News and analysis
March 30, 2017

New Nonprofit Puts Money Over Mission and Ethics

NANOE

Trustees of the National Association of Nonprofit Organizations & Executives hold up the checks they received for their board service — $1,000 a day for in-person meetings and $300 an hour for meetings by phone.

On the Facebook page of the National Association of Nonprofit Organizations & Executives — or Nanoe — you’ll find a picture of its five board members holding up checks they’ve received in front of a large room of people. The photo was taken at the group’s first conference in Columbia, S.C., earlier this month.

The checks are the board members’ payments for their services: They each get $1,000 a day for in-person meetings, plus travel reimbursement, and $300 an hour for board meetings held by phone.

The payments — Nanoe calls them "honorariums" — are rare among nonprofits: Less than 1 percent of organizations pay board members such a fee for service, and about 1 percent pay them a salary, according to BoardSource, a national organization that seeks to improve nonprofit governance.

But Nanoe doesn’t care about industry standards. Paying trustees is just one of the many taboos that Nanoe’s five board members want to bust up — and they make no apologies for it.

The messages Nanoe pushes online provide snapshots of its views.

A tweet from the organization says Nanoe "is for nonprofit executives who know money is more important than mission." A graphic online says "Ethics + Accountability = Failed Practices." Another tweet says "Training Board Members = Navel Gazing. No real benefit! Communities are not impacted by boards who require training."

One of the group's tweets says, "Training Board Members = Navel Gazing. No real benefit!"

Nanoe believes nonprofits should toss out the typical organizational structure that separates the nonprofit’s top administrator and the board of directors. Instead, it favors a "strong CEO," who focuses primarily on raising money, exerts much control over the organization, and also serves as the board chair.

Nonprofits have clung to their traditional structures to their detriment, says Jimmy LaRose, the group’s most outspoken board member, who has heavily promoted the organization on his website. They’ve emphasized ethics and accountability at the expense of growing their organizations, he says.

"It’s not that we don’t want ethics and accountability," Mr. LaRose says. "But you don’t want to design your best practices based on that as its cornerstone."

The group’s message is attractive to those who want to see nonprofits raise revenue more aggressively without fear of being criticized for spending too much on fundraising or administration.

Dan Pallotta, a well-known crusader against critics of nonprofits that spend a lot on overhead, was the keynote speaker at Nanoe’s conference. Efforts to reach Mr. Pallotta for comment were unsuccessful.

Eroding Trust

In Nanoe’s vision, if nonprofits pushed aside the old ways of thinking and focused more on growth, they’d be able to build "heroic missions of scale" and — in conjunction with the private and public sectors — work to eradicate the problems they want to solve.

The group has gained many detractors for its unorthodox beliefs. Critics say Nanoe is peddling questionable advice that would erode institutional oversight and trust. They also contend that it’s pushing a pie-in-the-sky vision of what nonprofits are capable of.

Nanoe has attracted about 800 members, according to Mr. LaRose, who have paid annual fees of $100 to $300, based on the benefits they receive. Almost 250 people also attended the group’s conference in early March, and many have signed up for the group’s new credential program for executives and fundraisers.

One of the ways the organization has raised its profile — and some eyebrows — is by sending emails to thousands of people at nonprofits and other organizations telling them they’ve been nominated to serve on Nanoe’s "board of governors" — an advisory group that’s separate from the paid board of directors. The governors are meant to review and critique new "guidelines" that Nanoe has drafted on how nonprofits should restructure their organizations.

Critics suspect the emails and other messages are just promotional stunts designed to give the appearance that people are being honored by their peers.

Mr. LaRose contends that most of the criticism is from "competitors" who are worried that a new organization is pushing fresh ideas and a new credentials program. He says that aside from the board’s honorariums, neither he nor anyone else on the board receive payments from the organization, and it has no paid staff members.

He says he didn’t expect the emails to elicit any negative reactions and insists that each nominee for the board of governors was "carefully selected" by three interns. Mr. LaRose says he personally reviewed the nominees along with Nanoe board member Kathleen Robinson and Charlotte Berry, a philanthropist and board member for the United Way Association of South Carolina.

“It's not that we don't want ethics and accountability. But you don't want to design your best practices based on that as its cornerstone.”
However, some recipients of the emails question the vetting process. One was sent to "afpawards@afpnet.org," an address for sending award nominations to the Association of Fundraising Professionals. (An official with AFP shared the email with The Chronicle.) Josh Hirsch, director of digital and membership services at the education and training organization Nonprofits First, says his group received similar emails aimed at nobody in particular.

Jim Anderson, a partner at GoalBusters Consulting, says he accepted a nomination on Tuesday using the name "Ethics Matter" and an email address he had just created. Almost immediately, he received an email presented as a news release announcing his appointment to the board of governors. "I wanted to see if they were testing any of this at all — and they didn’t," says Mr. Anderson, who shared with The Chronicle the confirmation email he received.

Three nonprofit employees who were listed as being on the board of governors on the group’s website say they had little interaction with Nanoe even though they initially accepted their nominations. One of them, Dana Serrata, executive director of Helping Hands of Vegas Valley, said in an email she would ask to be removed from the list of governors after The Chronicle told her she was included on it. Natalie Choate, director of media relations and partnerships at The Texas Tribune, said the same.

