Naming Rites

It’s not unusual for people to change their names. Last names change with marriage, divorce, career changes, whim, and the urge to assimilate. My maternal grandparents anglicized their surname “Medvedsky” to “Meadow” within a few years of arrival in America. (Family legend has it that my Great-Uncle Harry, who reputedly was a low-level operative in the New Jersey mob, insisted on the name change. His siblings wisely and swiftly complied.) First names change as well, with evolving tastes and preferences. A quick visit to the local magistrate is usually all it takes for a new identity.

But when nonprofits want to change the name on a building, it’s a much more public – and complicated – exercise.

Which brings us to Lincoln Center, the renowned performing arts complex in New York City. Lincoln Center is undertaking a gut reconstruction of Avery Fisher Hall, the New York Philharmonic’s home for the last four decades. The construction costs are projected to be $500 million. The folks at Lincoln Center didn’t think they could raise that much cash without a significant leadership gift, and that gift, they felt, would require naming the reconstructed hall after the donor. The opportunity to get your name on one of the preeminent performing arts venues in New York, the thinking went, would be worth a bundle.

But there was a catch. Even though this is essentially going to be a new performance hall, Lincoln Center had to deal with the fact that Avery Fisher’s name was already attached to the space. And, though Avery Fisher himself had long passed from the scene, his heirs have not – and it turns out that they are a litigious bunch who needed to be placated. And so, to induce the family to agree to the name change, Lincoln Center slipped Avery’s three children a total of $15 million – or $4.5 million more than their dad had donated to begin with in 1973. (In the category of deep ironies, the story goes that Avery Fisher, by all accounts a very modest man, had to be convinced to allow the hall to be named after him in 1973. He apparently thought the naming ritual was unnecessary and meaningless.)

Once Lincoln Center paid off the Fisher family, it offered the naming rights to the highest bidder. It only took a few months to come up with a winner: Hollywood mogul David Geffen, whose name will now adorn the hall in exchange for a $100 million gift.

Like tabloid gossip about rich families (divorce! adultery! drug use! tax evasion! cosmetic surgery!), whose problems are just like ours, only with much more money and vastly more public scrutiny, it’s fun to read about the rich and famous of the philanthropic world. But there are serious lessons from the Lincoln Center story that can be helpful to those of us in the less-elite parts of the philanthropic world:

  1. It’s perfectly fine to name buildings and parts of buildings after major donors – but make sure everyone knows the rules. I deeply admire Pablo Eisenberg, the conscience of the philanthropic world, but he went a little overboard in a recent fulmination against naming buildings after billionaires. Dispensing honors in exchange for gifts is a tried-and-true way to attract funding for capital projects. But everyone should be clear up front if the name is perpetual or only for a limited time period. David Koch, the oil-and-gas billionaire and conservative political mega-donor, allowed a 50-year limit on his name adorning a nearby hall at Lincoln Center. Geffen Hall, on the other hand, is perpetual. If Lincoln Center wants to do another gut rehab in sixty years and tries to summon up another named donor, they’ll have some legal issues on their hands.
  2. Make sure the price is right. Geffen paid $100 million for the naming rights to the hall, which is a lot of money. But let’s not forget that Lincoln Center had already given $15 million as an inducement to the Fisher family. That’s a net of $85 million, or only 17% of the total construction cost. That’s too little. I’d think that 40%, or even 50% of the total cost would be more appropriate. In a town with so much money, I think Lincoln Center sold the name too cheaply. 
  3. Consider whether the honoree will attract or repel subsequent donors. If the building is named after someone, and that name goes public at an early stage, other donors might want to help honor that person, or they might run away in horror, or something in between. I don’t think Geffen is a controversial character – but in raising money for Geffen Hall, it would be helpful if potential donors admired the guy.
  4. Consider your response if the honoree turns out to be a public embarrassment. Remember Dennis Koslowski, the disgraced CEO of Tyco? Koslowski, recently released from jail, became a household name a decade ago for corporate excess and corruption. That created a sticky situation for Middlebury College, which had recently named its campus childcare center after Koslowski. It’s never simple to take a name off a building – though it’s vastly easier when the donor goes to jail and it’s proven that the money that bought the honor was ill-gotten. Middlebury took scrapers to the Koslowski name and hasn’t looked back.

