New Red Cross? Same Old Tricks.

I had high hopes for the new regime at the Red Cross. Despite Mark Everson's lack of non-profit experience, the former IRS Commissioner is a proven leader, pushed hard for some non-profit-related reforms at the tax-collection agency during his tenure, and is rumored to actually be a pretty funny guy, behind closed doors at least. I can support all of those credentials.

But it was the other new additions at the Red Cross that made me believe we had the opportunity to really turn a corner there, and enter a new era of accountability. Along with its new leader, the organization was “given” a new governance structure by Congress and President Bush. As a result of the new legislation, the board is being trimmed from its ridiculous and unwieldy 50 members, to just 12-20. The board members’ job duties are being clarified, to get them out of trying to run the group day-to-day. And most encouragingly (to me), the Red Cross was ordered to create the position of Ombudsman, someone whose sole job was to serve as a watchdog and conduit between the non-profit, those charged with overseeing it, and the donors that make its good works possible.

Who else in America cares who the Ombudsman of the Red Cross is? I can’t imagine the list is long, but I’m definitely on it. That’s why I was saddened today to find out that this historic new position was given to a woman named Beverly Ortega Babers. I wouldn’t know Ms. Babers from Jim Nabors. From her resume, she appears to be an impressive woman. Degrees from good schools, a long career of public service, a working knowledge of the complexities of the legal system. I mean not to impugn her personally in any way. I imagine I’ll meet her one of these days, and I suspect I’ll like her (although after this post, I can’t imagine it will be reciprocal).

So what’s my problem with Ms. Babers? It’s in where she worked last week. Before being appointed by new Red Cross CEO Everson to serve as the lone independent voice and the donor’s eyes and ears at America’s most-important non-profit, in effect the person charged with making sure the group is playing by the rules and honoring the public trust, Ms. Babers was Mark Everson’s Chief of Staff at the IRS. She comes to the new job as his right-hand woman. And despite her credentials, she owes her new job and her large pay raise to Mark Everson. Am I really supposed to believe that she will be fiercely loyal to donors, staffers, employees, and aid recipients first, and not to Everson and his position of power and influence?

Would it have been too much to ask that the new Ombudsman at the Red Cross be neither a long-time employee of the organization nor a political ally (if she was a man, most would use "crony") of the new leader of the charity? Was it really impossible to find someone whose independence would be unquestioned? I’m sure that those in power at the Red Cross will say that I’m being unnecessarily cynical about Ms. Babers and her working relationship with Mr. Everson, but why chance it? If she's talented, hire her to join you at the Red Cross, but why does she have to be the Ombudsman? I learned long ago that perception is reality, and hiring your Chief of Staff, and giving her a large raise, ensures that no one this side of Ms. Babers’ immediate family will believe that she possesses the autonomy and the independence to choose between staff and Mr. Everson, donors and Mr. Everson, or most importantly, recipients of service and Mr. Everson, should the situation dictate it.

The Red Cross could have done better here. We could have had a true independent choice, someone from outside the inner circle, with no obvious ties to the powers that be. We could have been given a signal that the Red Cross took its new mandate of transparency and accountability seriously, and would be doing all it could to demonstrate that the era that led to the new Congressionally-imposed restructuring was over. Instead, we got political patronage, and an arrogant choice to appoint an insider to serve as an ombudsman.

New boss? I’m afraid, same as the old boss.

Where Were We?

Fresh off the holiday weekend, let's take a quick look around the sector and get up to speed. Tomorrow, we'll wade in with deeper thoughts. Today, we channel surf:

• The Salvation Army is apparently aggressively marketing its organization these days. I assume this is why we get calls from their communications people every year wanting to know how they can get evaluated by us, despite the fact that the group doesn't file a 990 due to their classification as a "church." We can tell you firsthand that this new commitment to marketing has its limits at the Salvation Army, however, in that the management folks always forbid the communications people from giving us the financial documents we need to complete an evaluation.
  
• In January, I wrote about the Red Cross accountant who "allegedly" stole over $100K. She pled guilty last week. She'll be sentenced in August.
  
