Cases in Nonprofit Management

A Hands-On Approach to Problem Solving

Pat Libby, Laura Jeanne Deitrick

• Publisher: SAGE Publications, Inc
• Year: 2016
• ISBN:
  9781483383507
• Edition: 1
• Topic: Business
• Subtopic: Nonprofit Organizations & Charities
• Index: Business

"Libby and Detrick have compiled their extensive knowledge of the real issues that face our nonprofit sector to help students glean important lessons from each case. It is refreshing to have such a tool to assist in the education of our future nonprofit leaders."

—Emma A. Powell, Western Michigan University

Case Studies in Nonprofit Management by Pat Libby and Laura Deitrick consists of original cases that are designed to teach students how to think critically, hone their decision-making skills, and learn to apply leadership and management principles that are essential for any nonprofit professional. These case studies illustrate the multifaceted nature of the nonprofit management sector and bring concepts like nonprofit leadership, risk management, advocacy, and grant making to life.

1 Nature of the Sector

INTRODUCTION

Whether you call it the nonprofit sector, nongovernmental sector, third sector, or civil society, there are unique elements of “nonprofitness” that distinguish the sector from its for-profit and government sector counterparts. The sector is multifaceted and continually evolving. Our research has found that when individuals are asked to identify a nonprofit they most often mention the names of large nationally known nonprofits such as the YMCA, the Salvation Army, or the Red Cross. When they think of local nonprofits, individuals tend to most often mention nonprofits that deliver traditional social services to the needy such as food banks and homeless shelters. Yet, we know that the sector is so much more than that.

The U.S. nonprofit sector is home to more than 1.44 million registered nonprofits that contributed an estimated $887.3 billion to the U.S. economy in 2012 (McKeever & Pettijohn, 2014). From the arts to zoos, the sector encompasses an almost endless array of organizations of all different sizes ranging from purely voluntary grassroots nonprofits where no money changes hands to extremely large multimillion- (and even billion-) dollar nonprofits such as hospitals and universities. The broad spectrum of nonprofit activities and variety of organizational complexity make it all the more difficult to neatly define the sector.

In the United States, the Internal Revenue Service (IRS) defines a nonprofit as an organization that is precluded, by law or its governance structure, from distributing earnings to any individual who exercises control over that organization (directors, members, etc.). Lester Salamon (2002), a notable nonprofit scholar, includes four additional characteristics that help to broaden the definition and further distinguish the sector from that of government. He adds that nonprofits are

1. institutionalized to some extent (there is an organizational structure, goals, activities);
2. private and not part of government (even though they may receive government money);
3. self-governing (set up to control their own activities); and
4. voluntary or noncompulsory (they draw on the good-will of the people who operate and support them).

Furthermore, nonprofits have an essential reason for being, which is their mission. The mission is the central social purpose of the organization from which all of the nonprofit’s activities flow and around which organization direction is set. Bryce (2000) characterizes five elements of a good mission statement that must be present in tax-exempt organizations. He suggests that a nonprofit mission must

1. be a social contract between the organization and its members and society at large that spells out what the organization stands for and what it seeks to achieve; it should state the common values beliefs, and aspirations of the organization;
2. have permanence in the sense that the mission is adopted by the board of director with a long-term vision in mind such that the mission does not need to be revisited or changed frequently;
3. exhibit clarity such that it clearly communicates the organization’s purpose;
4. be approved in the sense that the mission is seen as legitimate and relevant by the board of directors and key constituencies, and in compliance with legal requirements set forth by the state, IRS, and other governing bodies; and
5. be demonstrable, meaning that the mission’s achievement can be examined or monitored in some way with the help of performance measures.

In addition to being mission centered, most nonprofits operate within a legal framework that further shapes the form and function of the nonprofit. U.S. nonprofits are incorporated as businesses in the state or (sometime states) in which they do business and as such are subject to the corporate laws of that state. After nonprofits incorporate, they may apply for tax-exempt status at the federal level through the IRS.

In recent years, many states have adopted new laws that allow for different kinds of social purpose organizations to incorporate. These for-profit or hybrid nonprofit entities known as, among other things, benefit corporations (BCorps) and low-profit limited liability company (L3Cs), are giving social entrepreneurs a wider range of options when it comes to selecting a legal structure within which to carry out their missions. Each structure, including the traditional nonprofit structure, has constraints that impact access to capital and private investment and disbursement of earned revenue. Each structure must be considered carefully during the formation stage of the organization so that the organizational purpose may be carried out to its fullest extent.

