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The U.S. public debt burden is $7.75 trillion, and “most economists agree that our rising deficit poses a very real threat to the health of our future economy.” We could start paying down this debt – as many Americans are struggling to do with their own personal finances – but our federal government continues to run up even larger deficits.

One of the reasons we cannot reign in our spending ways is our political leaders continue to care more about representing the interest of their state, and getting reelected, than about the future health of the U.S. economy. Take Senator Ken Conrad (D-ND), Chair of the Senate Budget Committee, for example. Sen. Conrad is adamant that Congress and the President need to reign in their irresponsible spending ways and pass a balanced budget. He has even gone on record as saying:

“Yes, the small things are important to my state, but I also recognize that the big things are what matter from a national perspective. What really matters is that we have an overall (budget) plan that is balanced.”

As Chair of the Senate Budget Committee, Sen. Conrad has arguably more clout over this process than any of his Congressional peers. So, in practice, how does he use this influence? Well, Sen. Conrad awarded his home state of North Dakota with the third highest amount of federal earmarks per capita of any U.S. state ($213 per capita versus the U.S. average of $41 per capita for fiscal 2008 -2009).

In a time when we as a country are spending 10% of our revenues ($250 billion) to repay our federal debt, and Social Security, Medicare and Medicaid consume another 57% of our budget ($1,430 billion), it’s good to know our leaders are “looking out” for our best interest. Oh, least I forget, the current 2011 budget request is likely to add another $1.6 trillion to our growing public debt (Did you know that China and Japan, collectively, own $1.5 trillion of U.S. debt?), which went before the Senate Budget Committee this week. The best part of it all is that the Obama administration projects the entitlement programs and the interest on our deficit will “absorb 80% of all federal revenues by 2020.” Therefore, let’s all be clear, our current political leaders, much like their recent predecessors, are fully aware of the approaching fiscal crisis and are doing nothing to avert it.

Speaking of fiscal crisis, let’s not forget about our own state’s budget woes. Last year, the state of Pennsylvania took 101 days after its constitutional deadline to pass its $28 billion budget. PA was the last state to pass its budget amidst the worst recession since the Great Depression. By August of last year, most of the state’s 67 counties could not afford to fund their nonprofit agencies without state money. (Harrisburg did manage to pass an interim budget that would pay the state’s 71,000 government workers, but nonprofit agencies were not included.) During a time of great community need, and declining public contributions, foundation funds, and already scaled back government contracts, Pennsylvania politicians could not decide on how to fill a $3 billion hole in our budget (or 10% of the total budget, which is pretty “cheap” in comparison to our projected 33% federal budget hole for fiscal 2010 – 2011). Instead, nonprofits were forced to take out private loans to continue to operate; reduced their services; furloughed or reduced their staff; and, in some cases, closed their doors altogether.

The bad news for nonprofit agencies and Pennsylvanians alike is the fiscal picture in Harrisburg is sure to only get worse because of the looming debts in both the state employees’ and teachers’ retirement funds. PA legislators entered the millennium with a pension surplus and spent the surplus funds despite the fact that they would one day have to deliver on this “accounts payable”, just as their federal counterparts did (remember Al Gore’s 2000 platform promise to create a Social Security “lockbox”?). Unfortunately, the “payable” starts coming due in 2012, and the Tribune Review and Post-Gazette both estimate it’s going to cost the state approximately $3.5 billion (the Trib says $4 billion, the PG says $3 billion). Mind you, this money will not be used to improve our schools, create new jobs, or improve living conditions in our cities and rural communities, but rather will cover the state’s entire employer contribution for state workers and half of the employer contribution for school workers for fiscal 2012 – 2013. Essentially, the folks in Harrisburg are imitating the same fiscal irresponsibility of their federal counterparts. May the most irresponsible lawmaker “win”, I guess?

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Upon joining the non-profit sector, a number of people opined to me that they are happy I’ve decided to dedicate my time and effort towards strengthening the sector’s work. In fact, one of the sound bites I kept hearing is that non-profits – despite their inability to sell equity (and thus raise money through either private investors or the larger public capital market) or the lack of an agreed upon “profit” metric for measuring organizational success – need to behave more like for-profit businesses. So, listen up my fellow non-profit professionals, I’m going to impart some words of wisdom I learned from my days working in the for-profit world (at institutions such as Freddie Mac, UBS Investment Bank, and others).

