In
an Oct. 4, 2015 article (http://www.nytimes.com/2015/10/05/arts/music/carnegie-hall-faces-internal-strife-ahead-of-anniversary-season.html), Michael Cooper of The New York Times reported that the
recent management conflict at Carnegie Hall “has raised anew questions about
the proper roles of boards and staffs at nonprofit institutions.” However, neither deep discussion nor answers
have resulted. So, I thought I’d take the time to write about it. How involved should a board be in the day-to-day
operations of a non-profit?
Background
Among
the most stark differences between non-profit and for-profit organizations is
their boards of directors. Many publicly
held for-profit corporations pay often high-profile individuals large sums to
sit on their boards. One such example is
when, in 2011, IAC/InterActiveCorp, an internet media company, controversially appointed
the then 31-year-old Chelsea Clinton, daughter of Bill and Hillary Clinton, to
their board, paying her $50,000/year plus $250,000 worth of IAC shares. She joined such hard-hitters as Michael
Eisner, former Disney CEO, and Hollywood talent agent Bryan Lourd. Corporate board appointments are famously
coveted for their high pay for minimal work.
One businessman acquaintance in need of income told me that he asked a
friend of his to get him on a corporate board to help alleviate the financial
pressures he was experiencing. Conversely,
in season 7 of “The West Wing,” fictional White House press secretary cum chief
of staff C.J. Cregg (played by Allison Janney, pictured above) flat-out refused
to consider these kinds of posts because of their superficiality and emptiness
when she was considering her next move after leaving office.
The
other side of the coin is membership on non-profit boards. Rather than being paid to sit on them,
non-profit board members, who are responsible for ensuring that the organization
carries out its mission and for setting over-arching policies, are expected to
be high-level donors, getting no cash return for their investments but instead
only a small tax break and the knowledge that they are helping a needy
community. And rather than doing minimal
work, the best non-profit board members not only donate generously, but also roll
up their sleeves and fundraise, serve on committees, and serve as management
consultants. It is rare that one board
member can be strong on both the financial and expertise-sharing fronts, so it
is generally accepted that involvement may be tipped to one side or the other,
being mindful that 100% of the board members should make a financial
contribution every year, even if it’s only a small one.
The
paid, executive leadership of an organization reports to the board, so the
board is the entity that is ultimately responsible for the fiscal health and
long-term stability of the organization.
Sadly, though, there is a recent trend away from hands-on, traditional
board involvement. It has been observed
that people want to be on non-profit boards for status and prestige, without
having to give large sums, take responsibility for the organization, or do any of the work. In the case of arts organizations, how many
times has a board member shown up at the box office for a sold-out show
demanding tickets, saying, “I’m on the board,” and expecting preferential
treatment? Yet, many non-profit board
members take on the responsibility even though they already have full plates,
juggling high-pressure jobs, demanding family lives, and their preferred recreational
activities. Many board members barely
even attend board meetings, let alone donate time or money.
The
most conscientious non-profits do a thorough prospective board member training
before the annual board elections are held.
That way, prospective members have a full understanding of what is
expected of them when they agree to join the board. What many non-profit board prospects do not
understand is that, after agreeing to sit on a board, they become legally
responsible for the organization.
According to Grantspace.org:
The main legal responsibilities
of a nonprofit board are often summarized in the "three Ds":
Duty of care: Board members are expected to
actively participate in organizational planning and decision-making and to make
sound and informed judgments.
Duty of loyalty: When acting on behalf of the
organization, board members must put the interests of the nonprofit before any
personal or professional concerns and avoid potential conflicts of interest.
Duty of obedience: Board members must ensure that
the organization complies with all applicable federal, state, and local laws
and regulations, and that it remains committed to its established mission.
In addition to its legal
responsibilities, the board acts in a fiduciary role by maintaining oversight
of the nonprofit's finances. Board members must evaluate financial policies,
approve annual budgets, and review periodic financial reports to ensure that
the organization has the necessary resources to carry out its mission and
remains accountable to its donors and the general public.
The board acts as trustee of the
organization's assets and ensures that the nonprofit is well managed and
remains fiscally sound. In doing so, the board must exercise proper oversight
of the organization's operations and maintain the legal and ethical
accountability of its staff and volunteers.
Board
members can be sued, and in some states their personal assets jeopardized, if
lack of oversight results in a law suit. It’s for this reason that individuals
are well advised to get Directors and Officers Liability Insurance (D&O
Insurance) if they decide to sit on a board.
Non-profit
board members have been called “the ultimate volunteers” by many non-profit
managers over the years, but often times, staff would rather have less active
board members, because board members can create more work rather than help
alleviate the heavy burdens of the often over-worked and under-paid staff. Volunteers require guidance, coaching and
supervision. And because everyone knows
that volunteers can potentially be unreliable (“You get what you pay for” being
a popular mantra), many managers would rather do the work themselves just to be
sure that it gets done, and gets done correctly.
Frequently,
because board members donate their time and
their money, the staff is in the awkward position of worrying about offending
them with candid direction or coaching in light of the fact that whatever they
say will most likely affect the amount of the board member’s annual
giving. So, staff doesn’t feel as though
they can talk freely with board members, hindering the board members’ success
at whatever project they are volunteering to help with.
