Category: Professional Development

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.