Category: Organization Development

[From the latest issue of my ezine, Crisis Manager]

Not everyone knows who ED Magedson is, but there aren’t too many consumer-focused businesses that haven’t heard of the RipOff Report (ROR), the consumer complaint site founded and directed by Magedson.

The common belief is that shortly after a complaint about any company appears on the site, it can be found prominently ranked on a Google search for that company’s name. No one, of course, wants complaints showing up on page 1 of a Google search.

There are a number of common beliefs about ROR amongst PR practitioners (self included), and I wanted to hear the other side of the story. So I asked some very candid questions of Magedson and he provided some very cogent replies. I don’t always agree with him, but I can’t fault his willingness to openly discuss sensitive topics.

You can read the lengthy interview here.

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For more resources, see the Free Management Library topic: Crisis Management
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In another sterling example of checking brains at the nonprofit boardroom door, I recently learned of a charity that is financially on the ropes.

Poor decisionmaking, weak leadership, the struggling economy, and ho-hum programming have this cultural entity (with a multi-million facility) on the verge of collapse.

No one is currently at the helm, and the board is hunting for a new chief executive. After a bumpy search, the choice is down to one of two candidates.

Candidate A has fundraising experience, but has never managed people, never served as the senior executive of any organization, and has never worked with an agency within the cultural sector. But the person is bright, likeable and local.

Candidate B is a seasoned E.D. with a track record of performing turnarounds at charities with a similar mission. This person, however, would be relocating from half-way across the country, and has an aggressive personality tinged with a helping of arrogance.

The search committee sums up their choice this way: Candidate A has a lot of potential and, we believe, could grow into the job. Candidate B could definitely do the job.

Slam dunk choice, no? After all, the charity is at the verge of shutdown.

But since Candidate B is not as “nice” as Candidate A, this group is seriously considering banking on “building the capacity” of Candidate A as a chief executive.

Am I missing something here? If this were a multi-million dollar company with stockholders, would this board even CONSIDER making the same choice?

Sometimes, real capacity-building is nothing more than engaging the full capacity of our brains … the ones we checked at the boardroom door.

Farewell, and fare well till next week …

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For more resources, see our Library topic Nonprofit Capacity Building.

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Last week, I did a workshop among nonprofit CEO Executive Directors. Some of them expressed great frustration at the exorbitant compensation of CEOs of very large, for-profit companies. They mentioned that many of the companies’ products were very poor quality anyway.

One participant offered a rather novel assertion that the pay of those CEOs should be based on how much customers actually benefited from the companies’ products and services. (She refined her assertion a bit by adding that compensation should also be based on performance of the stock and on some performance goals set by the Board.)

Another participant in the workshop ventured the question, “Then should a nonprofit Executive Director’s pay be based on how many of the outcomes were achieved by participants in the nonprofit’s programs?” (Remember that outcomes are the types of changes achieved by participants in programs, e.g., new knowledge, skills and abilities.)

That question produced a firestorm of indignation and assertions about how nonprofit organizations are very different than for-profits. I asked for a vote to get a sense for how many people believed that the E.D.’s salary should be based, at least in part, on outcomes. Only 2 out of 15 agreed. Then I asked for a vote of how many believed that a for-profit CEO’s salary should be based on some measure of customer benefits — 9 out of 15 agreed that should be the case for for-profit CEOs.

What do you think? Should a nonprofit E.D.’s salary be based somehow on outcomes from programs?

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For more resources, see our Library topic Nonprofit Capacity Building.

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DUE DILIGENCE: “The process of investigation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts.” (Source: InvestorWords.com)

The title of this article may surprise some readers. What possible role, you might ask, can crisis management play in the complex interaction between potential investors or buyers and the organizations that are the focus of their due diligence investigations?

In my experience, those who are in “acquisition mode” — be they venture capitalists, expanding companies, individual or group investors — do not garner certain types of information that could be critical to making and protecting their investment or purchase. For this article, I’m referring to buyers, those who are actually acquiring a business, and investors making significant investments.

