We all like to think we and our clients are smart, brilliant people capable of understanding and acting upon the complexities of the issues they confront and lawyers advise upon. But “Keep it Simple St$C*#” or “KISS” is a motto well worth remembering when advising or serving on non-profit boards of directors. Advising boards about their increasing regulatory burdens, while forgetting to make sure that the board has understood the basics of the organization’s business and its finances risks the failure of the organization and its mission.
A prime example of the need for this appears to be the highlighted by the public reports regarding the recent collapse, after 80 years of operation, of Federation Employment & Guidance Service (commonly known by its initials or FEGS). FEGS has been a major New York social services agency, with an annual budget of approximately $250 million. Yet it suddenly collapsed following a 2014 deficit that has been publicly projected at approximately $20 million.
While I have no inside information on the details of the collapse, it makes me wonder how much the Board understood of the organization’s service and financial operations that a sudden 15% deficit could undo so many years of good work. Published reports have indicated that many of its governmental contracts were losing money. Those contracts don’t lose money all of a sudden. One can only wonder what was explained to the board about these contracts, and the organization’s overall financial state, by management and the organization’s accountants. While a non-profit may operate with a number of mission driven “loss leaders,” if there aren’t enough contracts and fundraising proceeds to make up those losses and generate a positive operating margin, it can’t hope to long survive. “No margin, no mission” is another oft quoted and well-remembered phrase.
So what lesson can your non-profit board hope to learn from the press reports of the collapse of FEGS?
While there are many new regulatory expectations of a board, related to corporate compliance and the increasing complexity of organizational challenges, the most simple and basic expectation remains that a board members have a duty of care toward an organization that requires the board member be informed in order to exercise their oversight responsibility. The only way a board can effectively do so is if its board members understand the services (and service quality) offered by the organization, as well as the financial return on those services, and are willing to raise their voices with questions when they don’t understand something or need more information.
Effort and thought must go into providing the board with clear information, through presentations, dashboards and written materials. Yet sending out the information is not enough. Board meetings must allow time for real discussion of the information provided. Service and financial challenges are to be expected, a board can only successfully respond to these challenges when it understands the service, quality and financial profile of the organization. Management may be responsible for getting this information to the board, but if board members feel they are not understanding either the information or the resulting discussion, they must demand more and clearer information from management, as well as from the organization’s accountants and outside counsel.
Direct communications about the basics are critical for non-profit boards in these increasingly challenging times. Only after understanding the basics can a board hope to guide the organization through the compliance and other challenges the organization may face. To ensure the future of the organization’s mission, board members and management must go back and figure out how to keep it simple, but not simplistic, to survive in these challenging times.