Additionally,
some of the wealthiest board members candidly admit that they do not have any
time to give, but will still write big checks.
According to the executive director of a Philadelphia non-profit arts
organization, that’s ok. “We need the
money,” he told me.
Another
trend is away from requiring a minimum “give or get” contribution for the sake
of board diversity. The misguided thinking
goes as follows: institutional donors (like foundation and government sources)
look for ethnic diversity in non-profit organizations; however, ethnic groups like blacks and
Latinos do not have the disposable income to contribute significantly to
non-profits, so they shouldn’t be required to donate, or to fundraise from
their equally financially challenged friends.
So, the “give or get” requirement is unfair and eliminated.
These
trends have put more pressures on the dedicated staffs of non-profits. Their boards expect them to work tirelessly
so that their organizations fulfill their ambitious missions by implementing
impactful programs and serving broad constituencies, and growing the organization. The pressure to put in long hours is
enormous. It will be interesting to see,
starting December 1, how the new and complicated Labor Department regulation
requiring time-and-a-half overtime pay for most employees making under $47,476
affects non-profits. Surely,
productivity will be affected, because the salary line in the non-profit
expense budget is always the last to be raised.
The Labor Department says that 4.2 million workers will become newly
eligible for overtime, but it’s unclear how many of them work for non-profit
organizations. Will leadership expect
the workers to work overtime and not ask for the additional pay? If the millennial generation’s steadfast
protection of their rights is any indication, that’s not going to work.
So
today, we are seeing non-profit board members who, for whatever reasons, cannot
give of their time or their money. So
what good are they? Is it all just a
façade?
The
Carnegie Hall Controversy
In
the fall of 2015, the traditional non-profit board/staff relationship was put
to the test by the reputedly combative businessman Ronald O. Perelman, who had
recently taken on the role of chairman of Carnegie Hall’s board, and who was a long-time,
eight-figure major donor to the organization.
Mr.
Perelman saw his role as a contributor of money and of time, and he rolled up his sleeves, ready to take
responsibility for the organization. He
asked questions. He expected
answers. But was he obstructionist? Was he out of line?
According
to The New York Times, two issues in
particular drew Mr. Perelman’s attention.
One was the upcoming awarding of the new annual Warner Music Prize. The prize promotes the Warner name, and
Warner is owned by a firm that was founded by Len Blavatnik, who sits on
Carnegie Hall’s board. An interesting
backstory is that in 2011, Sony (who was working with Perelman at the time) was
vying against Mr. Blavatnik’s firm to buy Warner. Concerned about a potential conflict of
interest over the music prize, Mr. Perelman wanted to make sure the relationship
between Carnegie Hall and Warner was properly vetted before executive and artistic
director Clive Gillinson signed a contract related to the prize. However, Mr. Gillinson signed the agreement “over
Mr. Perelman’s objections.”
Strictly
speaking, Gillinson reports to Perelman, and so should have heeded Perelman’s
wishes to hold off on signing. Perelman
wanted lawyers to investigate the relationship between Warner and Carnegie
Hall, which could have taken a long time, and which certainly would have been
expensive, and which also would have jeopardized the award grant itself. One can imagine that Gillinson might have
unilaterally decided that there was no impropriety and did not want to hold up
the process of making sure that the prize would be awarded at the October gala
by giving in to Perelman’s wishes.
Perhaps he saw Perelman only as a meddlesome figure-head, and not as a
truly responsible board chairman. Or
maybe he thought that Perelman lacked integrity and wanted to throw a wrench
into the works just to get even with Blavatnik after losing Warner to him. Regardless, it’s clear that Gillinson wanted
to get on with “business as usual” and so moved forward, and Perelman called
him on it.
The
second issue that Perelman raised was a lack of fiscal transparency to the
board. While I am sure there is a
finance committee that looks at periodic (perhaps quarterly) broad-stroke statements,
the committee may not be shown details that Perelman sought. He asked to see profit and loss statements for
particular recitals that Carnegie Hall presented. According to the NY Times article on Oct. 4, 2015, he was “told that such financial
information was never shared with the board or even the chairman.” If this story is true, I can’t help but
wonder who had the chutzpa to say that to the board chairman?! Obviously, artist fees are typically kept
secret from the general public to avoid bidding wars between rival performers. The Times reported that, after stalling,
Carnegie officials ultimately did provide Perelman with the information he
sought. It is incumbent upon the board
leadership to keep sensitive information from becoming public, and the staff
most certainly should not keep important fiscal information from the board
leadership.
Perhaps
the staff did not trust Perelman with keeping the classified information secret,
and feared the time and money repercussions should the numbers leak. Or worse, perhaps the staff thought that
Perelman wanted the information not for reasons of fiscal oversight, but for
personal reasons. Heck, it would be
interesting to know what a high-profile soloist like Yo-Yo Ma is paid for a gig
at Carnegie Hall.