 

It’s more difficult when there are well-known and credible accusations of wrongdoing, but no criminal convictions. For example, the serial rape accusations swirling around Bill Cosby have caused challenges for the many colleges and universities he had supported, and on whose boards he served. Cosby and his wife had donated $20 million to Spellman College in Atlanta to establish an endowed professorship and program for the humanities. Spellman “suspended” the program, but didn’t indicate that they would return the money or strip the name off the endowment. Everything is in limbo. Spellman also hasn’t said if Cosby’s name would remain on their humanities building.

Not a simple situation. As my grandmother, born Sarah Schulman, then Sarah Medvedsky, and finally Sarah Meadow would have said: “Oy!” And stay tuned in future posts for more thoughts on philanthropic naming, and un-naming.

Copyright Alan Cantor 2015. All rights reserved.

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Donor-Advised Funds: By the Numbers

Last week I participated in a terrific debate about donor-advised funds with my good friend Stuart Comstock-Gay, the president of the Vermont Community Foundation. (Thank you, Planned Giving Council of New Hampshire and Vermont, for inviting us!)

Stu and I found a lot of common ground, as well as several areas where we cordially agreed to disagree. Stu made the case for donor-advised funds, saying that their flexibility and low entry point encourage charitable giving and democratize philanthropy — private foundations for the average person. He also emphasized their efficiency. I brought out my concerns (familiar to readers of this column) that donor-advised funds were attracting money that otherwise would be going to actual charities. I also pointed out that money goes into donor-advised funds more readily than it comes out, and I described the unethical financial incentives that are driving the growth at commercial gift funds such as Fidelity.

In preparing for the debate I came up with some numbers that I think illustrate the challenges posed by donor-advised funds. (Because we were meeting right across the river from Dartmouth College, by far the largest fundraising operation in Northern New England, I make references to Dartmouth in a few places.)

The numbers:

2 Ranking in 2012 (the most recent year studied) of Fidelity Charitable in the Philanthropy 400, the Chronicle of Philanthropy’s listing of American nonprofits that have raised the most money.

89% Increase in donations to Fidelity Charitable from 2011 to 2012.

13 and 18 Ranking in the 2012 Philanthropy 400 of Vanguard Charitable Endowment and Schwab Charitable, the second- and third-largest commercial donor-advised funds.

21 and 24 Ranking in the 2012 Philanthropy 400, respectively, of Harvard and Yale Universities.

105% Increase in donations to donor-advised funds between 2009 and 2012.

1:17 Ratio between what Dartmouth College raised in 2012 ($194 million) and what Fidelity Charitable raised ($3.2 billion).

1:3 Approximate ratio of the Dartmouth College endowment after 245 years ($3.7 billion) to the assets of Fidelity Charitable after 23 years ($10 billion).

201,631 Number of donor-advised funds in the U.S. at the end of 2012.

$13.7 billion Total dollars donated to donor-advised funds in 2012.

$9.4 billion Total dollars donated to all environmental, conservation, and animal rights organizations combined in 2012, or $4.2 billion less than what was given to donor-advised funds.

$45.3 billion Total dollars held in donor-advised funds at the end of 2012.

1007 Number of entities sponsoring donor-advised funds, according to the National Philanthropic Trust, including 47 financial institutions.

$75 million Estimated fees earned by Fidelity Investments on investments in their mutual funds from Fidelity Charitable (based on .75% average fee on $10 billion total assets).

