Ewww… ick! Dep’t

The new logo for the University of California ought to be on a line of discount paper products.

The administrators of the University of California, currently presiding over its decline from being the world’s greatest university system to being a collection of very good public universities, no longer trying to compete with the best of the privates, seem to have had enough spare time and free resources to mess with the university logo.

You can guess which of the two images below goes with UC’s glorious past, and which represents its mediocre future.

Here’s the Change.org petition to tell them to stop.

I’d note that if the project had been turned over to the University’s own faculty and students – some of whom are brilliant graphic designers – we might have gotten something interesting. But you can tell from the product it was done by an “in-house design team.” (Could have been worse, I suppose: they could have paid a ton of money to some “branding” consultant instead.)

Sigh.

From Law Student to Nonprofit Trustee

Making the rounds at law schools for Good Counsel: Meeting the Legal Needs of Nonprofits, I’m heartened to meet so many students interested in serving on charities boards in their communities.  My recent talk at Harvard Law School about how law students and young lawyers can start preparing for the trustee role is available here.

UC survives: Prop. 30 passes (fairly easily)

California’s Proposition 30 passes.

Proposition 30, the initiative that temporarily raises taxes so that—among other nice things—the schools won’t have to shutter themselves for a month and UC can remain a very good (though no longer great) university, has passed. In the end it wasn’t even all that close (pace a hand-wringing liberal blog post that seems to have been written before the results came in): 54-46.

Following the money: while more than 80 percent of donations in favor of the proposition came from inside the state, mostly unions, the vast majority of opposition came not from California businesses or random taxpayers but from one bazillionaire, Charles Munger Jr. (son of Warren Buffett’s business partner), along with out-of-state SuperPACs. If it weren’t for Munger, the SuperPACs would have represented a huge majority of the opposition cash. Revulsion against a last-minute, pathetically concealed and laundered, $11 million contribution from one such, Americans for Job Security, may ironically have tipped public opinion in favor of 30.

The next bubble, college tuition edition

David Brooks makes several good points while asking the basic question of whether the cost of college is worth it. Money quote:

This is an unstable situation. At some point, parents are going to decide that $160,000 is too high a price if all you get is an empty credential and a fancy car-window sticker.

Of course, if you are pricing Duke University for little Johnny, you recognize $160,000 as a bargain (the cost of attendance for Duke is $59,343 for 2012-13; our expansive financial aid policies are contained in the link).

I think the practical definition of a bubble is people are rushing to desperately spend their money on something up until the moment where almost no one is willing (or able) to do so. You don’t really know it was a bubble until it pops, but you can likely get some hints. This chart from mymoneyblog may be a hint of sorts.

Continue reading “The next bubble, college tuition edition”

Nonprofit Corporate Governance: The Board’s Role

In the nonprofit setting, misconceptions about corporate governance abound. Are board members primarily fundraisers? Cheerleaders? A rubber stamp to legitimize the actions and decisions of the executives? Do they run the organization to the extent staff is unable? Are they window-dressing to spruce up the organization’s letterhead? If they are rich or famous, must they attend board meetings? How do they know whether they are doing a good job, or when it is time to go? Despite nonprofit and for-profit corporations’ common ancestry and legal underpinnings, nonprofit corporate governance places heightened demands on trustees: a larger mix of stakeholders, a more complex economic model, and a lack of external accountability. This post, excerpted from Lesley Rosenthal‘s Good Counsel: Meeting the Legal Needs of Nonprofits and originally appearing in the Harvard Corporate Governance Forum, explores how substituting a charitable purpose for shareholders’ interests affects the board’s role.

In organizations of all kinds, good governance starts with the board of directors. The board’s role and legal obligation is to oversee the administration (management) of the organization and ensure that the organization fulfills its mission. Good board members monitor, guide, and enable good management; they do not do it themselves. The board generally has decision-making powers regarding matters of policy, direction, strategy, and governance of the organization.
The board of a well-governed nonprofit organization, like the board of a well-governed profit-making company, will do all of the following:

  • Formulate key corporate policies and strategic goals, focusing both on near-term and longer-term challenges and opportunities.
  • Authorize major transactions or other actions.
  • Oversee matters critical to the health of the organization— not decisions or approvals about specific matters, which is management’s role—but instead those involving fundamental matters such as the viability of its business model, the integrity of its internal systems and controls, and the accuracy of its financial statements.
  • Evaluate and help manage risk.
  • Steward the resources of the organization for the longer run, not just by carefully reviewing annual budgets and evaluating operations but also by encouraging foresight through several budget cycles, considering investments in light of future evolution, and planning for future capital needs.
  • Mentor senior management, provide resources, advice and introductions to help facilitate operations.

