Measuring What Matters in the Arts

By David Gray | Published: June 17, 2010

One of the great challenges in arts management of the last decade has been the increasing interest in assessment. Many funders and rating organizations are trying to figure out how to measure whether an organization is effective at what they do.

One common comment on assessment is that we “measure what matters.” I’m not sure this is true so much as the reverse, we make more important the things we measure.  This has led to the “teach to the test” mentality of the No Child Left Behind era.

Things are easier to measure in some businesses than others. The medical field has various measures ranging from the length of emergency room wait times to the survival rates of heart surgery patients. Environmental groups show the weight of litter removed, the improvement in water quality, or even the number of people who show up to volunteer for clean-up events.

The arts have struggled with this and relied primarily on “butts in seats” measures. However, this obviously benefits the largest organizations and takes no account of whether the audience was in any way engaged other than by showing up.

If the only thing we can measure is how many people show up then we are creating an environment that will only value blockbuster shows with low ticket prices. That’s great for some things but won’t lead to a broad array of meaningful or impactful arts experiences for audiences or participants.

Finally, a group in the UK, The Independent Theatre Council, is trying to address this situation by offering measurement tools that engage on many levels.  Check out their material and put it to use.  Then the things that really matter might begin to get measured.

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I want to play too!

By David Gray | Published: May 20, 2010

No, this is not the refrain of a young sibling just itching to get in the game… it is perhaps the future of the arts.

The divide between professional artists and amateurs is increasingly blurred and more and more people want to participate in the arts, not passively, but actively. Just because you chose to become a lawyer or a doctor doesn’t mean you have to completely give up your artistic ambitions.

The Baltimore Symphony Orchestra recently invited nonprofessional musicians to join with the professional orchestra for an informal concert and over 400 people asked to participate!  You can read more about the program in the Washington Post or see it for yourself on YouTube.

As the arts struggle to reach and maintain audiences this seems like an excellent example of creative thinking to engage participation at a much more profound level.  Is this the future of the arts?  Perhaps not, but I bet lots of orchestras will give this a try in the near future.  The BSO now has 400 more engaged ambassadors than they did before.

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What’s the worst that can happen?

By David Gray | Published: May 10, 2010

I don’t tend to use this phrase often because I have a very active imagination. But you don’t need an active imagination to find examples of what can go wrong for nonprofit organizations.

Typically, as nonprofit managers, we look outward to see threats that might undermine our efforts. There might be a terrible fundraising climate. Certainly the recession took a toll. Patrons or constituents may lose interest in our services.

When we do look inward to identify problems it is typically in the form of asking whether specific staff members are up to the challenges we face… “Is Janet the right person to head fundraising if we start a capital campaign?” “Does our marketing team really understand what to do with social media?”

But we seldom look to see if the people near and dear to our organizations are stealing. Yet this is far more prevalent than most of us imagine.  A recent example, reported in the Harvard Post, shows how the CFO of the Fruitlands Museum managed to steal over $1,000,000 from the organization over a period of 6 years before being caught.

Some years ago I attended a training session offered by a local accounting firm (Amper Politziner & Mattia) on nonprofit fraud and it was quite an eye opener. If you believe that everyone involved with doing good work is incapable of fraud, find a training session, or at least do a search of nonprofit fraud. Folks have come up with some pretty imaginative ways to steal from their employers.

So remember that the worst thing that can happen to an organization is not always an external threat.

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Compulsory Education for Nonprofit Board Members?

By David Gray | Published: April 20, 2010

Yes indeed, the California Attorney General’s office ordered the Board of the Museum of Contemporary Art in Los Angeles (MOCA) to undergo “special fiduciary training” last year, according to an article in The New York Times.

The Attorney General’s office wasn’t too pleased when they learned that restricted endowment funds had been used to pay operating expenses.  Of course many states adopted new regulations last year to loosen the restrictions on endowment funds, as reported in The Wall Street Journal (New Jersey, my home state, being one of them).

But the real issue here has to do with Board member oversight. Having worked for one of the larger nonprofit arts organizations in the country, as well as some of the smallest, I am intrigued to see that just because a Board has very wealthy and otherwise sophisticated Board members, does not mean they truly understand their Board responsibilities. Being a millionaire (or even a billionaire) doesn’t necessarily make you an expert on nonprofit finance and governance.

So if one of the more high-powered Boards in Los Angeles is forced to undergo training because they don’t understand their fiduciary responsibilities, what is the likelihood that your Board, or the Board on which you serve, would pass muster?  One way to ensure that an angry Attorney General won’t shut you down is to bring in someone to provide Board training, document that you did it, get signatures from those who attend, and keep the documents on file.  Of course, the goal is to create truly sophisticated and cognizant Board members so that issues like those that nearly brought down MOCA can’t happen.

