Monday, June 15, 2015

Nonprofit Managers and Executives Deserve More Respect

The nonprofit sector is the only sector in society that is defined by what it does not do.  Nonprofit organizations do not make a profit.  But nowhere does their name suggest that nonprofits—unlike their for-profit counterparts— exist to provide a social good to some segment of society.  In part, it is this very term nonprofit that contributes to the low regard in which this sector is often held.

            It is easy to simply not make a profit—just ask any failing business owner. Not making a profit does not require any definable skills.  But if we were instead to define nonprofit organizations by what it is that they do provide—a social benefit—it would be obvious that leading these organizations requires a specific skill set that is different but no less impressive than the skills required for running a for-profit corporation.  These skills include the ability to maintain a viable and sustainable organization; provide a social benefit while also being a responsible steward of funds provided by others; and, convincing others to invest in an organization even though they do not receive a direct benefit for their investment. 

              It has been asserted that if nonprofit leaders had a stronger skill set they would be in the for-profit world earning a real living.  In fact, this fiction goes so far as to suggest that nonprofit leaders are being paid far more than they are worth.  In state houses across the country, legislators and governors are attempting to place limits on nonprofit executive compensation.  An executive order by Governor Cuomo in New York limits such compensation in nonprofit organizations that receive 30% or more of their revenue from the state.  In Florida, the benchmark for regulating these salaries is set at two-thirds or more of organizational revenues received from state sources. However, in these same states, there has been no effort to limit the salaries of for-profit CEOs whose companies earn large portions of their revenue from government contracts. 

When it comes to oversight of government dollars going to private organizations, only nonprofit executive salaries seem to receive scrutiny.  Dan Pallotta, author of two books on the subject—“Charity Case” and “Uncharitable”—refers to this as a double standard that exists between the for-profit and the humanitarian sectors.  He states that this “is not a zero-sum game.  The money paid to a valuable nonprofit CEO is not money taken away from the cause.  It is an investment in the cause.”

In 2010, four U.S. senators attempted to block federal funding to the Boys and Girls Clubs of America based upon the most recent compensation of its CEO, which these senators deemed to be too high.  Senator Chuck Grassley (R-Iowa) requested that the Treasury Secretary review regulations on nonprofit salaries, stating they are “not tough enough in policing pay in the nonprofit sector and that regulations governing compensation are too weak.”  Grassley, his Senate colleagues and the media reports all ignored the fact that in her eight-year tenure at the Boys and Girls Club, the CEO tripled revenues and more than doubled the number of children served. Her compensation package, while large for the nonprofit sector, did not take away from the needs of those being served. Instead, it helped retain a highly qualified and skilled CEO and allowed the organization to serve more children with expanded programming.

In the same year that the Senate was scrutinizing nonprofit executive compensation, Lockheed Martin received 83 % of its $45.2 billion in revenues from US government contracts and its CEO earned $14.6 million.  That represents a compensation package more than 14  times that of the Boys and Girls Club CEO. But there was no mention of this in the Senate, despite the fact that the federal government supported 83% of the Lockheed CEOs salary.  Another example is Booz Allen Hamilton, the management and technology consulting contractor that receives 100% of its revenue from the federal government. Senator Grassley had no quarrel with the fact that Booz Allen’s CEO earned $4.228 million, more than 10 times the salary of the President of the US and more than 24 times Grassley’s annual salary as a Senator.

Social sector organizations measure success not in dollars and cents, but by intangibles such as whether or not they are making progress toward the mission.  It is easier to impact the bottom line of an organization than it is to affect people’s lives.  If you produce a product or service, your costs are predictable. If those costs increase, you have the option to increase the selling price, reduce the quality, or cut back on your labor force. However, for the social sector executive providing services to individuals—each with their own individual needs, abilities, and challenges—the cost can vary widely.

In the social sector, organizations rely on the generosity of government, foundations, corporate contributors, and individuals for support.  By contrast, for-profit corporations generate their income from the people that they serve.  As such, corporate managers have two constituencies to satisfy: their customers and their investors. Both of these are direct beneficiaries of the work of the corporation.  Social sector organizations have the same two main constituencies, however the fundamental difference here is that in the social sector the customers usually do not pay the full cost of the services and the investors do not benefit directly from their investment.

