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