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I thought YOU locked the door!

By David Gray | Published: April 16, 2010

In most relationships there is a moment when someone realizes that the other person didn’t do something we assumed they had taken care of. Often this is the moment that occurs half way to the airport when you realize that the door may not be locked, the cat not fed… you get the idea.

This came to mind when reading the story in last week’s New York Times about the demise of the Harlem School of the Arts. The organization has enormous financial challenges, as do many nonprofit organizations of late. However, the Harlem School of the Arts situation seems to have been exacerbated by executive turnover and the Board’s questionable oversight. The article is full of finger pointing with some of the different Executive Director’s pointing at each other, the Board pointing at the staff and vice versa. As fundraising dwindled, hiring and spending continued.  A dynamic founder faded from the scene and apparently no one else came forward with her ability to raise money. The Board made changes in the leadership in an effort to improve the financial picture, etc.

There is a very telling quote in the article from one of the former executives. In describing a culture of perpetual financial weakness she says, “I think part of the problem, to a certain extent, is that there was never urgency to address the situation.”

The ongoing financial weakness of so many organizations leads to exactly this lack of urgency, bordering on indifference. How is the Board supposed to be motivated to take action if at every meeting they hear the staff whining about being broke? How are overworked and underpaid staff members supposed to be motivated to fix the problem when the Board seems unable or unwilling to take responsibility?

There are two lessons I take from this: First, the disruption caused by a founder’s departure plays out at many levels. Yes, the founder here had a passion for improving the lives of children in Harlem, but she was also able to use her passion to extract money from her midtown friends. While the Board seems to have looked for leaders with experience and passion in arts education, it is not clear that they found anyone who could transform that passion into dollars. The second lesson is that the perpetual crisis mentality of so many nonprofits, bred by years of financial weakness, can lead to a dangerous malaise that allows the “typical” weakness to grow into massive deficits and ultimately bankruptcy. 

The Harlem School of the Arts had a $2 million dollar surplus in 2003! When the tide turned the following year, and donations came up short by $700,000 (down 40% from the year before) they continued spending as if nothing was wrong.  Was anyone watching the cash flow? Did no one notice the surplus being drained away? The finger pointing will continue.

If you are on a nonprofit Board you don’t want to get a call from a New York Times reporter asking who was responsible for turning off the iron.

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Reading Is (no longer) Fundamental

By David Gray | Published: April 12, 2010

 

Reading Is Was Fundamental

A story in The New York Times last Friday explained how proposed changes in a federal funding program may kill off Reading is Fundamental, also known as RIF.

RIF receives about 75% of its funds from the Federal Government and there is a proposal afoot to reallocate those funds for the States to distribute. RIF might have a chance to receive some of these funds but would have to apply for the individual grants at the state level, something that would require them to hire lots of grant writers, with no garantee they would successfully compete for the funds.

The Times story quotes Clara Miller, chief executive of the Nonprofit Finance Fund. I highly recommend reading anything Clara Miller writes as she brings great business acumen to analysis of nonprofit organizations and their finances.  In the Time article she refers to RIF’s “business model,” a phrase and concept that receives too little attention in the nonprofit world.

I think anyone joining a nonprofit Board should be familiar with the business model of the organization. A Board member with experience in commercial ventures may not understand how the business model of the nonprofit organization operates. Someone should educate the Board members on both the business model (how the finances operate) and the business cycle (when we do the work, when we do the fundraising, when we get paid for the work, and when we pay the bills).

The situation at RIF is instructive for any organization that depends upon a single source for significant income. What will happen when and if that source dries up, changes focus, or an election changes priorities? Are Board members asking these questions?  Are staff members drawing up contingency plans? Is there a concentrated effort to diversify sources of income?

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How do you rate? And should you?

By David Gray | Published: April 8, 2010

There is an interesting discussion about the efforts of Charity Navigator to implement a new rating system for nonprofit organizations.  You can follow it here on the Harvard University web site.

As you may know, Charity Navigator provides ratings on nonprofit organizations, based primarily on information gleaned from the IRS form 990. These ratings have come under much criticism for being too strongly based on financial reports, being inflexible when reviewing specific organizations and trying to use a one-size-fits-all analysis that leads folks to compare businesses that have very little in common (like comparing apples and oranges).

Charity Navigator is implementing a new system… “one that will retain fiscal measures (which may well be revised), but will also account for an organization’s transparency and accountability and, most importantly, its effectiveness.”

I have read much of the criticism of Charity Navigator over the years and while as a former Executive Director I too lived in fear that our organization might be judged harshly, I am also a big believer in full disclosure and transparency.

