Skimming the Surface of Health Care Reform and Nonprofit Organizations - Kevin

On March 23, 2010, President Barack Obama signed into law the Patient Protection and Affordable Care Act of 2009. Seven days later, he signed into law the Health Care and Education Reconciliation Act of 2010. While there has been, and continues to be, great debate regarding issues associated with both Acts, I have no desire to participate in those activities. However, I do believe that the issues should be recognized as having great implications for nonprofit organizations. These implications will not be discussed with antagonism or protagonism, as that is best left to others. Instead, I purposely limit my discussion to the introduction of some key issues relating to the passage of the Acts that will significantly affect the governance of nonprofit organizations and must be addressed by board members.

On July 27, 2007, the United States Government Accountability Office (GAO) released a report titled, Nonprofit Sector: Increasing Numbers and Key Role in Delivering Federal Services. In the report, the GAO stated that “U.S. nonprofit organizations have a significant role both in the economy as a whole and as providers of services.” Evidentiary data can be found in the 990 forms NPO’s submit to the IRS. Compilations indicate that in 2004, NPO’s collectively held $3 trillion in total assets and brought in $1.4 trillion in revenues (GAO 3). Also of great importance is the fact that NPO’s employ a significant number of Americans, specifically 13% of the 116 million employees in both the private and public sectors. As such, NPO board members must understand the limitations that government reports such as The Economic Effects of Health Care Reform on Small Businesses and their Employees have. The report, released by the White House Council of Economic Advisers (CEA) completely disregards the 15 million people employed by nonprofits when discussing the economic impacts of health care reform on small businesses (Delaney 2009).

Surely there exist some similarities between for profit and nonprofit organizations. However, assumptions that both sectors share the same political, economic, and social ideologies cannot be made. Therefore it would be unreasonable for one to believe that the Acts affect both sectors similarly, and resultantly, limit discussions of the Acts’ repercussions to one sector exclusively. Conceivably, any such solitary discussion of the for-profit sector would prevent considerations of the complex ideologies of the nonprofit sector. Board members should not be convinced that the content of government publications, such as the CEA report, is representative of their organizations. Instead, board members must be cognizant of the affects that the Acts will have on the NPO’s they serve. NPO board members must not stop there. Instead, they must advocate for their organizations’ interests through the various networks that they are associated.

Board members are ultimately responsible for the performance of the organization in which they have volunteered to serve. Among the many roles and responsibilities that the board members must perform are: procuring financial resources, and soundly managing the organizations financial resources. Certainly, the emphasis placed on these roles by board members will differ among the various theory based approaches they seem to fit. For example, those that align with resource dependency theory will concur that these roles are very important and will therefore address the Acts with upmost diligence. Other board members, perhaps those aligning with organizational theory and institutional theory, will react differently. In the midst of differing theoretical views, board members must somehow realize their “duty of care” and come to the concurrence that they are required to be advocates who represent the best interests of the organization they have been entrusted to lead, regardless of how formidable the task may be.

Certainly the Act will impact organizations differently. Many of the differences will be determined by the number of full time employees that an organization has. Board members must be aware that the costs associated with the provision of health care as required by the Act will be expensive. Unable to reap the benefits that large organizations have in providing health care to a large number of employees, the small organizations will need to make some tough financial decisions. Unlike the for-profit sector that can increase the costs of goods or services in order to afford the mandatory health care, NPO’s cannot do the same. With limited financial resources, nonprofits will face the possibility of reducing staff and services. In order to prevent this from happening, board members must be prepared to aggressively pursue the allocation of additional financial resources. Some decisions concerning health care reform which must be made, may conflict with those beliefs personally or professionally held by board members. Regardless, board members must realize their “duty of loyalty” which requires them to be able to set aside their personal beliefs in order advance the interests of the NPO’s they serve.

Nonprofit Staff Professionalization - A Discussion of Board Behavior - Brian C.

