Today's Straight to Hell Winner

I'm doing a ton of interviews today, talking to reporters who are writing stories advising people how to give to charities that will help the victims of Hurricane Katrina. One of the things that I tell people to do is look out for scam artists, as it's a sad factor of our society that criminals use tragic events like Katrina to prey on the generous but uniformed.

Don't believe me that the sleazy and scurrilous will do anything, in the name of charity, to fleece the good intentioned? Check out this article.

Yep, they made and sold counterfeit Lance Armstrong bracelets, and kept the money for themselves.

Katrina's Aftermath

Haven't written in a few days, but I'm sure this blog wasn't the first place you were turning in the days after Hurricane Katrina anyway.

It's a strange aspect of what we do at Charity Navigator, here in an office park in Mahwah, New Jersey, that we get preposterously busy whenever something horrible happens in the world, whether it be in Indonesia or Gulfport, Mississippi. But as surreal as it may be, these kinds of disasters remind me not only how generous Americans can be, but how complicated and confusing giving to charity can be.

Everyone wants to help, but very few know how to go about something that seems so simple.

You can find our tips for giving in the wake of Katrina here. And if you're not the reading type, I'll be on the Early Show on CBS tomorrow at 7:30 am to elaborate.

Charity Cooperation Not the Norm

The Missouri Attorney General, Jay Nixon, announced a program yesterday called "Check A Charity", which allows Missouri donors to go online and get some basic data on charities that fundraise in that state.

What I found interesting is that the Missouri AG asked 1500 charities that are headquartered or fundraise prominently in Missouri to fill out their simple questionnaire. Those that filled out the forms automatically made the website, which would imply to most donors that the AG approves of their operations.

How many filled out the forms, given to them by the highest law enforcement officer in the state?

448.

29%.

I'm not even remotely surprised. When we first decided to launch Charity Navigator, we wrote 300 of America's largest charities, asking for their 990 forms, which they were legally obliged to provide us. At that time, about 30% complied, even when we offered to pay copying and shipping costs.

This is exhibit A (and B) in why we have to rely on public documents as the basis for our evaluations and cannot reasonably expect charities to willingly provide us with additional documentation for consideration in rating their operations. Charities will provide us (and anyone else) with additional documentation when donors punish them for not doing so. In Missouri, 7 out of 10 charities just told the Attorney General they'd rather not get his approval than be bothered to fill out a form. I hope donors tell those charities that's not good enough.

He Won't Be Back?

The Los Angeles Times has an expose today on nonprofits in California and their ties to Governor Arnold Schwarzenegger, who still seems to think that most rules don't apply to him or his administration. According to a couple of watchdog groups in the state, many California nonprofit organizations with ties to Gov. Schwarzenegger are not disclosing the names of their donors, reports the paper.

The Times says Schwarzenegger has received millions of dollars in benefits from the groups but has not disclosed that in many cases the donors are companies that have business dealings with his office. While this is technically not illegal, it doesn't pass the smell test either.

According to Larry Noble, executive director of the Center for Responsive Politics, in Washington, the nonprofit groups are providing an "end run around the campaign finance laws." Governor Schwarzenegger says he doesn't really "pay attention to who donates" to the groups, despite the fact that the San Francisco Chronicle reported last week that American Media, Inc., publisher of body building magazines and with whom the Governor had a "consulting" contract, made a $250K donation to Arnold's pet charity, the California Governor's Council on Physical Fitness. If true, these allegations would be in violation of the state's ethics laws.

All of this is especially ironic given that California recently passed some of the most stringent new laws for charities in the country, in an effort to demonstrate to the state's donors that the organizations headquartered in the Golden State were worthy of support.

Governor Schwarzenegger, after hemming and hawing for a while, signed that bill.

Not Your Grandfather's USO

The New York Times has the story of a very public internal spat the USO (a Congressionally-chartered U.S. non-profit) is having. Allegations have been made that the current management has awarded a no-bid contract to a fundraising firm owned by a family member and that efforts may have been made to allow that family member to help manage the organization, without having been brought in as permanent employee.

If you listen to one side (disgruntled employees), the USO has engaged in a practice of nepotism and cronyism, awarding financial favors to family members, and choosing short-term gain (direct mailing) over long-term stewardship (cultivation of large donors).

