Thursday, March 16, 2017

Nonprofit Knowledge Matters | Hot Button Issues

This month, we take a look at a few of the “hot button” issues in the news to explore how they affect nonprofits. The first topic, cybersecurity breaches, is all over the news, but the second, while still “hot,” is a bit of a sleeper: This month marks International Women's Day, which reminds us that women leaders are critical to any progress, whether economic or social. So now seems a good time to take a hard look at protecting our data and make sure each of our nonprofits offers women a welcoming and supportive launch pad for leadership. The common threads? Trust and accountability. Which brings us to perhaps the MOST common hot button issue we see in the news: the polarizing and divisive partisanship that makes us question whom to trust. Imagine if nonprofits were no longer nonpartisan. If nonprofits become seen as merely extensions of political campaigns they will no longer be safe spaces where people of all backgrounds and political persuasions can come together to solve community problems. That’s why the National Council of Nonprofits strongly opposes parallel efforts in Congress right now to repeal and weaken the mandate that charitable nonprofits be nonpartisan. This issue is so important, and so urgent, that we are asking you to take immediate action: Show your support for nonpartisanship by signing this Community Letter. Background about this issue is below. Together we must each send a strong signal to Congress that nonprofits insist upon remaining trusted and accountable organizations. Let’s focus on preserving that trust: by protecting personal confidential information, ensuring that women have equal opportunities for leadership, and that donors’ gifts advance our missions and benefit the community – not partisan political campaigns 
Hot Button Issue: Cybersecurity
At first glance, it may seem easy to shrug off cybersecurity as something that is only a concern for “big” nonprofits. But it's not. That’s why we encourage you to take a closer look at how your nonprofit collects and maintains data. Keeping your data house in order is just like producing accurate and timely financial reports for your board to review: it’s a matter of trust and accountability. No matter the size of your nonprofit, we are sure you will agree that protecting people from physical risks and protecting financial assets from theft are important. Protecting the data your nonprofit collects is based on the same principles of trust and accountability and is equally important. And, like putting “safety first,” cybersecurity is not only about ethics and accountability; it’s also about protecting your nonprofit’s reputation and avoiding lawsuits and/or penalties that can result from a data breach. 
Is your nonprofit at risk and if so, what’s the next step?
The Gender Pay Gap: a sleeper threat to nonprofit effectiveness and sustainability
This month individuals in countries all over the world observed International Women’s Day; in some places through strikes and protests, and in others with festive celebrations. The day brings attention to the social, economic, cultural, and political achievement of women, plus the goal of “gender parity.” Research shows that in the US women are still not paid “on parity” with men performing the same jobs. The National Partnership for Women & Families reports that on average white women earned 80 cents for every $1 earned by a man, and at least one study (a year earlier) concluded that in the nonprofit sector the gap widens to only 75 cents on the dollar. The gap is even wider for women of color in the American workforce, with African-American women working full-time paid just 63 cents and Latinas typically paid only 54 cents for every dollar paid to a white, non-Hispanic male working the same job. “Women’s median earnings are lower than men’s in nearly all occupations, whether they work in occupations predominantly done by women, occupations predominantly done by men, or occupations with a more even mix of men and women,” reports the Institute for Women’s Policy Research. While the average gender pay gap is 20%, depending on the job category it ranges from 52% to 111% and spans all types of jobs: “There is only one occupation —‘bookkeeping, accounting, and auditing clerks’–where women have the same median weekly earnings as men.”

The Simple Truth, a Spring 2017 report by the American Association of University Women (AAUW), concludes: “The pay gap is real … and it doesn’t seem likely to go away on its own.” AAUW predicts that unless there is a dramatic change, women will not reach pay equity with men until 2152. Women’s pay affects more than only women, of course. AAUW points out that 40% of mothers with children under the age of 18 are their families’ primary or sole breadwinners; eliminating the gender pay gap would have the additional benefit of raising the standard of living for those they support, namely children.
What does the gender pay gap have to do with nonprofits? 