Nonprofit staffs have become increasingly professionalized over the last ten to twenty years. It is worth a brief discussion about the possible reasons for this trend and the effect on nonprofit boards. Nonprofits are faced with increasing regulatory obstacles. The issues that must be dealt with increasingly require an educated and experienced executive director to oversee the operations and provide professional guidance to the board to make decisions that are in the best interests of the organization. The nonprofit may receive funding from governmental sources that require a specific knowledge of the regulatory and political environment. Programs offered by the organization may be very specialized and complex that requires a knowledgeable individual to be able to properly monitor and manage them. The board may have the experience to handle some or all of these issues. However, volunteer boards have other responsibilities that do not allow them to manage the day-to-day operations of a nonprofit. An experienced executive director with professional credentials is an attractive option given the aforementioned environment.

Professional Chief Executive Officers, CEO’s, can give a nonprofit board the tools it needs to focus on the bigger picture. According to the article by Judith Miller-Milleson, Understanding the Behavior of Nonprofit Boards of Directors: A Theory-Based Approach (2003. Nonprofit and Voluntary Sector Quarterly), nonprofit boards for effective organizations were engaged in best practices including policy formation, strategic planning, program monitoring, financial planning and control, resource procurement, board development, and dispute resolution (p. 525). These practices all relate to higher-level decision making. The most effective boards do not get into the day-to-day operations of the organization. A professional CEO allows the board to focus on these best practices by feeling assured that the operations are being managed effectively. Ms. Miller-Milleson also states the CEO acts as the agent of the board. The board should keep the control of decisions separate from the management (p. 528). The CEO should deal with the implementation and initiation of the board’s decisions, and the board should keep the authority to ratify and monitor the CEO and operations. The CEO should be properly monitored to ensure the board is receiving accurate and timely information on the organization’s performance.

Board’s with a tenured and experienced CEO have the tendency to allow more control to the CEO. This can also be exacerbated by the size and stability of the organization. The board must not be a rubber-stamp for the CEO. The article by Ann C. Williams, New and Improved?: A Case Study of Nonprofit Policy Governance (2010. Human Organization, Vol. 69, No. 3), gives a prime example of the dangers when a CEO is given too much power. In this case study, a women’s human service nonprofit organization implemented The Carver Method. The CEO had a proven track record of success with the organization. The board had complete trust and faith in the CEO and gave her free reign to implement this new method with little monitoring or feedback from the CEO. The board’s trust was misplaced and the CEO almost bankrupted the organization. The board failed to properly monitor the CEO’s performance and the operations of the organization. True, the board is reliant on the information received by the CEO, but it is the board’s responsibility to ensure they are receiving sufficient information to make the determination of the organization’s accomplishments.

In summation, professional CEO’s can be very beneficial to the board by allowing it to focus on strategic and visionary activities. The board should set the mission, policies, and direction of the organization. The CEO should manage the resources for the organization to accomplish the goals and fulfill the mission set forth by the board. The blurring of these lines between board and CEO authority creates potential for organizational strife. An effective nonprofit organization needs to have clear duties set forth between the board and the CEO.

Nonprofit Organizations - Should There Be More Oversight Over Stewardship? - Brian C.

Nonprofits provide valuable services to many communities across the United States. The shape of our governments would be vastly different without them. Nonprofits provide many services that the government and the private sector are not able or willing to provide. Millions of dollars pass through nonprofits each year. These funds come from many sources. So who regulates the actions of nonprofits? To answer this question, we must first understand the reason for the existence of nonprofits and the stakeholders they serve. Nonprofits exist to provide a specific charitable service to a particular community or group. Stakeholders may consist of community members, customers served, government, the private sector, etc. It all depends on the services offered and the resource dependencies that form the stakeholders for a nonprofit. Regulation can come from a variety of sources. Government regulations certainly affect nonprofits depending on the services they provide. In the financial realm, the Financial Accounting Standards Board (FASB) sets accounting regulations for private, for-profit entities. The Governmental Accounting Standards Board (GASB) sets accounting regulations for the public sector. Many times, nonprofits are lumped in with the public sector. However, the function of government/public sector can be very different from the nonprofit sector.

