Friday, January 29, 2010
(Online registrations, donations and fundraising per participant increasing in Blackbaud
and Event 360 analysis of 30,000 donors and 4,000 individual fundraisers)
In a time when overall fundraising is on the decline, independent fundraising events are raising more money and growing in participation and donors, according to a recent Blackbaud, Inc., (Nasdaq: BLKB) and Event 360, Inc. study. Independent fundraising events (IFE) are activities designed and run by volunteers to raise money on behalf of a specific nonprofit organization.
Blackbaud partnered with Event 360 on a research project to better understand the common denominators of a successful programmatic approach to third-party fundraising. The research team analyzed data from nearly 30,000 donors and 4,000 individual fundraisers who organized or participated in independent fundraising events on behalf of leading nonprofits including Alzheimer’s Association, Autism Speaks, Canadian Cancer Society’s BC and Yukon Division, Christopher and Dana Reeve Foundation, Lance Armstrong Foundation, and The Michael J. Fox Foundation for Parkinson’s Research.
The analysis showed that online registrations, donations and fundraising per participant are increasing, and that IFEs represent a growing revenue source, especially online, for many organizations. Based on a Blackbaud assessment, there was an estimated $300 million raised in 2008 in the United States from these types of events, indicating that organizations should find better ways to cultivate these fundraisers and provide the solutions they need to succeed.
Mark Davis, Blackbaud’s director of technical solutions, and co-author of the study said that these trends support the need for a strong online user experience and justify the investment in sophisticated online tools, communications, and reporting.
“Typically, nonprofit organizations do not have the resources to hold events in every community or to invest in mass advertising and marketing efforts,” he said. “Through these IFEs, the organizational mission and message can be brought to communities across the nation. By offering an IFE program, an organization can build stronger, more loyal supporters, acknowledge their personal struggle, and honor supporters’ desire to act in impactful ways that match their passion with a nonprofit’s mission.”
In 2008, The Lance Armstrong Foundation supported 1,078 grassroots fundraisers in raising over $3.8 million with almost no cost to the organization. The average independent fundraiser raised more than $3,200 compared to the average $500 raised by participants in the organization’s signature fundraiser, the LIVESTRONG Challenge.
“Despite today’s difficult economic climate,” says Colleen R. Wilson, events fundraising manager for the Lance Armstrong Foundation, “we expect 2009 revenue totals in grassroots fundraising to outpace the 2008 total of $3.8 million at essentially zero cost to the organization.”
According to Meghan Dankovich, Event 360’s director of consulting and co-author of the study, the most successful IFE programs were found in organizations that embrace their “super volunteers.” “Traditional event organizers need to view independent fundraising as supplementary, not competitive, to their existing development portfolio,” she said. “In fact, 64 percent of the IFE participants we surveyed reported that they were first-time fundraisers for the organization. Most are directly impacted by the cause they support and are looking to take action in a more personal way than is available through the organization’s traditional event offerings.”
The Michael J. Fox Foundation embraces its super volunteers by encouraging its supporters to find unique and creative ways to raise funds for Parkinson’s research. Team Fox provides guidance, tools, and resources for the thousands of individual fundraisers who are walking, running, blogging, jogging, paddling, pedaling, eating, drinking, shopping and dancing to raise funds and awareness for Parkinson’s research.
One particular super volunteer is Mary Anne O. of Illinois. First diagnosed in 2001 with early onset of Parkinson’s, she heard Michael J. Fox speak at a conference in 2006. His speech energized her to become a supporter for the cause. She combined her passion of gardening with an idea for a Garden Walk. Her success has grown from raising $25,000 in 2007 to over $52,000 in 2009 with help from a team of 25 volunteers.
Additional key findings from the study include:
• An IFE program offers a nonprofit the opportunity to raise money at a relatively low cost of fundraising, while providing a deeper level of engagement with the organization’s strongest supporters. The cost of fundraising for these programs was recorded between $0.10 and $0.15 per dollar raised – lower than any traditional fundraising methodology in a nonprofit’s development portfolio.
• Independent fundraisers are able to reach donors otherwise unattainable by the organization through their personal social networks.
• These “super volunteers” also spread awareness beyond the reach of the organization through these activities.
• With online activity increasing as a whole, managing an IFE program primarily via a website with online tools is feasible, effective, and significantly reduces the cost of operation.
• Because “the ask” is very personal from this type of supporter, it is also a more dependable source of income in tough economic times.
• An IFE program offers a nonprofit’s target audience a very personal form of involvement at an emotional level, where the passion of their fundraising typically raises more than the traditional fundraising event participant.