Let’s keep nonprofits nonpartisan!
We hope every one of our readers will join the almost two thousand (so far) nonprofits, foundations and for-profit entities across the country that care about the effectiveness of charitable nonprofits, by signing this Community Letter in Support of Nonpartisanship to keep nonprofits out of the political fray. Proposals in Congress right now seek to repeal or weaken the current law that protects charitable nonprofits and foundations from partisan, election-related activities providing that - in exchange for tax-exempt status and the ability to receive tax-deductible donations - 501(c)(3) organizations may not endorse or oppose candidates or spend money on campaign contributions or other partisan activities. This law, which is sometimes called the “Johnson Amendment,” has been a bedrock principle protecting public trust in our sector since 1954 when President Eisenhower signed the tax reform bill of that year.

The many local and national organizations that have signed the Community Letter all feel strongly that the current law protects our sector and the people we serve from aggressive demands for political endorsements by candidates and from efforts to divert mission-dedicated assets to campaign contributions. In short, by signing the Community Letter, our readers’ organizations can join thousands of others in resisting efforts to turn charitable nonprofits – that are currently trusted community problem-solvers - into politicized pawns of politicians.

Thank you if your nonprofit, foundation, or business (that supports or serves nonprofits) has already signed the Community Letter.
When your nonprofit signs, it will be in good company with initiative leaders: BoardSourceCouncil on Foundations, Forum of Regional Associations of Grantmakers, Habitat for Humanity International, Independent Sector, Jewish Federations of North America, National Human Services Assembly, Volunteers of America, and the National Council of Nonprofits. Signers also include the Ford Foundation, United Way Worldwide, Goodwill Industries International, Inc., and many other local and national groups, religious and otherwise.

BUT just because these well-known organizations have already signed does not mean that your nonprofit doesn’t need to!

Your elected officials in Congress need to see a very long list of nonprofits in their state that demand protection of nonpartisanship so they will know that the charitable nonprofit community is united and mobilized in opposition to changing a law that has worked well for the past 60+ years!

Special National Webinar with Beth Kanter
Just in time to chase away the winter blues and welcome spring, we’re excited to announce a special webinar on April 25, 2017 with Beth Kanter, master trainer and influential author/blogger, on the subject of her newest book, The Happy, Healthy Nonprofit: Strategies for Impact Without Burnout. As a member of your state association of nonprofits you can attend this webinar for free! (Non-members pay $25.)

2017 is shaping up to be a challenging year. The National Council of Nonprofits and its network of state associations of nonprofits strive to help your nonprofit be resilient and ready for whatever lies in store. Curious about what practices your nonprofit can use to be happy, healthy and sustainable? Beth will share her personal and professional journey toward a happy, healthy culture of well-being, and pass along lots of tips that you won’t want to miss. This program offers a terrific way to share the wisdom of a happy, healthy nonprofit with your team and board members. 

Copyright 2017 National Council of Nonprofits. All rights reserved.
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Monday, March 13, 2017

What's New at NRMC?

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What's New at NRMC?
If you missed our updates in recent RISK eNews articles, you'll be happy to hear what our team has accomplished since January 1st!
  • Our newest team member, Project Manager Eric Henkel, led the launch of our new Risk Benchmarking App to allow nonprofit leaders to compare their risk management functions to those of other organizations.
  • We announced Jeremy Sutton as keynote speaker for the Risk Summit, our annual conference, which takes place in Philadelphia this September 17-19.
  • Kay Nakamura, our Director of Client Solutions, welcomed five new Affiliate Members into our Affiliate Member community.

March 1, 2017
Succession Planning for [NOT] the CEO

CEO succession planning arises as a strategic risk and key concern of nonprofit boards in many NRMC-led Risk Assessments. If you're looking for an article about CEO succession planning, this is not it. Instead, review our popular article, Avoid Transition Trauma with a Succession Plan.

