The Cost of a Neglectful Board
The reputation of a veterans' charity took a hit last week for working with two direct-mail vendors that heavily profited from donations. The vendors are paying the price, but the problem started with the board.
If you’re looking for a way to quantify the effect of a disengaged board, here’s one notable data point: $24.6 million.
Last week, the New York Attorney General’s office announced that whopping figure as what a pair of direct-mail firms would be required to pay as part of a settlement for its work for the Disabled Veterans National Foundation. DVNF launched in 2007 as a spinoff group from the National Association of State Women’s Veterans Coordinators, ostensibly to collect funds supporting wounded veterans.
As the New York Attorney General’s settlement revealed, practically nothing of the sort happened: 90 percent of the funds flowing into DVNF went to pay the direct-mail firms. It may be that the nonprofit world obsesses too much about overhead costs as a measure of success, but DVNF was disastrously mismanaged no matter how you look at it.
And to see how that happened, look at the board.
The Attorney General’s settlement document is fascinating and dispiriting reading, laying out a host of red flags. Among the problems with DVNF’s leadership:
1. Everybody was a bit too friendly. The agent for one of the direct-mail firms, Larry Rivers, was a friend and neighbor of DVNF’s president, according to the report, “and he was acquainted with other directors of NASWVC as well.” There’s little evidence the DVNF did much research into the companies it signed on with.
2. The board was inexperienced at nonprofit management and what would be required to meet its mission. “When DVNF was established,” the report says, “its five Founding Directors, who were themselves military veterans, worked as veterans benefits coordinators for their respective home states’ Departments of Veterans Affairs.” Moreover, the board had no experience with the kind of direct-mail fundraising activity it approved.
3. The board was passive, bordering on neglectful. It took the DVNF board nearly two years to hold an in-person meeting, according to the report. Once it had hired a direct-mail firm, it provided little to no oversight: “Among other things, some or all of the Founding Members failed to ask for or review any detailed fundraising analyses or projections; failed to review each of the fundraising appeals sent out in DVNF’s name; delegated to DVNF’s fundraisers the handing of most accounting matters, including the retention of the organization’s outside auditors; and failed to maintain a ledger of the organization’s receipts and payments.”
An Expensive Mess
The failure of DVNF’s board is an extreme one, and its members are paying for it: The settlement requires that four DVNF board members resign, and that they be permanently barred from working or volunteering for nonprofits in New York state. In the meantime, the settlement asks that DVNF find five new directors, “with the objective of adding to its board new directors with experience and skill in the areas of accounting, not-for-profit administration, social services and board governance.”
But if DVNF’s case is an extreme one, it’s still a bracing reminder that any nonprofit board is susceptible to its problems; I’d venture to say that every association has to work through one of those three problems listed above, even if the problem isn’t (yet) toxic.
Late last month, former association executive Kerry Stackpole, CAE, listed some suggestions for assembling an effective board. All of the ideas are worth reading, but the one that struck me in this case was Stackpole’s demand that associations be clear about what the job demands. “Oftentimes, nominating groups will ‘brush over’ the workload and responsibilities of the position to entice potential candidates,” he writes. “Doing so diminishes both the values of the work and its importance in the recruit’s mind. If your non-profit Board does important work, demands long hours or has high expectations, say so without apology.”
DVNF needed a board that recognized what was needed to do its job, and the willingness to put the time into it. Ensuring you have those people aboard before you start can only help you meet your mission—if nothing else, avoid being part of a very public and very expensive mess.