Managing a Nonprofit - Midterm

Governing Board's 6 Functional Responsibilities

1. Appoint, support, and evaluate the CEO 2. Establish a clear institutional mission and purpose 3. Approve the organization's programs 4. Ensure sound financial management and stability 5. Establish standards for organizational performance and hold the organization accountable 6. To engage in outreach as a bridge and a buffer between the organization and its stakeholders

Governing Board's 3 Legal Responsibilities

1. Duty of Obedience 2. Duty of Care 3. Duty of Loyalty

4 Types of Nonprofit Governing Boards

1. Elected 2. Self-Perpetuating 3. Appointed 4. Hybrid

Audiences of Program Evaluation

1. Funders 2. Program Staff 3. Board Members 4. Potential Funders 5. Government Agencies 6. Program Participants and Clients

What are the 5 reasons we have the nonprofit sector?

1. Historical Legacy 2. Market Failure 3. Government Failure 4. Pluralism and Freedom 5. Solidarity

6 Greatest Retention Challenges

1. Inability to pay competitively 2. Excessive workload/insufficient staff resources 3. Inability to promote top performing staff 4. Ineffective leadership 5. Lack of training/professional development opportunities 6. Poor morale/dysfunctional workplace culture

The 3 W's in a high performing board are...

1. Individuals who are willing to "work" 2. Individuals with "wisdom" 3. Individuals with "wealth"

Why are nonprofit employees paid less?

1. Labor Donation 2.Self-Sorting and Screening 3. Adverse Selection vs. Moral Hazard

What are the main differences between 501(C)(3) orgs. and 501(C)(4) orgs?

1. Lobbying (3) are limited in the amount of time and money they can put into lobbying. (4) are unlimited, but they will become ineligible for receiving federal money (like grants) 2. Campaigning (3) cannot in any way campaign directly. (4) can campaign as long as it is consistent with the org's. purpose and is not their primary activity. 3. Charitable Donations (3) are tax deductible (4) are tax deductible if they are used public services (like state or local govt. or volunteer fire stations, etc.), but other (4) are not.

What are the 3 types of organizations?

1. Public sector 2. Private sector: For profit 3. Private sector: Nonprofit

3 Checks for Performance Measurement

1. Purpose 2. Feasibility 3. Audience

What are the 2 problems in defining the nonprofit sector?

1. They are defined by what they are not instead of what they are. (NONprofit, NONgovernmental) 2. The vast complexity and diversity within the sector makes it difficult to define. (Not all nonprofits are the same.)

What are the 3 psychological contracts between an employer and employee?

1. Transactional Dimension 2. Relational Dimension 3. Ideological Dimension

3 characteristics of nonprofit sector

1. not allowed to distribute profits 2. can still accumulate earnings and profits 3. tax exemptions

The 2 main difference between nonprofit and for profit organizations are

1. ownership 2. distribution of profits

How many types of nonprofit organizations are there? What are the main ones?

29 -501(C)(3) Exempt from Federal Income Tax -501(C)(4) Social Welfare Action -501(C)(6) Promote Business

These are all examples of which 501(C): 3,4, or 6? -ASPCA -American Red Cross -YMCA -SMU -Planned Parenthood -Tax Exempt -Churches -Public Charities -Private Foundations -Serve Public Interests

501(C)(3)

Planned Parenthood SMU YMCA American Red Cross These are all examples of...

501(C)(3) nonprofit organizations

$1.1 million of the $1.43 million tax exempts are...

501(C)(3) organizations

More than 60% of nonprofit organizations are...

501(C)(3)'s

A ____ nonprofit organization's primary activity is lobbying and they aren't limited.

501(C)(4)

These are all examples of which 501(C): 3,4, or 6? -NRA -The Military Order of the Purple Heart Service Foundation -Volunteer Fire Departments -Lobbying -Social Welfare Action

501(C)(4)

These are all examples of which 501(C): 3,4, or 6? -PGA -Business Leagues -Chambers of Commerce -Real Estate Boards -Boards of Trade -Promote Business

501(C)(6)

Person-Job Fit (PJ Fit)

A match between the abilities of a person and the demands of a job, or the desires of a person and the attributes of a job. A high level of PJ Fit has positive outcomes for everyone involved.

What is the Principal-Agent Problem?

A problem caused by agents pursuing their own interests rather than the interests of the principals who hired them. In the case of nonprofits, donors are the principals, donating money to the agent, a nonprofit, in hopes that they will use the money in the way they are wanting and not for their own self interest.

Information Asymmetry

A situation in which one party is more informed than another because of the possession of private information. For example, in selecting a babysitter you don't know how much they are really willing to work for and what their true motivations are because they are trying to get the most money from you.

What is the typical governing board for public organizations or religious nonprofit organizations?

Appointed Board

Contract Failure Theory

Because of the Principal-Agent Problem there is a strong incentive for a contractual framework (or governance structure) that reduce the incentives of the agent to act contrary to the interests of the principal. In nonprofits this governance structure is built in with the non-distribution constraint.

Nonprofit organizations tend to depend on their resources from outside support. ____ are an instrumental link to capture resources for organizations.

Board members

Governing Board's Duty of Loyalty

Board members have to put the interests of the organization first when making decisions.

Governing Board's Duty of Obedience

Board members must be obey the cause and law: be faithful to the organization's mission and act consistent with the central goals and applicable federal, state, and local laws.

Governing Board's Duty of Care

Board members must show they care: exercise reasonable care by staying informed, participating in decisions, and acting in good faith when doing so.

Hybrid Board

Combination of two or more types of governing boards.

Person-Organization Fit (PO Fit)

Compatibility between people and organizations, which occurs when at least one entity provides what the other needs; they share similar fundamental characteristics; or both. Individuals seek to work for organization where they have high levels of PO Fit.