Similar to for-profit corporations, the power to control and oversee the management of the affairs and concerns of a nonprofit corporation is set forth in its corporate charter. Generally speaking, state law permits both kinds of corporations to self-direct significant allocations of power and responsibility, and then requires them to follow their own corporate governance and operational policies. The familiar fiduciary duties of care, loyalty, and – sometimes – obedience, undergird these requirements in both sectors.

In a well-governed organization of either the for-profit or nonprofit kind, the board does not permit executives to run and dominate board meetings, set agendas, or determine what information will be provided to board members. Under the leadership of an active and functioning board chair, there is adequate opportunity at board meetings for members to receive and discuss reports from not only the chief executive, but also, as appropriate, directly from other executives, in-house and outside professionals, and independent consultants if necessary. Time should be reserved for executive sessions, at which management should be excluded so that its performance may be fully and freely discussed.

Mission is what distinguishes nonprofits from their for-profit cousins: Nonprofits have missions instead of owners or shareholders. While the prime directive for board members of for-profit organizations is to ensure the highest possible value for owners, by contrast, nonprofit board members’ prime directive is mission fulfillment.

Board independence and board attention are of paramount importance in good nonprofit governance. The independence of the board is key because of the non-distribution constraint – nonprofits exist to serve the public interest, not to benefit owners or other private parties. Business or family relationships between the organization or its executives and a board member or her firm are frowned upon and should be strictly scrutinized under a conflict of interest policy administered by independent directors. Even absent outright business or family relationships, a common shortcoming of nonprofit boards is that they are too small, too insular, or too deferential to the founder or chief executive.

Another frequent error of nonprofit boards is inviting new members because of their marquee name within a certain field of endeavor (e.g., a famous dancer on the board of a dance organization) or their means and inclination to donate, without due consideration to the person’s ability and availability to fulfill fiduciary duties, providing the critical oversight function. The governing body of a nonprofit must be made up entirely of people in a position to govern it—setting the strategic direction of the organization and overseeing management’s execution of the mission. Wealthy or prominent persons— donors, artists, scientists, public officials, and others—with an interest in the organization’s program but lacking the time, availability, or expertise to provide meaningful oversight may serve the organization in a non-fiduciary capacity, such as an honorary or advisory board, donors’ circle, or professional council.

Governance is more complex in charitable nonprofits for a number of reasons. Public charities (501(c)(3) organizations) are intended to serve a public purpose, and the board must bear in mind that broad interest. Depending on its mission, history, and geographic reach, a nonprofit may also have specific stakeholders or different groups of stakeholders, some or all of whom may be represented by categories of board members under the organization’s by-laws. The interests of the organization’s ultimate clients, who may be indigent or otherwise disadvantaged, are another important consideration. The organization’s management and workforce may be paid less than their for-profit peers for similar work – if at all – further complicating the board’s oversight duties. In addition, nonprofit trustees may feel role-strain – or worse – because of real or perceived obligations to interact with, attract – or even be – charitable donors. These additional factors make nonprofit board decision-making arguably a much more complex process than the straightforward mandate of maximizing return.

