I had envisioned writing a book with this same title, “Are Good Intentions Enough” for the last ten years, but just have not taken the time to write it. Maybe it was not even about taking the time, but more about the potential reaction it might have. Or maybe, as some time passed my perspective might change, it hasn’t.
Let me start by expressing what may seem obvious; it is my opinion, most, if not all non-for-profits have good intensions. Further, I am in no way attempting to condemn, denounce or attack the non-for-profit sector, but as a person who spent nearly two decades as a not-for-profit practitioner, an executive, who also spent a decade previous to that experience and a decade after it in the for-profit business world, writing an article with my unique perspective may be the best place to start. Also, with the world turned upside down due to the Covid 19 health crisis, it may be a good time to step back, take a good look at a how things are done in many business and industry sectors, including the non-for-profit sector and at least begin to ask some thoughtful questions. My hope is that by taking “a peek behind the curtain” from my experience might help us all be more reflective and mindful of how we might address and attempt to tackle some of the issues aimed to be improved by the not-for-profit sector in the future. There is no doubt that like many business sectors, the not-for-profit sector will have been impacted significantly by this public health crisis, but will we as a society just go back to how things were, once we are through this specific crisis? Hopefully, there will be things we have learned from this crisis that will help guide us to be much better prepared for the next one, because if history has taught us one thing for sure, there will be future crises, albeit future pandemics, weather disasters or other yet unknown catastrophes.
When doing research for the book I was contemplating ten years ago, it became apparent one could easily to get buried in the data and statistics along with the realization the same data sets could be used to tell very different stories. However, that is not my intent with this article, and I do my best to avoid overusing statistics or using data to sway opinion, because as Hans Rosling points out so well in his book ‘Factfulness, not only how important it is to have a fact-based world view, but how numbers alone don’t tell the whole story and as he puts it; “the world cannot be understood without numbers. But the world cannot be understood with numbers alone.”’[i] Nonetheless, we have to get a basic understanding about the size and scope of the non-for-profit sector as a whole. The not-for-profit sector continues to grow with ‘1.54 million registered with the IRS in 2016; it contributed an estimated $1.047.2 trillion dollars to the U.S. economy in 2016, which was about 5.6 percent of the U.S gross domestic product (GDP); public charities registered with the IRS as 501(c)(3) accounted for just over three quarters of the revenue with $2.04 trillion dollars in revenue and just under two-thirds of the total sectors assets at $3.79 trillion dollars; according to the Giving USA Foundation 2019, $427.71 million dollars in private giving was donated by businesses, foundations and individuals in 2018; out of the 1.54 million organizations registered not-for-profits with the IRS include the arts, health, education, advocacy groups, labor unions and business and professional associations; the total number of non-for-profits in the U.S. is actually unknown, as Religious congregations and organizations with less than $5,000.00 in gross receipts are not required to register with the IRS’. [ii] Number of employees and payroll is somewhat difficult to nail down. ‘According to the U.S. bureau of Labor Statistics, in 2017 there were 12,488,562 employees with wages amounting to $670,218,053.00.’[iii] Again, I only use this data to give you some context on the size and scope of the sector, and needless to say, this is a decent size sector.