Visit http://www.blackbaud.com/IFE or http://www.event360.com/resources to download the entire study and to register for the February 3 web seminar, “Raising More Money Online from Independent Fundraising Events.” In addition, Cause Minded, will feature Mark Davis and Colleen Wilson in a February 23 webisode discussing managing and supporting third-party events. For more information, visit http://www.causemindedonline.com/, or register here.
Blackbaud is the leading global provider of software and services designed specifically for nonprofit organizations, enabling them to improve operational efficiency, build strong relationships, and raise more money to support their missions. Approximately 22,000 organizations — including University of Arizona Foundation, American Red Cross, Cancer Research UK, The Taft School, Lincoln Center, In Touch Ministries, Tulsa Community Foundation, Ursinus College, Earthjustice, International Fund for Animal Welfare, and the WGBH Educational Foundation — use one or more Blackbaud products and services for fundraising, constituent relationship management, financial management, website management, direct marketing, education administration, ticketing, business intelligence, prospect research, consulting, and analytics. Since 1981, Blackbaud’s sole focus and expertise has been partnering with nonprofits and providing them the solutions they need to make a difference in their local communities and worldwide. Headquartered in the United States, Blackbaud also has operations in Australia, Canada, the Netherlands, and the United Kingdom. For more information, visit http://www.blackbaud.com/.
About Event 360
Event 360 is a event fundraising company helping nonprofits create powerful experiences that inspire record levels of interest, giving and loyalty. This strategy builds on over seven years of experience in event fundraising and production, strategic consulting, and technology services that have helped nonprofits raise over $500 million. Visit http://www.event360.com/ to learn how Event 360 can help your organization connect more donors with your cause.
You can contact Melanie Mathos at 843.216.6200 x3307 or email@example.com
Monday, January 25, 2010
by Debra Askanase, Community Organizer 2.0
What happens when you can't be there all the time that your stakeholders want to drop by? Or if you decide it's just too much work to cook meals regularly for all of those guests? Maybe your organization realizes that it's hard to maintain all those relationships, and just as difficult to post regular content.
This post is a look at the back side of starting a social media presence: the obligations of maintaining it.
It takes three to six months of work to build up an organization's social media presence. I think it takes a minimum of three months to start seeing a return on that engagement. Don't start if you can't commit to maintenance. Select your platforms carefully – what do you have time to maintain, and which platforms will take more time and resources than your organization has currently? The hard truth is that you have to commit to keeping that virtual kitchen stocked with food, and the virtual living room accessible. That means keeping the blog fresh with new content, communicating regularly, creating real relationships on social networks, and offering information and conversation topics on platforms regularly.
If your company's social sites are not tended to with care, then your organization is actually risking its online and offline credibility.
Here are some quick thoughts on the repercussions of not tending to your online presence:
People stop caring.
In the hyper-paced world of social media, your followers and fans quickly lose interest and forget you. Here's the test: the last time you or your company took a break from creating regular online content (conversations, news, articles, etc), how many people asked you where you were? There are a lot of organizations vying for time and attention online. Tend to those relationships regularly and cultivate lasting ones. The real test is creating relationships where someone writes to ask: "How are you? Haven't seen you posting much lately."
People stop spreading your news.
Viralness is a key factor in social media. If you aren't maintaining connections, people are less likely to pass along your content. Relationships strengthens the desire to "do good" for others, whether that's passing along content, recommending your site, or suggesting someone become of fan of your Facebook Page.
You lose friendship credibility.
If you're not there for them now, will you be there later? If you post content randomly, or only sporadically engage online, how can they count on you? If you are a regular news source for information in your field, you need to continue to do that. What if you posted content regularly, gathered a following, then stopped? When your organization decides to resume, it's lost its credibility for being dependable, and for maintaining the site. It may very well have lost viewers it cannot ever regain.
It's tempting to think that "no one will notice" if you are not maintaining your homes regularly, but someone always drives by. It's also tempting to think "it's all right if we don't put up any new content for a month." But someone cares, and misses it. That fan who would've done anything for your cause is a lot less likely to do that when they don't know why you went away for a while…or when you are coming back.
There is a marketing credo that it is much cheaper to keep a regular customer happy than find new customers. No matter what type of organization you are, it's easier to keep your existing following than to build a new one.
What do you think? Is your organization struggling with this very issue? How are you addressing the issues of time/maintenance/engagement?