The traditional due diligence process usually involves some formal background checking, discussions with references, and probably a thorough Internet search. What it often doesn’t give buyers/investors is information critical to (a) the reputations of all involved in the potential transaction and (b) the potential acquisition/investment target’s ability to prevent and survive crises. EVERY organization is going to have crises; if they can prevent some, and get through others quickly and effectively, then the acquisition/investment will be far better protected.

Categories of Information

Here are some of the categories of information that can be provided via a combination of techniques generally associated with (a) a crisis management vulnerability audit and (b) investigative journalism.

• What reputation does the acquisition/investment target have with all its stakeholders, internal and external? How does that compare with what the company says about itself? Stakeholders would include everyone from employees to customers, from board members to journalists.
• For acquisitions, what reputation does the acquirer have with its stakeholders and with the stakeholders of the acquisition target? That reputation will very much impact the reaction of all stakeholders to news of a possible or actual acquisition.
• How are all stakeholders affected by the acquisition or major investment going to react to it? Positively? Negatively? What can be done in advance — understanding that news of the such transactions cannot be released until appropriate — to optimize all stakeholders’ response to the news?
• Has the acquisition/investment target done any crisis preparedness — vulnerability assessment, planning and training — that would allow it to better survive inevitable crises? Not just its ability to manage any distress caused by the initial business transaction, but the business’ ability to survive all crises to which it is vulnerable? If any reader has not previously received a copy of my free “Crisis Preparedness Checklist,” request it by email to jonathan@bernsteincrisismanagement.com. It will prove useful for a quick preliminary evaluation of any organization’s readiness for crises.

To the extent the situation permits, in an often-sensitive pre-acquisition/investment environment, stakeholders are contacted directly. But there are also many indirect sources of published/public record information that can be identified through comprehensive, Internet-based research (requiring a high level of expertise, not simply a “Google search”), as well as indirect sources of information on the opinions and beliefs of stakeholders. Collected and analyzed, they can provide investors with a sometimes eye-opening glimpse at challenges and opportunities they would not capture through traditional due diligence examinations.

I’ve had the opportunity to work with attorney Mike Lappin, a partner at Quarles & Brady LLP specializing in mergers and acquisitions, on a couple of transactions of this type. We both found that combining legal and crisis management capabilities has brought substantial added value to the entire transaction, from due diligence to “done deal.” Mike had this to say about due diligence:

“Due diligence investigations often focus on financial and legal matters as a buyer attempts to rather quickly understand the target’s business and evaluate the possible risks and rewards from the transaction. However, other factors, such as how the buyer is perceived by the target’s employees or how prepared the target is to deal with unexpected events, can have a significant effect on whether a transaction is a success, and these factors often do not receive the same attention in the due diligence process.”

In the new world of corporate governance regulations and general distrust of investment-related wheeling and dealing, buyers and investors can’t afford to be without all possible critical intelligence. Using crisis management tactics pre-investment or pre-acquisition can provide that information.

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For more resources, see the Free Management Library topic: Crisis Management
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Tomorrow is the first day of the Social Enterprise Alliance’s annual Summit, a national conference that features a wide variety of presentations, workshops and networking in this field. This year’s Summit is being held in San Francisco. More information is available at www.se-alliance.org.

If you can make it to the conference, great, I know you won’t regret it. I might see you there. Incidentally, I’ll be co-presenting a workshop on Thursday morning on business planning for established social enterprises. My case study will be on the Greyston Foundation, operator of the Greyston Bakery, which is a social enterprise in Yonkers, New York that supplies all the brownies that go into Ben & Jerry’s ice creams. My colleague, Tamra Ryan, will be talking about the Women’s Bean Project, and in particular their recent nascent jewelry venture.

But if you can’t make it, you can still connect via the wonders of social media. Here’s one way to do it. SEA’s two Huffington Post contest winners will blog live from the conference. You can either follow the SEA blog or subscribe to SEA’s RSS feed to read their daily posts. Check them out at: http://www.sea-alliance.blogspot.com/

Even though I’ll be attending the conference, I plan to read them just to see how their observations differ from mine.