Moreover, nonprofits’ economic models may be more complex than for-profits’ models, including a dynamic blend of earned revenue (ticket sales for a symphony, fee-for-service billings by a hospital, tuition payments to a university) and contributed income (annual fundraisers, “Friends of” membership groups, end-of-year solicitations, capital campaigns). Wealthier nonprofits with endowments can also count on a stream of revenues from investments. In harsh economic climates, however, there is a high correlation between reduced contributions and weaker investment returns. Compounding the difficulty, hard times on the revenue side often coincide with heightened demand for organizations’ services, particularly social services, increasing expenses and creating cash crunches, trouble balancing budgets, or even persistent deficits. Savvy nonprofits have added “third streams” of revenue to supplement and diversify traditional two sources. Entrepreneurial initiatives may include leveraging real estate or other assets, monetizing treasure troves of intellectual property know-how, or engaging in joint ventures with fellow nonprofits or even commercial entities. In envisioning and evaluating such enterprises, board and management must observe regulatory requirements and consider tax implications. In lean years and in growth years, the board must be deeply engaged in overseeing the organization’s investments, its other sources of revenue and expense, and the planning of new initiatives.

What happens when board members fail? In theory, the mechanism in a for-profit corporation for correcting errant board members is straightforward: if the investors don’t like what the directors are doing, they vote them out of office. But in the absence of investors, nonprofit boards must be self-correcting. No one has ever made a tender offer because a nonprofit was inefficient. Moreover, governmental agencies regulating the sector tend to be small and under-resourced, making it highly unlikely that any but the most obvious misconduct will be detected and corrected from the outside. Unless board members are doing something illegal or are term-limited out of office, they may serve in perpetuity, giving them ultimate power over the organization. In this regard, nonprofit trusteeship is a unique and privileged role.

By a number of measures, nonprofit and for-profit board governance are similar: the board’s oversight role, its decision-making power, its structural place within the organization, and its members’ legal duties. The similarities end, however, where shareholder interest in maximizing returns gives way to mission fulfillment, a multiplicity of stakeholders, more complex business models, and self-accountability rather than external accountability.

Ponzi scheme thwarted; Professor Ponzi cries foul

Humanities Ph.D. programs are admitting fewer graduate students in response to there being no academic jobs. Professors who are complaining about this should be ashamed of themselves.

An article by Robin Wilson in the Chronicle of Higher Education describes a trend. Having realized that it’s mathematically impossible for most of their Ph.D. students to land academic jobs, many humanities departments are, shockingly, admitting fewer graduate students.

As someone whose (infrequent) Ph.D.-level teaching occurs in what is effectively one of the humanities, namely political theory, I think that what the article describes is too little—most programs described are trimming their admissions rather than slashing them—and about a generation too late. Continue reading “Ponzi scheme thwarted; Professor Ponzi cries foul”

One Book, Three Challenges

Good Counsel: Meeting the Legal Needs of Nonprofits
by Lesley Rosenthal
(John Wiley & Sons 2012)

As I embarked on writing Good Counsel: Meeting the Legal Needs of Nonprofits, well-meaning and concerned folks cited at least three reasons why no one had written such a book before, and (implicitly) why I shouldn’t try: it’s too dangerous, too hard, too scary.

The “too-dangerous” crowd, personified by some of the most successful leaders of nonprofit turnarounds on several continents, worried that legal information in non-lawyers’ hands would result in the unlicensed practice of law by a bunch of irresponsible, budget-strapped do-it-yourself nonprofiteers. Who knows what kinds of mission mischief non-lawyers would make with their newfound knowledge – the legal equivalent of sewing your own sutures! Fortunately my own boss, the President of Lincoln Center, and several of my other mentors before him, including a former Bar Association president and a federal judge, helped forge my conviction that the law belongs to the people. They encouraged my desire to put it into plain English for all to know.

The “too-hard” folks, also well meaning, recognized the enormous variety of laws that commonly arise in nonprofits and thought it impossible to provide a general overview in one volume. I know what they meant: the tangle of specialized state and federal laws that make our sector one of the most highly regulated in the whole economy, such as state nonprofit corporations laws, Section 501(c) of the internal revenue code, IRS rules, regulations and expectations surrounding the tax exemption and good governance, multi-level filing and disclosure requirements, pension, endowment and investment laws, lobbying restrictions, and a web of 50 different states’ fundraising laws. Many fine books have been written on each of these subjects, but rare is the legal resource that touches upon them all. Then, the skeptics continued, there are also general business laws that apply to these organizations – contract law, labor and employment laws, intellectual property laws, consumer regulatory laws, real estate laws, building codes and more. And business laws apply to the nonprofit sector in weird ways not necessarily intended by lawmakers, forcing volunteer-driven organizations, for example, to think long and hard about how to structure their activities to comply with minimum wage and hours laws. Pile on top of all of those layers the additional specialized laws that apply to the wide world of nonprofits, such as FDA regs for blood banks, student privacy laws for higher ed, permitting and accreditation for hospitals and mental health facilities and so on, and the whole enterprise of writing a book about the legal context of nonprofits threatens to die under its own weight.

