The following is the keynote speech given by Lorie A. Slutsky, President of The New York Community Trust during the annual meeting of the membership of the Nonprofit Coordinating Committee of New York on February 10, 2005.
Fifteen years ago, I was the speaker at NPCC’s annual meeting, which was then co-sponsored with the New York Regional Association of Grantmakers. The City, along with the rest of the country, was mired in recession, and the specter of the fiscal crisis of the 1970s—which some of you probably do not remember—was looming over us.
We are once again facing potentially large cuts in services. We have a city that is projecting a $2 billion shortfall. We have a State in a deficit that makes the City look good, and it is saddled with finding an extra $5 billion for New York City schools—a burden, I am proud to say, that my institution helped impose by supporting the Campaign for Fiscal Equity’s lawsuit. And we have a federal deficit whose size I simply cannot wrap my mind around, particularly since I grew up associating Republicans with fiscal conservatism and balanced budgets.
We are also in the crosshairs of the United States Senate Finance Committee, a key committee regulating this country’s more than 1 million nonprofits. There was a period several years ago when one could almost daily pick up a newspaper anywhere in the country to read about abuses in the sector—The Washington Post, The San Jose Mercury News, The New York Times, and the Boston Globe. The Boston Globe had a particularly shocking series that unveiled some truly awful examples of cheating by family foundation managers. These stories and others led Senators Charles Grassley and Max Baucus to the conclusion that the entire sector was in need of serious reform.
Now is hard to argue with the notion that something ought to be done about foundation officials who use charitable assets to pay for their daughters’ weddings. It is just as hard to defend nonprofit organizations that deliberately mislead the donating public, or those that raise money and spend it on lavish personal lifestyles. We do, after all, have favorable tax status and at the core of this special status is the expectation that our activities serve the common good and are not conducted for private gain. And so when some of us cheat or are not true to that trust, we must be held accountable.
But we also know that when government gets involved, it often comes armed with a sledge hammer, smashing solid structure along with the rotten wood.
So, as tempting as it is to talk today about yet another “fiscal crisis,” I think it is just as important to understand what is at stake with the Senate Finance Committee.
When the good senators asked the Independent Sector to put together a panel to recommend legislative and regulatory proposals to deal with the abuses, I thought it was an opportunity we nonprofits needed to embrace. That made it impossible for me to turn down an invitation to serve on the panel. But when, in addition to the 24 panel members, Independent Sector decided to add five work groups, an expert advisory group, and a citizens’ advisory group that totaled some 175 actors, I began to get nervous.
I am happy to report that what looked to be a cumbersome structure actually seems to be working. And today, I would like to discuss several of the many issues that are on the table. I will omit the Finance Committee proposals that fall on foundations alone, although a number of them would affect the sector as a whole. I urge you to read the Finance Committee discussion draft and the Independent Sector responses posted on their website.
One proposal of the Finance Committee staff relates to nonprofit boards, and since I am the chairman of BoardSource, this is a subject that greatly concerns me. It requires that a board member must perform his or her duties in good faith, and in the best interests of the mission, goals and purposes of the corporation. Motherhood, the Brooklyn Dodgers, and apple pie, one might think. Of course, we expect that of board members. But it then goes on to say, “An individual who has special skills or expertise has a duty to use such skills or expertise. Federal liability for breach of these duties would be established. Does this mean that if your organization does something illegal, the lawyer who sits on your board would be liable for not preventing it? Or if you are lucky enough to have an endowment to invest and the stock market goes south, a portfolio manager who sits on your board would be in breach for not putting you into bonds? For many of us who struggle to find board members with specific skills, this is not exactly the kind of information you would want to put in your recruiting material.
Another proposal would require that the board be composed of not less than three and no greater than 15 members. I do believe that some boards are so large that their effectiveness is impaired. But does anyone really think there is a magic number for a high-functioning board? I would submit it depends on the purpose of the organization, its constituency, and a number of other factors.