• A prominent atheist gives $22.5 million to the Archdiocese of New York to send inner-city kids to Catholic schools. I'm the last guy in the world to criticize people for who they give their money to, and I think it's great that these kids will get a chance to go to presumably good schools, but I must admit that the donor's logic escapes me. Says philanthropist Robert W. Wilson "Keep in mind, I'm helping to pay tuition. The money isn't going directly to the schools." Umm, where exactly does tuition go? Last time I checked, it went "directly to the schools." And in this case, the schools are Catholic schools.
  
• Want further proof that private universities, despite their 501 c3 public charity status, are not playing by the same rules as your local food banks? People are apparently spending $100K of their own money to get elected to the Board of Trustees at Dartmouth.
  
• Here's a good article about cause-related marketing, why it's such a booming business, and what charities can do to make sure they're not merely being used by for-profit entities. Yours truly is quoted.

Another Problem with "Interim" Leaders

If you don't take the "interim" title away eventually and give the person the full-time job, you usually lose them when you bring in an outsider for the top job. It's just too hard for the man or woman who ran the organization to step back and accept that he or she no longer gets final say in the group. Once you've been the Chief, human nature makes it nearly impossible to be an Indian again. The only time I've ever seen it work is when the "interim" leader has absolutely no designs on the permanent job, and just fills in for a while for the betterment of all involved, while the organization looks for a clear longterm solution.

That's not what happened at the Red Cross when Jack McGuire was thrust into the job when the board forced out CEO Marsha Evans after Hurricane Katrina. McGuire served for a full 18 months, applied formally for the position, and oversaw a major reorganization, as well as the recent on-the-ground relief efforts in Kansas after the tornadoes hit there. He did the job, and wanted it full-time. And of course, he ended up not getting it, as the organization decided ultimately to bring in an outsider (and yet, the ultimate DC insider) in IRS Commissioner Mark Everson.

When Everson was hired, McGuire announced that he would stay at the Red Cross, in his old position as Executive Vice President of Biomedical Services (he oversaw the blood collection--by far, the most important division at the Red Cross), but at the time, I suspected that was merely for appearance purposes. Why would McGuire be so different than so many others, and be willing to step back in line? And today, I get word that McGuire is indeed not different than you or I would be. He is resigning and moving on. Not coincidentally, Everson reportedly starts next week.

I met Jack McGuire and found him a personable guy. He might have made a good permanent CEO. He seemed to provide relatively steady leadership during his 18-month "interim" tenure. On the other hand, despite my skepticisms about Mark Everson, given that he's never been near a disaster relief operation (or any other non-profit for that matter), I hear he's a good guy and pretty smart. We'll see how it shakes out. Color me "cautiously optimistic." Or "hopefully skeptical." Depends on the time of day.

But I do think that this type of thing is an unfortunate by-product of slapping "interim" titles on people for 18 long months. If you don't give them the job in the long run, you're going to have to fill their position too. And now Mark Everson has the triple challenge of not only having to run the nation's most-watched non-profit, but replacing his Executive Vice President of Biomedical Services, and knowing that some in the organization will not trust him for, through no fault of his own, forcing out Jack McGuire. The deck is already stacked.

This is What "Excessive" Looks Like

The Chronicle of Philanthropy has a brief mention this week of a settlement between the state of New York and officials of the William T. Morris Foundation over some alleged excessive compensation at the foundation. I was unfamiliar with what had happened at the Foundation, and despite much posturing over excessive compensation at non-profits by some elected officials, I don't remember anyone ever doing anything about it, so I went back and pulled the records to determine the specifics of this case.

First of all, this case was a by-product not of some big-time investigation by the AG's office, but because the Boston Globe wrote an expose of the worst foundations in the country. The investigative method used by the Globe? Yep, they pulled up the 990s. No one was even bothering to hide these excesses, reporting them as required. Anyone interested in starting "Foundation Navigator?"

