of the overall campaign, this is insignificant. Our overall fundraising costs are still well below the 35% that the Better Business Bureau says is the maximum that a charity should spend on its fundraising efforts. In fact, this is not really fundraising; it’s more like PR.
As far as it goes, the charity is correct. So how do you make certain there is no issue with the AG. Have the telemarketer say the following: Good evening Mrs. Smith. I’m calling on behalf of the XYZ Fund. We want to thank you for your past support. Last year you were kind enough to donate $15.00. Can we put you down for an $18.00 donation this year, with $15.00 going to pay my expenses as a telemarketer and $3.00 going to the Fund?
Full disclosure is what is required. Read the report. The African Wildlife Foundation received –40.20% of the money it raised from one of its campaigns. (In other words, it cost them $1.40 to raise $1.00!) On the other hand, the Association of Graduates of the US Military Academy received 93.70% of their telemarketing efforts. (They paid six cents for every dollar raised!) If your campaign is closer to Africa than West Point, don’t do it. After all, is it really worth it if donors find out what you actually did with their money?
This does not mean that you should not engage professional fundraising services if you cannot afford to have your own development office, or if you need to supplement their activities. Just make certain that whomever you hire is properly registered with the Charities Bureau of the Attorney General’s office. There are four types of professional fundraisers:
A “Professional Fund Raiser” (PFR) is someone who is contracted to plan or run a fundraising campaign, solicit potential donors, or advertise goods or services for the benefit of a charity. A “Professional Solicitor” (PS) is employed by a PFR to solicit donations. A “Fund Raising Counsel” (FRC) is contracted to plan or run a fundraising campaign but does not solicit funds and does not have any access to funds received. Finally, there is the “Commercial Co-Venturer” (CCV) which is defined as, “Any person who for profit is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds or any other thing of value for a charitable organization and who advertises that the purchase or use of goods, services, entertainment, or any other thing of value will benefit a charitable organization.” While a PS, FRC and CCV must be registered with the Charities Bureau, a PFR must also be bonded. It is the responsibility of the charity to make certain that any professional fundraiser hired is registered, and the responsibility of the professional fundraiser to file copies of any contracts/reports with the Bureau.
The exact requirements can be found in form CHAR009 (www.oag.state.ny.us/charities/ forms/char009.pdf). Simply stated, a charity that requires someone to advise them on its fundraising activities, write grants, plan special events, etc., only requires a Fund Raising Counsel. If, however, the charity needs someone to actually ask for donations, collect monies and issue receipts, it would then have to hire a Professional Fund Raiser.
Paid staff, volunteers and board members are not required to be registered or bonded if involved with fundraising activities. The best telemarketers are in fact those same volunteers and board members because they are motivated by passion, while some telemarketers are apparently only motivated by profit.
Posted by
Bruce Hurwitz
Thursday, January 26, 2006
BOARD MEMBER RESPONSIBILITIES
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.
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.
Posted by
Bruce Hurwitz
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
Sunday, August 28, 2005
IT’S TIME TO RETHINK TAX EXEMPTION FOR NON-PROFITS
One of the things of which Americans can be most proud is our history 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 individual.
In the September 2005 issue of Inc., Norm Brodsky wrote about how he likes competition. Well Norm, I have great news for you. In order to help non-profit organizations I am going to start my own non-profit document shredding company. The hospitals, nursing homes, universities, colleges are all coming to me. I’ll provide the same services as you, but for a fraction of the price because I’ll be paying no taxes while your paying whatever it is that you pay. And not to fear, the IRS almost never denies a request by a minimum of three adults to form a non-profit. Hurwitz Non-profit Document Shredding is moving to Brooklyn!
Don’t worry. Just kidding. But it’s not all that ridiculous. Let’s take, for example, a non-profit geriatric facility in the Bronx with total budgets of over $40 million. They provide excellent services, including a community based services organization and a nursing home. For all intents and purposes, either the local, state or federal governments fund all programs. They provide no free services to anyone. They are on a tight budget of government funding. Yet, they are tax exempt. And their CEO earns well in excess of half a million dollars.
While in past centuries the reason for tax exemption was to release the government from financial burdens allowing social entrepreneurs to take the lead in providing services for the public good, 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. In fact, they would be better described as government subcontractors.
If non-profits are to enjoy the benefits of tax-exempt status, they must provide services to the community for which they are not reimbursed by the government to make up for their share of the tax pool. If not, they should lose their tax exempt status and have to play on an even playing field with for-profits. By all means let them continue to be non-profits issuing deductions for donations, but lets not have the government and government subcontractors disguised as tax-exempt non-profits joining forces againg for-profits. That's as sill as my going into the document shredding business.
Posted by
Bruce Hurwitz
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