By: David A. Smith
A third of the wheat disappeared into the black market the same day that it was unloaded.
– Ross Thomas, If You Can’t Be Good (1973)
Yesterday’s installment of this multi-part post on non-profit overhead established that for many larger, retail-oriented non-profits, the apex executive (regardless of notional title) is principally a fundraiser, and often a coddler of donors, and the donor-coddling is a monthly, yearly, decadal job that consumes one’s personal life, and one’s home life.
Sources referenced in this post
The Sin in Doing Good Deeds, Nicholas Kristof Op-Ed, New York Times, December 24, 2008; brown font)
The Boston Globe (January 15, 2015; black font)
The Boston Globe (January 25, 2015; pastel blue font)
Other AHI posts on non-profits’ economics and governance
Vicarage at the church of football (December 14, 2007; brick red font)
The wrong way to be a Global-South non-profit (3 parts, April 11, 2011; navy blue font)
The battle of charities’ taxation (4 parts, May 9-12, 2011; brown font)
What’s fair in non-profits’ property taxes? (4 parts, March 5, 2012; Purple font)
No business for amateur philanthropists (3 parts, November 19, 2012; forest green font)
The price of charity (5 parts, April 29, 2013; Caramel font)
This makes family stability, and by extension housing, not just a convenience or perquisite of office but an element employee effectiveness as essential as sleep.
3D. A non-profit career usually requires having a stable home life
From observation and personal experience, I’ve concluded that dedicating oneself to non-profit work requires having a stable and financially secure home environment. Something about providing for one’s family (even a family of two) is so embedded in people’s desires that money doesn’t substitute for it. So, in Vicarage at the church of football, I profiled Stanford University’s commitment to provide affordable housing to its head coach (at the time, a fellow named Jim Harbaugh – whatever happened to him, anyway?) and his assistant coaches.
Malcolm Rogers, outgoing director of the Museum of Fine Arts, received a $60,096 annual housing allowance, according to the museum’s latest tax filing. It was part of a total compensation package worth $906,897.
Family housing is a backbone of the US military’s commitment to service members, and workforce housing is a priority for governments around the world. And housing, unlike other benefits, must be place-based, so it’s common for big place-based non-profits to eliminate a potential deal-breaker by offering both the place and financing for it:
At the Clark museum, Peter Willmott, the recently retired president of the museum’s board of trustees, said paying for half of the director’s home helped persuade Conforti in 1994 to move to the Berkshires from Minneapolis. The Clark also uses the property to host events.
Investing in the president’s home is investing in the museum’s revenue
As I’ve posted before, you are what you live in; when one is recruiting an executive with a family to move to a new location, replicating the quality of home life is a powerful factor in persuading the family to join him or her in the move.
In 2013, Monroe received a $1.2 million mortgage from the museum to buy a new house, replacing a $200,000 mortgage he had received for a different home in 1993, according to tax records. He made $723,174 in 2013, the latest year reported.
In terms of incentives and perks, financing never bothers me, because it’s the safest investment the place-based non-profit can make.
In addition, the Clark wrote smaller mortgages for five other executives to encourage them to live in Williamstown, where housing costs are higher than in other nearby towns. Executives who receive such loans are generally expected to repay them at a market rate of interest.
“We try and help people live in the town, as opposed to miles away,’’ Willmott said. “We’re building a world-class institution here, and to do that we need top performers in these management jobs.”
Financing a key employee’s primary residence is the ultimate employer-assisted housing (and the university can take direct-deposit of payments), it uses the university’s credit or cost of borrowing to add value for a target employee, it builds employee loyalty and increases retention expectations, and it likely holds its value and can be reused for the next fundraiser when the current one leaves or retires. As I put it in 2009:
Start with three facts:
1. People want to own homes.
2. Owning a home decreases labor mobility.
3. Employers value loyalty and longevity of service.
Mix them together and you have the formula for a cluster of initiatives known broadly as employer-assisted housing – which, in part because of the housing policy innovation inversion, is a movement without leadership, a concept without a structure.
Place-based and acquisitively expansive non-profits are naturals for employer-assisted housing, especially using the institution’s financial resources to become a lender to its employees:
The Clark Art Institute in Williamstown paid director Michael Conforti [Who’s retiring August, 2015 – Ed.] nearly $920,000 in 2013 and also co-owns with him a $1 million home in the western Massachusetts town, according to the institute’s tax filing. About half the original $510,000 mortgage sits on the museum’s books, along with a $36,563 loan for home improvements.