You can contact Debra at http://www.communityorganizer20.com/
Wednesday, January 20, 2010
Developing a mission statement can be one of the most difficult tasks a nonprofit can face but it is uniquely critical to guiding what the nonprofit will do and how it will convey what it does to the general public or its constituency. Mission statements are the cornerstone of developing programs and certainly key to messaging (or marketing) efforts. Whether your organization is a new start-up or has a long history, re-visiting your mission statement from time to time is a good idea.
That being said, I know of organizations that want to re-write their mission statements constantly. Sometimes mission statements get challenged by new board members or they are challenged when the organization hits a rough patch. Constant tinkering with the mission statement is a bad idea and very unproductive as it can waste valuable time and resources. Therefore the bar is set high to “get it right” the first time.
Mission statements should encompass the work you do and they should be more specific than general. Action verbs should be prevalent and strong: this is what we are doing…this is what we are going to do. As much as possible, try to incorporate the five rubrics of journalism: who, what, where, why and how. Additionally, I am a fan of short, succinct mission statements. Keep it to two or three sentences, any more than that loses the audience and dilutes the message.
The XYZ Foundation Mission Statement
The XYZ Foundation is a resource for people, businesses, and communities in XYZ Land, working toward prosperity through economic and social justice. Our purpose is to strengthen families, grow a sustainable regional economy, cultivate leadership and philanthropy, and foster respect for all. Through our grants to non-profits, loans to local businesses, and other special programs, the XYZ Foundation is building a strong foundation for the future of our region.
Our mission is to actively serve the people of the BFF area by building permanent charitable capital, making philanthropic grants, and providing services that contribute to the health and vitality of the community.
As I indicated, these two organizations are similar in that they basically provide grants to nonprofits and businesses in the community. The XYZ Foundation has a wordy mission statement that makes a lot of promises and could potentially cause confusion in determining the range of its programming. I am not sure how a foundation goes about fostering “respect for all” nor am I sure which nonprofits or businesses in their region could qualify for grants that would meet that objective. The XYZ Foundation has to ask itself how it will go about cultivating leadership and philanthropy, what programs will it create to do so and is it possible given their funding to achieve all that their mission statement promises?
Conversely, the BFF Foundation mission statement is simple. They promise to: build charitable capital; make grants; and provide services that contribute to the health and vitality of the community.
At every board meeting the directors can ask themselves: “what are we doing to build charitable capital?” “what grants have we made or are we making?” “what programs do we have in place that contribute to the health and vitality of the community?” The mission statement becomes a touchstone for everything they do. It also narrows the scope of what they will do and helps to keep the organization focused.
In researching mission statements I came across this website: http://www.missionstatements.com/nonprofit_mission_statements.html
There are many ways to go about writing a mission statement but at the core of this must be an exploration of what the organization is; who does the organization serve; how will the organization accomplish its mission. Once you have achieved a mission statement I would recommend having a focus group of people unfamiliar with the organization go through the mission statement and provide feedback. This will help you learn whether or not the mission statement is telling your story.
On a final note, years ago I began the practice of putting the mission statement on the name placards of the board members for their meetings. It can be a tent folded placard with their names on one side and the mission statement on the other, with the mission statement facing the board member. I know of another woman who put the mission statement on laminated placemats. Either way, this practice provides board members with a constant reminder of the mission. Many times I have seen board members pick up the placard and ask if what the board was discussing was conducive to the mission. Try it at your next board meeting, you will be surprised at how having the mission statement in front of board members keeps the board focused.
Monday, January 18, 2010
by Nancy Schwartz, Nancy Schwartz and Company
The overwhelming response to our recent survey on nonprofit messaging reinforces how vital it is for your organization’s messages to connect with key audiences.
Here’s the survey if you’d like to review questions asked while digesting the findings.
Eighty-four percent of nonprofit communicators say that their messages connect with target audiences only somewhat or not at all. That’s 915 nonprofit communicators working with organizations of all sizes, issue focus and geographies who rate their messaging as failing to generate the conversations they need to.
Looking at the flip side, only 16% of nonprofits rate their messages as connecting well. This is a dismal success rate, especially since it’s not due to lack of effort. Survey respondents report working extremely hard to achieve their marketing goals: huge effort with minimal results.
That’s a very serious problem.
Behind the Disconnect: 86% of Nonprofits Characterize Their Messages as Difficult to Remember
Most nonprofits report that their messaging suffers from lack of inspiration (73%), poor targeting to audience wants and needs (70%), and difficult to remember (86%). Three strikes and you’re out.
Few communicators laud their messaging for its strengths: Only 13% of organizations characterize messaging as cogent while 8% describe their messaging as potent.
These comments from survey participants explain why their messages fail to connect:
“Our messages need to be more succinct to communicate how effective we really are.”