Nonprofits all must be approved by the Internal Revenue Service in order to receive tax-exempt status as a charitable organization. As part of this, nonprofits do have some reporting requirements. They must have bylaws sufficient to demonstrate the organization’s mission. Other policies should discuss board development and recruitment, programs, funding sources, etc. Nonprofits must not deviate from the mission, or they risk losing their tax-exempt status. However, there is little enforcement by the IRS to determine if nonprofits are still endeavoring to fulfill their original mission. In the wake of the Enron debacle and the implementation of the Sarbanes-Oxley Act, financial regulations are much stricter. This still only affected the public and private sectors. The Sarbanes-Oxley Act mainly focuses on corporations who are publicly traded on a stock exchange. There has even been a focus of the FASB recently to try to become the standard setting body for private companies who would not normally fall under the accounting regulations. Governments are required to have an annual audit. These accounting standards are designed to provide stakeholders with information to determine if their organizations are accomplishing their goals and providing proper stewardship over the funds under their control. Corporate shareholders can then vote for changes to the corporation’s board and voters can elect new representatives on their government bodies. Nonprofits are still untouched by these accountability mechanisms.

The nonprofit sector should be next in having a regulatory body set standards for ensuring they are complying with their mission and exercising proper stewardship over their funds. This is being accomplished in a roundabout way by some mechanisms. Government funding usually requires certain accountability measures to ensure the funds are spent properly. This may include an annual audit or some other reporting mechanism. Nonprofits also may provide annual reports to satisfy large donors or communities that they serve. The best run nonprofits will already have an annual audit, prepare an annual report, and/or provide specific information to ensure stakeholders that they are providing proper stewardship over the funds they control. Nonprofit boards are charged with ensuring their organization stays true to its mission. They must monitor the programs and activities of the organization and ensure the mission is accomplished with a proper stewardship over their resources. Sufficient data does not exist to determine the success of nonprofit boards in accomplishing these tasks. All it takes is one Enron in the nonprofit sector to put public pressure on better regulating and monitoring nonprofits. This would severely hurt the fund capabilities of some nonprofits. Hopefully, a better understanding of the nonprofit sector leads to tighter regulations and better accountability.

Nonprofit Management with a For-Profit Model? - Brian C.

Nonprofits are mismanaged and regularly wasteful in the use of their resources. At least this is the prevailing thought of many citizens and the corporate world. How much merit does this statement have? The article New and Improved?: A Case Study of Nonprofit Policy Governance by Ann C. Williams (Human Organization, Vol. 69, 2010) provides some interesting insights. The article analyzes the implementation of The Carver Method by a women’s human service nonprofit organization (the Center). The Carver Method embodies the for-profit world by focusing on the ends and not the means when it comes to board governance. According to Carver, the board should focus on goal setting and strategic policymaking. The board should then allow management to provide the means for reaching those goals without meddling. The board still has overall responsibility for evaluating the accomplishments of the organization. However, nonprofits cannot make decisions based solely on the bottom line. Many nonprofits provide human services, and their services must be tailored to the specific community. This means there are other ways to measure success that do not involve monetary profitability.

The attempt by the Center to implement The Carver Method ended with disastrous results. The executive director left in the middle of the downturn, and the board was left trying to keep the organization operational despite major financial losses. Was this the fault of the Carver Method? The case study does not directly link the Method to the troubles of the Center. There is no direct correlation to the implementation of the Method and the financial difficulties of the Center. The Center’s financial decline is mostly attributed to the cuts in funding for its social programs from the government. One contract alone made up 75 percent of the Center’s funding. It is difficult to say that the Carver Method was specifically responsible for the Center’s troubles given this dramatic and potentially disastrous loss of funding.