If you listen to the other side (board and management), you hear that the organization has decided to become more efficient and accountable, and made decisions to concentrate more on the people the organization aims to serve, and not worry about the feelings of some ineffective professional fundraisers they happen to have on staff.

And if you listen to me (in the article), you'll hear that the whole thing, while probably not illegal, warrants a little more scrutiny. I suspect there's nothing officially fraudulent here, but at the bare minimum, we have a very public and unecessary spat being carried out in America's leading newpaper. There's no scenario where the issues involved here--rewarding insiders, violating organizational by-laws, and resisting accountability and transparency--can help advance the public perception of non-profits.

What seems not to be in debate is that the leadership was clearly not happy with their own development staff and decided to cut them out of the loop. It's also pretty clear that this organization, closely aligned with President Bush (honorary chairman) and the Department of Defense (formal endorser), appears to deal with scrutiny and criticism in the same way the administration has--by closing ranks, circling the wagons, and demanding silence from all employees. And, while it's no crime, even the USO management admits that the fundraiser hired is a bit of a brusque jerk.

I'm hoping there's just a bit of smoke here, and no fire. Because if the worst allegations are true, this is the kind of stuff that sinks organizations, private or non-profit. Self-dealing is self-dealing, and it's dangerous. An independent Board of Directors works to make sure these kind of allegations are untrue. Yes, to make sure the organization is operating in a way that recognizes the public trust. But also to make sure you don't end up in the New York Times, accused of financial and management irregularities.

Now This is Questionable

Charity Navigator recently completed a study of how much the CEOs of America's largest charities earn. Our study found, as the Wall Street Journal reported, that "questionable CEO pay exists at some charities, but it's not the norm." We found that the average annual compensation package was just south of $150K.

A few media members acted shocked at this number, but I think that's a bit naive. We can't expect these large charities, with hundreds of staff, thousands of volunteers and donors, and tens of thousands of recipients to be run by novices. If we want high-performing organizations, we need to compensate qualified leaders. It is relevant that most charity officials I know, while compensated well, could make a lot more in the private sector. Low six-figure salaries don't shock me one bit.

However, high seven-figure ones do. The Boston Globe today reports that James J. Mongan, the CEO of a hospital in Boston, earned $1.9 million last year. And Mr. Mongan's organization is a non-profit, meaning it's exempted from paying taxes on their massive income. This is simply ludicrous.

Mr. Mongan probably deserves his massive salary (if anyone deserves such compensation). He oversees an overwhelming and complicated health care bureaucracy. I'd bet my salary that he works a ton of long hours, endures an insane amount of stress, and is a pretty impressive visionary. But the organization he oversees isn't a non-profit. I've blogged about this before, so if you're interested, click here or here. I won't waste your time today. But suffice it to say that any organization that can afford to pay its leader this kind of coin isn't a traditional non-profit and the system needs to be changed. Now.

And to be fair to Mr. Mongan, and as further proof that this makes no sense, I find it illuminating that Mr. Mongan's salary isn't even out-of-line with other non-profit hospitals. According to the Globe, Mr. Mongan's salary is only 9th in the nation for CEOs of non-profit teaching hospitals.

I'll post the names when I find the other 8. Until then, write your senator and tell him or her to stop worrying about how much the leader of your local animal shelter makes, and ask them why we keep letting "non-profit" hospitals operate like big businesses.

Back in the Game

Took the family on vacation last week. Probably should have told my massive audience where I was, but I assume you all were able to soldier through a few days without any non-profit news and commentary.

While I was gone, I did have this op-ed run in the Bergen Record (which is actually the second most-circulated paper in NJ--behind only the Newark Star-Ledger.) In it, I make the point that New Jersey residents are foolish to make a contribution to either of our candidates running for governor. We'd all be better off giving that money to charities. And still, the charities say I'm out to get them.

Can't we all just get along?

What's Yours Mean?

Unless you have been stuck on the space-station for the past year, you have probably noticed the prevalence of the yellow wristband, which has raised over $50 million for the Lance Armstrong Foundation. Among others, John Kerry wore one the entire presidential campaign. The unprecedented and unparalleled success of the yellow Livestrong wristbands has, of course, spawned countless imitators. Why innovate when you can imitate?

While raising some good money for good causes, this unchecked wristband proliferation has at least two downsides.

1). Many donors are unaware of how much of the cost of the wristband is going to charity, or if any money at all is going to charity.