Regardless of the corporate structure adopted, through the process of becoming a tax-exempt nonprofit, organizations will be required to establish a board of directors and to create governing documents called bylaws. While bylaws may be perceived as complicated, or even irrelevant legal documents, we suggest that nonprofit leaders think of their bylaws as the rules of the road for governing the organization. While the bylaws may not be referred to on a daily basis or at every board meeting, bylaws set forth the processes by which the organization will govern itself. Therefore, it is important for nonprofits to ensure that their bylaws reflect governing practices that support the mission and values of the nonprofit.

The cases presented in this chapter are designed to help students explore the intricacies of form and function that often present themselves when individuals come together to solve societal problems or advance a specific cause:

1. Social entrepreneurship
2. The formation of a nonprofit
3. The essence of a nonprofit
4. Why bylaws matter

REFERENCES

Bryce, H. (2000). Financial and strategic management for nonprofit organizations: A comprehensive reference to legal, financial, management, and operations rules and guidelines for nonprofits (3rd ed.). San Francisco, CA: Jossey-Bass

McKeever, B. S., & and Pettijohn, S. L. (2014). The nonprofit sector in brief 2014: Public charities, giving, and volunteering. Washington, DC: Urban Institute. Retrieved from http://www.urban.org/sites/default/files/alfresco/publication-pdfs/413277-The-Nonprofit-Sector-in-Brief

Salamon, L. (2002). What is the nonprofit sector and why do we have it? In J. S. Ott (Ed.), The nature of the nonprofit sector (pp.162-166). Boulder, CO: Westview.

CASE 1.1 SOCIAL ENTERPRISE WITHIN A NONPROFIT ORGANIZATION: INDEPENDENCE MATTERS

Bruno Conti liked to joke that he established Independence Matters in 1996 by accident. It was a joke because Independence Matters was born out of a work accident that left Bruno paralyzed from the waist down with no clear path about how to lead life as a disabled person. He liked to say that once he got “back on his feet” he dedicated himself to helping others who found themselves newly disabled with a roadmap for transitioning into and fully living life. The mission of the organization was “to provide support, identify solutions, and offer opportunities that enable persons with physical disabilities to participate fully in life.”

Independence Matters programs included an array of social, health, recreational, and educational services. Among them, counseling and coaching of newly disabled individuals provided by a team of specially trained volunteer disabled mentors; transportation services; physician-led health services that provided information and referrals on a gamut of far-ranging health-related issues; professionally facilitated support groups for disabled individuals, their partners, and families; a fund for extraordinary medical expenses and other unanticipated expenses resulting from the disability; a wheelchair basketball team and swim program; and adaptive job training that was accompanied by a successful job referral and placement component. The nearly $7 million agency was well known throughout the community and highly respected for its work.

Bruno was proud of what he had built and of the hundreds of lives he had touched through the work of Independence Matters, but he was tired of the constant fund-raising. Relative to the programs it offered, the agency operated on a lean budget that was cobbled together year after year with a combination of grants from government agencies, private foundations, and corporations and contributions from individual donors that were netted through personal connections, annual appeals, and a golf tournament. He believed he had a talented development staff; however, he was still seen as the fund-raiser in chief for the organization. It was an exhausting and never-ending task.

Bruno shared his frustration one day over lunch with his board chair, Bob Delaney, a recently retired bank executive. “I understand feeling like you’re a hamster on a never-ending wheel when it comes to keeping the place afloat,” he sympathized. “And I have the utmost respect for the work you do and how vitally important it is to people in our community. As I’ve told you many times, I think Independence Matters literally saved my son’s life when he lost his legs. You got him through his darkest hours and showed him that life was worth living. Now I have a beautiful daughter-in-law and granddaughter as a result, and I thank God every day for the part you played in making that happen. But I’ve been thinking, Bruno, we need to figure out a different way of raising money so that we’re not so reliant on philanthropy.”

