Monday, December 3, 2018

Video? What video?

Once again the gremlins of technology messed with me.  The video accompanying yesterday's post made it to the blog site, but for some inexplicable reason didn't get included on the emailed version.


If you want to see the video click on the blog logo above, and that should take you to the blog site, where you can scroll down to yesterday's post, and the video should appear at the end of the post.



Sunday, December 2, 2018

What Do You Do If The Economy Goes South?

Good morning
And the beat goes on..........................

Economic health is a cyclical thing.  It goes from robust to decline, and back again, with some regularity.  That's due in part to the reality that the economy is largely dependent on human confidence or lack thereof, and that condition is subject to all kinds of subjective criteria - including politics and paranoia.

Of late, the stock market has been on a mini roller coaster, rising and falling, though the underlying conditions really haven't changed much.  The once stratospheric housing market is cooling off, and some say it's over.   Both of these markers may simply now be in a period of what is called "a correction".  Add to that, global trade wars have investors worried, resulting in layoffs at some affected companies.   It may be that the decade long growth in the economy, including record low unemployment, may not continue unabated for the longer term.

So what happens if the economy cools off considerably?  What will it mean?

History tells us that another recession is probably a matter of when, not if.  But how deep a recession and how long might it last?  Nobody can definitively answer those questions.

The deeper the downturn, if there is one. and the more likely, for us in the nonprofit arts, that our widespread undercapitalization situation will leave many of our organizations hurting, if not their existence threatened.  Nonprofit arts organizations continue to rely on five revenue streams: government support, foundation support, individual philanthropic support, performance or exhibition revenue from audiences and earned income from all other sources.  Earned income has never, unfortunately, been of significant size to rescue us from downturns in our other cash flow streams.  And, as we are all painfully aware, maintaining high levels of audience income continues to be challenging.

When economic conditions change negatively, government usually sees a reduction in income, and their natural response is to cut back on expenditures.  Unfortunately, for us, the arts are most often one of the early casualties of that approach.  Such cuts are rarely the same across the board.  Some states and local jurisdictions have reserves and will weather any economic downturn better than others, and so the hurt for the arts won't likely be the same everywhere, if, in fact, the economy does a downturn.

The same may be true of foundations, who will be under pressure to divert funds to a host of other seemingly more demanding and priority causes.  And in any case, foundations lack the resources to  rescue all the organizations, no matter how worthy, that may be in peril.  And individuals - at least the middle class - may feel the squeeze and be less comfortable with the same level of their previous support.

So, if there is, in the future, another round of economic hard, or harder, times, at the very least the arts may find it more difficult just to tread water, let alone continue any growth.  Again, some organizations will fare well, others will have a harder time.

Of course, the economy may stay robust and healthy for quite some time still, but it's reasonable to anticipate that, at some point, we ought to be prepared for negative changes in the economies at the global, federal, state and local levels, with perhaps great territorial variation.  Economics is not a precise science, despite the preachings of the media pundits and the financial sector experts.  Right now may be a good time to consider what it would mean for your organization were a recession to be on the horizon.

So what do you do?

First, you take a long, cold hard look at your finances and capitalization, and your budget, to see where you might be if the worst case scenario were to happen.  The prudent thing to do is consider the issue before it's on top of you.

Second, you look at your projections for income and expenses with a suspicious mindset.  You try to figure out what income on your books might not actually materialize, and what expenses might increase.  You look at what you might be able to cut if it came to that.  In other words, you need a plan, now, in case of a precipitous or even cataclysmic event.  You may have only two choices: take in more money, or spend less.  You have to figure out which approach is realistic, and will work for you the best.

Its entirely possible that many smaller and even mid-sized organizations would be faced with cuts as the only alternative.  And so very hard decisions would need to be made as to where those cuts could / should come from.  There are no easy decisions here, and both predictable and unintended consequences would need to be considered and accommodated.  We're talking about some hurt here.  No way to avoid it if it comes to that.