Secondly, when the AG says the pay was "excessive", I think we can all agree that, in this case, they're on pretty solid ground. I don't know where to draw the line myself, but as Justice Potter Stewart famously said of pornography, "I know it when I see it." The foundation was shrinking and spending most of their funds not on grants, but on rewarding their insiders. Edward Antonelli, the foundation's 86-year-old president, was making a million dollars a year, despite the fact that at the time, he "rarely (left) his apartment." His "portfolio manager" Amol Patil was making a much more reasonable $100k, except it doesn't seem so reasonable, when you know that Mr. Patil told the Globe that he was actually Mr. Antonelli's "driver." In addition, the board (almost always volunteers) was clearly being paid.

Thirdly, I do think it's relevant (and sad) that all that happened here is that the state of New York and the offending foundation officials reached a cash settlement. No one's going to jail. There are no further penalties. Basically, all they have to do is give back the final year of excessive pay they received. They get to keep everything they hoarded in the previous years. I'm glad the state got a few bucks, but I don't suspect this type of punishment is going to deter any future betrayers of the public trust.

Buy Yourself a Non-Profit CEO

I've heard of wealthy donors having schools, buildings, stadiums, libraries, professorships, and foundations named after them, but I've never really heard of another professional person being named for a donor. But that's exactly what is about to happen at the Indianapolis Museum of Art.

Two Indianapolis philanthropists, Melvin and Bren Simon, have given $10 million to the museum to pay in perpetuity the $350,000 salary of the museum's executive director. In return for the gift, the leader of the museum will now be known as "the Melvin & Bren Simon director and CEO." Yes, they endowed a person.

And no, I'm not annoyed by this. I think it's smart and savvy, and will allow the executive director (whose primary role is raising money) to be a living business card for the fact that any subsequent donor will see their donation go not to paying executive salaries, but to programs. In fact, in celebration of this idea, I'm throwing myself out there as a potential sponsorship opportunity. Go ahead, make me an offer. I'd like to be the "Coca-Cola President" or the "Warren Buffett CEO." Heck, for a decent enough offer, I'll be the "Your Name Here Personal Assistant." We've got bills to pay too.

My Executive Director, the Felon

People ask me all the time how they can get a nonprofit leadership position. "What's the best route to take?", they wonder. From here on out, I'll tell them to follow the path of Diane Percoraro of Maine.

Before becoming executive director of the Animal Refuge League of Greater Portland, Ms. Percoraro obtained an MBA and worked in banking in New York. So far, so good. But during her banking career, she was "convicted of petty larceny and charged with several other felonies." That was obviously enough to make her unemployable in the for-profit world, but she somehow convinced the animal-related non-profit to give her the reins.

So what happened there? Did she find the proverbial religion, become a good person, and do great work for a great cause? Umm, not exactly. This isn't a Hallmark movie of the week. According to her attorney, she had a conflict with her board, and had to choose between “fight and flight ... so her reaction was to fight, by stealing.” Yes, rather than quit because she was having a problem with her board (the same board, of course, that gave her this job without bothering to find out she had a felony criminal record), she stole more than $6,000 from abandoned animals.

So there it is, kids. If you want to run your own large non-profit and have a criminal record, don't despair. Ms. Percoraro has shown that jobs are available. And if your board is bugging you, don't fret. Just steal a bunch of money. But might I then go to jail if they actually catch me, you might be asking? Well, you might. Ms. Percoraro certainly is. For stealing several thousand dollars of charity money, she's going to do hard time. For 14 days. Yes, 14 days. 2 weeks, despite a previous criminal record for stealing.

Diane Percoraro of Maine. Coming to a non-profit job fair near you as keynote speaker.

Small Gifts Create Power Brokers?