There are some basics that most people understand about the sector, like; not-for-profits are tax exempt, which means they do not pay taxes on any of their surplus income or on any property they own. The misnomer they do not make a profit per se is not always understood. Like any business entity, which in essence is what all not-for-profits are, if they do not have income that exceeds their expenses, they won’t last very long. Instead of calling it profit, in the not-for-profit sector, it is referred to as surplus and this surplus is not taxed. Almost everyone also knows that money given or donated to a not-for-profit can in general be taken as a tax deduction by the one giving or donating the money, less anything of value they may have received for the donation. This tax deductibility is an enormous and attractive motivation for people to donate money to not-for-profits. Not-for-profits are classically governed and controlled by a local board of directors and they are normally operated and managed by paid staff. What you may not have known, many of the larger not-for-profits operate as Franchises, where there is a national or international organization who operates around the U.S. and in some cases around the world, with self-supporting franchises at the local level. The franchise agreements vary, but they routinely charge an annual fee or percentage of revenue raised by the local franchises to be affiliated with the name and brand and to use their materials and programs, which they customarily also sell to the local affiliates. So, although a local not-for-profit has a local board of directors that governs the local organization, there is likely a set of franchise rules and regulations as part of their franchise agreement, which they have to follow. Furthermore, just about anyone for just about any reason can apply for not-for-profit status with the IRS and between 2006 and 2016 there were 60,000 new registrations, which was a 4.5% increase.[iv]
There are likely many other things you may not know about the not-for-profit sector as well. Other than the local board of directors, there is not real oversight per se of this sector, except having to file an annual form 990 with the IRS, which is an accessible public document and must be shared with donors if requested. It basically reports the organizations revenue and expenses, lists top doners and events. The IRS has rules and regulations like; ‘not-for-profits are not allowed to benefit individuals or shareholders; there are rules about donors not receiving anything of value, so there are no strings attached to donations; there are usually state laws surrounding fundraising, solicitation as well as formation, registration and dissolution. The oversight by states lacks consistency and it is rarely a priority or has little to no budget to do much oversight.’[v] In my tenure as a not-for-profit executive, there were incredibly few donors who asked for a copy of the 990, however foundations that give money to not-for-profits routinely ask for the 990 to be included with any grant request.
But when I refer to oversight, I am predominantly referring to what they do, how they do it and do they make a meaningful impact for the total dollars spent. Many passionate people have started not-for-profits due to their passion for a cause over anything else. Don’t get me wrong, passion is a great place to start and it can be a big motivating and success factor for this sector. For a hypothetical example, if I lost my left ear in a terrible accident. I could decide to start a not-for-profit to help those who have also lost left ears. I have no idea how many people this may be, or exactly how I may be able to help them, but I start a not-for-profit, get approval from the IRS for tax exempt status and I am off and running. My passion attracts people to serve on my board, as well as helps me raise money and hire a staff for my organization, “Absent a Left Ear”. This helps me locate and serve those in need. To grow my organization, I will be expected to serve more people each year. With that, I continue to pay myself and my staff more each year. But here are the real catch points. What is really being done to serve our constituents? What are the genuine needs of those I might serve? Are ne needs a critical? Is anyone else helping these same people? What impact do I have on them? What does it actually cost? These are a few of the questions that rarely get the attention they deserve. That is what I mean by oversight, which is much different than governance, boards for the most part do a decent job with governance overall. This hypothetical example may seem a little extreme, but I hope you can see the point I am trying to make. Additionally, funders tend to amplify these issues by wanting organizations to do more and serve more constituents each year, to earn their donation or to get an increase in donations. Paid staff is motivated to serve more people so they can be paid more. So how many people served is an exceedingly standard way to measure success and the goal is to serve more, but what does that really tell us? Remarkably, little thought is put into the impact being made. In my tenure in the sector, after moving around the country from a small office to a major metro market with a much larger budget, dozens of employees, impact became a real concern to me. I personally had to ask people for their money and ask them for more each year, so having an impact with their money given to the organization I was running became exceedingly essential to me. I had to look myself in the mirror every day and know I was doing the right thing. This caused me to move toward better understanding about impact, so I decided to engage a university program evaluation department to do a long-term study to tell us what we did and what the impact was. It may seem senseless to ask the evaluators what we did, but what if what we were doing was different than what we were saying we were doing or what our intention was? Additionally, once we determined what we did, no matter what they found, was it having a meaningful impact. My tenure was with an international educational organization, that operated as a franchise, so there was a national/international office that determined the programs we provided, sold us program materials and vigorously pushed us to serve more children every year. When they heard I was going to engage a university to do a long-term evaluation, they were not at all happy, in fact they forbid me to do it, saying to me; “what if we don’t do what we say we do?” However, my local board was strongly behind the effort and so we proceeded. The long and the short of the