This article explores succession planning for nonprofit leaders other than the CEO. Eureka moments often occur during our consulting engagements when nonprofit teams realize the CEO is one of many individuals whose departure could cause 'transition trauma.' Read on for inspiration for establishing a non-CEO succession planning process.
Why Succession Planning is NOT Defining a Successor
While many organizations practice the literal form of succession planning--defining a successor or #2 person waiting in the wings--the NRMC team does not support this approach. This approach is problematic as many nonprofits are too small to have an internal pool of potential C-suite leaders or backups for any key positions. Plus, any nonprofit leader would be woefully naïve to believe that a talented, C-suite material staffer would wait around for her chance to take up the mantle as a key player on the team. And if your designated #2 departs for any reason, then the succession plan is suddenly kaput.

Instead of defining actual successors for any key leadership roles, we believe that succession planning should be about the planning process and having an actual plan in place to help your organization effectively manage inevitable staff transitions. Using CEO succession planning as an example, the board is charged with establishing a succession plan that it will implement when the existing CEO is suddenly unavailable or announces her plan to leave. The succession plan should provide instructions--originally developed and approved by the board itself--that the board will now follow to conduct activities including: determining any shifting needs the nonprofit has for its incoming CEO, revamping and advertising the CEO job, filling the role temporarily with an internal or external candidate, vetting CEO candidates, hiring the selected candidate, and managing the transition and onboarding of the incoming CEO when the time is right.

Now that we've cleared up what succession planning is and isn't, how can we apply this critical process to non-CEO roles?
All Aboard the Succession Planning Train
The aforementioned article, Avoid Transition Trauma with a Succession Plan,describes three preliminary steps to complete before beginning the succession planning process for any role. Conducting these three activities regularly will create a climate for effective succession planning at your nonprofit.

Adopt and follow a performance review process for key leadership roles to empower your nonprofit team to continually assess and reshape leadership roles as the needs and priorities of the organization change over time.

Keep position descriptions up-to-date for all key positions to ensure that day-to-day duties and overarching goals are fully understood, and are kept in an accurate, written record.

Offer cross training and clarify back-up personnel for key activities completed by your team members to prepare your team for temporary succession solutions (e.g., in the event of an unplanned departure in which department staff must take on a department head's duties).
If you're confident that the activities above are occurring at your organization, then you've laid the groundwork for managing leadership transitions. Now it's time to adopt an approach to succession planning.

Depending on the size, complexity, and culture of your organization, your approach to non-CEO succession planning could be either formal or informal for certain roles. Generally speaking, succession planning for non-CEO roles will be far less formal than CEO succession planning, since there is no need to engage the board in planning for leadership transitions of other key staff.

The NRMC team often recommends a collaborative succession planning approach, allowing the relevant departmental or functional teams to participate in the search and hiring process for their own staff colleagues and even department heads. Team-based hiring enables you to seek and select new hires based on the perspectives of your diverse team members, and team-based hiring also encourages the recruitment of new staff leaders who are truly welcomed and approved by many of their soon-to-be peers and direct reports. These benefits can cultivate feelings of positivity and ownership among staff while reducing stress associated with leadership transitions.

If your HR team typically takes the lead on employee recruitment, then consider involving both HR and the department with open roles. Breaking down these silos will produce myriad benefits including gratification for HR staff whose employment practices expertise might be overshadowed by the work of programmatic staff, and an appropriate division of labor between HR and the initiating department, which promises to ease common recruitment pains that occur when these functions are out of sync (e.g., unrealistic expectations for personnel budgets and hiring/screening timelines, inaccurate position descriptions, ineffective onboarding that is either too general or is too role-specific, etc.).