Third, if changes in the economy are still sometime off in the future, this is a good time to address -head on - the audience development challenges.  We know our audiences are shrinking - big time for some, a tiny bit for others.  But all of us also know that the population is accessing art across levels of platforms very different from our historical live performance / exhibition audience paradigm.  We have simply got to figure out how to capture the larger audience that exists outside of our traditional approach.  And that's only the half of it, because then we've got to figure out how to monetize any new directions we take.  You may not be able to solve this conundrum, but we have absolutely got to begin to try now.  Any progress will help to minimize the hurt if, or when, it comes.

Again, some will be ok, others will not.  So Fourth, you have to figure out where you fall - a hiccup in your affairs, or a big time problem that will threaten what you do.

Fifth, on a local or regional basis, arts organizations should ratchet up their lobbying efforts now with government, so that if the time comes, they will have already laid the ground work for making their case in competition with all the other interest groups that will want a piece of the dwindling support pie.

Sixth, ditto that approach with local foundations, and individual donors.  Conversations should be held now about what to expect in an uncertain future.

And finally, watch this very short video clip:

It is a clip of a baby bear cub desperately trying to follow its mother up a treacherous snow capped mountain to safety at an upper ridge.  The little guy has a lot to overcome.  

Perhaps the most important thing you can do is, like the little cub, stay the course and keep trying.  You
Don't Quit.

Have a good week.


Monday, November 12, 2018

Board of Director Accountability as to Our Public Benefit - A Can of Worms

Good morning.
"And the beat goes on....................."

Nobody owns a nonprofit.  The IRS grants the organizations a special tax status because the entities are classified as "public benefit corporations".  It is because they benefit the public that they are treated differently than commercial enterprises.

But who decides what that benefit is?  Who monitors to determine if the benefit is actually being met?

The way the system works, is that, like for profit corporations, nonprofits too have Boards of Directors whose principal duty is a fiduciary one, to make sure the organization's finances are both solid and transparently on the up and up.  Beyond that the Board is unofficially charged with overseeing and insuring the organization is well managed and complies with all legal obligations.

Some Boards see their function as pretty much stopping there, and placing responsibility for the operations and management in the hands of the Executive Director and staff - with some provision for periodic review.  Others Boards have a penchant for micromanagement and see the need to involve themselves in even the smallest of decision making processes and details.

But where is the public oversight to monitor that the nonprofit is, indeed, benefiting the public?  Where are the rules and regulations that insure fair, impartial and meaningful community (public) representation on the Board?  Where is the reporting mechanisms that demonstrate to the public that its benefit is being conferred?

For a variety of reasons, including the difficulty, if not impossibility, of defining what the public good is or is suppose to be, the answers to these questions is there isn't any such oversight, nor protocols or regulations which need be adhered to or followed to protect the public.  This is true irrespective of whether or not the nonprofit is involved in social justice or the arts, health care or education; whether or not the organization is deemed political in its ideology or is religious in nature, or both, or neither.  It's true with very wealthy organizations and threadbare startups; large and small.  Nonprofit governance is left to the organization itself.

Yes, various states have some rules to govern nonprofit governance, but in the main, unless there is scandal or some public outcry, there is no government interference, but for the occasional use of the sector as a political hot potato.

And the likely reason for this hands-off legacy is that neither political side wants to open this can of worms, because what will be good for the goose, will be good for the gander.  Thus the political right might want to seriously regulate nonprofits it feels exceed their mandate, or in some way offend it, and conclude the public benefit is minimal, or useless, if not non-existent, but they don't want any of the same kinds of draconian rules applied to religious organizations (which make up the bulk of charities of all kinds).  Nobody wants to touch the question of nonprofit accountability in benefiting the public; not directly, nor indirectly, by tempering with how the Boards of Directors of these organizations function.  Beyond raising alarm for fund raising purposes, politically it is a no win situation.

