April 30, 2018

Fiduciary duties

What does it mean to run or be on the board of directors of an organization? Most organizations have a mission and a set of values, as well as guidelines and expectations for its governing bodies, be they senior management or a set of independent directors. While many for-profit businesses forgo a formal board setup, nonprofits require a governing body of independent directors who can help the organization without any personal or professional conflicts. Sometimes there is a crisis never making the news but is successfully resolved. Other times the board ignores a number of warning signs, and the outcome in those cases is never pretty.

While a nonprofit board may get involved in the weeds and deal with any number of tactical issues, depending on the size of the organization, all boards need to take the long view and be aware of their long-term viability, as well as changes in the marketplace threatening the organization. While the owners of a privately held company can ignore tough market conditions and sustained losses and run their enterprises into the rocks, that is not supposed to happen in the nonprofit world. An independent set of directors should see the writing on the wall – well before the money runs out – and seek to sustain the organization's mission by partnering/merging with a stronger entity who has the interest and capacity to carry on.

A good example of a board who looked ahead and made the tough decision to seek a merger with a stronger partner was Worcester's Higgins Armory, whose collection was taken over by the Worcester Art Museum in 2014. At the time, Higgins had almost $3 million left in its endowment – enough to keep the organization afloat for several years, despite operating losses. But the board determined its structural losses could not be turned around, and while they had an endowment, it was not responsible to spend it down to zero. Now, the Worcester Art Museum – after years of displaying the Higgins collection in temporary exhibits – announced this month it is planning a permanent exhibit with the help of a $40,000 grant from the National Endowment for the Humanities.

Contrast this with the debacle playing out at Mount Ida College in Newton (and to some degree at Atlantic Union College in Lancaster). After 119 years of operation, Mount Ida announced earlier this year in rather sudden fashion the sale of its 72-acre campus for $70 million to UMass Amherst to provide housing for Boston interns, thus leaving in the lurch about 850 tuition-paying Mount Ida students who have to transfer elsewhere and possibly lose their scholarships. Atlantic Union had a similar debacle twice: Shutting down its bachelor's degree programs in 2011 after losing its accreditation; opening back up in 2015 in the hopes of regaining accreditation while actively recruiting students to take classes for degrees they could not yet earn; and then shuttering again this year.

Being a nonprofit board can provide some great networking opportunities and give you the satisfaction of being involved in the organization's important mission. But there is heavy lifting, and all the media coverage coming from the Mount Ida debacle suggests the school's governing body did not deal effectively with financial troubles mounting for years. So while the Higgins Armory board may have taken heat at the time for ending the independent operation of its world class armor collection, being deliberate and strategic about its sale was in hindsight a prescient move.


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