story with the outcome many years later. We were doing what we were attempting and intending to do, but it had little to no impact overall. Ouch, what do you do then? Certainly, you don’t continue to do what you are doing right? Talk about a firestorm in the making. During that same period, we had searched and engaged a new program that fit and even enhanced the organizations mission, had some proven success with affect and one we could also help further develop. We were also able to add it to our evaluation in contrast to the other regular programs we were doing. This new program turned out to have significantly more impact and did meaningfully enhance our mission. But it was much more complicated, cost significantly more to implement and would serve many fewer children per year. Serving fewer children was not at all popular with the national office, as the number of children served was the only measure they had ever used. My argument was to add the number of contact hours each child spent doing all of our programs as an additional measure. With this new program, each child spent twelve times more hours, plus each child had a consequential experiential learning component as well. You can see where an organization that had used the same measure for success for decades, number of children served, without any need for program materials to be purchased from them, might be hard to swallow, and it was. Eventually, our new programs caught on and were replicated and adopted by other local offices across the organization and I understand after twenty years, the national office begrudgingly has added the number of contact hours per child as an additional measure. As for my tenure, it may be best described by the quote from Daymond John; “Pioneers are slaughtered and settlers prosper.” But in the end, I believe I pushed to make the organization better and to dramatically push the importance of impact. I share this as an example to demonstrate how measuring impact was not something that most not-for-profit organizations are categorically interested in doing and it is my experience, this is typical of a voluminous quantity of not-for-profit organizations. Whatever you measure is what predictably transpires and evaluating impact can be expensive, takes money away from serving more people, which in my opinion is the fundamental objective of a sizeable number of not-for-profit organizations, all with good intentions.
Many think it is somehow noble of those working for not-for-profit organizations. By doing so they surely are working for less money, compelled by missions, purpose and determined to make the world a better place. I am certain this is true and real for a percentage of those who work in the not-for-profit sector. The topic of not-for-profit salaries is not one we can go to deep into with this article, but it is important to at least open the door on the discussion. ‘For the year 2019-2020, excluding those highly paid in the health and university systems, the average pay for a not-for-profit Chief Executive Officer (CEO) was $150,420.00, with the principal factors in compensation being; total expenses managed, staff size, board size, donor base and the organizations impact measures.’[vi] These influencing factors clearly disclose why an executive would want to raise more money, hire more staff and server more people (the basic impact measure). It undoubtedly was a factor in my own experience as an executive. My salary was higher than this average for a large portion of my tenure. Additionally, I had a company car, cell phone, health insurance, life insurance, pension contributions, paid vacation days and healthy relocation packages on my two moves around the country. Moreover, I was not that close to the top earner within the organization. Was I overpaid? I never once felt that I was! I worked an average of sixty hours a week, many nights weekends, rarely used my vacation days. I loved what I did, but I would not say I was driven by mission, passion or purpose. I loved growing the business, finding ways to increase the impact to further grow the business. Was I equitably paid? I think I was; this was some of the hardest most challenging work I had ever done. So, my intent to talk about salaries is not to show or say people are paid too much in this sector, but to establish that most people working in the not-for-profit sector are not sacrificing or noble, but in my experience, it was not a bad gig. What I would like to focus on is how the factors listed above and employee tenure, can influence boards of directors’ governance, specifically how CEO’s are compensated. It is fairly normal that people are paid more each year they do a decent job, therefore a person with a long tenure with an organization can easily become overcompensated for that specific organization or job. Boards of directors conventionally set the salary for the CEO and the CEO has a considerable role in board development and recruitment of new board members. I remember well one of the training classes for new CEO’s held at the national headquarters in regard to board recruitment and development. We were taught, one of the essential considerations in adding a new board member was never to add a board member who makes less than you do and if fact, you want them to make considerably more than you, because it is difficult to get people paid less than you to increase your compensation. Further, a person making less may view your job as a job they might like to have themselves, which can be threatening to the CEO. These issues combined can reveal how a person may become overcompensated for a specific job. There is a point in most organizations where growth is unsustainable, which in my opinion is when compensation needs to be capped, for not only the CEO’s but for most positions. Even cost of living increases can push positions to a level of overcompensation. At that point, if people want or need higher compensation, it is likely a time for them to find a new job, but many boards loathe having to hire a new CEO, therefore one of the ways to avoid it, is to pay the existing one more so they won’t leave, which tends to lead to overcompensation. I have witnessed many boards promote from within people who have been great people in the program delivery side and their passion makes the board think they would be a good person to lead the organization as the CEO, which can produce a multitude of problems, because there is a business to run. The other reason compensation is an important element for this sector is that it generally makes up or exceeds at least fifty percent of most budgets, so a great deal of money is spent on salaries overall.
