Non-Profit Governance Dialogue

Your association may have been one of the reported 200 nonprofits invited to the White House “Initiative for Nonprofit Talent and Leadership” planning session convened 11/15/11 at Red Cross Headquarters.  Then again, if your strategic objectives on behalf of your industry/members are clear and you resist euphemistic great good intentions as your raison d’être, probably not.

I saw notice of a “nonprofit group meeting” on, I believe, the American Express website “Open Forum – Small Business Week in Review,” so I was interested.  AmEx turns out to have been a meeting sponsor, coincidentally.  If the meeting was covered by the media I missed it. 

I well remember during the Ford and Reagan administrations when 200-300 associations would be invited by Red Cavaney, then at the White House during those times, et al., to participate in briefings to understand the presidents’ agendae.  On returning to headquarters we would flash our board that, yes, we do matter; today, attendees at such meetings likely text their boards on hitting the street.

This invitation-only gathering out of the White House Office of Social Innovation and Civic Participation and the Office of Faith Based and Neighborhood Partnerships (which includes centers in 13 Federal agencies) was of a different stripe, I suspect.  The goal was to “promote diversity, develop talent, and equip (NP) leaders, spurring governments to spend more (emphasis added) on leadership training.”  Are any of these apparently benign objectives imbedded in your strategic plan?

Among the groups sponsoring this public service/community development gathering were the Center For Creative Leadership, Public Allies, Commongood Careers, Achieve Mission, Service Nation, Atlas Corps, Network For Good, and the Corps For National and Community Service (which embraces the Senior Corps, AmeriCorps, and Learn & Serve), names which fall easily from one’s lips, I’m sure.  Big oaks from little acorns grow.

The sponsor group also included the Aspen Institute, the Annie E. Casey Foundation, and the Independent Sector.

Devoted to “investment in human capital,” this gathering was keynoted by Melody Barnes, Director of the White House Domestic Policy Council, and was addressed by White House key official Valerie Jarrett, as well.  In break-outs and other sessions, the groups were charged “(1) to define actionable goals and (2) commit to viable, high impact strategies.”  There is to be a follow-up in May, 2012; materials did not comment on that timing.  (I didn’t see a report on the meeting on the White House website.)

It may interest you to know more about some of the sponsoring groups:

The Center For Creative Leadershp’s “mission gives (it) an unusual flexibility in a world where profit motives (emphasis added) often drive or confine thinking. . . we have the freedom. . . to develop leaders. . . for the benefit of society – worldwide.”  Commendable.  But, there’s that backhand swipe at that pesky “P” word, again.

The Public Allies (Chicago) office, if memory holds, is where the First Lady worked before assuming her executive position at a nonprofit hospital.  It works with AmeriCorps in coordinating 10-month training programs for full-time, paid, 18-30 year old “apprentices” so as to develop “passionate” social change makers “through a recognized approach. . . rooted in a practice of values.” 

Commongood Careers is a clearing-house for public service positions such as the one it featured for the Washington, DC based Free The Slaves organization.  Says (FTS) “(it) knows that slavery flourishes when people cannot meet their basic needs and lack economic opportunity, social protection and knowledge about (their) ability to exercise their rights (emphasis added).  We (FTS) know that a holistic approach is required to eradicate slavery and we believe it is possible to end slavery in our lifetime.”

The association/society community empathizes with social/economic needs and supports efforts to teach men/women “how to fish.”  Whether the organizations above embrace such long term investments or more readily subscribe to the in vogue “can’t wait” tempo of the White House, is anyone’s guess.

If you did attend the day long meeting we’d be happy to share your observations.

It wasn’t speaking of avoirdupois when the Financial Times referred to those Cayman Island “Jumbo Directors” who each accept ($5,000 - $30,000) board positions on as many as 50-100 hedge funds, and more.

Such practices fly in the face of the increasing pressures independent board directors confront in the US.

According to the Financial Times, 11/21/11, an estimated 75% of the 8,000 hedge funds extant are listed in the Caymans, something of a cottage industry for the hundreds of board directors who provide “fiduciary services.”  Hedge funds, in the main, invest pension funds and public endowments.

This “fiducial” practice of serving on multiple boards contrasts wildly with for-profit company and nonprofit organization service in this country.  US public company independent directors are under increasing scrutiny from institutional and other large investor groups which challenge the selection and contributions of outside executives who sit on or are nominated for board service. 

The National Association of Corporate Directors, of which I am a member, suggests that independent directors, whose annual director time demand (at public companies) is estimated at 250+ hours a year (Spencer Stuart suggests 300-400 hours/year), should not accept invitations to serve on more than five (5) corporate boards, an acknowledgment of their base duties of loyalty and care.  While professional fees for such can range widely, the average director compensation for Fortune 500 companies averages in low six figures (conveyed partly in cash and partly in stock options).

Demand for such board service in the Caymans is booming, according to FT.  Fourteen directors there hold more than 70 seats each, some assignments generating $30,000.  Four executives hold 100 directorships.  One executive is listed on more than 500 entity boards.  Fifty-eight percent of directors there, according to a recent Caymans survey, felt that service on 30 boards was acceptable; 33% suggested 40.  A UK group, Industry Professionals for Alternative Funds, proposes a maximum of 20 seats.