“We don’t move our base to action.”
“We have individual elements that are ok solo, but no unified path.”
“Our messages aren’t hard-hitting or targeted enough. So they fall flat.”
“We need to shape messages that are simple enough for staff to remember and feel comfortable in repeating it to others.”
“Too much jargon. I can’t even understand what we’re saying.”
Inconsistency Reigns Supreme, Leaving Confusion and Annoyance in Its Path
There are numerous tactics to craft more relevant messages. However, when aiming to increase relevance, it’s imperative to go beyond delivering a few relevant messages here and there. The real challenge is to consistently deliver messages that connect.
Here’s the rub: Less than 50% of nonprofits report consistent use of their core messaging (organizational tagline, positioning statement and talking points). That means that even though most organizations have taken the effort to craft messages, those messages aren’t used consistently across channels (website, direct mail, email), audiences or programs.
Inconsistency breeds confusion and annoyance. When your network has to decipher what organization is reaching out to them (because the messages are unfamiliar) and what you’re trying to say (because it’s new to them), you’ve failed. They just won’t do it in the noisy, cluttered message sphere.
Your Checklist for Messaging that Connects
Most nonprofit communicators (78%) see these characteristics as crucial for messaging that connects:
What’s Getting in the Way: Effective Messaging Stymied by Lack of Focus and Leadership Support
Lack of leadership support
Concerned about expense
Blinders, e.g. lack of external perspective
Colleagues, volunteers, members untrained as messengers.
Here are respondent comments about their barriers to creating messaging that connects:
Lack of Leadership Support and/or Understanding
“Funds are prioritized for fundraising, not marketing. Our leadership doesn’t understand how the two are halves of a whole. How can I build that understanding?”
“Too many cooks. Each department and location has their own ideas and frequently don’t check in with marketing to see if it’s ok to use them.”
“Hard to engage, reach and train staff in our 41 locations.”
“Hard to shape a useful message development process, as board members have widely divergent perspectives and are very involved in communications. Help.”
“No time to train/educate/empower staff, board and volunteers to understand and deliver messages.”
“It’s tough to create effective messages for an anti-poverty project that focuses on education and long-term change over time in a foreign country that is not in ‘crisis’ mode (such as Sudan or parts of Africa), yet is still one of the poorest in the Western hemisphere.”
Diversity of Program Work
“How do we find a way to speak for more than 32 programs in a targeted way while maintaining consistent organizational messages?”
Lack of External Perspective (a.k.a. blinders)
“Our messages are typically crafted from the ‘inside out,’rather than shaping them to the wants and needs of specified audiences.”
There’s Huge Potential for Stronger Nonprofit Messaging: Three Steps to Take You There
These survey findings are incredibly useful in showcasing what’s critical in making messages work, and what it takes to get there.
Here are my recommendations for your first three steps to stronger messages.
Without clear organizational goals, marketing goals can’t be defined but without them it’s impossible to define the right audiences to engage. If this is your situation, your problems are bigger than weak messaging. Get on it!
Build understanding and support of leadership and colleagues — You need their insights and reach
But here’s what you’re up against: Nonprofit staff members most focused on making the most of their messages are communicators (58%), fundraisers (40%) and program staff members (21%) in order of survey participation level.
That’s important because it highlights that communicators have a lot of work to do to develop support for and input in the message development process. Cross-organizational participation is even more vital once your messages are ready to roll. Your colleagues are your primary on-the-ground messengers via their workday conversation and communications.
Start with your tagline — Less is more
There are a numerous tactics to deliver more relevant messages. However, when we aim to increase relevance, we don’t mean that we simply want to deliver a few relevant messages here and there. Simply developing a compelling welcome email is not enough. The real challenge in email marketing is to consistently deliver relevant messages.
Make it easy for your network to recognize that a communication is coming from your organization by being consistent – in language and tone – in your outreach to each segment.
I’ll be drilling down on messaging this year, and would like to share your experiences and guidance with your fellow nonprofit communicators.
Wednesday, January 13, 2010
I am working on an upcoming blog on mission statements and found Suzanne Rhodes (Director of Public Affairs) article regarding "mission" to be interesting. Those nonprofits with a clearly defined sense of mission are more likely to succeed through good times and bad.
Acquaint yourself with the work of Mercy Medical Airlift, go to their website, read the various stories of the people they have helped and then make a donation of cash or frequent flier miles. And tell your friends. Someone you know may very well benefit from the services they provide. Bunnie
Keeping the Mission Torch Burning
by Suzanne Rhodes, Director of Public Affairs
Our business at Mercy Medical Airlift puts us in touch with hurting humanity 24 hours a day but also brings hope when we offer the gift of flight to patients who need to travel to distant, specialized medical facilities. I’m reminded of a phrase used by Jesus as He offered relief for people’s grinding weariness, saying, “My burden is light.”