The “too-scary” people are the most sympathetic people of all. They are the good-hearted lawyers who are already serving as counsel, as board members – or as both simultaneously – to nonprofit organizations. Their values may line up perfectly with the mission of the organization they serve – an elder care lawyer, for example, serving on the board of a community-based senior center, a real estate lawyer counseling a neighborhood development organization, a sports and entertainment lawyer doing board duty on her town’s local Little League or scout troop – but their legal expertise may be far afield of the legal issues facing the organization. It scares them to no end when a legal question arises in the boardroom and all eyes turn toward them. UBIT – what’s that? Conflict of interest policy pertaining to co-investment interests? Ugh. Section 501(h) election for lobbying activities? Isn’t this meeting almost over? They could have just begged off answering these questions – that’s not my area of law, you see, you wouldn’t ask a dermatologist about your chest pains, would you? – if only Good Counsel didn’t exist to connect the dots between the law they do know and the law they need to know to better serve their favorite charity.

Good Counsel is intended – charitably – to defy all three objections. In 300 pages it places the law of nonprofits in the hands of board members that oversee and executives that actually run the organizations – CEOs, CFOs, program managers and staff, fundraisers, personnel directors, communications professionals, operations and facilities managers and more. Does it answer every question? No. Does it sensitize non-lawyers to common legal issues in the highly regulated context in which they operate? I sure hope so.

Lawyers who make their living practicing in this field needn’t worry that this one volume will displace them; to the contrary, placed in the right hands, the book will generate more sophisticated questions and ultimately more and better client relationships. Corporate and transactional lawyers who have not yet found an outlet for their volunteer yearnings – because it seems that most pro bono projects are more aligned with the skills of litigators, not business lawyers – may feel empowered to see how readily they can translate what they know to the legal needs of prospective nonprofit corporate clients.

Law school deans concerned about the criticism being leveled at the entire enterprise of legal education may find a path forward in Good Counsel. With case studies, work plans and focus questions following each chapter, the book lays out a path for law students supervised by clinical professors to engage with a particular nonprofit organization and assess its legal needs – growing the students’ legal skills and stretching their capacities as counselors in ways that will serve them well even if they do end up in private practice after graduation, as most do.

And the legal profession, which despite the canon of lawyer jokes is as public-spirited as any I know, may find that Good Counsel can be used to foster and strengthen more pro bono relationships between lawyers and organizations. There is a great deal of goodwill for nonprofit organizations among public-spirited lawyers. I know, because I have been both a purveyor and voracious consumer of pro bono legal services, that there is more time and willingness to serve among the legal profession than has been fully tapped to date. A pilot program of the New York State Bar Association and the New York Attorney General’s Office Charities Bureau has adopted Good Counsel as a training resource for that very purpose: to help launch up to 50 new pro bono relationships between lawyers and charities in the initial pilot year of a program called Charity Corps: Lawyers Helping Nonprofits.

Far too many of our nation’s one million public charities lack regular access to counsel. At the same time, good-hearted lawyers are floundering in their efforts to help their favorite nonprofits, or are afraid to try because they think the field is so distant from subject matter they know. Law students graduate in debt up to their ears but lacking the practical skills they need to begin servicing clients after law school. Good Counsel is a playbook, intended for all three audiences.

And while I admit it was a little hard, scary and dangerous, ultimately there were far more supporters than skeptics for this project. I invite readers – lawyers, nonprofit leaders, and academics – to take a look and let me know if it works.

Lesley Rosenthal
www.goodcounselbook.com

goodcounselbook@gmail.com

Schedule of upcoming Good Counsel events in NYC, LA, Detroit, Miami, Philadelphia, Boston, DC and Buffalo, NY available on www.facebook.com/GoodCounselBook or at the book’s website, www.goodcounselbook.com.