We need larger pay packages to attract and retain qualified professionals. In order to create the type of fast thinking, innovative companies such as AIG, Bear Stearns, Enron, Tyco and others, we need to increase our compensation packages. Currently, this kind of fast-thinking/innovative executive talent retails for approximately $10.5 million, or roughly 344 times the average worker’s salary ($30,700). Since the average executive director of Southwestern Pennsylvania only makes a mere $96,110, or 3.6 times the average worker’s salary – that’s a lot of innovation we’re leaving on the table! Lesson #1: if we are to attract for-profit executive talent then we must start paying our non-profit executive directors better.

Ignore sustainability and adopt a “do whatever it takes” attitude to exceed your short-term goals. We in the nonprofit sector spend far too much time talking about creating sustainable programs and achieving long-term outcomes. Instead, we need to adopt a more market-centric view of the world, just as for-profit businesses have to when their performance is measured by the market. Take General Motors, for instance. In the late 1990s and well into the first decade of the 21st Century, GM ignored suggestions that the company should rethink its focus on the sale of light trucks and SUVs and instead become a pioneer in the production of fuel-efficient (sustainable) automobiles. However, GM’s short-term focus on becoming the premier seller of light trucks and SUV (its most profitable product line) seemed to be paying off:

In 2002, GM sold more than 8.5 million cars and trucks and was the first auto manufacturer to sell 1.2 million SUVs and 2.7 million trucks in a calendar year. The company set industry sales records in the United States and owned nearly 15 percent of the global vehicle market. And investors took notice – the company’s stock rose approximately 45% over the next year.

Of course, you know the rest of the story by now – fuel prices rose and consumers grew tired of paying for non-fuel efficient vehicles. GM was stuck with a bunch of cars and trucks (mostly trucks) that they tried to “give away” with 0% financing and large rebates – again, focusing on exceeding the company’s short-term sales numbers even at the expense of hurting long-term profit margins – but nobody wanted them. Lesson #2: for-profits rarely practice sustainable planning so why should your organization.

The market rewarded GM's banner 2002 year with stellar market returns in '03. Nevertheless, GM's lack of a sustainable business model finally forced the company into bankruptcy in '09.

Transform your board. Nonprofit executive directors, not only are you egregiously underpaid relative to your for-profit brethren, but also you need to hold more board power. This year’s Nobel Memorial Prize in Economics winner, Oliver Williamson, in a recent article, “Corporate Boards of Directors: In Principle and in Practice,” submits that today’s corporate boards are largely ruled by the CEO and are passive financial stewards. He writes:

The CEO is in de facto control of the operation and composition of the board…most boards most of the time are responding with nodding approval, and boards are beset by inertia, hence are slow to become active when the corporation experiences adversity” (260).

In hindsight, we’ve spent far too much time espousing the idea that nonprofit boards need to be active and chart the agency’s strategy, raise money, etc. After all, when is the last time you heard of a corporate board functioning this way? No, on a corporate board the CEO/Chairperson sets the agenda and the remaining board members are asked to “nod in approval.” Lesson #3: we need to retrain our board members to be passive financial stewards and centralize all power with the executive director (and newly appointed chairperson).

As you read these “lessons,” I hope it is apparent by now that there is an awful lot each sector – the for-profit and non-profit – can stand to learn from one another. I think the three lessons above illustrate areas the for-profit sector should take a cue from the nonprofit sector and consider adopting these practices. Conversely, there are a number of for-profit practices – strategic planning, capital budgeting, using data to inform evaluative programmatic judgments and more – that I believe are beneficial for nonprofits to adopt. However, to think that either sector has a monopoly on best practices is just over simplistic and flawed logic. As Jim Collins’ writes in his monograph Good to Great and the Social Sectors, “We need to reject the naïve imposition of the ‘language of business’ on the social sectors, and instead jointly embrace a language of greatness” (2). Touché, Jim.

I know I can sound like a broken record when it comes to our TechNow conference (“come to TechNow, come to TechNow!”) but it is heartfelt and not just promotional marketing.