This is what we do here—we help make burdens light. And while, like any organization, we have to tend to the business side of things—finances and efficiencies, technologies and marketing, forecasting, staffing, and trends as sudden and diverse as newly-spotted stars—keeping faith with the mission is what matters most. In our case, the mission is to make sure no patient in need is denied access to specialized, medical care because of inability to pay for air transportation.
We offer charitable flights in small, private planes through our volunteer pilot program. We offer donated commercial airline tickets through our special lift program. We offer discounted air ambulance flights through a program called Air Compassion America. We match patient needs with appropriate travel resources through our National Patient Travel Center Helpline that is operational day and night. In fact, the numbers just came in from 2009 showing we served 21,003 clients. That’s a lot of veterans and children, cancer patients, burn victims, the elderly, and patients with rare disorders whose lives have been improved or saved because, as we often hear from those we serve, “I was able to get the best medical care in the world.”
We keep the torch of mission burning in many ways. Staff members rotate pager duty so they can answer after-hour calls from patients. The mission statement is displayed in all our offices. Our CEO inspires us at special luncheons and events when he shares from the heart. Many of us post pictures of our patients on bulletin boards and share their stories with each other and through our electronic and print newsletters. Compassion is our core.
When a sense of a higher cause infuses the workplace—especially when the place is a nonprofit charity like Mercy Medical Airlift—the details of daily operation—from running the overhead to sharpening a pencil—become significant as elements of a purposeful whole.
Suzanne Rhodes is the director of public affairs at Mercy Medical Airlift in Virginia Beach, Virginia, and the author of Angel Flight Mid-Atlantic, Sacred Glances and several books of poetry. She assisted in the creation of an award-winning documentary, Compassion Takes Flight.
Links to Mercy Medical Airlift websites:
Thursday, January 7, 2010
General Principles of Nonprofit Fundraising
by Terry Scott Boykie, CSO, ABS, Inc.
Charitable Nonprofit Organizations
All charities are nonprofits, but not all nonprofits are charities. The Internal Revenue Code defines more than twenty categories of nonprofit organizations under Section 501(c). Examples include labor organizations [501(c)(5)], fraternal societies [501(c)(10)], cemeteries [501(c)(13)], pension trusts [501(c)(18)], veteran's organizations [501(c)(23)], and charities [501(c)(3)].
Colloquially, the terms "nonprofit" and "charity" are often used interchangeably. Technically, a 501(c)(3) organization is a charitable nonprofit organization as opposed to a labor nonprofit, a fraternal nonprofit, a business league nonprofit, etc. To avoid confusion, many charitable nonprofits say, "We are a 501(c)(3)."
Those nonprofit groups that want to raise tax deductible contributions seek classification by the IRS as charities under Section 501(c)(3) of the Internal Revenue Code. They also register with their respective state governments, and most do not pay sales, real estate, income or capital gains taxes on their investments. Because the tax deduction for a charitable contribution is so attractive to potential donors, nonprofit groups that are classified by the IRS as other than 501(c)(3), often establish ancillary 501(c)(3) charitable nonprofit organizations as a base from which to raise funds. Example: The American Pharmaceutical Association established The American Pharmaceutical Association Foundation.
The vast majority of charitable nonprofits form a corporation in order to limit their board members' liability in case of litigation. In reality, 501(c)(3) organizations are special business corporations that operate for the benefit of the general public; they have special tax dispensations under the assumption that their work can not be accomplished at a profit by a commercial business corporation.
There are direct parallels between charitable nonprofits and commercial businesses: each has incorporation papers, a board of directors, a vision of what is to be accomplished, products or programs/services, budgets, staff, a physical plant, a public image, and a need to plan long range for programs, personnel, and funding. They are more similar than dissimilar, and their operations are about 80% parallel. (That is not surprising when one realizes that Benjamin Franklin borrowed the business corporation model and modified it for charitable nonprofit use when he established the first charity after the Revolutionary War.)
When a business corporation wants to raise money by obtaining a bank loan or selling more stock, it produces a business plan to prove its management ability to potential investors. Charitable nonprofits generally call their business plan a long range strategic plan; it demonstrates to key donors that the organization can manage well and convinces them that a gift to that particular organization is an "investment" in the betterment of society.