Available for purchase at http://www.amazon.com/dp/1118084047/ref=rdr_ext_tmb

Review copies for academics, media, upon request to tbatanchie@wiley.com

University of California protests and, um, leadership

When the Alameda County Sheriff’s cops suited up in their riot armor and, AFAIK with our campus officers , beat a bunch of our students and faculty with batons, my chancellor was in Shanghai setting up a branch campus; I don’t know who was nominally in charge and forgot to be in charge.  When the chancellor got back, he sent a remarkably tone-deaf and misinformed letter to everyone, regretting the injuries to police as though there were any. The similarly ham-handed episode at Wheeler Hall last spring, and its devastating PR impact, obviously had faded from everyone’s memory, so no-one bothered to give the police appropriate orders or plan an operation with a lick of sense or humanity.

I am not inclined to lambaste the police excessively, as they are mostly blue-collar workers as scared of layoffs and cutbacks as everyone else and properly in the business of controlling behavior by force when necessary. Someone on the ground completely misread the mood of the students, but cops do confront dangerous people and sometimes get hurt or dead doing it.  The violence at Berkeley was mainly a major fail at high administrative levels.

What’s genuinely astounding, however, is this, at Davis more than a week later. Notice how aggressively the students are sitting; that is one tough crowd! Pepper spray is no joke, especially if you’re asthmatic; at least one student went to the hospital.  What mystifies me is that the chancellor at Davis, and the police chief (who are having a very bad couple of days since), didn’t issue the following memo within two days of the Berkeley incident:

Occupation protests by students can be expected at Davis in the coming days and weeks.  Under no circumstances will police use weapons, including chemical weapons, against students not presenting an immediate threat of violence.  Anyone responsible for an episode such as occurred at Berkeley last week will be summarily suspended without pay, and probably dismissed permanently.  Responsible for includes failing to prevent; I will not have Davis known as a place where the police abuse non-violent members of our community.

And check to be sure she got signed copies back from everyone from her #2 to the lowliest recruit on the force.  And the City of Davis police chief, just for good measure.

The LA Times reports “the chancellor initially didn’t criticize police but later said seeing the images ‘left me with a very bad feeling.'” Uh, huh. What is the matter with these people? What have they trained their subordinates to be?  She has furthermore responded by appointing a task force to report back to her in 90 days.  Chancellor, if you need a task force to tell you what went wrong here, let alone three months of investigation, you either have a screw loose or a piece missing.

The latest, extraordinary, piece of video from Davis is here, putting a cherry and whipped cream on top of the humiliation of Katehi as she walked from a meeting past a line of her students (here’s the escort’s report), but also possibly beginning her rehabilitation.  I hope some Aggies come to Cal and infiltrate our protestors to teach their incredibly effective, dignified, disciplined tactics.  And I hope our own chancellor gets out among his students and faculty, on his feet.  A couple of spam emails don’t cut it, and neither does his bizarre public demand that legislators from Sacramento come to Berkeley to debate education funding. I don’t doubt his commitment to education for everyone, but his leadership style is a riddle to me, and it’s sure not doing him any good.

The president of the system has finally taken notice.  For some reason the chancellors have his “full trust and confidence” . But he’s “appalled”, and…calling a meeting with “full and unfettered discussion” – woah!  His board, the regents, are really out front; they cancelled their meeting last week fearing protest.  Way to keep in touch with the customers, boys.

Dammit, I work hard and earn my pay, and I deserve better leadership. I wish I could have more respect for the higherups in my company.

Illinois and the amazing disappearing property tax exemption

When Harold Pollack wrote about the recent Illinois Department of Revenue decision to withdraw property tax exemptions from three hospitals, he naturally focused on the impact of the decision on health care.  But those of us who work in other areas of the nonprofit sector are worried by the decision as well–or, if we aren’t, we ought to be.