I was a TechNow attendee before I started working at the Bayer Center.  It was my first technology conference and it opened my eyes to the fact that I wasn’t alone in my “nptech” endeavors.  I used to be the mostly one-person IT shop at my old nonprofit, and TechNow helped me to expand my support network, meet some new vendors, and to think about the possibilities.  It can be difficult to be innovative when you deal with the same grind day-in and day-out, without taking time out to sharpen the saw and to think and dream about “what could be” rather than what is.

I’m also excited about this year because our keynote speaker is Ami Dar from Idealist.org.  Ami is amazing, in my opinion, because he has been all over the world, is self-made (see below for details), and is truly innovative in his thinking.  I’ve read and watched interviews and speeches by Ami, and I know he’s going to bring us all something great to stretch our minds and challenge our paradigms.

I recently asked Ami to complete a list that I used in a promotional email.  His answers were pretty neat, so I’m going to repeat it here for anyone who hasn’t seen it:

10 Facts We Bet You Didn’t Know About TechNow 2009 Keynote Speaker, Ami Dar

  1. AmiDar_webHe was born in Jerusalem, grew up in Peru and in Mexico, and lives in New York.
  2. He dropped out of high school and didn’t go to college.
  3. He can’t drive.
  4. Thirty years ago he was a paratrooper in the Israeli army.
  5. There is a classic video game that shares his name: “Amidar,” released in the 80’s by Atari.
  6. He started Idealist in his apartment with $3,500.
  7. He loves playing backgammon.
  8. He eats everything except eggplant and spinach.
  9. He gets annoyed by conference organizers who call themselves “curators.”
  10. Many people who meet him online think he is a woman.

Fascinating guy, eh?  I personally can’t wait to hear what he has to say!  And now it’s time for one last shameless plug…

There’s still time to register and hear Ami speak at the TechNow 2009 nonprofit technology conference, which will happen at Robert Morris University’s Sewall Center on Thursday, October 29!

Visit http://technow2009.wordpress.com for more details and registration information.

I decided to venture forth last Friday, September 25, for the day of the scheduled height of G-20 activity — both sanctioned and otherwise.  Like much of downtown Pittsburgh, the Bayer Center offices were closed, and I was unsure how difficult it might be to get in.  We are located in the Regional Enterprise Tower in what was designated as a restricted access zone.  In addition, our lobby was the media welcome center.

As it turned out, access to my office was shockingly easy.  My wife dropped me off on her way to her office on the North Side, and we were able to get to within about 2 blocks of the building.  Other than a slightly circuitous walk from there,

Photo by Scott Leff

Photo by Scott Leff

it was no problem at all — in fact, due to a lack of traffic, it was easier than on a normal work day.  I’m sure if I had to worry about parking or took a rerouted bus, it would have been a little trickier — but not much.

Upon reaching the city around 10 a.m., what I found was some limited access, some evidence of security — most strikingly in the form of mounted police whose powerful steeds completely blocked off Grant Street —

Photo by Scott Leff

Photo by Scott Leff

and a decided lack of people.  Businesses were closed, some windows were boarded up (no apparent logic as to who boarded up and who didn’t), and just no people.  It was downright eerie.  I walked in the middle of the streets.  Pittsburgh on a Friday morning was emptier than a western ghost town selling tickets to tourists (maybe we should have tried that).

I spent some time in the office, then headed out around noon for what turned out to be a 4-hour hike.

As I walked deeper into town, there was one overwhelming impression — force.  The more I walked, the more intense it became.  Cops on every corner, Pittsburgh police, then state police, Erie police, Indianapolis police… they were brought in from all over.  And soon it wasn’t just regular police.  More

Photo by Scott Leff

Photo by Scott Leff

mounted police, cops on motorcycles, SWAT units, humvees, and various forms of riot gear — shoulder pads and knee pads and sticks and helmets and shotguns and body armor and utility belts that would make Batman salivate.  They looked like a cross between Darth Vader’s Storm Troopers and the Michelin Man.  And let me tell you, when you see these guys up close, they are intimidating.

Photo by Scott Leff

Photo by Scott Leff

Police in force, and police in numbers.  Riot-garbed security in groups of 100, shoulder to shoulder, moving in formation and leaving no doubts.