70% Percentage of donations that Fidelity Charitable says involve the donors’ financial advisors (that is, where the donors’ brokers are being paid a commission for advising on the investments of the funds held there).

100% Percentage of donations that involve providing commissions or fees to donors’ financial advisors at the American Endowment Foundation, a commercial gift fund based in Hudson, Ohio.

102% Increase in donations to the American Endowment Foundation between 2011 and 2012 ($62.5 million to $126.7 million).

16% Average 2012 pay-out from all donor-advised funds.

16% What the annual grants paid by donor-advised funds would be if 20% of the donors, by fund value, paid out 80% of their funds in grants, and the other 80% of donors paid out absolutely nothing.

0% Amount that donor-advisors are required by federal law to grant out to charity in a particular year… or ever.

1 Minimum number of grants that Schwab Charitable requires its donor-advisors to recommend in a five-year period.

$50 Minimum grant size at Schwab Charitable.

Copyright Alan Cantor 2014. All rights reserved.

 

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Cheap Easels

If you want to understand the nonprofit world’s approach to spending money, take a look at their easels.

Every small nonprofit owns metal easels. They use these easels a dozen times a year to hold big newsprint pads for strategic planning retreats, staff meetings, and board presentations, and to hold up posters at public events. Virtually every organization has a metal easel or two stuck in closets and car trunks and basements. Even in an era of PowerPoint presentations and digital projectors (not to mention white boards), nonprofits continue to own and use easels. For some reason, easels are a tough habit to break.

And those nonprofit easels are uniformly lousy.

During my thirty-year nonprofit career I constantly found myself dealing with rickety and malfunctioning easels. Whenever there was a meeting where we needed an easel, we had to cope with missing parts, broken legs, and malfunctioning clips. For decades, as I searched through car trunks for missing parts, or as I tried to make the bent, spindly legs stay in a locked position (thank you, duct tape!), I thought how strange it was that nobody had figured out how to build a decent, sturdy, functioning easel.

Then I started my own consulting business. I went to the nearby Staples to pick up office supplies: a few reams of copy paper, clips, pens, writing pads, and, yes, an easel.
There on a back shelf I saw my nemesis – the kind of flimsy number that had been torturing me for decades. It cost $35. And next to it was a vastly better stand, a kind I had never seen before, made of thicker and sturdier aluminum – for all of $59. I bought the better stand, and it’s never given me a moment’s worry since. In fact, I have every expectation that the stand I bought will outlive me. (It’s already vastly sturdier than I. Ask my knee surgeon.) But every nonprofit I know continues to buy the rickety easels. The default in the nonprofit world is to go cheap.

Some people worry about nonprofit waste, and there is some of that. But more often nonprofits are frugal to a fault, with flimsy easels, yes, but, far worse, antiquated technology, cramped and unproductive office space, and underpaid and undertrained staff members. It is the rare nonprofit that recognizes how economically counterproductive its frugality can be. Buying the cheap easels means, first of all, that its productivity and morale drop as staff members have to spend extra time dealing with substandard and inefficient equipment. Second, by having to buy two or three easels over the years, the nonprofit spends more than if it had simply bought a good easel to begin with. It’s hard to imagine companies in the for-profit world consciously choosing to buy equipment that is so patently defective unless they had absolutely no other choice.

And yet nonprofits continue to be cheap to a fault. I think that’s partly because they don’t want to be seen as spendthrift, partly because they have developed a culture of frugality, but mostly because every nonprofit is obsessed with and held captive by its annual operating budget. And that’s because in the nonprofit world, nothing is considered more important than a balanced operating budget.

I understand why this focus came about: In a sector where impact is hard to measure, and where there are no profits and losses or shareholder dividends or pie charts reporting trends in market share, the simplest and most obvious measure of good management is balancing the budget. Funders and the public at large can forgive many sins, so long as the annual budget is in the black.

