Nonprofit boards need to take charge
The board at United Way of Central Carolinas in Charlotte, N.C., messed up big-time.
Under CEO Gloria Pace King, Charlotte’s United Way became one of the most successful in the U.S. in raising money.
That success must have drugged United Way’s board, which fell asleep at the wheel, allowing King to drive a review of her compensation, and then rubber-stamped the retirement subsidy she wanted totaling $2.1 million.
How the board nodded off and then caved in is spelled out in a report by an independent panel the board created earlier this year after ousting King in the face of a public firestorm that erupted when a local radio station disclosed her compensation.
The panel, which says it was not asked to decide whether King’s retirement package was justified or excessive, found “significant departures from a compensation process based on best practices.”
The panel identified an “undercurrent of concern” that had developed in recent years over “the size of King’s compensation and about her controlling leadership style.”
It also found United Way’s total liability for King’s compensation package “created a risk of its being considered excessive and indefensible in the eyes of the IRS and the public.”
The public was outraged indeed, and its anger, combined with the plunging economy and capital markets, helped prompt a deep decline in donations to United Way in 2008 that likely will reduce funds for partner agencies that count on United Way support to serve people in need.
And that funding fallout simply will compound the damage to local health and human services in a city already reeling from the financial troubles of Wachovia and Bank of America, two hometown banks that have been the biggest supporters of United Way and a steady source of leaders for its board and annual fundraising campaign.
Specifically, the independent panel concluded that:
* A “compressed and late-career infusion” of a $2.1 million retirement subsidy was “predictably unacceptable to at least a significant number” of the volunteers, donors and agencies critical to United Way’s success.
* King “exercised significant control over the compensation process and the information provided to the decision-makers.”
* The board’s compensation and executive committees, “wittingly or unwittingly,” approved a supplemental retirement plan for King “without sufficient information, attentiveness, independence and sensitivity, abetted by a flawed process in which authority and responsibility were ill-defined and broadly delegated.”
* Neither the board’s executive committee nor King communicated to the board and to others, as had been contemplated in the minutes of their meetings, the decision on her retirement benefits, and thus “failed to avail themselves of the checks and balances derived from greater transparency.”
The King controversy has raised two broad issues all nonprofits must address -- the need to provide adequate compensation for staff and to make sure boards understand and fulfill their role in overseeing their organizations.
Whether King deserved the compensation she got, a question on which reasonable people can and do disagree, was and remains for the board at Charlotte’s United Way to decide.
The lesson for all nonprofit boards is to make sure they understand they have no more important role than to govern their organizations responsibly.
By her own reckoning, King in her 14 years as its CEO raised over $500 million for United Way of Central Carolinas.
In determining whether impressive results justify generous compensation, a board must consider not only the employee’s performance but also competition and comparable pay in the marketplace, as well as the perception about that compensation on the part of the organization’s volunteers, donors and partner agencies.
Many nonprofits operate as if they expected their staff to take a vow of poverty.
While common in the giving sector, that mindset is short-sighted and makes bad business sense.
Nonprofit professionals are expected to be professional, and they deserve competitive pay and benefits that reflect their skill, experience and performance.
Fundraisers play a critical role in connecting their organizations with givers and generating resources their organizations need to survive and thrive.
Yet many people in the giving sector, while demanding big results, oppose big compensation to attract and retain strong fundraisers.
By treating them as the hired help and rewarding success with low pay, nonprofits risk losing high-performing professionals to other organizations willing to pay what those professionals are worth in a fiercely competitive marketplace.
Regardless of whether King deserved the compensation it ultimately approved for her, the United Way board in Charlotte abdicated its governance role by letting her control the review of her own compensation.
In its report, the independent panel addresses a second big issue for nonprofits by spelling out a comprehensive and detailed series of steps the United Way board should take to strengthen its governance role.
Because no one “owns” nonprofits, their boards ultimately are responsible for their organizations.
Among their governance responsibilities, boards must make sure their nonprofits have the resources they need and are smart about investing and spending them.
That includes making sure employees receive the pay and benefits they deserve, a job that requires considering each employee’s performance and achievement, as well as market competition and the likely reaction within the giving sector to employees’ compensation.
In making those decisions, boards must govern by being smart, realistic, thorough, fair, watchful and clear, and by doing their job in the open and being in charge.
In short, they must lead.
But at Charlotte’s United Way, as the independent panel report makes painfully clear, the board failed to govern.
Instead of leading, it followed.
With the recession slamming nonprofits by increasing operating costs and demand for services, and eroding donations, nonprofit boards must understand their governance role and perform it with the same degree of excellence and attentiveness they expect of their employees.
To keep the stain of the inexcusable board lapse at Charlotte’s United Way from spreading throughout the giving sector, nonprofit boards everywhere should move quickly to clean up their acts and practice leadership that is nothing short of extraordinary.