Eventually, I made my way as close to the Convention Center — the meeting place for the G-20 — as I could get.  I did this by passing through a security checkpoint, then walking a few blocks along Penn Avenue.  On my right were businesses, including some stores and restaurants that stayed open, although I can’t imagine they were happy about that decision.  On my left was the

10-foot steel fence, running unbroken along the curb and caging me in as completely as it caged in the roadway that was a feeder to the Convention Center.

I wandered down to the Point where a tent city was supposed to have been erected.  It was totally vacant.  Not a tent, not a sign, not a protester in sight.  Just a large lawn.  Where was everybody?

Photo by Scott Leff

Photo by Scott Leff

It got to be time that the main body of protesters should have been reaching downtown from the start of their march in Oakland, so I headed out in search of them.  I found them at the City-County Building where they had gathered for some speeches and music.   After listening for a little while, I left to find a place on Fifth Avenue to watch their ensuing parade.

I use the word parade deliberately, for, to me, that’s largely what it was.  There was almost a partying, paradelike atmosphere as they passed by.  I found myself just past Macy’s (appropriate for a parade) at, coincidentally, my regular bus stop.  5,000 or so of them passed — drummers and costumed dancers, anarchists and

Photo by Scott Leff

Photo by Scott Leff

socialists, those concerned with climate change and capitalism, freedom for Tibet and jobs for everyone, advocates for the Falun Gong (these were the most quietly elegant among the marchers) and for the Pittsburgh Penguins (where were the Steelers fans?).  It was a complete cacophony of issues.  And it left me feeling frustrated and a bit perplexed.

This was not 250,000 people gathered to end the war in Vietnam.  This was not 1,000,000 indignant human beings demanding civil rights for all.  It was a mishmash, a general objection to, well,

Photo by Scott Leff

Photo by Scott Leff

just about anything that might be institutionalized or established.  To the extent that there was a unifying theme, it was the black-garbed, bandanna-faced anarchists, followed by the socialists.  Amazing to me, even the Philadelphia Democratic Socialists of America (who knew?) found their way to Pittsburgh.

Photo by Scott Leff

Photo by Scott Leff

“Down with everything!  Up with anything else!” was the message of the streets.  This is not to diminish the fact that there were many passionate, principled, committed people in this crowd.  But with no focus, what were they accomplishing?  Who, that mattered, was really listening… or, for that matter, could even if they wanted to?  When there is so much noise — both figurative and literal — how can your voice be heard?  This was protesting in the internet age, when all voices are equally loud and fragmentation of micro-interests is global.  The protesting equivalent of Twitter – tweating by marching.

On the flip side, I found the whole experience to be rather inspirational.  This was truly democracy at work.

Photo by Scott Leff

Photo by Scott Leff

Corny as this may be, I am proud to live in a country where this kind of dissent is possible.  This was also a remarkably harmonious event.  The protesters were self-controlled and peaceful, the security phalanxes were restrained.  Were there problems in some of the outlying neighborhoods, notably in Oakland where student density is high?  Sure.  But, given the scale of the event, they were minor.  Were mistakes made?  Of course.

With so much hype and so many people, mistakes are inevitable.  Yes, I know that Rush Limbaugh and Keith Olbermann will have much to complain about.  Yes, I know that the Thomas Merton Center alleges mistreatment of protesters and, I’m sure, there are police who are outraged by things that were “tolerated.”  Both the NRA and the ACLU may feel the need to weigh in.  But, let me tell you, I was here, and it was remarkable.

Some have suggested that the show of force was excessive.  Well, maybe, but I think the proof is in the pudding.  Pittsburgh did not

Photo by Scott Leff

Photo by Scott Leff

end up like Seattle.  Pittsburgh did not end up like London.  And we did not end up like Kent State.  I respect and admire the restraint of the police.  I respect and admire the restraint of the protesters. When a protester marched down Fifth Avenue jabbing his finger at the face of each cop he passed, hissing, “Fascist!  Nazi!”, the police remained stoic.  When the young man riding his bike down Fifth Avenue did not move off the street as quickly as the police wanted and they grabbed his arm and he fell over, the crowd groused, but that was all.  No one was harmed, the cops weren’t rushed, the young man was fine, bricks didn’t fly.  And the marchers continued to march.