If an executive staff member is leaving your organization--whether planned or unplanned departure--we recommend that one or more leadership team members (e.g., other department heads, other C-suite leaders, etc.) collaborate with the departmental team of the departing executive (with the exiting executive participating if possible). A similar approach could be used when planning the transition of any staff member within a specific department. A leadership representative and the department team can collaborate to facilitate informal, candid team discussions about the nonprofit's near future and shifting personnel priorities, using questions like:
·         Is the staff member's position description up-to-date? Are there other critical responsibilities or personal qualities that the individual brought to our team, that are NOT listed in the position description? (If the answer is 'yes,' be sure to update the position description.)
·         What elements of the role should remain the same in the distant future? What elements need to change based on our internal and external environments and any opportunities or challenges that lie on our organization's horizon?
·         Are there any special considerations for the role based on other personnel gaps that exist within our department? Are there any other personnel gaps in our department that could potentially be filled or be partly filled by a single new hire? How might this type of role be structured or developed?
·         As we begin the search process, how will we support the departing staff member's role in the interim? What are the critical responsibilities that should be delegated to other members of our team for the time being?
·         Will the departing staff member personally be available to help onboard the new hire? If not, how will we capture and share the institutional knowledge needed to provide the new hire with a solid foundation during onboarding? If so, how can we ensure a positive and productive experience for both the exiting and incoming individuals?
·         As we identify candidates for the role, how do we foresee this transition occurring? What can we do now to ensure that a smooth, positive transition occurs? Are there any gaps we need to address in our screening/hiring processes or our onboarding/training programs?
Whether it's your first foray into non-CEO succession planning, or you're a succession planning veteran just looking to revitalize your approach, your best bet is to rely on the intimate knowledge your own peers have of your organization. Leverage your team to cross-train each other and volunteer as backups, to manage staff transitions, and to seek out new colleagues who truly embody the spirit of your mission.

Erin Gloeckner is the director of consulting services at the Nonprofit Risk Management Center. Erin invites you to say hello or share your thoughts about succession planning at or 703.777.3504.

Nonprofit Risk Management Center, 703.777.3504, 204 South King Street, Leesburg, VA 20175

Nonprofit director's compensation raises questions

Developer BFC Partners' decision to team up with Local Development Corp. of Crown Heights may complicate the very problems it was meant to resolve

By: Joe Anuta

WHAT'S IN STORE? BFC's plans look good on paper, but locals question how they'll work out.

The executive director of a Brooklyn nonprofit dedicated to providing affordable housing, social services and youth programs has personally received a percentage of profits from past development deals, an arrangement in his contract that charity watchdogs call a red flag.
That is one of several unusual financial details Crain's found in the operating statements of the Local Development Corp. of Crown Heights. The nonprofit, considered a trusted resource in the African-American community in Crown Heights, was brought on by developer BFC Partners earlier this month to help overcome local opposition to a proposed mixed-income apartment and recreation complex on city-owned land.
The revelations alarmed experts in nonprofit administration, who said the payouts to Executive Director Caple Spence cast doubts about the organization's management.
"This is not normal," said Ken Berger, the former chief executive of Charity Navigator, the largest nonprofit evaluator in the country, after reviewing the organization's Form 990 financial disclosures from 2015.
The nonprofit's involvement in the city-led effort to redevelop the Bedford-Union Armory in Crown Heights raises questions about why it was selected by BFC Partners and how it will help manage a half-million-dollar fund that is part of the project.

Opening doors

For-profit developers often partner with charities to win over community members who are skeptical of a project's promise of social and economic benefits. When developments undergo public scrutiny, nonprofit partners can deflect criticism because making money is not their primary goal. They also often bring specialized skills and sometimes allow projects to qualify for subsidies that would not otherwise be available to for-profit enterprises.
In late 2015 a team including BFC and Brooklyn nonprofit CAMBA won a competitive bid to transform the city-owned armory with a proposal to build market-rate condos and rentals around it. The developments would help pay for new affordable housing, a low-fee sports and recreation facility, and community and office space. CAMBA, which specializes in housing, economic development and education programs, is set to run the day-to-day operations at the rec center and provide discounted or free activities to nearby residents.
But despite that partnership, community members continue to oppose BFC's $195 million plan. They said the entire project should be dedicated to affordable housing. In September New York Knicks star Carmelo Anthony pulled his support, and another early partner, Slate Property Group, dropped out amid controversy surrounding an unrelated nursing home sale on the Lower East Side.