After I spoke in the Edgar Allan Poe Room at the Baltimore Public Library (how cool is that?) yesterday, I took questions. One of the attendees wanted my take on her practice of not making decent-sized gifts to just a couple of charities, but of giving a little bit of money to as many groups as she could afford. Regular readers of this blog or users of Charity Navigator know my thought on this. Here's what we write in our "Top 10 Best Practices of Savvy Donors:"

Concentrate Your Giving
When it comes to financial investments, diversification is the key to reducing risk. The opposite is true for philanthropic investments. If you've really taken the time to identify a well-run charity that is engaged in a cause that you are passionate about, you should then feel confident in giving it a donation. Spreading your money among multiple organizations not only results in your mail box filling up with more appeals, it also diminishes the possibility of any of those groups bringing about substantive change as each charity is wasting a large percentage of your gift on fundraising and overhead expenses.

The questioner nodded her head in agreement to my position, but then she offered up her rationale for why she preferred giving small amounts to many groups, despite its inherent inefficiencies. She said that she thought it gave the groups power, in that they could then go to their elected officials and be taken more seriously, with a demonstrated list of proven donors. She thought that her gifts would give small groups a better chance to be heard, because the people with the real power, our politicians, would know that the groups had a large group of financial backers.

I think (and I told her this at the event) that she has a more optimistic view of our elected officials than I do, and little legislation would ever be enacted as a by-product of pressure being brought about by a small animal-rights group with a list of $5 donors, but I must admit that it was an interesting rationale for this seemingly-irrational donor behavior, and one I'd never thought of before.

Hurricane Season on the Hill

I'm in DC, and today the House Homeland Security Committee held a hearing entitled "The 2007 Hurricane Season: Are We Prepared?" They asked the Red Cross and FEMA this question. The testimony was relative gobbledygook (that's a strict legislative term understood by us ex-Hill staffers) with a bunch of qualified language and caveats about scope and size, but it seemed to me that the basic answers were thus:

The Red Cross: "Yes, kind of, pretty much, but given that we have a new president starting in 2 weeks, it might be nice for everyone involved if the impending hurricanes would hold off for a few months."

FEMA: "Umm, well, umm, no."

That's your report from Capitol Hill. Those of you in the Gulf, stay on dry land.

On The Money

I'm on the road in Washington, DC and Baltimore for a few days, but I did see that Sandra Block of USA Today did her entire column today on our special events study. She recognizes that while there may be longterm benefits to some special events for charities, many times the events themselves are not all that they're cracked up to be, at least from a cost-benefit standpoint.

For the charities that think we're using this study to hammer them unfairly, read my quotes in the story. I'm saying exactly the opposite, that donors need to recognize that, in many cases, if all they do is sign up for the fun run, and then go home, the charity isn't going to make much (if any) money on the event. As I say, of fun runs, in Ms. Block's piece, "recognize that you're doing it for yourself. If you really believe in what the charity does, write them a check when you get home."

Charity Chooses Not To Go Wild

My tip of the hat this morning goes to the Boston chapter of the Make-A-Wish Foundation, who did something we never see in the nonprofit world, and turned down some easy money, because they didn't like it where it was coming from.

The charity found out this week that the group Girls Gone Wild (no link, kids, this is a family blog) named them their “charity partner” for a party next weekend featuring the "video vixens" at a Boston nightclub. The event is to be partially sponsored by Whipps Cream, an alcohol-infused whipped cream, and the Girls Gone Wild film crew is to be on hand and ready to capture the "inevitable debauchery." The bawdy video company then planned to donate some yet-to-be-determined proceeds to the charity for terminally-ill children.

And yet the charity, upon hearing of the event, is saying "no thanks" to the co-branding relationship and any proceeds derived from it.

Three things:

1. I applaud this move and hope that, as cause-related marketing continues to take off, more charities will follow their lead, and not allow themselves to be completely compliant partners with any company that wants to "partner" with them by donating money to their cause. Charities should be protective of their brands, recognize that the for-profit company is also getting something from the partnership (usually legitimacy--especially evident here), and make wise decisions that benefit their own operations and the long-term good of their recipients.

2. I suspect that this decision, and its subsequent publicity, will actually yield more revenues for the group than the one-time event would have.

3. There's alcohol-infused whipped cream?

Black Tie (and Boxing Gloves) Required

I already told you that most charity special events weren't efficient. Need another reason to stay home? How about you might get beat up at the symphony?