The president of the 185 member Cayman Islands Directors’ Association, himself head of the fiduciary services firm, IMS, suggests that the test be “does the individual (director) have enough time and logistical support to properly discharge his fiduciary duties?”  FT noted that most of the directors sitting in the Caymans have professional degrees/experience in law or accounting.

Comparing these high numbers of “diligence” assignments, which would be shocking in the US, brings to mind reports of the compliant asbestos class-action radiologist some years ago who, purportedly, “qualified” patients for inclusion on reading thousands of x-rays a day.  Closer to home we learn (Wall Street Journal, 11/21/11) that many physicians retained by the Social Security Administration to conduct medical case eligibility reviews, thought by some to typically consume 60-90 minutes each, have rebelled and/or resigned from the SSA because of a reduction in pay (from $90.00 a case to $80.00).  It is also reported that SSA demanded that they not only work harder but also accept case files outside their specialization (e.g., an eye doctor assigned to review back pain, or a dermatologist to review a probable stroke case).  Some physicians allege that SSA forced them to change their findings.

Wouldn’t directors sitting on more than a dozen Cayman boards be subject to similar “let’s move on” pressures?

Estimating time demand is one of an executive’s key considerations when considering an invitation to serve on a public company board.  Well respected public company board director Betsy S. Atkins shared with an NACD annual conference some years ago that, when her firm was acquired in 1999 by Lucent Technologies; she joined its board.  Her arrival coincided with the retirement/abrupt return of its fabled CEO and other litigation (unrelated to her) which required that her board convene in person and electronically in her first year 56 times.  As she confided to the NACD audience, you never know what time burdens you may be taking on.

Service on nonprofit trade association and professional society boards, in the main, do not include cash compensation, though some large professional societies and civic groups (e.g., American Medical Association, Rotary) had extended and may still do extend compensation when their officers/directors’ time demands mean substantial loss of their own billable hours.

The spectrum of effective nonprofit board governance, including director roles and responsibilities, the duties of loyalty and care, and the “bright line” between elected and staff, is presented in “ready-to-be-considered” policy options on my BoardRoom Arsenal website, www.aerg.org; the first publication is complimentary

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In this litigious age, even for nonprofits, it has never been more important for leaders to commit to writing all fund investment policies and procedures, as was emphasized during the excellent 11/10/11 complimentary seminar/webinar hosted by Jeffrey S. Tennenbaum, Esq. and the Venable Law firm.  Compliance with the 2006 Prudent Management of International Funds Act, which imposes appropriations and endowment spending rules for (c)3’s, 4’s, 6’s, and 7’s, now in 49 states, informed the bases for the precautions emphasized throughout the session.

The caution to think through one’s investment intentions, commit them to writing, then follow through, that is “say what you intend to do. . . and do what you say” is an essential discipline in all facets of governance starting with one’s vision, mission and goals, etc., and such is especially true when husbanding the organization’s assets.

Venable counsel Rory M. Cohen urged nonprofit leaders to focus on documentation in preparation for the rigors of an audit.  That harkens back to the firehouse principle; if it isn’t ready to protect and preserve at the onset of a fire it’s too late.

Joining Mr. Cohen on the panel were Messrs Robert L. Olcott and Kenneth N. Low of Orion Investment Advisors, and Ms. Shannon V. Spafford, CPA of Larson, Allen. 

The central message was that “the board is ultimately responsible” for organizing the approach to investing, formalizing the policies and procedures, implementing with care the intended processes, and then regularly monitoring all the players, especially the potential layers of “external” investment counsel, to ensure all is going forth as planned.

The detailed plan setting out one’s investment intentions should be “viewed as a roadway. . . a living document” that sets out all essentials such as acceptable level of risk, liquidity requirements, expected rate of return, and so forth.  The message loud and clear by Mr. Olcott, and joined by the others, was that if “(your) organization sets out with a reasonable and comprehensive approach, and follows it, the group, under audit, would likely be seen as fulfilling its fiduciary responsibility.”  To further ensure that all your monitoring bases are covered, Mr. Olcott suggested “one needs a process to review one’s process.”

In summary, among the issues which could be addressed in an Investment Policy Statement (IPS), according to Mr. Cohen, are:

·         General investment objectives

·         Permitted/prohibited investments

·         Acceptable levels of risk

·         Asset allocation and risk

·         Procedures for monitoring investment performance

·         Scope and terms of delegation of investment management functions

·         The investment manager’s accountability

·         Procedures for selecting/evaluating “external agents”

·         Processes for reviewing investment policies and strategies

·         Proxy voting

·         Frequency of review/change in conditions which would alter the monitoring schedule.

These legal, investment and accounting counsel propose a clarity of intention and documentation not readily seen in the average trade association, professional society, private club or charitable group.  I’m sure they’d be glad to assist you in meeting these standards.

At the broader governance level our BoardRoom Arsenal (www.aerg.org) provides a host of Foundation First Governance models and guidelines to help non-profit leaders develop the consensus and document specificity which marks every effective organization.

The recording of the program and the  PowerPoint can be had via http://www.venable.com/fiduciary-self-audits-evaluating-decision/making/processes-and-controls-11-10-2011/.

The slides for the Fiduciary Self-Audit presentation alone, and so much more, are available, complimentary, on Venable’s website www.venable.com/nonprofits/publications.

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