Episode 68: Good Governance in Nonprofits

Welcome to another edition of “Around with Randall,” your weekly podcast making your nonprofit more effective for your community. And here is your host, the CEO and Founder of Hallett Philanthropy, Randall Hallett.

Thank you again for joining me, Randall, on this edition of the podcast, “Around with Randall.”

The podcasts have become kind of the platform for me to think about the 21st century classroom, teaching. And much of that time, as I look back, I realized we've gotten into some pretty cool conversations, discussions about important aspects of philanthropy and fundraising, and yet i had a question from a dear friend who reached out to me and indicated that he's looking at an opportunity and this nonprofit really hasn't done any fundraising. Interestingly enough, they're in an industry where they've had other revenue streams, but the organization is now beginning to indicate that philanthropy, as a nonprofit, is going to be important to their future, and he asked me what would be the big things that he should be thinking about, which stuck with me because I do so much of these pod - so many of these podcasts and teach. But I look back, I’ve never covered kind of the bigger picture of best practice of non-profits. So maybe it's the fact that a nonprofit is beginning or is in, is just beginning its major advancement into fundraising activities. Maybe it's a new nonprofit. Maybe it's an established nonprofit. And you can get a piece of paper and write a few of these things down and say gosh we do this really well, we do this very well, we do this well, but these two or three things are kind of holes we should probably get better at them. 

Best practice in the conversation today isn't just for new nonprofits, it's for all of us to create the idea of what I tend to call good governance, and the first thing to talk about before I break out maybe the four areas that I think of when I think of best practice is the reason why this is so important. Two reasons - really, number one over the years I’ve seen and the literature certainly supports my own experience that donors, philanthropists are becoming more and more sophisticated, whether it's corporate donations or individual donations, or if we even think start thinking about donor-advised funds and community foundations and others like that. They want to know the organization is doing what it should. They want to know that their money is not going to be wasted. They want to know that what they give their money to in terms of a general mission is actually what you're trying to execute, and they want to know that competent people are doing the right things along the way. That sophistication is really important because you want them to believe in your operation and your goals, and most importantly that you're doing the right things. The second is, the reason why this is important, is what I think of when I think of the fourth estate and traditionally the fourth estate was really about newspapers, television, radio, that kind of stuff, but it's much more so today. The traditional fourth estate was the Omaha World Herald for here in Omaha, the New York Times, Dallas Morning News, Los Angeles Times, Miami Herald - whoever was maybe the investigator of you know things that might be of interest in the quote unquote news. The issue today is is that with social media platforms, whether it's Facebook, Twitter, Instagram, or whatever people use, they are kind of their own individual newspaper, radio station, tv station, with their followers and so they, too, can articulate a story. And if it's tantalizing enough, interestingly, interesting enough, it gains interest from other people along the way and gets forwarded and all of a sudden it's almost like the informal word of mouth has become more formalized in terms of communication. If you have bad governance, if you have problems, it will be discovered and bad things can happen and sometimes that's enough to push donors away or to question their engagement with you. So good governance is about protecting the organization and getting things done in the best possible way to move your mission forward.

When I think of the four areas we get in now we start talking about the tactical. I think of them in four tranches really. The first is the idea of the legal side of a board in an organization. The second is the development of the board and leadership. The third is the alignment between fundraising and whatever the mission's goal is, the service that you provide. And the fourth is a basic understanding of fundraising dollars. Where does money come from, why are certain activities more important than others. And what I want to do for the next 12 minutes or so is break these down into at least some high level conversations. Again, take a piece of paper, write them down. I’ll give you some things you should be looking for and give you some guidance on you can do a deeper dive beyond this kind of 21st century platform classroom that I do once or twice a week to really maybe think gosh, we're missing that piece we should probably do a little bit more digging. And you can reach out to me if I can be helpful in that process. 

So let's start at the top. The legal process. The legal side of all of this. There are two primary things that I always think about when I think of governance. One is the mission, and I’ve seen a lot of nonprofits try to develop a very comprehensive mission statement, many sentences, almost a paragraph, and then no one seems to actually remember what it is. The best mission statement I’ve ever been a part of, really give credit to Tad Poland who used to be the Senior Vice President of Marketing at the Nebraska Medical Center, now is an exec, the head of marketing executive at MD Anderson. He went through a process with his team and brought it back to the other executives including myself to define what our mission was at the Nebraska Medical Center and it was four words. These four words were known by every employee they were on every t-shirt that the nurses wore everybody knew what our mission was because and by the way it described what we were and what we did perfectly. Four words. Serious medicine extraordinary care. We didn't need six sentences to describe it with four words. Wow do you create a mission statement that's simple, short, and definitive of what you do? It defines what you're trying to accomplish. More is not necessarily better, so the mission statement is number one. 