“What do you mean?” asked Bruno. “Well I’ve been doing some reading and research, and I have an idea that I think we should explore with the board,” replied Bob. “The idea is to start an arm of the agency that would retrofit the homes of people who need that type of assistance, including seniors and others who fall outside of our traditional service population. I’ve taken the liberty of talking to Norma Chavez, a lender in the bank’s community reinvestment group, about the general concept, and she told me that she’d be willing to talk to us about putting together a special loan and grant package to get something like this off the ground if we create a viable business plan. Now that I’m retired, I have the time to work on something like this—as a volunteer of course—that is, if you and the board believe this is a concept that is worth pursuing. Norma also has strong ties with the Gunderfeld Foundation (her husband is on the board), and she told me she thought they might be willing to put in a low-interest loan and grant money for an idea like this—assuming, again, that it pencils out, and that you and the board agree that we should give it a shot.”

Bruno’s eyes lit up. “Bob, I think this is a fantastic idea! Let’s bring it up at next week’s executive committee meeting and, if they approve, move forward with a proposal to the full board to explore the feasibility of the project.”

In the weeks that followed, the idea took off like a wild fire. The executive committee quickly and unanimously approved the idea as did the full board. A small committee was formed to develop the business plan, and a special grant was secured from the Gunderfeld Foundation to hire consultants with expertise to guide the plan’s development and, subsequently, to assist the business in its early stages if the plan proved viable. Within a year, Independence Matters Retrofitters (IMR) was born. At the end of 2 years, it was generating $2.5 million in net revenue that was funneled back into the operating budget of Independence Matters.

Bruno and the board of Independence Matters were overjoyed with the success of the retrofit arm. IMR had a reputation for providing reasonably priced high-quality services that were specifically designed for the individual needs of each client’s home. In addition, several of its staff members were former Independence Matters clients who were grateful to have steady, meaningful work; they were especially sensitive to the needs of the people they served.

As word of IMR’s work spread, business grew quickly. Then Bruno and Eliezer Guzman, IMR’s managing director (who was also disabled) received a special commendation from the governor, and the organization was discovered by the press. It was profiled on 60 Minutes, which led to calls from people across the country who wanted similar services, were interested in donating money or expertise, and from other nonprofits that wanted to replicate the model. IMR had to hire a director of media and community outreach whose job it was to field these inquiries, interact with the press, arrange interviews with staff and clients, and lead tours of the operations. A line of IMR products was developed that included a number of specially designed and patented hardware items for adaptive homes as well as paraphernalia such as IMR hats, mugs, and T-shirts. Revenues boomed to $18 million annually.

Independence Matters used a small portion of the IMR revenue to expand its programs, beef up its fund-raising department (which was needed to handle the surge in donations to the organization as well as increased interest from national foundations), gave senior staff generous and significant raises, and set aside more than 2 years of operating reserves.

IMR had become so large and successful that Bruno and Eliezer decided to prepare a proposal to the board to hire a director of field operations who would fly around the country setting up nonprofit franchises of IMR. That would bring in even more revenue for the organization. It had been only 4 years since Bob had first proposed this idea to Bruno, and now it seemed like the sky was the limit on how much they could earn through this enterprise.

When Bruno and Eliezer presented the idea to the executive committee, they were surprised at the response they received. These were the questions they raised (which you should also consider):

Case Questions

1. What is the defining difference between a nonprofit organization and a social enterprise organization?

2. What are the legal and financial implications of a nonprofit wholly owned social enterprise?

3. Is IMR causing Independence Matters to drift from its core mission?

4. Are there any apparent conflicts of interest in the current setup of IMR as a program of Independence Matters?

5. Are there operating structures that could be put in place to minimize conflicts and ensure accountability?

6. Are there ethical implications for a social enterprise that generates much more revenue than is needed to fund the operations of the nonprofit parent? For instance, what about the time and energy needed to oversee both arms of this work?

CASE 1.2 TO START OR AID AN EXISTING ORGANIZATION: NO GOOD DEED GOES UNPUNISHED

Miguel Tigre knew that he was one of the lucky ones. He was born in the United States to Mexican immigrant parents who instilled in him a passion for hard work, a love of family, and compassion for others. His father worked weekdays as a baker at Panaderia La Mexicana and most weekends moonlighted as a baker for a wedding caterer. Miguel’s mother had stayed home to raise the family, which, in addition to him, included his four brothers and sisters and his mother’s mother, his abuelita. His mother kept an immaculate house and was known throughout the neighborhood for her dedication to church and tamales (some joked that making perfect tamales was her second religion).

Miguel was the oldest child. He was the first in the family to finish high school and then the first to attend college (his brother, Roberto, was now majoring in engineering at an out-of-state university; his sister, Adela, was in her first year of community college and aspired to be a nurse; and the twins, the youngest siblings, were still in m...