Boards of Directors
A charitable nonprofit's directors are volunteers who govern the organization in the name of the general public. The board approves the work (programs) and the budget of the group, and it is responsible for seeing that the funding is there to achieve that work. Therefore, a key component in successful fundraising is the selection of board members who are willing and able to raise money. During long range planning, a strategy is drawn up to recruit people for the board who have direct connections to funders identified as likely to give support. While some charitable nonprofits hire staff to assist in raising money, the principle underlying charitable fundraising is that it is done by volunteers who first have made their own donations to the group and now are requesting similar contributions from others. A skilled development (fundraising) staff can greatly facilitate board fundraising.
Volunteers appear in a variety of places in charitable nonprofit fundraising. Organizing volunteers requires a decision by the board to commit a board or staff member and a budget line to recruiting and training volunteers for fundraising. Well trained volunteers equipped with high quality material about your work can make effective solicitation calls or produce a variety of events. The key to keeping volunteers involved is offering a permanent liaison to the volunteer corps who is knowledgeable about fundraising goals and about the organization and who is available to volunteers when needed. Volunteer fundraisers respond best when they have job descriptions, specific goals and timetables, and know how the money they raise will be spent.
Competition for Funding
Many charitable nonprofits collaborate in program work, public education activities, and legislative liaison. Some even coalesce in united fundraising drives. However, the majority of philanthropic organizations raise money for themselves alone. Competition between charitable nonprofits for financial resources is an integral part of the philanthropic field and will not disappear in the foreseeable future. Only a group which has an endowment large enough to fully generate its annual budget can be classified as a non-competitor for funds.
The Energy Behind Fundraising
Long Range Market Plan
Unless an organization has a "golden goose" to whom it can turn for short range donations or an asset against which it can borrow, there are no "quick fixes" in the charitable nonprofit world. Traditional funders (foundations, corporations, etc.) usually avoid an organization in crisis because, to them, the need for fast cash means that the group has not planned well for its needs and has not developed alternate sources of funding over time to backstop emergencies. Cold as this may seem, it is a reality of the contributions marketplace.
Successful fundraising is based on the fundamental marketing principle that a contribution is part of a satisfying mutual exchange which takes place between the donor and the organization. The charitable nonprofit facilitates that exchange by carefully analyzing the contributions marketplace and planning to build bridges directly to the funding that seems ideal for their programs. Most of those bridges are board members, senior staff, advisors, and special friends of the organization. Their efforts are augmented by clear, logical material that describes the needs of the group's constituents, the organization's work, its cost, and its projected results. When the exchange happens, the philanthropy receives the funds, and the donor receives the satisfaction of knowing that he/she has helped to provide a service or program for the group's primary constituents.
The strategic organizational market plan comprehensively re-defines the organization for a specific term...usually three to five years...and it acts as an operational blueprint. It analyzes the needs of constituents, offers programs to suit those needs, projects costs and reliable income, provides a specific fundraising plan for each program, and provides sub-plans to recruit human resources, communicate effectively to the world about the group, implement itself over time, and continue to evaluate constituents' needs and responses to the organization's current work.
Monday, January 4, 2010
(Top, Jeff Tenenbaum. Bottom, Patrick Clancy)
Hiring a new executive, especially a president or chief executive officer, is always a major undertaking for any nonprofit organization. A great deal of time and effort are invested in finding quality candidates, interviewing the most promising ones, and making a decision about to whom to extend an offer. Often, monetary resources are invested as well using search firms and similar services.
Throughout this process, both your organization and the prospective candidates strive to appear at their best and make themselves attractive to the other. Typically, the major terms of employment are discussed, including salary, bonuses and benefits. Other details are often left for later discussion following an acceptance of an offer and the preparation of a written employment agreement.
During the courtship process, neither party, understandably, wishes to think about, much less talk about, the divorce. Sooner or (hopefully) later, the relationship between the executive and the organization will end.
For the protection of the organization, as well as in fairness to each party, it is important that the when and how the relationship can end, and what happens when it does end, should be expressly and clearly expressed in the written agreement. It is surprising how often what might seem like basic terms are either overlooked or unclear even after the new executive has been presented with an employment agreement.
Moreover, it is important that the executive candidate be presented with the material terms and conditions of their newly-offered employment prior to their acceptance of the offer and, importantly, prior to the time they notify their existing employer that they are leaving (or prior to the time they decline other offers). Material terms include not only such items as compensation and benefits, the contract term, and under what circumstances employment can end, but also may include such things as post-employment restrictions (e.g., non-compete agreements) and restrictions on outside activities. Courts in some jurisdictions have held that an intentional or negligent failure to disclose a material term and condition of employment, when relied upon by the new executive in leaving their former employment (or potentially declining other employment), can result in liability for the new organization.