Number two are, or is and are, is the bylaws and all the things that go along with the bylaws. So the bylaws really are the documents that drive what the organization does, not only on a overall strategic level but also sometimes depending on the issue, on the tactical day-to-day level. Bylaws are incredibly important and what I also find is if I ask the question was the last time somebody actually read the bylaws the answer is almost nobody does. This should be reviewed annually at least by a small group of people. Are we actually doing what the bylaws say? Even big organizations should have this process. The bylaws - you think about an academic medical center like the Nebraska Medical Center and the university, I mean we're talking a ream of paper - but somebody needs to be making sure you're doing the things you indicate as a part of the bylaws or all of these policies that come with it. And I don't differentiate much from bylaws and policies because they're intertwined. The bylaws set the big picture. The policy sometimes are the more detailed but there are several policies that are not only important but best practice. They're mentioned in 990s the IRS form that nonprofits have to fill out. Do you have a lot of these documents? So i'm just going to give you a couple of these to consider, and by the way has anybody read these recently? So for for philanthropy the number one policy is the gift acceptance policy. How do we take money? What do we do when we do it? When we get it, somebody actually looked at this recently and I’ll give you an example of why it's important. In 2020, in December, I did my predictions for 2021 and one of the things I predicted was the growth of cryptocurrency. Nobody has that they're in their gift acceptance policies because it didn't exist two or three, four years ago. These are living documents. Things and and aspects of your organization that should continue to grow with you, gift acceptance, things like whistleblower so that people feel protected or have the opportunity to be protected if something inappropriate is going on, travel and operational reserve and investment policies that dictate how money is flowing and how what kind of money is expended and how we do certain things things like document destruction policies, how long do we have to keep things. A conflict of interest policy is critical for board and executive leadership. Are they there with the three standards of duty that are required in this process that they have a duty to to make sure that they are aligned with the mission that they're not thinking of something else, and that they're using an ordinary person standard to make their decisions. Certainly distribution endowment policies, how do we keep and expel money that's been done philanthropically? all of those policies should be in place and be looked at every year. So the legal side of this is mission and bylaws, and with bylaws I also include policies. Has anybody looked at them? Do you have them all? And they don't have to be overly complicated, but they need to be complete for the level of organization that you represent. And I think if you ask the question, “who's looked at them?” You'll find not many people have at least recently. 

The second is the idea of development of the leadership. And really I’m talking about the board. I talked about in a blog a recent study by, I think it was out of Texas A&M that did a survey of nonprofit board members some larger boards, larger nonprofits, academic medical centers, health care ,education, social service, and I was staggered by the fact, staggered that more than half thought their job was to support the CEO not oversee the CEO as a board member or as a board. And I thought, this is how problems occur. The board's job is to be the CEO’s boss and to set the vision of the organization. So part of this is making sure that you have a strong board process to bring on new boards. And it should take about a year. I created a one-page sheet that kind of broke down, month by month, what are some of the tactics and and needs of a board. A new board selection process for a governance committee, executive committee, board development committee, whichever committee is responsible for bringing those names, but it's 12 months long. There are things that you're doing each month if you want to have a robust board selection process. It just shouldn't be well, Bob or Cindy is my neighbor and they're a good person. What are your needs of your board? Where are the holes? Are there holes in the community that you need representation? Are there talents that are necessary? There's all kinds of things that go into this process, so the first thing in terms of board development is the idea, number one, that it's the board who oversees the staff and sets the community's need and vision for what that mission is in terms of direction and service. But number two is that it's an ongoing process to always make sure that the the board development selection, overall direction is constant. It's just not a one or month, one or two month process at near the end of the year because we got to do it fast. The second is the job description. Board should have a job description, and I’ve helped a number of boards do this both as a volunteer board member, but also as a consultant. I like to think of it as primary and secondary. 

Traditionally the primary role of the board was to come look at the minutes, approve the minutes, look at the finances, get a report from the organization, an update, and maybe have lunch and move on. What I emphasize is that an active board should be in the business of doing that but that's secondary, that can be done through a lot of different processes. It needs to be done. It's a legal issue but the primary role of the board is to engage the community. Are they helping to make introductions to the staff of people that would might support the organization? Are they hosting small gatherings? What are they doing that's active in some places? It's not, can they carry a portfolio of two-to-five people that they partner with a gift officer or the fundraising team to move that relationship forward. To me those are primary. In fact when I write job descriptions I actually put that the primary role are community outreach the secondary role or all the legal things they're important but they're not going to override the import, the critical role that board members have with outreach into the community. At this point some of you may be saying, well I really don't have a a foundation board. I’ve got kind of an advisory board because we don't have a separate foundation. In many ways all of these things still apply. The only difference is they may not. Your organization, your advisory board, community board may not actually have the legal standing to make changes to be a governing board, but all of these things whether it's the legal documents, or it's the job description ,are equally important whether you have a formalized foundation or a support community board, community group, community committee. These are high-level basic principles that are going to make your organization stronger. 