Alternatively, if you’re Twitter-inclined, check out TWITTER #socent10 at http://twitter.com/socent10. Or Facebook at
http://www.facebook.com/pages/Social-Enterprise-Alliance/59580246388?ref=ts

Frankly, I have no idea if these postings will be entertaining, informative or, well, something else, although I expect to find the blogs from the conference quite interesting. I would recommend connecting at least a couple times during the next few days to see if there’s some stuff there you can use in your own social enterprise work. We’ll see whether social media brings some value to those who cannot attend in person. I hope so.

Many social enterprises in the US come from the nonprofit sector, and a common way to measure nonprofit social enterprise is through earned income. Generally earned income refers to selling goods or services in exchange for a quid pro quo payment. In other words, you only get paid if you deliver the goods.

Based on the Urban Institute’s report Nonprofit Sector in Brief, it is estimated that nonprofit organizations generate about $1.1 trillion from fees for services, another term for earned income.

So we know that social enterprise is a much bigger deal in the US than most people give credit.

Tell that to your friends who say they’ve never heard of social enterprise but assume it’s pretty small potatoes.

[Written with a healthcare industry slant, but obviously applicable to most organizations]

There’s a death or serious injury due to questionable circumstances. An employee is accused of impropriety. Your company is acquired by or is acquiring another. A natural disaster occurs. There’s an investigation of your facility by a regulatory or law enforcement agency. By the definition given above, all of these are crisis scenarios such as those routinely faced by most organizations. In any field, there is no such thing as a business in which crises do not occur.

Unfortunately, not all organizations are aware of the difference between marketing in routine situations versus marketing in crisis situations, namely:

Marketing’s routine function is to build the value of the business.

Marketing’s crisis communications function is to preserve the value of the business.

Often, organizations are prepared to respond to the operational components of a crisis (e.g., for a fire: call the fire department, evacuate the building, etc.). However, there are many audiences potentially affected by any crisis, and each of these will want to know the facts as soon as possible; members of each audience will start to worry and/or react inappropriately in the absence of such facts.

Typical audiences include clients/patients/customers, the media, employees, investors, community leaders, and regulatory agencies. Each of them requires a specific type of communication (e.g. phone call, fax, mail), and has differing information needs. If an organization is prepared, in advance, to respond to those needs promptly, confusion and damage is minimized.

I am aware of a health care company which operated for over ten years without a significant crisis, and then experienced a half dozen crises over a two month period. Some of these situations, lacking proper response, could have resulted in significant damage to the firm’s credibility and profitability.

Fortunately, and very atypically, the organization had recently commissioned a crisis communications plan which provided them with a system for coordinated, prompt, honest, informative and concerned response to crises. This plan consisted not only of a manual with scenarios and instructions, but also involved a comprehensive audit of the organization’s vulnerabilities that resulted in numerous recommendations for operational/system changes which, unchanged, created a potential for crises.

For example, the audit and subsequent analysis (conducted over a six-week period) revealed a lack of standard procedure on how to route media calls and who should handle the calls. Yet, particularly during a crisis, all employees need to know to whom a reporter should be referred or else a number of “loose cannons” are likely to be quoted instead of trained, authorized spokespersons.

Additionally, there were no fixed policies on some controversial issues such as the interaction of HIV-positive employees with patients nor was there a standard procedure for responding to needle sticks by medical personnel. This lack of policy could have resulted in significant criticism or worse, and the recommendations made during the crisis planning process ensured that the crisis would not happen. In some cases, the board of directors or administrative staff were aware of system weaknesses but hadn’t thought of the marketing communications/bottom-line impact of failure to quickly correct the problems.