Mr. LaRose admits that Nanoe may have recorded some people’s contact information incorrectly when it sent its nominations. He says that people who accepted needed to sign a statement saying they had read up on their responsibilities and were committed to participating. He also says it "would have been impossible" to be selected as a governor if someone had used a phony name and email address, as Mr. Anderson says he had. Mr. LaRose says nominations have been closed since the end of 2016 and alleged the email Mr. Anderson sent The Chronicle was fabricated.

LaRose denied that the group was "spamming" people. "No one was hurt, no one was defrauded, there’s nothing nefarious here," he says. "All there is is good will — celebrating people who are integral to the nonprofit sector."

However, Mr. Hirsch says he doesn’t know of any business or nonprofit that would do anything similar if it wanted to be taken seriously, calling the emailing practices "beyond unethical."

Strong CEO

The group’s belief in a "strong-CEO" has also drawn many rebukes.

Nanoe says chief executives must understand that raising money is their most important responsibility. Mr. LaRose says Nanoe wants to "replace do-gooder executive directors" with "strong, entrepreneurial CEOs, who know how to go out there and get everything the nonprofit needs to succeed."

Mr. LaRose even suggests that some nonprofits should stop their programs temporarily to focus on fundraising: "With the nonprofits that we’re serving, they’ll say: ‘Jimmy, if we do what Nanoe is saying, we’ll have to stop serving kids.’ And you know what I say? I say, ‘Stop serving kids’ " — that is, until the organization boosts fundraising enough that they can serve many more children.

He says the choice won’t be that extreme for the vast majority of nonprofits, but each organization should determine how to boost its revenue in a way that least affects its services.

For the "strong CEO," however, there will be less tension over redirecting money from the people the nonprofit serves toward fundraising, he says. "It’s not that they don’t care or that they’re callous. They understand that they are called to go to scale and there’s only a few ways you can do it."

That kind of thinking is simplistic and dangerous, says Doug White, the former director of Columbia University’s Master of Science in Fundraising Management program.

Mr. White says he doesn’t think many organizations should shift money from programs to invest in fundraising. In the best cases, fundraising grows gradually and in tandem with programming, Mr. White says. "We can’t say this is an either-or situation," he says. "Charities need to raise money, there’s no doubt about that. But to capriciously say, ‘Hey we’ll just stop doing our mission while we do the fundraising’ is evidence of a mind-set that does not take into account the nuances of running a charity."

CEO and Board Chair

Nonprofit experts are also wary of Nanoe’s advice that chief executives should also serve as board chairs. They say that would make it difficult for boards to hold leaders accountable.

"You can’t monitor yourself," says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, who’s researched nonprofit boards. "It’s like a student grading their own exams."

Another flashpoint for critics has been Nanoe’s guidance on paying board members.

Nanoe’s message is simple: If organizations pay board members, they’ll get more committed and competent trustees. "We do not live in a socialist country," says Nanoe’s board chair Bishop Redfern II. "We live in a capitalist country. If you want the best that there is, you get the best that money can buy."

Anne Wallestad, president of BoardSource, disagrees. She says that while a lot of nonprofits struggle to find good board members, many trustees do great work without compensation. "If you’re asking the public for support, you want to have board members that are demonstrating their personal support of the organization by contributing to the organization rather than being compensated," she says.

True Believers

Despite the criticisms, Nanoe’s ideas have resonated with some.

"I’m a believer," says Larry Rubin, executive director of the Association for Adults With Developmental Disabilities, which provides social activities for special-needs adults in the Philadelphia area and has a budget of roughly $500,000. Mr. Rubin paid about $1,000 to attend Nanoe’s conference, including the attendance fee, airfare, hotel, and meals. His organization will reimburse him for most of that, he says, but he will pay for the rest out of his own pocket.

Mr. Rubin says before he attended Nanoe’s conference, he had pleaded with his board for help. He was getting worn out, he says, adding that he works 70 to 80 hours a week.

After the conference, he felt refreshed. He says he made important contacts, people he can discuss ideas with.

At his organization’s board meeting on March 15, he says he discussed what he learned — like thinking of donors as its "clients." He also hopes to add a new staff member this summer to handle program work while he focuses on fundraising and grant writing. He thinks his trustees are on board.

He says he hopes to use what he learned to triple his group’s fundraising within three years and turn the nonprofit into an organization that provides services nationally.

Concerns Mounting

Despite Nanoe’s agenda, experts say the public still expects nonprofits to keep fundraising expenses as modest as possible; groups that raise money aggressively have often faced scrutiny.

"Our sector depends on such a high level of trust between donors and policy makers and the nonprofits themselves that we don’t want to erode that with gimmicky ideas that are pitched out every once in a while," says Daniel Billingsley, vice president for external affairs for the Oklahoma Center for Nonprofits.

Ms. Wallestad, of BoardSource, says a weak board with an empowered executive might seem appealing to some nonprofit leaders who’d rather not have to deal with accountability. She can see why that message is gaining traction, but "that doesn’t mean it’s a good thing."

Send an e-mail to Timothy Sandoval.