So one was legal, two was board development, three was alignment, and I think this is uh where we sometimes see the greatest challenge is a subserviency in philanthropy. Philanthropy is subservient to the mission and direction of the leadership. Philanthropy's job is to support the direction the organization's going. It is not in and of itself there to set that direction. It can influence it. It can push things forward because of funding, but it's alignment that needs to happen. Education does this better than places like healthcare a chancellor or president sets a direction, and fundraising comes in and fundraises for that direction. In healthcare it's a little more challenging. Sometimes we have CEOs who don't quite understand that it's really important to set up that alignment for the fundraising group, whether that's the office or board or community group to understand that their job is to give feedback. Absolutely be actively involved, but at the end of the day a CEO and a governing board, if there are two separate groups, set direction. Some organizations only have one board so it makes it easy. The alignment is what the alignment is, but I sometimes think that this is such a missing cog. It's important to realize that we need direction and philanthropy to actually go out and quote, unquote, sell what the organization's trying to do and the better the direction, the more likely we are to have success doing that. That was number three, alignment.

The fourth and final is just a basic understanding of fundraising, and I can't tell you how many boards just don't have this. Sometimes it's the staff that doesn't have it and if there is a fundraising component and then a organizational component to the leadership team, meaning the fundraising team is a separate department or separate area, sometimes the executives, the leaders who aren't in fundraising don't understand it. Couple basic principles that I talk a lot about with boards and leaders. First and foremost over the last 10 years, and Giving USA deserves an immense amount of credit for tracking this data, the number of donors has decreased while the amount of dollars given in philanthropy has increased. Basically what that means is is the principles I entered this profession with - the predo principle 80% of your outcome comes from 20% of your input said 20% of your donors make up 80% of your dollars isn't true anymore. We're probably closer to 95% 5%. 95% of our dollars come from five percent of the people so this idea of major gift principle gift direct individual engagement with an individual, with a foundation, with a corporation, and you foundation corporations aren't people, they're places, and people make the decisions in them. Our individual relationships are quintessential for driving those larger dollars. I also want to give credit, and I talk a lot about it, with the Association for Healthcare Philanthropy. They do a great analysis of the average gift on an annual, on an annual basis. When it comes to planned gifts, major gifts, annual gifts, special events, things of that nature and what we're finding is that it takes hundreds thousands of annual gifts to make up one major gift, and even more so for a planned gift. The average planned gift in health care is nearly $350 dollars for the average organization. I like that number. That's better than trying to find thousands of $100 dollar donations. We also need to have an appreciation of pipeline, where these people come from. So we know that board introductions, based on the studies done by the advisory board and many other organizations that board introductions, community volunteer-led introductions, are the quickest and most reliable way to know if someone can be a larger donor. And then you have things like grateful patient programs and alums and others who are closely tied to you. And we have other things that come in annual fund dollars, special event dollars, corporation foundation dollars, those are a little bit higher more like major gifts. What I’d advise is that knowing that something like in healthcare 88% of the biggest donations come from grateful patients, if we know that then we should concentrate on where the money is. The most able to be found alums are a good example. Maybe you're in social service as a non-profit. Maybe that's corporations and foundations who support basic needs in the community. Where is it you're spending your time and your resources and are you getting the most out of those. So those are the four high-level. But the idea of legal development being on the board, the idea of alignment, and some basic understanding of fundraising lead us to the high principles of best practice and good governance that someone can start looking at, figuring out how that applies to them, using to build a foundation or a fundraising operation and engaging people at the appropriate level with the right direction that will allow them to be successful. 

Don't forget to check out the website www.hallettphilanthropy.com, blogs posted every two- three days, 90 second reads, just something to make you think a little bit, things I see in the world that might be cause a little bit of thought ,and if you'd like to reach out to me you can reach out to me at podcast@hallettphilanthropy.com. Make suggestions, make a comment about what you've heard today, or any of the other podcasts that are out there on YouTube or Downcast, Spotify, iTunes… wherever you listen. Make sure that you leave a review and send me a question or two. As always I want to say that this is a critical time and it's a critical need that nonprofit work and people who are listening to this and who serve in nonprofits, what they do every day, it goes along with my all-time favorite saying, “some people make things happen, some people watch things happen, then there are those who wondered what happened.” In the end nonprofit work are people making things happen for people and things that are wondering what happened what our community needs, and that is worthy. And I hope you feel great about what you're doing. This is noble and it's worthy of your time and attention and your professionalism and if no one else has said it let me say it as i conclude here, thank you for what you do you're making your community and people's lives better i'll look forward to seeing you next time right back here on “Around with Randall,” and don't forget make it a great day.