According to a 2012 study by the Center for Civil Society, the nonprofit sector employs 10.7 million workers in the US, which is 10.1% of total employment.  It is the third largest sector in the US economy, behind retail and manufacturing.  However, as public mistrust of the nonprofit sector grows, more services traditionally provided by this sector are being taken over by for-profit ventures.  In the decade from 2000 to 2010, for-profit employment increased more rapidly than nonprofit employment in education, health care, and social services.  These facts portend poorly for the sector as more of these services are provided by for-profit enterprises with their eye on the bottom line and the profit margin. 

While nonprofits have a social mission, in the words of Nobel Prize-winning economist Milton Friedman, "there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.”  By contrast, nonprofit leaders have a very different purpose and measures of success that are often much harder to attain  than simply maximizing profits. Ask anyone who has worked in both the for-profit and nonprofit fields; they will tell you how much more difficult it is to run a nonprofit. They will also tell you that there is a different, not lesser, skill set needed to run a nonprofit organization—especially in these difficult times when nonprofits are  continuously being pressured  to “do more with less.”

Thursday, August 21, 2014

The Awful Truth - African American Wallet Exchange

Random Thoughts and the Role of the Social Sector

In August 2013 I received a fellowship to study the Nordic model of social welfare, and spent three weeks in Scandinavia visiting Norway Sweden and Denmark.   During this trip I had the pleasure of meeting with academics, government officials, researchers, public employees and citizens to gain as broad a perspective as possible.  I returned in May 2014 leading a class of 18 undergraduate and graduate students to introduce them to the Nordic model.

Based upon these two visits, and subsequent study, I have gained a deeper appreciation of the role of government in providing for the welfare of its citizens. It was most gratifying for me to be a part of the students’ process as they were exposed to other ways of doing things that help to make life more satisfying and their incredulity and understanding of how we limit the role of government and allow people to succeed or fail and them blame them if they fail. 

Visiting these Nordic countries and learning about how they approach social welfare, criminal justice, gender equality and the role of the individual further cemented my belief that there are better ways of approaching these than we have done traditionally in the United States.  I plan to discuss these in future blogs and show how there is a central role for government to provide for the welfare of its citizens and therefore provide an acceptable quality of life for all citizens, where they have the opportunity to develop to their fullest potential. (to be continued…)

That was the beginning of the blog post that I started to write, but my mind kept going back to the Michael Brown shooting and the situation in Ferguson.  As I thought more about it, the thought that kept coming up is “where is the white outrage.”  Where are the white politicians, clergy, community leaders and other white folk?  This is not just a black issue, this is an issue of social justice for all, and one that should concern everyone involved in the social sector.  If we truly believe in equality and social justice, then every time an unarmed black male is shot by police it should impact our entire society.  Every time another black man is sentenced to jail our entire society is impacted. 

As I looked into this further, I was stunned by what I found.  In a national study by the Pew Research Center, conducted after the Michael Brown shooting,  white and black respondents were asked questions about the impact of race and police actions in Ferguson.  The results seemed to corroborate the experience of many black Americans that we are living in two different countries., one white and privileged, and one inhabited by people of color.  Eighty per cent of blacks polled felt that the events in Ferguson raised important questions about race, while only 37% of whites felt this way.

This racial split was consistent throughout the polling.  When asked if race is getting “more attention that it deserves,” a mere 18% of blacks polled disagreed but almost half – 47% - of white respondents agreed with this statement.   When asked about the police response, 65% of blacks polled felt that the police had gone too far, while only 33% of whites agreed with this statement.  In contrast, 32% of the white respondents felt that the police response has been correct.

Fifty years after the civil rights act and 150 years after the emancipation proclamation, African-Americans as a demographic trail their white counterparts on all socio-economic indicators.  While much improvement was seen in the decades following the civil rights and voting rights acts of the 1960’s, that progress has been slow and much ground has been lost as a result of the recent recession.   That we live in two different countries is further illustrated by how blacks and whites are faring economically.

