Smithsonian board missing in action

Sleepwalking through a screw-up of massive proportions, the board of the Smithsonian Institution unintentionally has sent a wakeup call to nonprofit boards everywhere.

A small but growing number of nonprofits have taken a lot of heat in recent years, and rightly so, because of bad behavior.

But just as parents are responsible for their children, nonprofit boards are accountable for their organizations.

When organizations run amok, as the Smithsonian has done over the past year, it often is because their boards are asleep at the wheel, or sticking their heads in the sand, or both.

According to a new report by an independent committee, the board of regents at the Smithsonian let Lawrence Small, its former chief executive, spend lavishly on personal expenses and ignore the board on decision-making.

Smitten by his fundraising skill, the board also awarded Small a salary and other compensation that grew to $915,000 in 2007 from $536,000 in 2000, even though private donations to the Smithsonian actually fell.

From 2000 to 2006, as the New York Times reports, Small also took nearly 70 weeks of vacation and spent 64 business days serving on corporate boards that paid him a total of $5.7million.

If their boards do not start taking responsibility and getting their houses in order, nonprofits everywhere will face a serious backlash in the form of a crackdown by regulators and rejection by donors.

In its failure to take charge and rein in its chief executive, the Smithsonian board has provided a painful lesson for all nonprofits.

Unless they start acting as responsible stewards of the resources invested in advancing their mission, boards everywhere run the risk of losing control of their organizations, triggering a crackdown by regulators, and turning off their donors.

Tracking nonprofit impact critical

Nonprofits must do a better job measuring their performance.

As Jason Saul of Mission Measurement said in presenting a recent Philanthropy Journal webinar, effective measurement can help nonprofits advance their mission, compete for funding in an increasingly competitive charitable marketplace, and improve the way they manage their organizations and serve people.

Rather than simply counting the output of their programs or the number of clients they serve, Saul says, nonprofits should be measuring the outcomes or impact of those programs.

That may sound like a fine distinction, but it is crucial, showing funders and donors how nonprofits actually improved the lives of people by addressing their critical needs, improving their skills or changing the way they live and work.

And measuring impact does not need to be complicated, Saul says.

He suggests a simple exercise that applies a “success equation” based on an organization’s mission statement.

A mission statement typically states the impact an organization wants to achieve, and the intermediate outcomes needed to achieve that impact.

Saul suggests that nonprofits, working with their boards, staff, donors and other constituents, define the ultimate impact they want to have and then spell out three outcomes they want to accomplish.

Nonprofits also should establish one or more “performance measures” they can use to gauge progress in achieving each outcome.

And the process can drive continuous improvement: While a nonprofit’s board “owns” the overall success equation, Saul says, each department or program manager owns an outcome.

And nonprofits should communicate the measures internally and externally, and integrate them into their finance, human-resources, fundraising and communications operations.

“Measurement is a culture, not a project,” Saul says, and nonprofits should work on measurement within their existing business processes, keep it simple at first, and make it positive, not punitive.

Ultimately, Saul says, nonprofits can keep an online “dashboard” that tracks a broad range of measures, including detailed metrics on a series of outcomes to gauge program performance, community engagement, financial sustainability and management effectiveness.

By engaging their entire organization in a culture of measurement, using simple and practical tools to track progress, and sharing results within the organization and with constituents, partners, funders and the public, nonprofits can better equip themselves to advance their mission, secure the resources they need, and improve the way they operate and serve clients.

Arts and culture mean business

The arts and culture are helping to drive economic growth but they still are treated as a step-child when it comes to charitable giving.

As PJ reports, a new study shows the nonprofit arts sector fuels $166.2 billion in spending a year in the U.S.

That spending by arts organizations and audiences also generates $29.6 billion a year in federal, state and local tax revenue, and it pumps $104.2 billion into residential household income.

Nonprofit arts and cultural organizations also employ the equivalent of 5.7 million full-time workers, and attract audiences from their local communities as well as visitors from outside their communities.

Excluding the cost of admission, event-related spending averages $27.79 per person, with residents of a local community spending $19.53 per person on average, and visitors spending $40.19 per person on average .

So the arts and culture create jobs, attract visitors to a community, and generate spending that flows into household incomes and tax coffers.

The arts and culture also enrich the life of our communities.

Charitable giving in the U.S. totaled $260 billion in 2005, with giving to the arts, culture and humanities representing only 5.2 percent of overall giving, according to Giving USA.

And while overall giving grew 6.1 percent, or 2.7 percent when adjusted for inflation, giving to the arts, culture and humanities fell 3.4 percent to $13.51 billion, or a decline to 6.6 percent below the previous year’s level, after adjusting for inflation.

It was the first decline in giving to the arts, culture and humanities, before adjusting for inflation, since 1998.

The arts do not address critical immediate needs like hunger, homeless, poverty or illiteracy.

But the arts do create jobs, income and taxes, and schools and social-services agencies increasingly are using the arts to improve the performance of their students and the well-being of their clients.

Far from a frill, the arts are a critical ingredient to healthy communities, which can reap healthy returns for public and private investment in the arts.

Giving-circles’ growth a challenge

Giving circles have created a $100 million marketplace.

That’s how much money nearly 13,000 donors have contributed to 160 pooled funds that make grants to causes the donors care about, says a new report by the Forum of Regional Associations of Grantmakers.

In 2006 alone, the report says, giving circles made donations totaling $13 million.

Giving circles represent important new charitable options for women, African Americans, Latinos, Native Americans, young people and others whose giving traditionally has been outside that of mainstream philanthropy.

But as this blog reported March 12, separate research for the Association of Fundraising Professionals has found that giving circles also pose challenges both for donors and charities.

While the study by the Forum of Regional Associations of Grantmakers says nearly one-third of giving circles surveyed have “staying power” because they have been through over five rounds of grantmaking, the research for the Association of Fundraising Professionals says giving circles are not always consistent in their expectations and cannot be counted on for sustained and long-term funding.

Giving circles also can too focused on donors, creating challenges for charities to figure out quickly how to work with a mix of personalities and deal with donors who want to take a hands-on approach to their giving.

To add value where they most want and need it, giving-circle donors and charities must better engage and understand one another.