The New York Times reported
that “Mr. Perelman’s suspicions were
apparently aroused when a batch of data he obtained in late May came in an
unreadable format.” I can just imagine
an over-worked staffer muttering under his/her breath that they did not have
time for this nonsense, and sending a document without taking the time to
format it correctly. Perelman, instead of seeing this
possibility, distrustingly leapt to an assumption that the staff was trying to
hide something. The real issue may well
have been that the staff is not used to having engaged board leadership and
does not have the time to be as responsive as Mr. Perelman would have
liked. Maybe the staff is used to a lazy
board and doesn’t know how, or have the capabilities, to act when engaged
leadership is in place.
Because
of the P&L and the Warner Prize issues, Perelman, with the “input” of the
board’s secretary and treasurer, but shamefully without the knowledge of the
full 15-member executive committee, suspended Gillinson rashly on August
18. An emergency meeting of the
executive committee was called for the following day, at which time Gillinson
was immediately re-instated. Committee
members said they felt blind-sided and were angry, justifiably so. Perelman subsequently announced that he would
step down as chair, and an “internal investigation” of the suspected
improprieties brought to light by Perelman was underway, although I doubt that
the public will ever be made aware of the outcome with Perelman out of the
picture.
One
organizational choice that seems to put Carnegie Hall in a difficult situation
is the title held by Mr. Gillinson: Executive and Artistic Director. His bio reports that he moved up the
leadership ranks from being a musician.
Traditionally, artists become Artistic Directors, and managers become
Executive or Managing Directors. In many
non-profit arts organizations, this two-pronged leadership structure, with both
directors being paid equally, allows for a balance between the artistic and
management concerns of the organization.
It’s also a way to keep checks and balances in line. Perhaps if there had been a managerial
counterpart to Mr. Gillinson, much of this recent hullaballoo could have been
avoided.
Lazy
Boards
Perelman
notwithstanding, most non-profit boards would undoubtedly rather put all their
faith in the executive staff rather than take what precious little time they
have to get involved, ask the hard questions, and act to rectify negative
situations. No one wants to make
waves. Sometimes, board members just
want to “save face,” keeping a low profile so that no one will notice to what
extent they do not understand their role as a non-profit board member. Other times, they are just lazy.
“Rectifying
negative situations” may sometimes mean taking the difficult step of replacing under-performing,
or just plain bad, executive leadership, a process that is stressful and
time-consuming for a board, who has to not only deliver the bad news to the
leader, but make sure that all actions are taken legally to avoid a law suit, form
a search committee, invest already stretched budgetary funds in hiring a search
firm, and interview candidates to find a suitable replacement. Often times, this daunting “to-do list” is
what tragically keeps a board wedded to an incompetent staff leader. And it’s the organization, the subordinate
staff, and ultimately the community that pays the price.
After
all, change is hard. To quote the
introduction of Common Sense (1776)
by Thomas Paine:
Perhaps the sentiments
contained in the following pages are not yet sufficiently fashionable to
procure them general favor. A long habit
of not thinking a thing wrong gives it a superficial appearance of being right…
Paine,
of course, was referring to the King of England’s abuse of power. But these sentences apply to many other
situations throughout history and up to the present day. Perelman stepped down from being Carnegie
Hall’s chairman, and probably would not have been re-elected anyway, because he
made “unfashionable” waves that the rest of the board and the staff were not
prepared for and did not want to deal with.
Conversely, he acted in a rash and unilateral way that was entirely
inappropriate. It’s a shame.
The
Way it Should Be
- Board prospects should be fully aware of, and in agreement with, what is required for membership before they agree to be added to a slate of nominees.
- Fundraising duties should always be on the list of board responsibilities for every board member. Making “asks” is often outside the comfort zone of some people, but there are ways for those individuals to help with fundraising that do not include face-to-face asks, such as sharing prospect contact information, and allowing the use of his/her name in proposals.
- There should be a “give or get” policy for all members, regardless of race, but taking into consideration what is practical in order not to shut out any socio-economic groups.
- Time commitments, such as committee participation and general meeting attendance, should be articulated and agreed to in writing. Dates for all meetings should be announced at the beginning of each fiscal year in order to give plenty of advance notice.
- There should be a Governance Committee of the board that tracks giving, fundraising, committee involvement and meeting attendance. The committee should produce a Board Report Card for each board member that is reviewed in person at the end of each fiscal year. It is important that this is a board member – to – board member meeting, as it wouldn’t work if a staff member prepared the report cards. Peer-to-peer evaluation is necessary.
- Failure to fulfill board commitments despite the support of the governance committee and of the staff should be grounds for rotating “dead wood” off the board. Being on a non-profit board is not a decision to make lightly. It’s a serious responsibility.
Many
non-profits are afraid to be so demanding.
They worry that no one would be willing to join their boards, or make
big donations, if they make the board requirements too strongly. But the benefits of being on a board should
also be articulated clearly: being listed as a board member in publications,
ticket perks (if there are any), prime gala seating – whatever they are. It is not one-sided, although ideally, board
members should be supportive for unselfish reasons.
***
For
further reading: The Board Book: An Insider’s
Guide for Directors and Trustees by William G. Bowen
Special thanks to Stanley N. Katz for his input to the post.
Special thanks to Stanley N. Katz for his input to the post.