That’s a lot for Williamstown.
At the same time, do we want people in the sector who make their decisions solely on monetary criteria? Or ones who compare one non-profit to another solely by money? Doesn’t that suggest the fundraisers are ‘ethical mercenaries’ who are simply going where the money is?
“Pallotta’s offering the illusion of saving the world while enriching yourself, the perfect combination for our times,” says Michael Edwards, a senior fellow at Demos, a public-policy organization. “It’s disastrous for civil society and the hard work we have to do together to solve our problems.”
3E. Fundraising can become disconnected from impact
As a non-profit becomes larger, as the fundraising machine becomes ever more effective and the revenue flows become ever more reliable, impact can be zeroed out of the equation, or taken for granted with no periodic testing or examination. The syllogism is as seductive as it is simple:
We need money to have impact. If we’re raising money, people are validating our impact. Therefore the more money we’re raising, the more impact we’re having – by definition!
Elizabeth Keating, a specialist in nonprofit finance who teaches at Boston University, said that even with a relatively small number of highly competitive arts jobs available, there is an amping-up effect that happens with compensation, not unlike in the for-profit sector.
“It’s sort of become the game you play in the corporate setting — if you really want me, I’m going to get you to put as much on the table as you’re willing to put,’’ she said.
Are those the people we want running non-profits? What about thrift?
How good is the pay?
4. Non-profits must abjure gluttony
For a for-profit, the public interest does not require oversight of its thrift; its shareholders do that (or should, anyhow) out of their rational self-interest. But when an institution is non-profit, receipt of a cluster of publicly conferred benefits (deductibility of charitable contributions, exempt from income taxes, often exemption from real estate taxes) imposes on the non-profit a public duty, both in what it does (as stated in its articles of incorporation, and required to have a charitable purpose, often “relieving the burdens of government”) and whether it does so efficiently.
Sometimes the truth just pops up
Ken Berger, president of the watchdog group Charity Navigator, says there are “kernels of truth” in Mr. Pallotta’s messages. “But when you look under the surface,” he adds, “he becomes an apologist for anybody doing anything without accountability.”
No apologist for anybody doing anything without accountability
A non-profit is under a moral duty, if not a legal one, to show that in addition to impact it is slenderizing its non-programmatic work. Impact alone is not enough:
Pallotta praises the Wounded Warrior Project for not being “a slave to that fund-raising ratio” and dismisses its detractors as short-sighted.
But when a non-profit both grows and grows its impact, is the increased organizational heft muscle or fat? And has that growth arisen by expanding the universe of donors, diverting donor market share from other worthy causes, or even cannibalizing revenues from less-costly but less-marketing-savvy competitors?
Every successful brand has the Best overhead
Critics, however, accuse [the Wounded Warrior Project] of squandering donations on expensive marketing and high salaries; its fund-raising and administrative costs total more than 40% of its expenses, according to Charity Navigator, which evaluates nonprofits.
Though it may not be a cause in itself, excess overhead is unquestionably a symptom of non-profit wrongheadedness, whose elements I first dismantled wrongheaded non-profits by focusing on Louise Ciccone’s exercise in personal ego-branding, in The wrong way to be a Global-South non-profit:
A non-profit social enterprise or Mission Entrepreneurial Entity is a charity joined at the hip to a business, and the two elements are non-convertible – strength in one cannot make up for weakness in the other.
One raised fist = guaranteed success?
Ms. Ciccone at one of two ceremonial bricklayings for her proposed school
That’s why so instructive is this tale of a foray by the entertainer Madonna (Louise Ciccone), who sought to do good only to do harm, because she did so many things wrong – spending money foolishly and too fast, going for the visual vaporware instead of the demonstrated impact, boasting before doing, and generally treating the aspirations of both donors and beneficiaries as acts in a circus.
On the other hand, while excessive overhead is both sin and a path to sin, inadequate overhead can be parsimony as righteousness, starving one’s way to virtue:
Tellingly, the do-it-yourself legal website Nolo advises that when it comes to how much nonprofits should spend on operating expenses, “You have two choices: you can spend as much as you need, or as much as looks good.”
There are no good answers, one some less bad than others.
Basically, the federal government’s new rules broaden the definition of reimbursable expenses to include certain overhead costs. Overhead spending, the Office of Management and Budget now says, can be a necessary expense that “supports the fundamental operations of the organization.”
Perhaps something will be learned by dissecting overhead into its component parts.
You have to peel away the surface
[Continued tomorrow in Part 5.]