And so whereas a for-profit entity would be inclined to invest in high-quality supplies (and staff, and training, and offices) for the long-term benefit of the company, and whereas a start-up venture would budget for short-term losses as a prerequisite to eventual profitability, the nonprofit veers toward perpetual, annual, short-sighted frugality. Nonprofits inevitably opt for the cheap, and they are reluctant to spend freely until budgetary balance is assured in the final weeks of the fiscal year.

This is unfortunate, but understandable. The penalties for not balancing the budget, even under extenuating circumstances, are significant. Whispers about mismanagement rise up. Funders pull out. And with the withdrawal of support, what might have been a one-year financial blip can become a structural deficit.

In other words, a year in the red prompts donor flight, which almost ensures more future deficits. And so nonprofits do all they can to stay in the black, each and every year, even if this frequently leads to decisions that are not in the nonprofit’s best long-term interests.

It’s time for funders and ratings agencies to recognize that an occasional deficit – if caused by a one-time event, or even as part of a planned strategy for investing in infrastructure – is not necessarily a sign of poor management. It may even be an indication that the organization is looking beyond the end of the year. It’s my hope that funders take a more nuanced and enlightened view of the annual budget. And if there’s an organization that should be run out of business, it’s not the nonprofit that occasionally runs a deficit, but rather the office supply company that makes those god-awful easels.

Copyright Alan Cantor 2014. All rights reserved.

 

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Foundering

“So what’s your boss like?” I asked a friend, who had recently taken a position at a nonprofit.

“Well, you know. He’s a founder.”

My friend then listed the adjectives describing his boss: “Creative. Dynamic. Charismatic. Visionary. Brilliant. Funny. Inspiring.” Also, “Meddling. Obstinate. Egotistical. Defensive. Controlling. Annoying. Demanding. Distracted.”

Some of my best friends are founders. If you’re one of them, I promise you that this is not about you in particular. Maybe not even you in general. I can also say that I have deep respect and sympathy for founders. Without founders, we wouldn’t have the dynamism and creativity and impact that characterize the nonprofit world.

But it’s the rare founder who can transition easily into becoming a good manager. It’s a cliché to point out the contrasting personalities needed to be a successful entrepreneur-founder and to be the manager of a mature organization – but like a lot of clichés, it’s based on a core of truth. Organizations often outgrow the founder’s managerial talents.

That said, I know some founders who have defied the odds and remain effective after two decades or more at the helm. Drawing lessons from their example, here are some hints for our founder friends to help them be the best possible leaders for the organizations they’ve created:

1)     Remember that you are not the organization, and the organization is not you. A little emotional distance is a healthy thing. You may be the personification of the cause to the public, and that can be very helpful in some ways, especially for raising money. But the organization is no longer a start-up, and it is no longer a one-person show. Remember to credit your staff. Share the decision-making. Don’t interpret critiques of the organization as personal attacks. Remind yourself that changing established practices is not a rejection of you, but simply a way of improving how business gets done.

2)     Try, try, try not to micromanage. At one point in the organization’s history you did it all. You now lead a different, larger, more sophisticated organization. Don’t forget that times and technology have changed. Don’t forget that you have skilled staff members in place who crave a sense of ownership. Remember that if you second-guess the staff they will feel undermined and belittled. And don’t hold the purse-strings too tightly: let people manage their budgets without having to run every expenditure by you. (You’re the CEO, not Mom or Dad.)

3)     Realize that the overall success of the organization under your leadership does not mean that you’re equally good at everything you do. One real challenge for you and other founders is to get a clear reading on your strengths and weaknesses. You have been in charge virtually your whole working life, and it’s not easy for staff to tell you when you’ve screwed up, or to suggest changes. Obviously, the board should be doing a thorough annual evaluation, but boards tend to treat founders with a reverence that weakens the evaluation process. One founder friend of mine, aware of how the board defers to him, recommends that his organization hire a consultant every few years to do a complete 360-degree evaluation of his performance. I think that’s a great idea – and I’m not only saying that because, well, I’m a consultant.