I think one of the key values provided by efforts such as those by Charity Navigator, or the transparency facilitated by sites such as Guidestar, is that the alternative, closed doors, lack of information, and lack of accountability, leads to distrust among our supporters, and greater opportunities for managerial abuse and negligence.

The criticism of Charity Navigator’s new methodology, as voiced by Steve Lawry,  that “he does not believe that a “simple system for rating outcomes” is achievable.” He also explains that many organizations are too complex for a rating system to fairly asses.

This reminds me of the corporate excesses excused by “too big to fail.”  If nonprofits are too complex for people to assess their effectiveness then we are failing in our efforts to justify the continued support shown through our tax advantaged status. Instead of complaining about the people who are trying to help us be effective and transparent, we should embrace them and help them achieve what should be an objective for us all, greater trust in the nonprofit system.

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Acorn for Rich People

By David Gray | Published: March 30, 2010

I was just about as horrified as anyone else when I saw the incriminating Acorn videos. As the situation unfolds you find yourself asking the same question over and over:  “How on earth could those staffers have ever believed that those two kids were really a pimp and a prostitute?”

Oh yeah, Acorn employees advising them on how to profitably run an illegal operation and avoid taxation was also pretty shocking.  Acorn is, by the time this gets posted, bankrupt and out of business. I’m sure that for many this is a tragedy, that Acorn was not all corrupt, and that many of the people it served have few if any alternatives to the services Acorn once provided. But the scandal is instructive for all nonprofits… a crisis can come from most any direction and it can devastate your support base, nearly instantly.

However, the thing that really bugs me is that the substance of what was on those videos, someone seeking help on reducing their taxes and improving the profitability of their business, even with methods that stretch the law or break it outright, happens every day. The difference is that when unscrupulous wealthy people seek to reduce their taxes, there is a Wall Street company that creates some product or investment that has questionable tax status and they have teams of lawyers prepared to fight to support these products.  Don’t take my word for it, read all about it here… or search the phrase “IRS Disallows Investment” and see what you get.

These investments are often constructed specifically to “shield” income or assets from taxation.  These efforts are significantly more sophisticated than stashing the cash in a coffee tin buried in the yard, but the goal is the same, avoiding taxation, even if the method’s legality is questionable.

A hidden camera video of a bunch of lawyers in suits sitting around a Park Avenue conference table discussing the legal risks of off-shore accounts, changing residency, or investing in new gimmicks that have “questionable” tax status in order to hide income or assets would be pretty boring so you won’t see an incendiary expose of Acorn for Rich People any time soon.

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Road-kill at the intersection of Personal Finance and Nonprofit Governance.

By David Gray | Published: March 25, 2010

If Excessive Compensation gets all the attention… what happens to those at the other end of the spectrum?  Road-kill?

One of the most obvious areas where the world of personal finance and nonprofit organizations intersect is in the area of compensation. It is very ironic that the vast majority of employees who work in nonprofit organizations are underpaid for the amount of time and commitment they provide their employers and are at constant risk of downsizing or layoffs as revenue sources for nonprofit organizations are cut. There are some employees who don’t face all these risks, tenured teachers and professors come to mind (though I have yet to meet one who feels they are overpaid). The irony is that the only attention paid to nonprofit compensation issues relates to the high incomes of some in nonprofit leadership. Hardly a word about how nonprofits often ignore minimum wage regulations or legally mandated overtime for the lowest paid employees.

A recent issue relates to a Senate Committee seeking additional information regarding the leader of the Boys and Girls Clubs of America who reportedly earned nearly $1,000,000 in total compensation in 2008 while many local clubs struggled financially. See a recent story from The Chronicle of Philanthropy.

Of course what some consider excessive pay within the nonprofit sector is chump-change when compared to the excesses in the commercial sector. I am not aware of a single nonprofit executive whose organization required a taxpayer sponsored billion dollar bail-out who also received a multi-million dollar bonus when nearly bankrupting the company!

I am a big believer in nonprofit organizations conducting annual reviews of their Executive Director’s performance and establishing clear policies and guidance on executive compensation. If a nonprofit executive can create a drastic improvement in an organization and the Board feels (and can document) that the executive has earned substantial compensation, that’s fine with me.

As a taxpayer, I support all nonprofit institutions through acceptance of their tax-exempt status, and potentially through direct government support of the nonprofit’s efforts. Do I believe that every nonprofit organization is efficient, well run and serving the public good? No, though I believe that the vast majority do. Still, I’d rather see my tax dollars supporting successful nonprofit organizations that do good works, than bailing out bankers and executives who drive for-profit entities into the ground and still get multi-million dollar bonuses.

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