Editor’s note: This is a two-part article on the challenges of taking the organizational reigns from a charismatic founding director and supporting it to reach an improved level of performance. Part one below introduces the situation and addresses making sense of the financials. Part two adds to that the issues of organizational structure and the challenges of governance and leadership.
The founding executive director of the Federation of Older Citizens (FOC) (a pseudonym for the actual organization) was in his job for 34 years. It was his vision and energy that brought the organization to life in the 1970’s and sustained it for over three decades. But things had not been going well lately. Memberships and revenues were steadily declining, the board was confused, staff members were working in conflicting directions and now he was retiring. What would the Federation do?
This will be the situation confronting a number of nonprofits in the next few years as founding directors retire. Perhaps it was by chance, perhaps as a result of societal challenges that a plethora of helping social organizations and associations rose up in the early 70’s. The coming of age of baby boomers along with the Johnson era federal policy resulted in visionary boomers running social sector organizations with raw energy and the desire for a society that was more open, compassionate and inclusive than that of their parents.
But some of these organizations and executive directors have seen that extraordinary energy and missionary zeal are not sufficient to accommodate the business and economic challenges of a 21st Century enterprise. In the situation of the FOC, human resource requirements, fiscal mandates, strategic thought, staff and property management, and governance issues overpowered this founding executive’s ability to adapt, manage and lead. The mission and vision were floundering in the face of the routine corporate demands, legal requirements and the capability of the organization’s infrastructure.
I was hired as the interim executive with a mandate from the board to make some sense of the organization and help them understand what was happening. This was a time restricted foray into a practical application of organizational theory. Based on my experience during the twelve months of this engagement, this case study will consider the objectives put before me by the board of directors and make three recommendations for organizations dealing with the departure of a charismatic leader. The recommendations will center on finances, structure, and people.
The Federation of Older Citizens
In 1973 a young seminary graduate was hired by a protestant synodical assembly to initiate a grassroots educational and lobbying venture to work on housing, health care, retirement benefits, taxation and related issues primarily for seniors in the state. Its current mission (not significantly different than it was in the ’70s) states: “We are a non-profit, non-partisan, democratic, grass roots organization providing participation for, and building leadership from those fifty and older. We empower our members by developing a strong broad-based organization that acts to promote values of dignity, equity, quality, justice and satisfaction of life through working together on senior issues and programs.”
While it loomed small under the slightly older AARP, its impact on policy making at the state level was fairly significant, at one time boasting a membership of over 30,000 in 12 different regional entities. Historically, it either had or continues to operate a pharmacy, discount travel program, volunteer service program, legal services for older adults and a variety of health and retirement education programming.
Objective #1 – Make Sense of the Budget and Financials
Support for the $1.5 million organization was fairly diverse including: advertising revenues from its monthly newspaper and other publications, grant support for health education and insurance counseling, individual and affiliated group memberships, major sponsorship contributions primarily from health care insurers or providers, individual donations, raffle proceeds, travel and pharmacy income. This diversity of revenue and support was a strength that also became a challenge of management as the organization grew. Additionally, “mission creep” was evident in the long, ongoing search for funding to support the organization.
My first encounter with the financial circumstances of the organization was as the retiring executive presented the new fiscal year’s budget to the board. Provided to each of the 36 septa and octogenarians on the board were 21 pages of excel spreadsheets on 11 x 17 paper in font size #10. The document had come from his computer less than an hour before the meeting. Both mathematical errors and circular equations were discovered later in the document. Once board approved, the document was then loosely translated by the bookkeeper into Quick Books in order to complete necessary financial accounting for the various organizations, programs, and board reports.
Investigation further revealed that revenues were also not what they appeared. Advertising income for the monthly newspaper purported to be a stalwart revenue pillar, actually proved to be a financial drain when detailed analysis of revenue and expense was completed. In 18 of the previous 48 months, the paper had actually lost money on a direct expense basis. Only eight of the months saw a small margin.
Database analysis revealed that membership numbers were also inflated. While the strategic intent of the organization was to grow memberships, in reality there was a significant and regular decrease of membership. The organization had a true current membership of about 10% of its zenith number. Major sponsorship and grant support was also declining significantly. Concerns over internal practices and fundraising tactics had recently resulted in failure to meet “acceptable standards” of the philanthropic review council of the state. Donors had noticed and were withdrawing their previous support.
For over ten years, the organization had been spending more than it earned. The year before the founder’s retirement showed an 8% revenue deficit and a 15% unrestricted cash deficit. This was part of a pattern of loss that was evident only when comparing several years of audit statements. The board saw only one statement at a time and was not aware of the long-term shortfalls. The organization was bleeding badly from a few major gashes and many small scratches. Cash flow was maintained primarily by shifting accounts with some influx of new money.
Recommendation # 1: Get trustworthy, professional financial help to understand the REAL financial and budgetary issues
It only took a couple of days to determine that the bookkeeper did not have the ability to accomplish the financial analysis required to make strategic management decisions. There were questionable processes for managing cash, check deposits, expense authorization and generally acceptable accounting practices were not in place. Many of the staff had company credit cards with no spending controls. Another set of eyes was critical to focus on and evaluate the financial systems and help establish controls for the immediate crisis and eventual success of the FOC.
I turned to a nonprofit organization especially chartered to assist in this kind of situation. Their CPA helped to make sense of the books, grant-reporting requirements and redo the annual budget. I negotiated with the accounting firm to reclassify membership contributions from restricted to current income, thereby presenting a more accurate and favorable balance sheet. We established management policies and processes to control cash. Two months later we had developed a realistic annual budget and a consistent and accurate financial reporting system. The board chair stated: “I sure don’t like the financial situation I’m seeing, but at least I finally understand it.”
This is a two-part article on the challenges of taking the organizational reigns from a charismatic founding director and supporting it to reach an improved level of performance. Part one above introduced the situation and addressed making sense of the financials. Part two which will follow adds to that the issues of organizational structure and the challenges of governance and leadership.