As I have written before, no leader is good at everything. The CEO who is brilliant at making a pitch to a corporate funder may not be as effective at encouraging a young and self-doubting staff member. A leader who can formulate the big-picture vision may underestimate the challenges that will arise in the execution. An executive director who tirelessly works to promote fairness and opportunity for the organization’s clients may be the same person who plays favorites in the office. But it can be very difficult for the the CEO to get a fix on her own strengths and weaknesses. This makes it particularly important for the CEO to seek candid feedback and to do some honest self-analysis. Focus on those responsibilities to which you bring unique skills. And keep in mind that simply because you enjoy doing something or are very experienced in doing something doesn’t mean you’re particularly good at it.

4)     Don’t forget that you are in a powerful position. Thomas A. McLaughlin has written about the remarkable power of a nonprofit CEO within an organization – greater, he claims, than in any workplace other than a sole proprietorship. McLaughlin asserts that a nonprofit CEO is more powerful within his organization than, say, the CEO of General Motors is within hers. In corporate America there is a paid board of directors with a vested interest in the success of the company. (Board members are shareholders, after all.) The corporate board can provide a hefty counterweight to the CEO, whose power is also limited by the harsh reality of quarterly financial reports, daily share prices, public scrutiny, and the marketplace. A nonprofit CEO, on the other hand, reports to a volunteer board that is highly unlikely to look for trouble, and the measures of success are less clear. Most of the information a nonprofit board receives actually comes from the CEO. You as the nonprofit CEO have more or less free rein. Don’t abuse it. Don’t lord over the staff. Hold yourself to higher standards than your board does.

* * * * *

A founding CEO should bring the same degree of scrutiny, creativity, and vision to looking at his organization — and his place in it — as he did many years before in creating the place. Founders need to work consciously not to undermine the success of the organizations they love. Those who fail to make the necessary adjustments will see their organizations falter and their own reputations tarnished, and they run the risk of being remembered with the saddest and most preventable of judgments: “They just stuck around a little too long.”

Copyright Alan Cantor 2014. All rights reserved.

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Identity Laundering

Some charitable gifts are made with open hearts and great altruism. Other charitable gifts are made largely to curry favor or gain attention. And then there are gifts that use charity purely to further the donors’ political and financial interests. Here’s a story about how a pair of famous billionaire brothers have manipulated charitable giving laws for personal and political ends – all while taking advantage of technicalities to cover their tracks and protect their pet charities.

First, some background.

As I have written before, paradoxically enough nearly everything that goes on at a private foundation is open to the public, while much of what goes on at a public charity can be kept private. You see, a single family can control everything that goes on in a private foundation: investments, grants, the works. Because of the family’s absolute control, federal law requires equally absolute transparency. Each grant, each board member’s name and address, and every dollar in honoraria paid to board members are part of the public record. The notion is: the family may have complete control, but in return they have to show us every little detail of their activities.

Meanwhile, activities of public charities are subject to less careful examination. The notion is that the board of directors serves as the public’s eye to ensure proper conduct, and consequently there doesn’t need to be as much scrutiny. And, as you may know, organizations that sponsor donor-advised funds – historically, community foundations, but more recently “charitable gift funds” at commercial entities like Fidelity and Schwab – are considered public charities. Consequently, not only can organizations that sponsor donor-advised funds keep their donor lists anonymous, but they do not have to disclose the identity of which donors have recommended particular grants.

Another bit of background: In order to be considered a public charity, a nonprofit needs to demonstrate that it gets broad support from many donors. If all the money comes from only one or two families, then the I.R.S. will declare that the organization has failed the “public support test” and is, in actuality, a private foundation. One reason that matters is that the rules governing charitable deductions for contributions to private foundations are less generous in several ways than gifts to public charities. Also, as we have seen, private foundations are subject to greater scrutiny.