Where does that leave us? In my opinion, the majority of not-for-profits mission is with good intention. The majority of people who work for this sector also have good intensions. But, as the title of this article indicates, the question worth further scrutiny is, “Are Good Intensions Enough”? Are we spending and investing the over two trillion dollars ($2,000,000,000,000.00) raised each year in the right way? Is the impact enough? Are we focused on the right priorities? Are there a number of organizations that overlap missions? Could a more coordinated effort create more impact and be more meaningful? Should there be more oversight and how could that happen? These are a quick sampling of questions we might begin to ask surrounding if good intentions are enough. This sector is like a massive ship and it will not be easy or may even be impossible to turn. So why have this discussion? I believe these questions can lead us all to be better stewards of this sector in our roles as donors and in some cases for those of us that serve as board members. As donors, we should all care more about how our donated money is spent, not just care about receiving a tax deduction for making it. We should ask those organizations that we give to, how they insure and measure impact, more than just how many people they serve. We should better understand the needs of our communities and should ask how they determine need for their services. As a board member, we should be engaged with a better understanding about impact and how to measure it. We should make sure the impact of the organization is measurable and measured, so that means allocating resources to that effort is important and meaningful, even though it may mean we serve less people. We should always keep our business hat on and not be blinded by mission and passion and make sure our money is being spent wisely.
For me personally, from my perspective and experience as a past not-for-profit executive, good intensions are not enough! Good intensions an important element for sure, but the overall lack of oversight is a momentous issue. Just doing more of the same every year is not enough. I believe we could accomplish much more for the overall dollars raised and spent as well, not to mention how the overall volunteer hours that are spent with a sector that is more coordinated, collaborative and even possibly focused on changing needs. The sector tends to operate in silos without much regard to what else is going on around them, and with very little collaboration with others. We should attempt to confront the changing problems in our communities with the goal to solve them when possible and move on to the next coordinated need and issue. We should take this time of crisis to evaluate how we can do things better.
[i] Hans Rosling with Ola Rosling and Anna Rosling Rönnlund, (2018) Factfulness: ten reasons we’re wrong about the world and why things are better than you think, New York: Flatiron Books. p.192, para 5.
[ii] Urban Institute, NCCS team, (June 2020), The Nonprofit Sector in Brief 2019, p.1-2, [Online] https://nccs.urban.org/publication/nonprofit-sector-brief-2019#highlights Accessed: 01/02/2021
[iii] U.S. Bureau of Labor Statistics, (May 14,2020) Research Data on the Nonprofit Sector, p.1, para 1, [Online] https://www.bls.gov/bdm/nonprofis/nonprofits.htm
[iv] Urban Institute, NCCS team, (June 2020), The Nonprofit Sector in Brief 2019, p.2, para 1, [Online] https://nccs.urban.org/publication/nonprofit-sector-brief-2019#highlights Accessed: 01/02/2021
[v] The Board Effect, Nick Price, (February 2018) Who Governs Nonprofit Organizations? [Online]
https://www.boardeffect.com/blog/governs-nonprofit-organizations/ Accessed: 01/09/2021
[vi] Nonprofit Analytics, Paul Penley, (July 14, 2020) 2019-2020 Nonprofit CEO Compensation Study, p.1, para 2, [Online] https://analytics.excellenceingiving.com/2019-2020-nonprofit-ceo-compensation-study/ Accessed: 01/02/2021