8 Lessons Learned From a Failing Nonprofit

It saddened me—news of continued financial troubles for a major nonprofit as it closed another branch. It had jettisoned several branches and many programs over the past two years.

Financial, cultural and other issues had plagued this organization for some time, though the issues just became widely apparent due to the visibility of closing locations and programs. The financial woes had been in the works for more than a decade.

Here are eight lessons to be learned:

1. Watch the debt levels. The organization had become highly leveraged during a previous CEO. The board saw this and asked his successor to “deepen the oars,” but instead growth continued unchecked and often without sound plans.

2. Guard the culture. The organization, which espoused a faith-based mandate, had been dysfunctional for years. Politics, favoritism and infighting became the rule. An organization that once attracted staff candidates from across the country became known as a place to avoid.

3. Ensure transparency. From financials (many board members were shocked when the financial troubles that had been building over years came to light) to business relationships—one consultant was paid hundreds of thousands of dollars to coach a CEO who was eventually terminated—the board needs to be aware of key financial details. Your board and the public are owed an accurate accounting of income and expenses.

4. Be consistent. The organization did not have consistent policies on use of reserves, debt ratios and fundraising needed for new projects. As a result, communities, people and projects were treated differently. As people became aware, volunteer, staff and donor morale dropped.

5. Plan strategically. While planning processes came and went, there was no rudder that reliably guided senior staff and the board. Instead, growth in the number of facilities and in the budget was key—as was CEO compensation. You have to have priorities, and obviously this organization was not focused on the most important things for some time.

6. Lead by example. With the closing of branches and the shedding of mission-related programs to save expenses, there have been no cuts at the senior level—in salaries or staff. A powerful message and sustainable savings would be to announce senior staff cuts or at least salary reductions. Staff and board need to walk the walk.

7. Have an engaged board. A large board is not necessarily bad. However, in this case, a large board was not engaged—it did not know about critical issues. Even the smaller executive committee was not in tune with what was really happening for many years. A part of any board duty is to ask questions, dig deeper, and ensure that the fiduciary and other ethical responsibilities—the public trust—are upheld.

8. Build a culture of philanthropy. A culture of philanthropy had been in place with the organization’s most successful campaign ever, but began to collapse soon after in the dysfunctional culture. Another attempt to pull together a much needed campaign failed because the proper leadership and preparation were not in place. Fundraising became more about show than results, and when operational funding slowed and debt began to choke the organization, there was not sufficient private funding to fill the gap.