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de-escalate a situation A common reason for pursuing litigation is that the aggrieved party was either ignored, their allegations dismissed as trivial, or they were treated with disrespect Boards and senior management can take the same ostrich-like stance because it would be too much work or cost too much to establish solid policies and procedures Organizational Dysfunction and the Ability to Understand the External Environment Keeping pace with current legislative and industry trends is more important than ever The external environment is fraught with change and this change is unlike that ever witnessed before In the wake of Enron and other corporate scandals, the federal government is under pressure from the public to crack down on private sector and nonprofit sector abuses Shareholder activism has paved the way for a new type of activism, donor activism, which demands the same type of transparency from a nonprofit as a shareholder would expect from a corporation The equivalence of these expectations is unprecedented Never before have public sector expectations of nonprofits been so closely aligned with expectations of the private sector Organizational dysfunction is evident in the failure to stay current with legislative changes, changes in public expectations and that of important stakeholders such as funders, and failure to stay current with industry issues Denial of the importance of environmental scanning results in the failure to have everyone in the nonprofit stay current on these issues and engage in routine professional development (see Exhibit 32)
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exhibit 32
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Does Your Nonprofit Have Problems With Producing accurate financial statements in a timely manner Travel and other reimbursable claims that appear to be inflated or inaccurate Compensation and benefits packages for executives A board that isn t effective or shows evidence of dysfunction Meeting deadlines for reports and documents for regulators or foundations Hackers and other IT security issues Employees and volunteers using the nonprofit s e-mail and Internet access for personal use Fundraising, particularly as this relates to using vendors for fundraising efforts Understanding how the legislative environment has changed
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Anatomy of a Dysfunctional Nonprofit
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What Are the Costs of Organizational Dysfunction The bumper-sticker slogan, If you think education is expensive, try ignorance, rings true in dysfunctional nonprofits Dysfunction exacts a heavy price on nonprofits Here are some areas in which organizational dysfunction is evident in higher costs Increased insurance premiums: A very large nonprofit was deeply in denial about their failure to adequately address risk areas within their operation Their insurance rates more than doubled in one year s time The underwriters were candid about the impact of their dysfunctional management on premiums Despite its size, the nonprofit had tenuous internal controls and engaged in virtually no oversight or due diligence on its outside projects The underwriters were concerned that this organization presented as yet unseen risks and was taking no steps to either acknowledge these risk areas or deal with them in a coherent fashion Insurance premiums are based on several factors, including industry trends, marketing of specialty coverage, and the insured s claims history Insurance professionals look at nonprofits as companies in the same manner they look at any of their commercial insurance clients They expect nonprofits to conduct their operations in a business-like fashion and conform to the same operational standards as organizations in the private sector Inability to obtain insurance: If a nonprofit does not inspire confidence with their insurance professional(s), it will be difficult for them to obtain the types of insurance they need, at the limits they require, at a reasonable price Some types of insurance such as workers compensation can be purchased from statesupported plans, but other types of insurance such as commercial liability needs to be placed in the general market Directors and Officers insurance can be difficult to place and very expensive The more evidence, such as adaptation of SOX best practices, that a nonprofit can show to garner the confidence of its insurance professionals, the more likely it is to obtain the necessary portfolio of insurance Difficulty in retaining talented staff: Good help is indeed hard to find, and it s expensive to have to continuously train new staff Even more expensive is the loss of talented staff Talented people bring new ideas, perspectives, creativity, and problem-solving to a nonprofit They also know that their skills are in demand, and that whatever compensation package they have could be replicated in an organization that isn t as dysfunctional No organization is without some type of dysfunction, but truly dysfunctional organizations exact a toll on all staff, particularly the talented ones Sometimes, the departure of a talented staff member can be a catalyst for change, but the organization has still experienced a brain drain
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