Prevention, then, versus reaction, is the ultimate key to successful crisis communications. How many of my clients create a crisis plan BEFORE having a significant crisis? Less than five percent. That’s because they look at the one-time cost (typically under $15,000 for a single small to mid-size firm) and choose to avoid impacting their budget now versus giving significant thought to the fiscal impact of a crisis. I am usually asked to do a plan AFTER a damaging crisis, during which we have to spend considerable time, at client expense, attempting to minimize damage “fire fighting” in the public relations sense that would have been unnecessary if a plan was in place. Yes, crisis communications counsel will be needed even if a plan has been created but far less of it.

In conclusion, if I may risk a medical analogy presuming that I am, to crisis communications, what a highly trained physician is to his or her specialty: crises will occur, and they can be very damaging to your organization’s health. There is treatment available, now, which can eliminate many crises and minimize the impact of others. I recommend prevention, but you’re the patient it’s your choice.

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For more resources, see the Free Management Library topic: Crisis Management
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The consumer complaint site, RipOff Report, has been the bane of many companies’ existence and a challenge for crisis managers everywhere. ED Magedson (yes, he capitalizes his first name), Founder of the site, agreed to a lengthy exclusive interview for my ezine, Crisis Manager, that I plan to publish on Thursday, April 29, along with my own editorial comments and teaching points. If you visit the Crisis Manager Archives, you’ll find a place where you can subscribe – it’s free.

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For more resources, see the Free Management Library topic: Crisis Management
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“Capacity building” is a term from the Grantonese language usually referring to an organization’s systemic effort to secure ever greater amounts of money on a consistent basis. It is not to be confused with “sustainability,” another word from the original Grantonese, referring to that state of fiscal nirvana in which a nonprofit believes it will not have to worry about money for any foreseeable future. It is believed that this mythical state is the “pot” at the end of the capacity building “rainbow,” but as so few charities have ever come back to tell us about that perfect state of sustainability, there is little empirical evidence to prove it actually exists.

I admit I am biased when it comes to the use of these two terms. That’s because I am a lover of language, and a lover of the very essence – and presumed end — of the not-for-profit movement.

Thus, I would banish “capacity building” from all discourse on the topic of making change in the community and the world. For one, it’s not language I would use in the company of growing children sitting around the dinner table. And if I can’t use it there, what hope do I have of successfully using it to inspire busy, distracted adult volunteers sitting around the board table once a month (or less)?

As for “sustainability,” I simply find to be a sad little word, and for that reason would abolish its use in our sector. “Sustainability” admits defeat. It implies that our organization – alone or in concert with other community initiatives – has no hope of ever vanquishing the social or community “wrong,” or deficit, our charity seeks to “right.” It sets our organizational bar at being around forever rather than succeeding in making itself obsolete.

So I beg, dear gentle Reader, that you forgive me in advance for restraining myself from using those terms except when I’m traveling in Grantland, just as I only toss “ciao” about when in Italy, or “dog” when I’m watching American Idol.

Until next week, farewell and fare well …

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For more resources, see our Library topic Nonprofit Capacity Building.

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Way too many social enterprises are way too undercapitalized. They don’t have the cash on hand to make rational spending decisions on staffing, inventory, professional expertise, marketing, and so on, to grow their venture. Their tendency is not only to go cheap, but to go without for things they desperately need to turn their social enterprise idea into successful reality.

This is not unique to the social enterprise world. Many failures in the business world come as a result of cash flow problems. Numerous companies go under because they run out of money, even while they’re profitable on paper. They can’t pay their bills, so their suppliers or creditors or staff walk out on them, and it’s all over.

And I would say that most social enterprises are cash poor, running on fumes, never realizing their full potential due to insufficient cash flow.

What to do about it? Well, to come back to an important point, write a solid business plan. Or update the one you’ve got. Carefully prepare monthly cash flow projections for at least your first full year in business. Track payables (when you have to pay for stuff) and receivables (when you get paid). Most likely there’ll be some months when you won’t have enough cash to pay your bills. Develop strategies such as a line of credit or an angel investor to get over those bumps in the road. And keep your fixed costs as low as possible.

Starting and operating a social enterprise is difficult enough. Don’t start your venture until you’re confident you won’t be running on empty. In cars and in business, you need gas or you won’t go anywhere.