In Defense of Transparency

Our Special Events study, which found that the majority of charities we surveyed were losing money on their fun runs, galas, and golf tournaments, has caused quite a stir. I have done radio and television interviews on it, and many stories citing its conclusions are finding their way into print.

Here's one such article, and it focuses a good deal on the critics of the study, who think our methology is flawed. It seems that a few charities are claiming that our results are overly harsh, because they believe they made money from their special events. The only thing is that they then reported the proceeds from their special event in a category on their 990 that they're not supposed to report them in. Yes, that's the defense. They screwed up their own financial forms (the ones their board and leadership signed off on, and they then filed with the states and feds, vowing under penalty of perjury that they were accurate) and it's our fault for believing that their financial reporting documents were reliable.

Don't believe me? Here's the money quote from the article, and why understanding and evaluating the non-profit sector can be so frustrating at times.

"While tax experts say the IRS rules are clear on how charities should report special-events income, organizations use different criteria for choosing which line on the 990 form to report such income."

Read that again. The IRS rules are "clear on how charities should report special events income," but "organizations use different criteria for choosing which line on the 990 form to report such income."

The IRS tells them exactly how to do it. And yet some apparently don't do it that way. And then when we report the data based on how they were supposed to do it, our methodology is "flawed." In the for-profit sector, the charities here would be guilty of tax fraud. Here, they have the audacity to accuse us of not interpreting their data correctly.

I stand by my original thesis, that special events are a lousy way for a lot of charities to raise money. That's what the data says. And based on this article, you must further draw the conclusion that some charities don't care about filing correct tax forms.

But we're the ones that are "flawed."

Foundation Foolery

The headline of this story in the Chronicle of Philanthropy is "Nearly 70% of Foundations Give Charities Money for Operating Costs, Study Finds." This is apparently good news.

And yet for those of who didn't major in math, the conclusion must also mean that "over 30% of all foundations will not support operating costs."

And this is absurd. Here at Charity Navigator, we obviously like for organizations to keep their administrative costs down, and of course believe that some groups are bloated in this area. But we'd also be the first to acknowledge that you can't have programs without overhead, and any foundation that refuses to fund any sort of administrative costs is naive, unrealistic, and recklessly conservative. I know that funders only want to support the sexy new programs and pilot inititaives, but if you won't help pay the rent, who is going to do that? Just regular donors, I guess. They don't know any better, right?

People in the foundation world might see this study as good news, but I see it as proof positive that some in the funding community have no clue. I suspect that, for once, the charities in this country will agree with me.

Shameless Self-Promotion

According to its official website, Baltimore's official slogan is "Get in on it." It's hard to understand, with a slogan like this, why Baltimore hasn't yet overtaken Las Vegas as America's vacation getaway. But, even though I have no idea what the slogan means, I'll be in Baltimore next week, and if any of you would like to "get in on it" with me, I'd be honored.

I'll be at the Enoch Pratt Free Library in Baltimore on Wednesday, May 16, from 10-12 am and the topic of my session is, understandably, "Stamp on Charities." This seems open-ended enough that I'm pretty sure we can talk about anything you want, so after I ramble around verbally for a few minutes, we'll open it up for any questions, inquiries, or direct threats on my life, if that's your kind of thing.

To keep people from lining up overnight for a speaker of such stature, the good folks at Pratt are asking that you register in advance. See you in Charm City. We can "get in on it" there.

YouTube Makes Rich Richer

Want some proof that not all non-profits are created equal? I can think of no better example than this story in the NonProfit Times. In it, we learn that the folks who got rich from YouTube being sold to Google were not just the young men who founded the online video site, but many universities and foundations who invested in the company at an early stage.

It seems that it is a relatively common practice of those who run foundations and universities to have some of their money tied up in venture capital. In this particular case, the Ford Foundation's initial investment (through venture capital firm Sequoia Capital) in YouTube is now worth over $100 million. Other beneficiaries of the company's sale include 501 c3 private universities Notre Dame, USC, Duke, and Yale, and the Hewlett, Fairchild, and Rockefeller Foundations.