In reaction to increasingly vocal opponents, BFC principal Donald Capoccia announced in early March that BFC was bringing in the Local Development Corp. of Crown Heights, which has deep roots in the community. The group planned to hold meetings, reassure residents that the development was in their best interest, seek out minority- and women-owned businesses to participate and explain why the market-rate units in the project are vital to its success. In addition, the nonprofit would manage a fund seeded with $500,000 from BFC—and potentially boosted by future revenue from the project—that is designed to build additional affordable housing elsewhere in the working-class but gentrifying neighborhood.

'Rare' arrangement

Spence's employment contract, as detailed in his 2015 state filing, was structured to give him a cut of the nonprofit's development deals, allowing him to take a 10% share of profits the charity earned and 20% of what the nonprofit received from developer fees—money the city or state pays developers for working on affordable-housing projects. It was unclear whether the development corporation and BFC would get developer fees for the Bedford-Union project and if the revenues would be divided between them. The charity is involved only with the condo portion of the project, according to the city. Regardless, Spence's compensation arrangement is rare in the nonprofit world, experts said.

Nonprofit executives' compensation is generally a fixed amount. That ensures they are not pursing deals for personal gain, according to Nonprofit Compensation, Benefits and Employment Law, a book by David Samuels and Howard Pianko. And unlike for-profit businesses, nonprofits are required to reinvest any leftover money in the organization. When compensation is based on profit percentages, pay can fluctuate year to year, meaning that in some years extra money might flow to executives, just like at a for-profit business. Berger said such fluctuations could draw the eye of state and federal regulators, who can seek to recover payments they deem improper.
The Local Development Corp. of Crown Heights' 2015 filings stipulate that this arrangement boosted Spence's total compensation to a maximum of $312,000 in a given year, which one lawyer Crain's spoke with said makes the arrangement more palatable. But Berger still found it troubling. "The fact that the questionable number has a cap on it doesn't make it any less questionable," Berger said.
And Spence has pulled in quite a bit more than that amount in the past.