I was a skeptic, but I’m impressed.  I think we accomplished something for Pittsburgh (a city I appreciate more and more the longer that I live here).  My hat is off to the protesters for how they behaved.  My hat is off to the police for how they behaved.  And my hat is off to the planners of this event for a remarkable job.

Photo by Scott Leff

Photo by Scott Leff

Here is a list of the books that I would review today if I’d finished any of them.  They’re all on my overly-ambitious summer professional reading list.  I got them from the library but have only been able to crack two.  Recommendations came from Andy Goodman and Katya Andresen at Network for Good.

How we Decide by Jonah Lehrer

How we Decide by Jonah Lehrer

I’ve managed to read the first 100 pages of this one.  It’s popular neuroscience – summarizing all kinds of experiments and the reasons for human reactions.  In a work context, it helps to think about setting up the right incentives for people to join in for success.

Nudge; Improving Decisions about Health, Wealth and Happiness by Richard H. Thaler and Cass R. Sunstein

Nudge; Improving Decisions about Health, Wealth and Happiness by Richard H. Thaler and Cass R. Sunstein

The first 8 pages are incredible.  But not as incredible as Lehrer’s first 8 pages.  This book is apparently about influencing people to make decisions you want them to make.  Or it may be about large elephants and smaller elephants.

Writing for Emotional Impact by Karl Iglesias

Writing for Emotional Impact by Karl Iglesias

Apparently, we nonprofit folk have something to learn from the Hollywood screenwriting game.  That’s what Katya says, anyway.

Immunity to Change; How to Overcome it and Unlck the Potential in Yourself and Your Orgnaization by Robert Kegan

Immunity to Change; How to Overcome it and Unlck the Potential in Yourself and Your Orgnaization by Robert Kegan

Sounds awesome, doesn’t it?

I am a very social person, so when I was given the task of interviewing nonprofit leaders in the Pittsburgh area, I was ecstatic!  Before I was given any proper guidance, I knew who I wanted to interview.  If you remember from my very first blog entry, I wrote about how I attended the Caring Place as a youth and the love I have for that organization.  Not too long ago, I gave a speech for the Caring Place at the opening of their new facility in Warrendale, PA, where I had the privilege of meeting the Board Chair.  We talked for a while before all of the guests arrived and I learned so much about him.  In fact, I think he is one of the nicest people I have ever met.  So, who is the nonprofit leader that I am talking about?  Merril Hoge!

Merril, Me, and the CEO of Highmark

Merril, Me, and the CEO of Highmark

Many of you probably know him from his years as the starting fullback with the Pittsburgh Steelers or from his show on ESPN where he analyzes football.  However, I know Merril because of the excellent work he has done for the Caring Place, which is why I choose to interview him first.

1. What was your dream job when you were a child?

At the age of 8, I saw football for the first time on TV and I was instantly hooked.  From then on I knew that I wanted to play football in the NFL when I grew up.

2. When did you start volunteering?

I did some activities with my church when I was younger, but I’m not sure I really understood the impact of my efforts then.  I guess I would say that I didn’t really start volunteering, or “understanding it,” until college, when I helped out with the “Just Say No!” campaign.  I was asked to be the spokesperson and also had to commit to using no drugs or alcohol.  I have never touched a drug in my life and thought that if I was going to preach about using no drugs or alcohol then I had to live by the message as well.  I wanted to stay true to the message and committed to the campaign.

3. How did you get involved in the nonprofit sector?

Walter Payton was one of my idols not only because of how he played on the field, but also how he conducted himself off the field.  Payton gave back so much by volunteering, and I wanted to do the same.  So, when I was approached by the Rooney Family and the Caring Place, and was asked if I would help out by being a spokesperson, I learned all I could about the organization, liked their mission, and got involved.

4. What other organizations do you work with and what are your positions?

I am the Chair of the Board at the Caring Place, but I also help out with friends’ nonprofit causes.  Further, I have helped out with the local and national chapters of the Leukemia Society.