I don't have a problem with any of this. The people who run the investment programs for entities like this are undoubtedly smart and sophisticated, and a portfolio of their respective sizes will undoubtedly include some venture capital investments. And I suspect that for every YouTube, there are probably several crash and burn cases that didn't turn out so well.

But the fact that our foundations and private universities, tax-exempt all of them, are investing millions of dollars and reaping the benefits of those investments in emerging markets and industries, while more traditional non-profits are struggling to make ends meet, points out that a) not all organizations with tax-exempt status are playing by the same rules, and b) the fact that we as a country regulate them all in the same way, as if they are indeed similar (Harvard has the same reporting requirements as the Cambridge Food Bank), is just plain silly.

No Reforms Before 2008

The House Ways and Means Committee, which spent a decent amount of time harassing selected non-profits while the Republicans were in power (but eventually did nothing) has decided to hold hearings this summer to "scrutinize charities." Color me unimpressed. This sounds a lot like "let's do something during the summer when no one's paying attention to make sure the Red Cross and United Way know we're still alive."

The first hearing will be "an overview of charities and foundations" (umm, that shouldn't take too long--any chance we could narrow the topic?). And the second will "focus on the services that urban and rural organizations provide to their communities." That one sounds like a chance for some under-resourced groups (undoubtedly, the pet groups of many a Congressional member) to come in and tell the Congress (rightfully, in all honesty) that they're doing the work many think our government should do.

Think I'm overly cynical? In announcing these hearings, the lawyer for the committee was quick to point out that the Democrats plan on being much "more sympathetic" to charities than their counterparts on the other side of the aisle were. The word choice and timing certainly sets the tone that charities won't be newly regulated under this Congress.

Special Events Not So Special for Most

Thinking about running that 5K for charity this weekend? Sounds good, if you're doing it to show your support or lose a few pounds. If you're doing it because you think it's an efficient way for your charity to raise a few bucks, I have news for you.

It's a horrible way to raise money. In fact, most charities lose money on their special events.

One of my colleagues here at Charity Navigator, Emily Navarro, just spent several weeks analyzing the special event data for the 5200 charities on our site, and she found empirical evidence for what we've long suspected, that special events are, for the vast majority of charities in this country, an amazingly inefficient fundraising tool. (See the whole study here)

A few of the conclusions from our 2007 Special Events Study, which I believe is the first of its kind, in that no one has really poured through this much data, looking into this particular and pervasive aspect of non-profit life:

• About half of all charities (49%) use special events as a way to fundraise.
• Special events generate 15% of all contributions to organizations.
• Special events are inefficient in comparison to overall fundraising activities. On average, the charities we studied spent $1.33 to raise $1 in special events contributions, compared to an average overall fundraising rate of $.13 to raise $1.
  
• The most efficiently run special events are held by organizations that are the least likely to use special events as a fundraising mechanism. Religious charities, of which only 16% actually hold special events, spend $.71 to raise $1 of special events contributions.
• Health and arts charities are the most likely to hold special events. 71% of Health charities and 69% of Arts charities held special events in the last year to raise money for their operations.
• Charities in the Northeast are more likely than their peers in other areas to hold special events. 57% of charities in the Northeast reported that they use special events to fundraise.

Now, I realize there is a major caveat to this study about special events efficiencies. As Emily writes in her study conclusions, "there are advantages to special events that cannot be measured: raising awareness, rewarding members, cultivating prospective donors, PR exposure, and brand building to name a few. These benefits are impossible to measure, and vary greatly from organization to organization."

Special events are complicated, and it's true that many of them may lose money in the short-run, but (hopefully) yield long-term contributions from donors who are newly exposed to the charity and the good work they do. But it's also true that for most groups, special events are not only an inefficient way to raise money, but a proven way for charities to lose money!

So enjoy your 5K run if you choose, but if your goal is to help a charity and not just help yourself, you'd be better off staying home, jumping on the treadmill in your basement, and then sending a check to the charity of your choice.