Economics and Nonprofits: Safeguarding the Mission

Proven business and organizational strategies tailored to the nonprofit environment by Ulrich Seuster

The recent onslaught of corporate corruption cases has the country pining over corporate trust issues. How could Enron deceive its stockholders with dubious accounting practices? How could Worldcom "incorrectly record" nearly four billion dollars in expenses? How could Tyco's CEO allegedly hoard millions for his own use at the expense of trusting shareholders?

I heard a recent commentary which suggested that sloth, rather than greed, is the biggest culprit. Surely some member of the executive management or board of directors of these companies had an inkling that things weren't copasetic. But isn't it easier to ride a big wave than to jump off?

We are now sitting on the edges of our seats, waiting to see who is next to come clean. So far, the focus has been on for-profit corporations. What about nonprofits?

Calling on Nonprofits

Some people may argue that there is no comparison between for-profits and nonprofits. Nonprofits don't have money-hungry, corrupt leaders or do they? Nonprofits are not as vulnerable to the sloth that enabled these corporate scandals to grow in the magnitude to which we are now seeing or are they?

It is my personal opinion that the differences between nonprofits and for-profits are significant enough to keep the nonprofits out of corporate corruption headlines. However, the recent headlines should serve as a warning to all organization, for-profit and nonprofit alike.

Like many for-profit organizations, nonprofits work with other people's money which must be accounted for. Even though nonprofits do not have to abide by SEC guidelines, nor are they subject to financial scrutiny by Wall Street analysts and investors, their donors do expect to know how their money is being used. In this day and age, when people are keeping a much tighter grip on their purse strings, such donors are certain to want a detailed breakdown of where their money is going and how efficiently and effectively it is being used.

The nonprofit serves as an intermediary for the good intentions and objectives of its donors. A donor's lack of confidence in the current stock market may be used to the advantage of a smart nonprofit organization. The nonprofit could win and keep that donor's trust, presenting itself as the better "investment" in many ways. Winning pride by being affiliated with an organization that actively supports the community is better than losing money by investing in a for-profit company with a questionable value system. Are nonprofits ready to respond?

Dispelling the Myths

In our experience, the vast majority of nonprofit organizations are embedded in strong values, driven by their missions and led by passionate employees following what they see as a higher calling. However, this higher calling, no matter how admirable, is not a guarantor for the organization's managerial and financial integrity.

During our engagements with nonprofits, we have noticed the following sometimes subtle yet, at the same time, significant differences between nonprofit and for-profit organizations:

Governance. The nonprofit's governing body has the same responsibilities as in for-profits, such as management selection and performance monitoring. Responsibilities also include the organization's legal compliance, financial and operational integrity and strategic focus, all critical issues to the longevity of any organization. But in addition, nonprofit boards and executives assume fundraising functions and have a lot more riding on political relationships. Finally, as nonprofit boards tend to be larger than their for-profit counterparts, the organization must beware of excess diffusion of responsibility which can lead to inertia and unwanted detachment.

Management processes. We have noticed a certain expectation of "democracy" among nonprofit executives and managers which often manifests itself in a consensus driven decision-making process. While itself an admirable trait, this process could be problematic in times of crisis or urgency.

Mission. A nonprofit's mission is often compelling and hardly ever becomes obsolete, as the nonprofit's "market" is not likely to go away. Yet, the organization frequently lacks a clearly defined strategic focus. Without such focus, many nonprofits end up trying to be everything to all people, which almost always leads to the organization's deterioration, and in the worst, a survival crisis.

Employees. Our experience shows that employees of nonprofits are more often passionate about their jobs and devoted to the mission, despite significantly lower salaries. Such idealistic and altruistic attitudes are part of what makes a good nonprofit special. But this very characteristic may suppress the objective and critical mindset necessary to maintain an organization's operational integrity. The fact that nonprofit employees generally are not driven by money could lead to a seemingly innocent negligence of financial issues, or worse, a disdain for financial considerations being unseemly.

Whereas greed and sloth may have lead to the demise of corporate behemoths, it is more often neglect of financial and operational issues (as opposed to the conscious manipulation of the organization's financials) and the inability or inexperience to act in a timely manner that often leads to the demise of nonprofits. This neglect is usually manifested by a decrease in the quality of service provided and a lack of investment in people and facilities.

Staying the Course

A balanced budget, strategic plan and client focus are crucial for the long-term success of any nonprofit organization. The best mission cannot be successfully pursued if these business fundamentals are not monitored and evaluated regularly.

Never have we seen a nonprofit's mission or values contradict the efficient use of funds, strategic focus, or performance monitoring. Yet many times we have heard employees of nonprofits say that their work is "not about money," or "we are not a business; we are here to help people." In these cases, it takes the expertise of an experienced advisor to tailor proven business and organizational strategies to the nonprofit environment, while building on the organization's existing values in support of its mission.

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