And in a truly bizarre twist, Finance Committee staff have proposed that nonprofits with more than $250,000 in gross receipts must include in their Form 990s—our informational tax filing—a detailed description of the organization’s performance goals and measurements for achieving those goals. It will come as no surprise to you that we all struggle with how to evaluate the success of our programs. I do not mean to suggest that this is not important. However, we are often forced to settle for proxy measures: the number of people enrolled in a program, the number of food packages delivered, the number of classes held. In our world of intractable social problems, a goal may require years of work before any results can be seen. I referred earlier to the Campaign for Fiscal Equity lawsuit. The Trust started funding research into the State’s school finance formula more than two decades ago, and supported the Campaign before Mike Rebell had actually incorporated it. Both the Campaign and The New York Community Trust would have recorded little or no progress toward the objective year after year. For those of you working on issues such as homelessness, job development and training for the chronically unemployed, and a host of interrelated problems, what do you measure? And given the interplay of factors involved in long-standing problems, how do you account for your role in their resolution? Evaluation is necessary and important, but it is expensive and often elusive. If they could tell us how exactly to do this and pay for it, I, for one, would nominate Senators Grassley and Baucus for every award given by our sector.
I am also reserving a place in nonprofit heaven for the person who stands up to the charity watchdogs who rate our organizations, simplistically and exclusively, by the size of our overhead. How do we get a grid or a ratio to acknowledge that infrastructure—the human kind—is the most important factor in our ability to carry out our missions?
Recently, I was at a meeting of community foundations where we heard Tom Tierney of BridgeSpan, a nonprofit spin-off of Bain Consulting. Mr. Tierney, a veteran of the corporate world, was brutal in his assessment of the trouble we are all headed for as we confront the task of finding our successors. He notes the constraints under which we operate that business does not—and those constraints are significant.
First, we do not have a pool of ready talent. Although schools of nonprofit management are certainly increasing in number, they do not come close to generating the legions of eager young professionals that are coming out of the business schools. And, headhunting firms that recruit for nonprofit clients almost invariably do so only for the highest paid heads at the largest nonprofits. The Internet is beginning to play a role—try scrolling through the jobs on Idealist.org—but we still tend to go to our colleagues for referrals, and end up hiring friends of friends, and friends of friends of friends. Not in itself a bad thing, but certainly limiting our reach for new talent.
Even if we had the talent pool, and the mechanisms for connecting them and us, we are still left with a major hurdle—limited budgets to hire the number of people we need, and to attract the right people—those with the necessary skills—for the jobs. In the February 3rd issue of the Chronicle of Philanthropy, an article about age discrimination in the nonprofit workplace notes that given tight budgets, dollars trump experience every time, and quotes an advisor to charities as saying: “Your qualifications, experience, and competency are irrelevant. It all comes down to dollars.”
A major donor to my own institution died recently, and one of the obituary notices, commenting on his philanthropy, said: “Ever frugal, never flamboyant, he favored charities whose expenses were low, to maximize the impact of his gifts.” I knew this gentleman, a very successful businessman. He was also very rich, very charitable, and indeed, very frugal. And I agree that charities have an obligation to run as efficiently as possible.
But expenses appear to have become the only proxy measure for nonprofit efficiency and effectiveness. Unfortunately, because personnel costs are generally the biggest drivers of nonprofit budgets, the result is hiring not who you need, but who you can afford. This state of affairs not only leaves us with staffs that may not be up to their jobs, but also without people to groom as our successors.
At a time when Senate Finance—and as of last week, the Joint Committee on Taxation—is weighing in on abuses in the sector—not the least of which is excessive compensation—making the case for adequate pay to attract the talent we need may be the ultimate act of poor timing. And it is part of the larger issue of convincing Americans that charities—who are continually asked to do more with less—cannot be run on shoestrings if they are to deliver on their promises.
Many years ago, long before I became president of The Trust, a consultant I hired to help us with a grant program came steaming into my office. One of our employees was showing her how to review the proposals we had received. He picked up one that was requesting a modest increase to the very modest salary of the executive director. Forget it, he said. They can find someone else to take the job for less. That person has not worked for us for years, and that ethos did not guide us as an institution then, or now. But it is still too often a major influence on donors.
With all the scrutiny being given to the charitable sector, we are being challenged to explain American philanthropy to a public and public officials that really do not understand how we work. Many have antiquated notions of Ladies Bountiful giving alms to the poor. Today’s problems may not differ that much from those of the past, but the solutions are surely more complex and require energy, commitment, savvy, and skills, something we do not lack in this room or our sector. We need NOT be on the defensive. But we do need to make a compelling case that strong, effective, and cutting edge nonprofits are essential to the tasks we are asked to take on—and that they MUST have the required resources—both human and financial—to do the job.
Thank you.