Why does this tough decision demonstrate good judgment
By Sidni Shorter In Financial Leadership Posted September 5, 2013 0 Comments

Why does this tough decision demonstrate good judgment?

The signature nonprofit newscast, “PBS NewsHour,” announced it would be cutting staff this week to compensate for a drop in corporate sponsors. It will eliminate the “noncritical production positions” in San Francisco and Denver and save more money by leaving open positions unfilled and streamlining technical operations. The reorganization will take place over the next several months starting in July and will help balance the budget.

When I read news like this, I am always reminded of the tough conversations I’ve had with some of my clients about overhead and how best to reduce costs. Nonprofits are inherently human in their approach to business because the sector is about helping people. That’s why looking at the human capital expense line seems counterintuitive and unnatural for nonprofit leaders.

In PBS’s case, I support its decision because it demonstrates a willingness to make hard choices for the sake of preserving its mission. It clearly has its eyes on the organization’s sustainability. Shedding human capital allows PBS to refocus, shore up cash, and think more strategically about its future, which could mean repositioning or developing an alternative business model. In my last post, “Organizational and financial strategy alignment is a must,” I listed the qualities of an organization where the CEO and CFO are on the same page. My hope for PBS in the upcoming months is that it would reevaluate its strategy with the financial staff as part of the process.

The New York Times reports the “PBS NewsHour” production company was facing a shortfall of up to seven million dollars, a quarter of its $28 million overall budget. It goes without saying the board will be involved in trimming excess spending and balancing the budget. Financial consultant Ron Mattocks explains in his book, Zone of Insolvency, that boards should review 16 different components of the financials at every meeting. Some of them include: 1) the balance sheet, 2) benchmark reports, 3) contracts and leases, 4) debt, 5) receivables, 6) executive compensation, and more.

While the financial constraints nonprofits like the “PBS NewsHour” face are all too familiar, its decision to cut positions, freeze unfilled positions and look for other ways to trim the budget is unfortunately an uncomfortable decision—but it’s a wise one. By Erica McGeachy Crenshaw, CEO of Execute Now!

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