2). As Slate’s Timothy Noah points out, “there are only so many colors, while the number of causes is nearly infinite” so “bracelets have reverted to signifying nothing more than color itself”.

So, if you are wearing a red wristband it could either mean that you support AIDS research or you are just a Nebraska Cornhuskers fan.

A purple wristband means you either detest domestic violence or animal testing.

If you see someone wearing an orange wristband she could either be supporting a smoke-free lifestyle, against the Israeli pull-out in Gaza, or possibly just a Mets fan.

Advice for Charity Scammers

The Connecticut Post has a story about a couple in Milford who visited local businesses, pretending to be police officers soliciting money for a bogus police charity, and kept the money for themselves. They were caught when a Dunkin' Donuts employee called the police, because the couple seemed suspicious. The previous week, the Dunkin' Donuts had indeed made a "donation" to the bogus couple.

This is just a run-of-the-mill crime by some lowlifes (although I found it amusing that the man involved was a former professional fundraiser), and certainly not indicative of some need to reform the non-profit sector.

But it does lead to a brand new Charity Navigator Tip, never before advocated by us:

• If you're going to run a scam involving fleecing the police and those who are supportive of law enforcement, you might want to try a venue other than a... doughnut shop.

News you can use.

Dirty Rotten Scoundrels

The big story in the charitable world today focuses on a Bronx children's charity, the Gloria Wise Boys & Girls Club, which apparently loaned nearly $800,000 to liberal radio network, Air America, to finance their operations. At this writing, it is not clear what happened to the money, as the radio network has since been sold, and the man who arranged for the loans has been fired by all involved.

Much of the media attention is focused on the fact that the loans were made to Air America, as if it is proof that liberals are liars and cheats too. If that kind of stuff floats your boat, you can read about it here or here or here. But the real bad guy in this story is not Al Franken (sorry, NY Post), but Evan Cohen, who served as the charity's development director at the same time he was the radio network's director, and arranged for the loans.

Why did a non-profit even consider loaning over a half-million dollars to a for-profit radio conglomerate? Where was the Board when this happened? And why was the development director allowed to work full-time for Air America, while drawing a pretty good salary as a full-time development director for the charity?

This whole thing stinks. Let's not let the Air America angle distract us into polarized political name-calling. The story's the same if the money is loaned to Air America or Fox News. Charities shouldn't loan money to anyone, let alone for-profit media corporations, and especially not to companies with insider ties to charity employees or board members.

As the result of a shady development director and an asleep-at-the-wheel Board of Directors, a ton of children-at-risk in the Bronx have had money earmarked for them stolen out from under their noses. You don't have to be liberal or conservative to be repulsed by this. You just have to be human.

Business is Business

An Associated Press story from last week made a big deal out of the fact that many nonprofits are being "run like businesses." The article is relatively patronizing to the non-profit community, as it acts like most nonprofit managers never could hack it in the for-profit world, as they would get trampled by the real go-getters while they stopped to smell the roses. In reality, in my careers in government, the private sector, and the nonprofit world, many of the smartest, toughest, and most interesting people I know are running charities.

But the point of the article is relevant, that the battle for donor dollars is tougher than ever, and that charities need to get smarter (act more like good businesses, not just businesses in general) to compete. Otherwise, the results are often tragic. If a restaurant goes out of business (which nearly 80% do, in less than 5 years), people are inconvenienced. If a charity goes out of business, often people's lives are at stake.

And the anecdotal evidence of charities acting more like businesses is growing. And it's not just your younger, more business-savvy charities that are adopting these concepts. Here's a story showing that Habitat for Humanity is actually opening Home Depot-type stores to sell building supplies. Here's one that explains how Easter Seals sold one of its real estate holdings for over $2 Million. And here's one elaborating on a children's hospital that is suing a vehicle donation program, claiming they've been swindled out of a million dollars.

And let's remember that the unchallenged leader in this idea of using business principles to finance charitable operations is a bunch of young girls in uniforms, who have been selling cookies for 60 years or so.

Clearly, most charities are being run like businesses. The good ones are being run like good businesses--smart, ambitious, creative, and ethical. The bad ones are being run like bad businesses--dumb, lazy, unethical and doomed to fail.

I just wish the marketplace would allow us to get rid of bad charities as quickly as customers dispose of bad businesses.