There were major faults by the board in the implementation of the Method. The board placed too much trust in the executive director. The board did not have an adequate understanding of the Method. If they did, they were derelict in their duty since the Method espouses that the board should be diligent in evaluating the accomplishments of the organization. The Carver Method, however, is not without fault. By focusing on only the ultimate goals, the board becomes removed from the operations of the organization. They are too reliant on the executive director for information. Unlike for-profit boards, nonprofit board members are recruited for more talents than just professionalism. Nonprofit boards have to be ambassadors to the community. They must be diverse demographically and functionally to ensure the organizations’ mission is met through the attainment of resources and program evaluation and monitoring.

While it is expedient to say that nonprofit boards would be better organized and managed if they followed the models of the for-profit sector, that is just not feasible. As the case study exemplified, for-profit governance models may provide some benefit to nonprofits, but they must be adapted to a different set of rules, expectations, and obligations that nonprofits must operate under. Success and monetary profitability cannot be the sole basis for governance, otherwise the term nonprofit would cease to be applicable. Nonprofits must always examine and evaluate the value of human capital based on the services the organization performs. While this may not be the way of the for-profit sector, it certainly doesn’t mean that it is in any way superior to the nonprofit sector.

Jeffersonian Views in Modern Times - Brian C.

Nonprofits in the United States have a history that dates back to the colonial times. The development of the nonprofit organizations we have today, particularly nonprofit boards, was interestingly described in Peter Dobkin Hall’s book, A History of Nonprofit Boards in the United States (2003 - BoardSource). Two main views were in contention during these early years as to who had oversight or authority over nonprofits. The English Common Law view emphasized that nonprofits helped private citizens, and therefore were held accountable by those citizens with little to no government oversight or authority. The Jeffersonian view held that the public interest was conveyed by the government, and government should have oversight and regulatory authority over nonprofits. The idea of governing boards, whether nonprofit or corporate, that did not have to be accountable to the general public was too close to the norms from the English environment for Jefferson. The Jeffersonians thought the only way to ensure citizens’ rights were protected, was to have an elected government be involved in all aspects of governance. Therefore, all nonprofits would be agents of the government.

Eventually, the Common Law view point began to seize control of how nonprofits were governed and operated in the United States, basically without government intervention. Nonprofits were responsible to the communities they served. Government interference in nonprofit activities was limited at best. However, the sentiment began to change during the 1950’s and certainly increased in the 1980’s with the rapid expansion of nonprofits in that decade. I hypothesize this is in no small part to the civil rights movement. Government became the purveyor of equality. Laws and regulations were increasingly passed to ensure that all citizens received equitable treatment. The commerce clause in the Constitution was widely used as a tool to enforce this equality even on private organizations. The U.S Government used the clause to assert that discrimination of any kind impeded inter-state commerce, and was not allowable. This new enforcement was a way for government to influence or downright dictate to corporate and nonprofit organizations how they would operate. In a roundabout way, Jeffersonian ideals were making a comeback. In the 1980’s, States increasingly began to assert authority over the activities of nonprofits. In Pennsylvania, for example, a “charitableness test” was set up to allow local authorities to review the activities of a nonprofit and ensure they were in the public’s best interests (p. 13). Thus, government was now responsible for the public benefit. Though, not entirely staking control over nonprofits, governments definitely had influence over the activities they performed.

Nonprofits are also increasingly reliant on federal and state funding to fund their programs. We all know that whoever controls the purse strings has the power to control the organization. Many governments place restrictions on how funds can be spent and place oversight and monitoring compliance requirements in order to be able to receive funding. Nonprofits usually must provide for oversight and compliance reporting back to the government based on how those funds are spent. The restrictions placed on these funds may not directly dictate how a nonprofit board must operate; however, they do influence the decisions, policies, and processes that a nonprofit board must make in order to continue receiving government funding.

The Jeffersonian viewpoint has taken hold in today’s environment without much fanfare. To be certain, the increased government oversight does not fully encompass the Jeffersonian views. Nonprofits are not agents of the government. The government does not exercise full control as would be espoused by Jefferson. However, nonprofits are increasingly becoming proxies of the government as they become more reliant on those funding streams. The government’s role as protector and equalizer definitely has a Jeffersonian feel, and appears to be here to stay.