Enter, stage right, the Koch brothers. To those with progressive political views, and to those who are concerned about the power of money to influence politics, David and Charles Koch are ranking villains in America today. Industrialist owners of the second-largest privately held company in the U.S., with annual revenues of $100 billion, the Kochs are both other-worldly rich (they are considered the wealthiest siblings in the world) and seemingly unconcerned about how their political opponents view them. They have spent tens of millions of dollars for ads that attack Democrats, moderate Republicans, and public policy positions with which they disagree.

The Koch brothers are not shy about their political machinations, but occasionally even they can use a little bit of cover. And, according to some good journalistic work by Paul Abowd, they are getting that cover thanks to a donor-advised fund sponsor called Donors Trust.

Donors Trust takes in money from wealthy donors and distributes the funds out to politically conservative causes, such as the controversial American Legislative Exchange Council or, as recently described in The Philadelphia Inquirer, “research institutions” like the Heartland Institute that work to debunk climate change theories. The Koch brothers, whose industrial fortune includes extensive holdings in the petroleum industry, find all this talk about climate change to be bad for business, but they are savvy enough to know that they don’t want to be tied in an obvious way to organizations that publish reports arguing against the widely accepted scientific truths on global warming. So the Kochs make contributions to Donors Trust, something we can track because their private foundations list Donors Trust as a grantee, and then Donors Trust makes the distributions to the controversial organizations without revealing which donors are authorizing the grants. The Kochs are not listed as donors, though their money – filtered through Donors Trust – is almost surely going to these causes.

Meanwhile the Heartland Institute, the outfit that works to disprove climate change, benefits by getting their funding from a donor-advised fund. If they were explicitly to get most of their funds from one or both of the Messrs. Koch, then they could lose their public charity status. But no – they are getting their funding from Donors Trust, a public charity that itself has some 200 donors, and so that grant is considered as coming from the public at large and not from one or two billionaires in particular. As U.S. Senator Sheldon Whitehouse (R.I.) describes it, this is an “identity-laundering scheme.”

I have written time and time again about why the rise of donor-advised funds is a challenge to the charitable world. My critique has focused on how there needs to be a requirement that the funds be distributed to actual charities over a period of time. I have also noted the distorting effect that Wall Street commissions and fees are creating: there is big money to be made in donor-advised funds, and financial incentives in the form of fees and commissions are driving the huge growth in donor-advised funds and diverting money from real nonprofits.

So now let me add to my list of what’s wrong with donor-advised funds: the lack of transparency. The Koch brothers and their ilk are making tax-deductible gifts to “charitable” organizations making dubious and clearly politically-motivated claims, and these transactions are aided and abetted by the virtually unregulated nature of donor-advised funds. Can a fair-minded person honestly say that this scheming is furthering the public interests of the people of the United States? And could someone explain why you and I are subsidizing these activities through charitable tax deductions?

Copyright Alan Cantor 2014. All rights reserved.

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Searching for Mr. or Ms. Right

I have a friend who works as the second-in-command at a very small nonprofit. Her longtime and very effective executive director is retiring, and the board is searching for a replacement. I asked my friend if she was nervous about the transition, and she expressed not the slightest worry. She has faith in the board and feels confident that things will work out well.

If I were in my friend’s shoes, I’d be much less calm and trusting. Even the best board makes mistakes in executive searches. Interviews and references and resumes might give every indication of a good match – and then the reality turns out to be very different.

It strikes me that disastrous picks often occur when search committees focus on credentials, rather than on the core issues of maturity, intelligence, and character. This is not to say that credentials don’t matter – obviously, they do – but degrees and experience are not necessarily an indicator of the skills and attitude required in a leader.

Leaders who lack maturity and confidence tend to make it all about themselves. They dictate rather than listen; they talk down to staff, rather than seeking input; and they set goals and create systems of external rewards rather than inspiring the staff to motivate themselves.They hog the glory. They like to surround themselves with yes-people. Good people flee.