This article will discuss some key issues that should be addressed in an executive’s employment contract with a nonprofit organization. Those issues include, of course, the term of employment – How long does the employment last under the contract? While employment can be at-will (meaning that it can be ended at any time by either party without cause or notice), many candidates for president and high-level executive positions will not accept that sort of uncertainty when considering a position. Thus, most executive employment contracts include an express term of employment.
In addition, the agreement should address what happens at the end of the term – How does it expire? What notices, if any, must one or the other party provide? Will the term, or some variation of the term, automatically renew absent some action on the part of one or both parties?
The agreement also should address the ways in which the employment can end other than by expiration of the term. Most agreements include some provision for ending the agreement for “cause,” with varying degrees of detail as to what constitutes cause. However, agreements also can provide that one or both parties may end the employment prior to the expiration of the term upon certain notice, even without cause.
In addition, it is important that the agreement address what happens following termination. That is, are there any particular payments (such as severance) or benefits that will continue or be made to the executive or, as importantly, that no payments or other special benefits are due upon termination? The agreement needs to address this question for every way in which employment might end. These particular points are addressed in further detail below.
The Term of Agreement. As discussed above, most agreements for nonprofit organization chief executives include some fixed term of employment. Many agreements include both an initial term and a renewal term.
a. Initial Term. Often the initial term is two or three years. Many candidates will not consider less security than two years; organizations should be very careful when considering terms longer than three years. A key factor for organizations to consider when assessing the length of the term is the ways in which the term can end prior to expiration, which is discussed below.
b. Renewal Term. The agreement should specify clearly what happens at the end of the initial term. There are several options.
First, the agreement could simply expire upon the end of the term, with no obligation on either party to continue employment (remember that parties are always free to negotiate extensions if both parties desire to continue the relationship).
A common provision in executive agreements is an automatic renewal in the absence of some affirmative notice to the contrary. For example, if one party does NOT provide notice at least 180 days prior to the expiration of the initial term, the agreement might renew automatically for one year. The renewal period could be two years, if desired (although one is probably more typical); more than two years would be unusual, and in most instances, would not be recommended.
The automatic renewal provision could continue for each year of the extension as well (i.e., in the absence of notice during an extension year, the agreement automatically renews for another year). However, the automatic renewal need not continue; the agreement could contain a single renewal of one or two years. Whatever approach is adopted, the agreement should be very explicit as to what happens upon the end of the initial term or renewal term.
A cautionary note regarding automatic renewal provision – It is important that the organization's board remain aware of any approaching deadlines for notices and adhere carefully to the specified procedures for providing notice as set out in the agreement. This need is particularly acute when, as is typically the case in nonprofit organizations, there are significant changes in director and officer composition over time. Do not wait until the last month of the executive's term to consider the question of what happens at the end of the term; it may have already "renewed."
Termination of the Agreement. The agreement should specify how it can end other than by expiration of the term. There are several ways the agreement might end prior to the term expiration.
a. Notice by the executive (no cause or reason). Although by no means required, many agreements have provisions that allow the executive to terminate early – without the need for a reason or cause – by giving certain notice. If your organization agrees to such a provision, the notice period should take into consideration the hiring cycle and lead time required – that is, if the search process takes six months, the agreement might specify a notice period of six months. This lead time would give the organization time to conduct a search; it still might require an interim period before a new executive could come on board, but such time would be short.
b. Notice by the organization (no cause or reason). Organizations should carefully consider including in the agreement a provision that allows the organization to end the agreement early without cause. Establishing cause sufficient for terminating an agreement can be difficult and costly, and result in public embarrassment to the organization (and the executive). The organization may need the flexibility to end the relationship without cause. The executive, on the other hand, will negotiate for sufficient notice to enable her/him to enter the search market, and, thus, the same cycle and timing issues considered above will come into play. From the organization’s standpoint, the shorter the period, the better. If the executive has a notice provision as discussed above, it would be typical for the notice periods to be the same (i.e., perhaps 180 days). However, the organization typically will seek a provision that allows it to provide the executive with pay in lieu of the notice so that the relationship can be severed immediately if the organization deems it necessary.