In the pre-civil rights era black unemployment in 1963 was twice that of whites, at 10.9% and 5% respectively.  Half a century after the civil rights act, the ratio has not changed, with black unemployment in 2011 at 12.6% and that of whites 6.6%.  While all demographic groups have been affected by the recession and the concentration of wealth at the top of the income ladder, blacks and other people of color have been disproportionately impacted.  This is further illustrated by the disparity in earnings.  In 1963 blacks earned fifty-five cents for every dollar earned by whites, in 2011 the number increased to a mere sixty-six cents per dollar earned by whites.  Unfortunately some people will see this a progress and caution that change takes time, just be patient.  Patience is a luxury that can be enjoyed by those that have resources while they advise those without to wait, “we are moving in the right direction.” 

What do you do when that carrot is held out in front of you, and no matter how hard you try, it always remains just out of reach.  Or to put it more eloquently “what happens to a dream deferred?”  How long can we ask a people to be patient while they see their young men imprisoned or singled out by police, while their income and life choices are limited through no fault of their own?  What do people do when there is no legitimate avenue for them to air grievances and ensure that their children will have opportunities that were closed to them?  How can you be patient and wait for things to change, when your daily experiences tell you that things are not really changing.   The facts support that change is not happening for the typical African-American family.  In 1959 black poverty at 55.1% was three times that of whites, today, while it has been reduced to 27.6%, it still remains three times the white poverty rate. 

While the collective myth is that if blacks would only work harder and play the game then they would succeed, because we live in a post-racial America.  Like so many other fantasies of those who  deny reality and are not impeded by facts, this stereotype is not held up.  Black college graduates have an unemployment rate of 12.1%, higher than the 11.4% unemployment of white high school dropouts.  Overall, black median income has fallen 10.9% since 2000 while white median income has fallen 3.6% during this period.  Even with a black man in the white house, the economic and social status of black Americans has not improved.

These figures demonstrate quite clearly that legislation alone is not enough to erase racial discrimination and its impact.  Yes, laws such as the civil rights and voting rights acts, affirmative action and nondiscrimination laws have had a positive impact. Not only has progress been slow but we are in a period of retreat as we move further from equality, rather than continuing to make progress.  The reaction of everyday people in Ferguson clearly shows that anger and frustration can only be contained for so long.  How many more young black men must die, how many more expressions of pent up anger and frustration must happen before we face up to the fact that blacks and whites in our society have two different lived experiences;  one of white skin privilege, and the other of daily frustrations and indignities because of their skin color.

If you want to see how little things have changed, and the ever present threat that African-Americans live with, take a few minutes to view this video above, The Awful Truth, by Michael Moore produced in 2007.

As so many recent events and the economic statistics cited above demonstrate, we cannot rely on government to right centuries of wrongs.  Laws may require people to act in a certain way but laws do not change attitudes.  Until African Americans and other people of color accomplish something that they cannot control – being treated as fully equal citizens – we will continue to see more Fergusons.  This is where the social sector can play a crucial role.  Through services and programs we can begin to break down the separation and mistrust that grows out of residential, educational and employment segregation.  Local nonprofits can work to bring people together across race and class lines to address common issues and to socialize.  Working at the grassroots we can begin to change and increase understanding and empathy for others.

Local groups can work with police departments to increase understanding and decrease mistrust and fear.  Diverse parent committees can work to improve local schools and decrease drop out rates.  The list is endless of what can be accomplished if there is a vehicle for bringing communities together.  That vehicle is already in place; all that is needed is the fuel to get it going.  One thing is abundantly clear, we cannot continue down the path that we are on.  We must break down the separation and prejudice that keeps us as two countries with two different lived experiences.  Contrary to much popular belief, and as Ferguson has graphically illustrated, we do not live in a “post racial America – merely because we have elected a black man as president.

The choice is ours, and the social sector is uniquely positioned to address this very pressing need.  Will we take the challenge?