In other cases, a leader lacking maturity and confidence will try to please everyone, will equivocate, will refuse to make the hard decision. Here too, the organization fails. I am struck by how quickly bad leaders can ruin a healthy organizational culture. It doesn’t take more than a few weeks. A few days, even.

Of course, new leadership can have an equally dramatic positive effect. I know of a small public library where a dictatorial and erratic director was succeeded by a sensitive, thoughtful, and empowering director. I happened to be in the building one day about six weeks into the new director’s term, when an elderly man came in. After conversing for a minute or two with the staffer at the front desk, he said. “My! This is a friendlier place now! Things have really changed! I love it!” What’s notable about the story is that this man who could sense instantly that it was a happier, better place was blind.

I’m not usually one to recommend TED Talks, but Dan Pink’s presentation on motivation in the workplace is a good one. Pink gives evidence to show that the greatest motivator for workforce productivity and satisfaction is providing employees with a sense of autonomy, mastery, and purpose.  Not an end-of-year bonus or a birthday party or a special parking spot or permission to dress casually on Fridays. No gimmicks required. It mostly boils down to autonomy, mastery, and purpose. Or, in a word, respect.

This resonates with my experience. When I was a young executive director, I was an ineffective micromanager. I remember the relief (mine, and everyone else’s) when I evolved into a more respectful and empowering boss. This transformation came about after what was essentially an intervention from the people I supervised – and I’m grateful to them to this day for having the courage to tell me the truth about my disastrous management style. I have also experienced the highs and lows of being led by others: the excitement of working for people who trusted and supported me and let me call the shots, and the dispiriting feeling of being second-guessed and disrespected and patronized and hobbled.

I have yet to meet anyone in a nonprofit leadership position who is not well-intentioned. The question is, does a particular person have the maturity and character and intelligence to lead, trust, and encourage? Or will that person feel threatened by competence and initiative?

How does a search committee avoid making the wrong choice? Well, there’s no sure way. But let’s say the candidate spends a lot of time talking about how she shook up her last place of employment, how she was a force for change, how she cleared out the dead wood. A lot of people may see strength and moxie in that kind of attitude, but in fact it may be a warning sign, depending on whether that last place truly needed to be changed, and whether there was dead wood that in fact needed clearing. Another tip may be the language she uses. Possessive pronouns can be so revealing. If I hear someone referring to “my staff,” as opposed to “our team,” I run for cover.

But there’s honestly no way to know for sure. And so it’s important for the search committee to explain in the interview and hiring process that the organization values collaboration, staff participation in decision-making, and a free exchange of ideas. The search committee should make clear that there is an annual executive review process, and it should emphasize that as part of the review the board will seek the staff’s input. This clarity may help bring out the best in the new executive, and it sets up the board to act upon problems if they arise.

I wish my friend the very best. Let’s hope she’ll land a great boss, one who respects her institutional knowledge, who works together with her and the rest of the staff to understand the organization and to plan the best new path. And if not – well, the penalty for a search committee choosing the wrong person… is having to do it all over again. That’s a good bit of incentive to get it right the first time.

Copyright Alan Cantor 2014. All rights reserved.

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Miami Vice

My father-in-law, Joe, alerted me to a peculiar ad in the business section of the Sunday New York Times. Under the listing “Business Franchise Opportunities” were the words, “Charity Director Millionaire,” followed by a South Florida phone number. “This sounds pretty fishy,” Joe said. I agreed. And so I decided to pick up the phone and go fishing.

“Hello?” says the husky, male voice on the other end. No name. Just, “Hello?” It sounds like a personal cell phone.

“Yeah,” I say. “I’m calling about the ad in the New York Times. I’m wondering: How’s that all work?”

“Hold on!” And I can hear the guy shuffle off to a more private space.