Does such a "no cause" provision reduce the job security for the executive that might otherwise exist under an agreement for a term of, say, two years? Yes, however, the issue of security can be addressed through the length of notice and severance and/or other benefits.
c. Termination for cause. The agreement should contain a provision for termination for “cause.” Cause should be defined. Typically, it includes such things as malfeasance, breach of the agreement, fraud, embezzlement, dishonesty, gross negligence, etc. Not surprisingly, executives try to negotiate more objective, higher-threshold definitions of cause. The organization would prefer a definition giving it more discretion. For example, be careful of definitions of cause that require convictions of crimes; no organization wants to await the outcome of a criminal proceeding, with the potential negative publicity and other ramifications, before acting upon the employment issue (another reason for a "no cause" provision, as discussed above). It is strongly suggested that the organization consider a definition that includes, among other things, conduct that does or is reasonably determined could bring unfavorable publicity or disrepute to the organization.
What Happens when the Agreement Terminates? The agreement should specify what happens in each of the circumstances under which the agreement can end; in the examples outlined above, this includes four contingencies: (1) expiration of the term (and renewal terms, if any); (2) executive gives notice; (3) organization gives notice; and (4) termination for cause. The interests of the parties here are clearly distinct; the executive is looking for as much security as she/he can get, and the organization wants to have as little expense as possible tied up in a person who is no longer performing services for the organization. The negotiations should find the right balance between the needs of the parties.
If an agreement expires, typically the departing executive does not receive any compensation beyond that earned during the term. However, some agreements include severance as a means of providing some job security to the executive (thus lowering the risk to the executive of leaving her/his current position to join the organization). The shorter the term of the agreement, the more likely there is to be a severance payment upon expiration. For example, if the initial term of the agreement is one year, the agreement might include a six-month severance payment if the agreement is not renewed by the organization. This type of provision gives the executive at least eighteen months of security. As the term of the agreement increases, there generally is less need for this type of security.
If the agreement is ended early by the executive giving notice, typically there is no compensation due beyond that due during the time the executive works for the organization. There is typically no severance in such a situation.
If the organization gives notice (that is, notice prior to the end of the specified term, without cause), there are two alternative approaches that are often taken.
a. Under one approach, no compensation is due beyond the notice period. The theory underlying this approach is that the notice period itself provides the security the executive needs.
b. Another approach might include severance; perhaps a sliding scale of severance depending on how early in the term the notice is given. For example, the agreement might provide that if the organization gives notice during the first twelve months, the executive will receive the notice period plus severance necessary to bring the total of working compensation and severance to eighteen months (again, providing the executive with at least eighteen months’ security). Alternatively, the agreement could provide that if the organization gives notice after the first twelve months, the executive will receive the notice period plus some specified amount (perhaps three months) of severance. In one sense, this approach may be counterintuitive, as the longer the term of service, the less severance is paid. However, considered from the standpoint of how much income security it provides to the executive when viewed from the beginning of the relationship, it may serve the needs of both the organization and the executive.
If the executive is terminated for cause, the agreement typically provides that the executive receives nothing beyond what was due prior to termination.
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Protecting your nonprofit organization while attracting quality candidates for executive positions requires diligence and planning. The details of an agreement are very important, and may become critical to your organization in years to come. Failure to attend to those details prior to the signing of an agreement can lead to acrimonious (and costly) issues down the road.
Patrick Clancy is a partner in the Venable LLP law firm and focuses his practice on labor and employment law. He counsels may of the firm’s nonprofit clients on employment law matters and also represents them in the defense of litigation, arbitration and administrative proceedings. Mr. Tenenbaum is the chair of Venable’s nonprofit organizations practice. They can be reached at firstname.lastname@example.org, email@example.com or at 202-344-4000.
Have there been tougher times for nonprofits? The services these organizations provide are arguably in greater need than ever, yet many are struggling just to make ends meet – and too few can afford to invest in websites capable of building online community.
In the first two years of The Nerdery Overnight Website Challenge, volunteer web pros have donated more than half-a-million dollars worth of professional services to 23 Minnesota nonprofits. Here at Nerdery Interactive Labs, a division of Sierra Bravo, we consider this a good start for our annual 24-hour nerdathon, but we also know that there are plenty more good nonprofits with not-so-good websites.
Nonprofits in Minnesota have until January 8 to register for the next Nerdery Overnight Website Challenge, which returns to the Twin Cities for the third time March 20-21 (one nonprofit is already in, with a Golden Ticket). Volunteer interactive pros come not only from our staff at The Nerdery, but from ad agencies we partner with, as well as freelancers, friends, and peers from the Minneapolis-St. Paul interactive community at large. Looking for ways to use their time and talent to give back, these passionate teams of volunteers band together and compete for little more than bragging rights.
In our day jobs here at The Nerdery – when we’re not just giving it away in the wee hours – we spend our normal waking hours serving as the web development partners (OK, nerds) of more than a hundred ad, design and marketing agencies nationwide.