Though the Revenue Department’s ruling and the Supreme Court decision on which it was based both concern hospitals, there are now working their way through the Illinois court system a pair of cases challenging the property tax exemptions of luxury retirement communities.  The plaintiffs are taxing districts which would otherwise be collecting big bucks from the communities, one of which is located on prime Chicago Gold Coast real estate–just around the corner, as it happens, from Northwestern’s Prentice Women’s Hospital, which will now (barring court intervention) have to pay property taxes on its equally valuable swath of land.  Lower courts have already ruled both retirement facilities unworthy of property tax exemption, and lawyers involved in both cases expect victory in the face of appeal based on the precedent of the hospital cases.

So what’s really going on here?  Certainly withdrawing tax exemptions from wealthy organizations sitting on expensive land makes sense from the standpoint of municipal budgets, which here as elsewhere are stretched beyond breaking.  So the Illinois Department of Revenue is following Willie Sutton’s [apocryphal] advice to go where the money is.

But what the Illinois Supreme Court has now said is that there are only three categories of tax-exempt real property under the Illinois Constitution: schools, churches and “charities.”  Further, the Court said, a “charity” is not simply any nonprofit organization, or even any nonprofit organization entitled to 501(c)(3) status and tax-deductible donations under the Internal Revenue Code.  A “charity” for Illinois property tax purposes is an agency that gives things away.  How many things?  Worth how much?  This remains unclear: perhaps a “charity,” like “pornography,” is simply something a court knows when it sees it.

And if the question is, “Are you a charity?” will the YMCA of Metropolitan Chicago be able to pass muster?  Will the Museum of Contemporary Art?  Will the Lookingglass Theater?  All three are located within spitting distance of the now-taxable hospital and retirement home.  So they’re likely targets for the next round of investigations.  What do they give away?  Worth how much?

(Just to confuse things even further: the Illinois constitutional standard is that only church property used for religious purposes is exempt; supplementary holdings are not.  I’m not aware of a parallel ruling about schools, but would expect the same standard to apply.  So if a charity owns property not used for charitable purposes–like, oh, vacant property the YMCA may someday use as a camp–will that be taxable?  If so, then it’s not even enough to be a charity–you have to be doing charity.)

As a consultant to charities, I’m supposed to be jumping up and down and screaming about this terrible precedent; but actually I’m not.  It’s long past time for us to ask the question whether arts organizations are genuinely charities.  (I’d ask the same question about well-endowed educational institutions and churches, but the Illinois Constitution prevents me from getting any reward for doing so.)  My only concern is how unaware nonprofit executives and Board members seem to be of the implications of these decisions.  Asked about her agency’s risk of having its property taxed, one executive dismissed the issue: “We’re a nonprofit–everything we do is charitable.”

Well, no.

This argument is playing out around the country.  What’s unique about Illinois is that the discussion is taking place in the courts rather than the legislature or the city council.  This interferes with any effort by nonprofits to rouse public opinion–or even themselves–in defense of their privileges.  Instead, the property tax exemption is going the way of the Cheshire Cat, bit by bit until there’s nothing left but the smile.

Let the Illinois nonprofit beware.

Are Abstaining Students a Key to Reducing College Binge-Drinking?

About 40% of U.S. college students engage in binge-drinking, over half a million college students a year are physically and/or sexually assaulted by an intoxicated assailant, and alcohol and other drug problems are the most common reason that someone starting college this fall will not have a degree in hand four years later. A high-profile task force called for action against campus binge-drinking almost a decade ago, spurring a range of new prevention, treatment, harm reduction and educational initiatives. Yet the number of campus deaths from drinking has gone up every year since and the rate of binge drinking hasn’t budged.

Stanford is among a number of universities that are working within a new national learning collaborative focused on campus binge-drinking, which has lead me to review a science and practice literature I hadn’t explored until now (College drinking is its own area of study with little connection to my primary research area of addiction). One of the striking things to me as a relative outsider is that many research and intervention efforts concerning college drinking focus exclusively on students who drink. Drinkers are of course one of the groups that shape a university’s culture regarding alcohol, but students who don’t drink also surely play a role.

Making campuses more comfortable places for students who choose not to drink would be good for those students as well for those students who drink in a hazardous fashion. Spurred by a letter from a Stanford student to Dear Abby, I wrote about this possibility today for Stanford School of Medicine’s SCOPE blog.