He never does tell me his name, and I never tell him mine. He doesn’t ask me where I’m calling from or why I’m interested.

He starts right in with his pitch. “So for years I worked for a company that raised money for charity,” he says. “We did alright. More than alright. $60,000, $80,000 a week. Now we kept a lot of it and passed the rest on. I mean, we weren’t one of those outfits that kept 98% or anything! It was all on the up-and-up!

“So then I tell myself, ‘Why raise the money for another guy’s charity when I can raise it for my own?’ So I started this charity. It’s for handicapped kids. And I’m looking for people to run the franchise in different cities.”

Franchise?! I’m repelled. But I’m curious. “How’s it work?” I ask.

“So let’s say you become one of my people. You go out and get different businesses to contribute $5,000 each. In exchange they get a charitable deduction, plus I’ll shoot a t.v. ad for them – you see, I also have a video business. That in and of itself is a great deal for them, right? And then, well, depending on the volume, you personally keep 30% or 35% of what you raise for yourself. I can show you the numbers. I did this in Canada, and here, too – I have dual citizenship. You can make real money. I’m not kidding you.”

I can’t quite follow it all. I don’t really want to. I say, “So, the charity you’re creating: What’s it do?”

Short pause. “Well, we send sick kids to Disney World. Get them wheelchairs. That kind of stuff.”

He adds, “If you’re interested, the next step is to come down and meet me in Miami. We’d get to know each other. And I can set you up with my lawyer, and he’ll explain how this is all legal.” Yeah. All on the up-and-up, fella. You’re a great humanitarian.

End of call. I feel like I need a shower.

If this guy were the only one, it would be no big deal. But there are thousands of charity scam artists out there. Ken Stern, in his book With Charity for All, talks about “charities” that are nothing more than a P.O. Box, a phone bank, and names liberally littered with words like “children,” “cancer,” “veterans,” and “firefighter.”

You’ve probably fielded calls at home from these outfits. How do they get charitable status to begin with? Well, according to Stern, the I.R.S.’s Tax-Exempt Division is woefully understaffed. They aren’t able to do much more than give a sniff to new charitable entities – and so the I.R.S. approves over 99.5% of applications. And how many corrupt pseudo-charities do they subsequently shut down? Only about ten a year, nationally. In other words, it’s easy to get charitable status, and once you do, it’s almost impossible to lose it.

There are state charitable trust regulators as well. We have a very good unit in my state of New Hampshire, but I know that in some states there’s not much enforcement at all. And I’m pretty sure that none of these offices is deep with staff.

My would-be business partner in Miami and his ilk fleece donors and taxpayers (who subsidize their scams through the charitable tax deduction) and cast a dark shadow over the entire nonprofit sector. So what’s to be done? First, we should all do our best to turn the scoundrels in. In this case I did call the I.R.S. An agent there provided me with a form to send in, but without Mr. Miami’s name and address, I really couldn’t fill it out. Next time I’m in that situation, I will press for more information. And I urge you to do the same. We should also lobby for the I.R.S. and state regulators to get the resources they need to rein in a system that’s out of control.

Second, let’s publicly acknowledge that there are some people purporting to run charities who are bad guys, pure and simple.  We shouldn’t ignore the specter of immoral and corrupt individuals who are using the charitable tax code for personal benefit. They’re a rotten bunch trying to scam the system. My sense is that a lot of folks – certainly the ones who keep sending money in response to shady phone solicitations – have no idea that some charities are rackets. The exploited donors need to understand what’s going on.

At the same time, the public needs to know that real nonprofits are very different: driven by mission and doing good work. Largely because of the scam artists, faith in the nonprofit sector has dropped in the last decade. It’s time to rebuild the sector’s image.

And if you’re wondering: no – I’m not going to Miami. Though given the weather this winter, it’s pretty tempting.

Copyright Alan Cantor 2014. All rights reserved.

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