Compensation package

In 2014 the nonprofit reported about $752,000 in revenue, mostly in fees from affordable-housing buildings it manages. Yet Spence took home around $1.15 million in total compensation that year, including base pay, bonuses and about $956,000 in retirement and other benefits. The payouts resulted in an operating loss at the charity of more than $1 million.
A lawyer for the group said 2014's compensation was an anomaly that likely stemmed from a split-dollar life insurance policy that was transferred to Spence in lieu of other retirement benefits. Split-dollar policies, which are paid in part or full by an employer,are sometimes used as incentives for high-ranking nonprofit employees. And premiums, which the charity will get back after the policy is paid out by the insurer, can be put down in one year instead of the cost being spread out over several. But the incentive is more often used by larger organizations, according to Gregg Hirsch, an attorney specializing in insurance products at Mound Cotton Wollan & Greengrass. The football coach at the University of Michigan, for example, has a split-dollar life insurance policy.
Even excluding 2014, however, Spence's average compensation was about $318,000 between 2007, the first year he's listed as executive director in the organization's publicly available filings, and 2015, the year when the salary cap is detailed. Executive pay can vary across organizations depending on the work and how prized the person's skills are, but experts noted that Spence's compensation seemed high relative to the size of the nonprofit. In 2015, for instance, the head of a Bronx affordable-housing nonprofit of similar scale made less than half of Spence's average compensation. Even executives at much larger affordable-housing firms, such as the Fifth Avenue Committee and the St. Nicks Alliance, made no more than three-quarters of Spence's compensation.
"I would say this salary falls into the range of screwiness," said Odell Mays, an adjunct lecturer at the Columbia University School of Professional Studies, who reviewed the organization's annual 990 filings for 2007 to 2015 for Crain's. "There is a lot of stuff in here that is ripe for being questioned."
If a charity or executive does exceptionally well, he said, high compensation can be justified. But the Crown Heights nonprofit might have a hard time proving it is far outperforming its peers. In 2007, Spence's first year as executive director, he completed the organization's first ground-up development, a 173-unit senior residence in east Flatbush. The project pushed the corporation past $100 million in total construction spending for the first time.
"This award-winning project moved [the organization] beyond its humble beginnings as a redeveloper of old walk-up tenement buildings to a full-fledged developer of modern mid-rise apartments for its community," the group wrote on its website.
Three years later Spence completed a 143-unit senior residence in Crown Heights. In total he has brought in millions in revenue for the nonprofit, his lawyer said, noting that the executive's compensation package was drafted with the help of an outside specialist. Spence has continued to run several education and senior centers.
But Spence has not completed a major project since 2010. And under his leadership, the charity ran an operating loss for seven of the nine years between the beginning of 2007 and the end of 2015.
Plans to open a charter school, which videos on the nonprofit's website show Spence discussing as far back as 2013, never came to fruition. The costs involved made the idea unworkable, the organization said.
Nevertheless, Spence continued to receive perks that are unusual for small nonprofits. A 2013 filing showed he took out a personal loan of $166,000 from the nonprofit at 5% interest. Although charities sometimes make personal loans to employees, they are typically amounts akin to a paycheck advance, Mays said. At the very least, the board would typically require a written agreement for a loan of that size, yet it was issued without one, according to the state filings. Spence's lawyer said the corporation has largely been paid back.
Potential missteps over executive compensation are often avoided in the tax- exempt world by having a board of directors with a wide range of professional experience who can push back on anything they deem improper. To get Charity Navigator's stamp of approval under Berger's leadership, boards had to consist of at least five people, he said. The Local Development Corp. of Crown Heights has just three. Two of them are also listed as executives of the First Baptist Church of Crown Heights, the religious organization founded by the late Rev. Clarence Norman Sr. The house of worship is the institution from which the charity gets its neighborhood clout.

Strong connections

Norman, who was a highly influential figure in the Crown Heights community, started the local development corporation in 1987 to further the mission of his church. After his death in 2015, a local street was named after him and his wife. The organization has retained its connections in the neighborhood and currently manages about 670 units of affordable housing. "We have been looking out for the community for more than 30 years," Spence told Crain's at the announcement of his group's participation in the project. "We have worked with several government agencies, state and city," he added, "and we have a close working relationship with the elected officials." He has since referred all questions to the organization's lawyer, who would speak only on background.
Clarence Norman Jr., son of the late pastor, was a powerful Democratic Party boss in Brooklyn until he was convicted on campaign finance charges and sentenced to several years in prison. Spence said in a recent news report that Norman Jr. acts as a consultant to the local development corporation. He even listed himself as a contact for the organization during a meeting the city hosted for nonprofits interested in a community land trust. But according to reports, he is not working on the armory project.
BFC Partners said it picked the nonprofit because it was seeking to join forces with an organization with "deep community roots."
"After more than a year of community engagement, there was consensus among Crown Heights stakeholders that [it] would be the most appropriate local, nonprofit partner for the Bedford-Union Armory project," BFC said in a statement. "The ... team's deep community roots and our comprehensive approach to this project will ensure that the armory is a success for all Crown Heights families."
Correction: Caple Spence said in a recent news report that Clarence Norman Jr. acts as a consultant to the Local Development Corp. of Crown Heights.The attribution was misstated in an earlier version of this article.
A version of this article appears in the March 13, 2017, print issue of Crain's New York Business as "A curious partnership".