5. Why the Caring Place?

I’ve been involved with other organizations and didn’t think they were run very well, but then I was approached by the Caring Place and liked what I saw and how well it was run.  The Caring Place adheres to its mission and everyone that works there loves what they do and works hard.  I feel blessed to be working with an organization that is so giving and incredible.  The Caring Place is very near and dear to my heart because it helps children grieve for the loss of their loved ones.  I really like what the Caring Place stands for and how it has grown into a grieving center.  I can also personally relate to the mission, because I lost my mother when I was a teen.

6. How long have you been with the Caring Place?

I have been volunteering with the Caring Place for about 22 years now and I have been Chair of the Board for approximately 10 years.

7. What is it like to be the Chair of the Board for the Caring Place?

I relate it to football; the head coach, or Chair, is only as good as the board members and staff who are executing the plays.  For me, I have a team of passionate, intelligent, and experienced hard workers who are all great people to work with.

8. What have you done as a board member to help the Caring Place grow?

I am very please that we have not changed how the Caring Place’s mission and how it’s managed.  The Caring Place is very successful due to mission-focus, passionate staff, and volunteers.  As a board, we have expanded the Caring Place reach by opening our 4th center.  Further, the Board has done a good job of reaching out and making relationships with funeral homes, hospitals, schools, etc., so that anyone who needs help has a better chance of finding out about the Caring Place.

9. How does working in the nonprofit sector relate to playing football for the Steelers?

Football relates to the nonprofit world a lot.  Running a nonprofit is a lot like running a team, in that you need many people, collectively working together, to make it successful.  Still, every individual has a specific job, but it takes a whole team working together to be successful.

10. What advice would you give the next generation of nonprofit leaders as they enter the nonprofit field?

Make sure that the organization you join is committed to: hiring good people; promoting a mission that has an established need in the community; and sound financial processes.

11. What is your favorite quote?

I would probably be a quote from Aristotle: “We are what we repeatedly do.  Excellence, then, is not an act, but a habit.”  Basically, what I drew from this quote is that if you want to be excellent and great it doesn’t just happen overnight; it is through habit and commitment.

Merril Hoge is someone that I look up to and respect a lot, so for me this interview was exciting and informative.  Please check back soon for my next interview with another nonprofit professional.

“Well, how much cash should we have?” a client asked during a recent Board meeting. Scott and I explained that an organization should have at least a 3 month operating cash reserve (90 days of cash), and aspire to a 6 month cash reserve (180 days of cash). In keeping with statewide best practices, it was absolutely the right answer.

Still curious, our client inquired, “According to whom should we have 3 months of cash on hand?” And there you have it – the question that kicked off in each of our minds the need to move beyond conventional wisdom and arrive at an empirical explanation as to why nonprofits should maintain at least 90 days of operating reserves. Or should they?

Logically, the next step in our thinking was to obtain a national sample of nonprofit financials to begin our analysis. We turned to the National Center for Charitable Statistics (NCCS) for our figures, and obtained financials for over 230,000 U.S. nonprofit agencies.

As you may have already guessed by now, our empirical findings call into question whether or not a 3 month cash reserve is a realistic guideline for all nonprofits to follow, indiscriminate of an agency’s size or mission. For starters, out of the 230,759 nonprofit organizations we examined, the median number of days cash on hand was approximately 75 days, with 25% of the upper distribution (top quartile) holding 187 days of cash or more, and the lower distribution (bottom quartile) holding 19 days of cash or less.

Further, an agency’s unique mission and size illustrate why it’s arbitrary to apply the 3 month cash operating reserve to all agencies without taking into account these important characteristics. For example, to ask that a human service organization target a cash reserve of 180 days seems unreasonable given that the median number of days cash on hand for an agency with such a mission is 62. Additionally, we can see that arts organizations should attempt to grow a cash reserve in excess of 90 days since that is the empirical “norm” finding. We encounter similar difficulties when analyzing cash operating reserves by organizational size (operating budget).

Days Cash on Hand by Mission TypeIn the final analysis, we recommend you benchmark your agency relative to organizations of comparable mission, size, and even location to assess your financial health. This is something we can do for you with our statistical data analysis as part of the Bayer Center’s Financial Wellness Package.

Only when you are fully aware of your internal financial performance (trends) and external positioning (benchmarking) can the Board and senior management truly begin to layout a realistic and informed cash reserve policy, one that is both realistic and in line with peer organizations.
Days Cash on Hand by Budget Size

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