Lessons Learned From Fallen Nonprofits
By Sidni Shorter In Financial Leadership Posted January 22, 2014 0 Comments

Lesson learned: A reflection of nonprofits in 2013

There were pivotal moments during the last decade when the board should have made different, tougher decisions but didn’t,” explained Stephen Saunders, former director of the Hull House. As I’ve shared in prior posts and in my Monday radio segments, the Hull House is emblematic of so many similar nonprofits that waited too long before reaching out for help. Consequently, I’ve used their significant story and others to constructively share about how you can avoid similar challenges.

Last fall, I had the opportunity to present to a group of nonprofit leaders in Michigan on the common themes I’ve observed over the past 12 months in our sector, relating to financial nonprofit leadership. It was a terrific exercise because it allowed me to look at the entire year as a composite of nonprofit decisions and behaviors rather than singular events each week.Together in our Finance Fundamentals newsletter, we explored difficulties experienced by Goliath-sized nonprofits like the Girl Scouts, New York City Opera, Georgetown University, AARP, New York University, Legal Aid Bureau and Youth Service America.

Some of the themes we observed were:

Stale business models

  • We watched the New York City Opera suffer a lengthy demise when it began running in the red since 2003. The economic crisis of 2008 prompted the board to draw from the endowment’s principle. Rather than re-examine the business model, the organization began to make dramatic cuts in payroll, season schedule and venue expenses. While the Opera’s stoic financial cuts staunched the budgetary bleeding, these decisions in isolation of a larger strategic effort were not enough. It closed last year.
  • In contrast, we marveled at the much-needed transformation that took place at the 104-year old civil rights group, NAACP, when the board made a controversial hire (many thought he was too young) by selecting Benjamin Todd Jealous. Jealous’ last name would prove poetic as he accomplished many enviable nonprofit milestones such as diversified revenue stream, broadened alliances, leveraged technology and the enlistment of Millennials.

Limited oversight by executive and financial staff

  • We were heartbroken to learn Georgetown University, AARP, New York University, Legal Aid Bureau, Youth Service America, Columbia University and Alliance for Excellent Education were among more than 1,000 organizations reported to have experienced significant diversions from their bottom line due to lack of executive oversight. More specifically, these instances included embezzled funds, fraudulent payments, unsubstantiated spending, drained accounts and stolen funds acquired by fake identities.
  • We observed the Former President Bill Clinton defends his family’s charity, Bill, Hillary and Chelsea Clinton Foundation, and its finances amidst media scrutiny while hiring new leadership to turn-around deficits and mismanagement.

Lack of preparedness with new financial pressures

  • We empathized with Girls Scouts as they underwent financial strain and “shrinking pains” after merging many of their councils in an effort to increase efficiencies in running their programs. The Girl Scouts’ leadership anticipated the benefits associated with economies of scale and lowering overhead. Instead new CEO, Anna Maria Chavez, and her fellow national and local executives found themselves with increasing financial pressure due to: growing pension liabilities, diminished cookie sales, declining donations and falling membership.

What are the lessons here?

Strong leadership is essential. Consider innovative partnerships that form alliances with sister organizations regionally and nationally. Identify areas where your services might complement another nonprofit. Determine where there may be some duplication—combine programs and target funders together.

Evaluate side ventures such as retail. If you already engage in retail, look for opportunities to expand upon high-performing programs. Sales of publications, consignment goods or recyclable items are viable strategies. Additionally, advisory services like coaching or mentoring smaller nonprofits and renting office space are possible income streams.

Examine the possibility of upselling your core to generate additional revenue. For example, the New York City Opera could have considered summer camps for young aspiring artists or adult courses for opera appreciators. Equally important, find ways to depend less on donated income and more on the exchange of value with either your constituency or stakeholders and businesses who share an interest in your constituency.

Don’t wait to consider new options. Instead, look at fulfilling your mission in new ways. Successful nonprofit leaders look at the value they not only provide for their clients but also for stakeholders. For example, the New York City Opera’s customers were ticket buyers but their stakeholders might have included the city’s tourism bureau and group travel companies; labor unions; and stage, sound and in-house catering or food service.

Ask your financial staff to do more than report numbers. If they’re not capable of doing more than reporting, evaluate the immense benefits of a more strategic thinker or CFO. Expect leadership and problem solving from them. Increasingly complex social problems demand increasingly sophisticated nonprofits to solve them. Financial leadership is not only instrumental in honoring the mission and enabling strategic decision-making, it’s fast becoming the defining characteristic of tomorrow’s nonprofits.

By Erica McGeachy Crenshaw, CEO of Execute Now!

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