November 29, 2011

Avoiding Trouble: What Nonprofits Can Learn From Sex-Abuse Scandal

Reuters/Pat Little/Newscom

The child sex-abuse scandal involving Jerry Sandusky, a former assistant football coach at Penn State, and the Second Mile charity he founded has devastated the nation.

While organizations that work with children are probably paying especially close attention to what has become public in recent weeks, every nonprofit’s leadership should focus on the lessons from this unfolding controversy, which has been filled with conflicting statements and rumors of a vast coverup. Among the key ideas to keep in mind:

Nobody should get a free pass. Board members who are also founders of their organizations, as well as those who have high social status or are valuable fund raisers, should not be excused from following their organization’s policies and carrying out their fiduciary duties. People with such a high profile receive particularly rigorous scrutiny and criticism when they fail. And an organization’s refusal to hold board members accountable may result in harsh consequences.

What has been deeply troubling about the Second Mile scandal is the extent to which the charity’s board and chief executive received warnings about possible danger to the children posed by Mr. Sandusky, who was indicted in November after a three-year investigation of alleged sexual abuse that prosecutors say stretched over 15 years. Prosecutors say that he used the charity to find his victims, and Second Mile has acknowledged that its chief executive had been told about some of the allegations, though it remains unclear what details he received.

Any alleged abuse would have violated the very essence of the organization’s mission. Although Mr. Sandusky has proclaimed his innocence, Second Mile board members will get little sympathy if they did not take action after they had been warned about repeated alleged events that should have set off alarms.

Responding to controversy is about more than public relations. Nonprofits must be responsive to a scandal not to save face but because they are first and foremost dedicated to their missions.

While Second Mile has made efforts to update its Web site with statements describing the organization’s actions taken since Mr. Sandusky’s arrest, that has brought little reassurance.

For a charity that focuses on serving children, its first response to allegations that children were harmed should have been to protect the youngsters. However, the first statement by Second Mile failed to announce any new protective steps that had been or would be taken and instead emphasized its limited knowledge of the allegations in the grand-jury report.

Get help as necessary with investigations. Although it’s unclear what Second Mile leaders knew about allegations made in 2002 about Mr. Sandusky, the charity has said little about what it did three years ago when it learned about a major investigation under way.

It is difficult to imagine a credible investigation that would not have involved an independent party, given the severity of the allegations and potential widespread conflicts of interest.

Second Mile has taken steps in recent weeks to restore confidence in its leadership by announcing an internal investigation to be led by Lynne Abraham, a former Philadelphia District Attorney who once led a five-year investigation into sexual abuse within the Catholic Church in Philadelphia. While this is an important step, it remains to be seen whether this is too little too late.

Public filings leave a trail. An organization tells its story to the public through its communications, including its Form 990, the annual informational return filed with the IRS. Such communications need to be more than accurate; they must also reflect the organization’s values.

Second Mile should be concerned that its Form 990 reveals it has no written whistleblower policy. Any charity that comes under public criticism should expect that its Form 990 will be closely scrutinized, but it shouldn’t wait until then to check whether the story it is telling to the public accurately reflects the charity’s values. Smart boards will make sure their organizations always treat the Form 990 as a public-relations document and not a mere tax return.

Develop policies and practices beyond general governance. Executive compensation and conflicts of interest often get top billing in discussions about governance policies.

But it is also important for an organization’s leaders to spell out how a nonprofit will handle risks and circumstances specific to its mission and make efforts to learn from the mistakes of other groups.

Not much light has been shed on the details of any organizational policy at Second Mile that could have prevented wrongdoing. However, the events that unfolded certainly call into question how the charity tried to deter child abuse, especially after it became aware of sexual-abuse allegations against Mr. Sandusky in 2008.

Sadly, sexual abuse is not an uncommon problem or risk for nonprofits working with children. Perhaps even more saddening is that other organizations working with children have made widely publicized missteps that Second Mile could have learned from. For example, the Boy Scouts of America has dealt with a long history of sexual-abuse cases and was ordered to pay $18.5-million to one victim in a recent case. Boy Scouts has publicized steps it took to prevent similar situations such as child-protection training for volunteers designed by child-abuse experts and special training for parents and youths on ways to guard against sexual abuse.

Communicate a unified message to the news media and the public. With any scandal involving an organization or its key individuals, the organization’s voice is often competing with a swell of news reports and punditry. Organizations can do much to set the record straight, but without a unified voice, they can do great damage.

It was not surprising that some board members resigned from Second Mile after Mr. Sandusky’s arrest. It was, however, a shock to some that many board members publicly stated in interviews that they resigned because they had not been made aware of the sexual-abuse allegations and disagreed with the board’s decision to allow Mr. Sandusky to remain involved in Second Mile before he resigned in 2010.

Most organizations understand the importance of speaking with one voice during a controversy. Adopting such a plan assumes, however, that those within the organization, such as board and staff members, are generally on the same page or want to be on the same page about their message. Nonprofits must regularly evaluate whether they have clear channels to communicate and solve problems at the organization. The strength of this internal communication becomes critical in a time of crisis because even small cracks can become large fractures when the organization suffers a major public-relations blow.

Make sure compensation to insiders is justifiable. Because the charges of abuse are so heinous, less attention has been given to financial matters involving Mr. Sandusky and the charity’s board. But those also are of concern.

Second Mile reportedly paid $57,000 each year from 2001 to 2007 to Mr. Sandusky as a consultant. Such payments raise questions about whether it violated federal rules on excessive compensation to charity insiders. If the payments cannot be justified, it’s not just Mr. Sandusky who could be in trouble but also any board member who approved the transaction.

Another questionable relationship involved Robert Poole, chairman of the charity’s board. Mr. Poole is chief executive of Poole Anderson Construction, which had been selected to manage Second Mile’s $11.5-million “Center for Excellence” building project, an effort that was shelved as a result of the scandal.

Some people now wonder whether Mr. Poole had an interest in playing down reports of Mr. Sandusky’s misconduct because it would have jeopardized the project.

Boards need policies for approving insider transactions that do more than just follow the law. Favoritism endangers the public’s trust in a charity.

Reinforce the role of the board. Members of a board are not simply warm bodies in a meeting room or prestigious titles on a roster. When people agree to serve on a charity’s board of directors, they accept a responsibility that goes far beyond administrative tasks such as reviewing financials and listening to the CEO’s program reports.

Allegations as egregious as those at Second Mile suggest governance may have been lacking at even the most basic level.

Now the board faces one of the most difficult decisions for organizations in crisis: whether to focus on its survival or its mission. Should Second Mile use substantial resources to minimize the public-relations damage and continue to run its programs or should it discontinue operations and transfer its programs and assets to another organization in a better position to focus on the charitable purpose?

Answers to this question are not easy, but board members must collectively step up and have the difficult conversations needed to develop a plan that will best serve the children it is dedicated to helping. No less should be expected.

Emily Chan and Gene Takagi are lawyers in San Francisco who specialize in advising nonprofits.