In many established, large or wealthy nonprofits, the Boards are top heavy with civic leaders and those who have credentials the organizations deem valuable, not the least of which might be their wealth or fund raising ability and acumen.  That's true in the arts as well.  Smaller and newer organizations may have Boards of local community members, many of whom are new to the arena and novices in their role.  Enthusiasm and passion are their coin of the realm.

But in neither case are these Boards in any real way accountable to the public beyond the obvious legal fiduciary obligations.  Nowhere are decisions as to programming or otherwise under any microscope as to their intent or effectiveness in serving a public benefit.

The other reason this has virtually always been the case, is that such review and evaluation could easily devolve into factions within a nonprofit fighting for control of the organization, not necessarily to right a ship off-course, but to force and impose their interpretation of public good for another faction's beliefs, thereby paralyzing the organization by infighting.  Such fights would, more often than not, be about control, not public benefit.  And how would those disputes be resolved?  The courts?  OMG, there would be another can of worms that might grind the work of nonprofits, so caught up, to a standstill.  That hardly serves any benefit to the public.  And it's hard to see how anyone befits if those kinds of disputes are argued in public.

So, other than a commitment to transparency in, not just financial / fiduciary matters, but as to decision making (which transparency is more the exception than the rule), it seems an impossible task to regulate how a public good is defined or delivered.

But does that mean the question shouldn't be asked, or ways to address it shouldn't be considered?

Take, for example, philanthropic nonprofits just in the arts sector.  Most of these organizations have governing Boards of stalwart civic citizens, a preponderance of whom are either wealthy or in prominent positions of power within business, politics or the community.  And our studies have confirmed that these foundations, on average and on balance, continue to make large grants to the largest organizations - often at the expense (because even the richest foundations do not have unlimited grant funds) of smaller, newer organizations.

Is that in the public benefit?  Who's to say?  I believe you can make an argument on either side of that question.  And people on both sides of that issue within our field have strong feelings one way or the other.  There are, in fact, often differences of opinion between the Boards and staffs within a foundation, and within their funding territory and community.  That's healthy I think.

Ultimately, it might be argued, the public itself determines whether or not it's getting a benefit by their support, or lack thereof, for the individual nonprofit.  That such conference of approval is often by relatively small and arguably, special interest groups, notwithstanding, that system has its impact.

But is there anything that can be done to help improve the quality of that debate so that all the factions within a community are given voice as the decision making goes on?  Many would argue that the first step in helping to insure that the public benefits is to diversify the governing Boards so that a community's diverse constituency is fully represented.  Though with the best of intentions, that hasn't always worked.  Boards tend to be insular and self protective.  And they tend to replace themselves with people like themselves. The larger, older and wealthier the organization, the more so. Board diversity could be mandated legally at the state level, but again, politicians are reluctant to get embroiled in any kind of fight that might alienate even one segment of their constituency.  There is a movement afoot to diversify boards, but that movement is still embryonic.

An idea that I think has merit, is for nonprofits in our field, to voluntarily pledge to formalize community input to decision making by way of advisory boards or committees. Yes, I know such a proposal adds an unwanted and perhaps undesirable and burdensome level of bureaucracy, and such boards or committees as already exist, often function in name only.  But to the extent, our Boards can open up to allow for community input, arguably the public benefit can be better protected and served, and more formally codified.

Virtually every arts nonprofit legitimately believes that it facilitates the creation, performance or exhibition, and preservation of art, and is thus beneficial to the public, and except in the rarest of cases I think that would be hard to dispute.   But is there value in formally and periodically asking:  How are we benefiting the public?  Would not the way we answer that question help us in discharging our missions, preparing our advocacy work, justifying our value to the public and funding authorities, and help inform and guide our programming and otherwise be useful to us?

Of course, we may not actually be willing to open up how we conceive of public benefit, let alone how we define it.  But it is a legitimate issue i think.

Have a good week.

Don't Quit