Performance Management

Effectively managing a nonprofit's performance beings with a clear understanding of what the organization is trying to achieve, what's being done today, what progress is being made, and what's needed to help the organization increase its impact.

What types of governing board is common in member-serving and social welfare organizations?

Elected Boards

True or False? Volunteering is just working for free or because you were ordered to do so.

False

What is the rationale for nonprofits to be tax exempt?

Government subsidizes nonprofits that provide public goods through favorable tax policies. In a sense, government pays for services that contribute to the public good.

What form allows the IRS and the public to evaluate nonprofits and how they operate to maintain their tax exempt status?

IRS Form 990 IRS Form 990-EZ for larger nonprofits that have gross receipts of more than $50K. IRS Form 990-N for smaller nonprofits of $50k or less.

____ strategies are used in nonprofits because PO and PJ fits are important since it is mission driven.

Informal recruitment Such as word of mouth, current employee/volunteers/interns referrals, postings and ads on websites/paper

Self-Perpetuating Board

Manages its membership subject to its own regulations: new board members are selected by the existing members of the boards.

What are the 2 risks all principal agent relationships face? Why?

Moral Hazard and Adverse Selection because of Information Asymmetry

Is the "Buy one, GIVE one free" model (a charitable campaign), a sign that it is a nonprofit?

No

Is Newman's Own a nonprofit organization?

No, just because you donate all of your profits does not make you a nonprofit organization. Newman's Own is a private, for profit organization.

What organization has the advantage in finding a fit between prospective employee's intrinsic motivation and their mission?

Nonprofits

Non-Distribution Contraint

One of the 2 differences between nonprofits and for profits. Nonprofits are not allowed to distribute profits. Remember this constraint does not prevent a nonprofit from accumulating earnings.

Ownership

One of the 2 differences between nonprofits and for profits. Nonprofits do not have owners or shareholders, while public and for profit organizations can. Nonprofits instead have board of directors and execs (like a CEO).

Labor Donation

One of the 3 reasons nonprofit employees are paid less. Nonprofit employees donate part of their labor, discounting their wages for the good of the cause because they care about the quality of services provided more than their job description or salary.

Self-Sorting and Screening

One of the 3 reasons nonprofit employees are paid less. Nonprofits tend to pay lower wages as a way to sort out people that are monetarily motivated and instead are interested in accomplishing other meaningful things such as the mission.

Adverse Selection and Moral Hazard as a reason Nonprofit Employees are Paid Less

One of the 3 reasons nonprofit employees are paid less. The effect of self-selection reduces the need for monitoring and the payment of an efficiency wage. Therefore, nonprofit firms tend to pay their employees lower pay as an attempt to screen out uncommitted candidates rather than monitor them.

Historical Legacy

One of the 5 reasons we have nonprofits. Anything handed down from the past, as from an ancestor or predecessor, that has had a lasting impact on a person, people, nation, or even a civilization. Ex. Puritans in the "new land" of America created government before it existed. So nonprofits can create a legacy to change history.

Pluralism and Freedom

One of the 5 reasons we have nonprofits. Everyone is different and nonprofits give a place for everyone to express these differences outside of the median voter.

Market Failure Theory

One of the 5 reasons we have nonprofits. The theory that on the free market, without government intervention, the market fails to achieve the most efficient outcome of providing public goods. This is due to the information asymmetry, and because of the contract failure due to this information asymmetry.

Solidarity

One of the 5 reasons we have nonprofits. Ways for people to get united to bring about change.

Government Failure

One of the 5 reasons we have nonprofits. Government cannot provide services that some desire due to the demand heterogeneity (diff. demands of people). The primary concern of government is equity not responsiveness since government meets the needs of the median voter.

What is the oversight and regulation for nonprofits at the state level?

Registration and Annual Reporting. Every state (except 3 ) require you to register for charitable fundraising, and all but 9 states require initial and annual registration. 24 states require nonprofits to file statement of financial activities.

Moral Hazard

Since the principal can't monitor the agent, they are not incentivized to act as agreed upon. For example, a babysitter, as an agent, when the parent, principal, isn't around they could ignore the child.

Nonprofit Governing Board

The group of people entrusted with and accountable for the leadership and governance of the nonprofit corporation.

Public Organizations

The public sector consists of governments and all publicly controlled or publicly funded agencies, enterprises, and other entities that deliver public programs, goods, or services. Ex. University of Texas schools

Adverse Selection

The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. For example, when choosing a babysitter, everyone you interview is going to want the job and tell you what you want to hear instead of the raw truth. One candidate may not have real experience, but really needs money, so will accept $10/hr. Another may have tons of experience and is the best candidate, but she is $15/hr. You're most likely going to go with the $10/hr person because it's cheaper even though they aren't the best candidate.

True or False? The number of universities offering a graduate concentration (three or more courses) in nonprofit management is increasing greatly since 1990.

True

___ are 10% of total working hours in nonprofits, and they are an important and indispensable resource.

Volunteers

Do nonprofit employees have different motivations compared to for-profit and public employees?

Yes, because for-profit employees can make up dissatisfaction with a salary increase while public and nonprofit employees cannot.

Lobbying

a communication referring to and reflecting a view on specific legislative proposal, or legislation that has been introduced before a legislative body.

Not-for-profit

a type of activity, doesn't mean it is a nonprofit organization. Ex. Newman's Own is a private, for profit organization, even though they donate all of their profits, a not-for-profit activity. Newman's Own is not considered a non-profit because its primary operation is the production of foodstuff. It only gives to charity if it makes a profit. If it doesn't make a profit, no money goes to charity. All profits made by Newman's Own goes to the Newman's Own Foundation, which is a non-profit.

Nonprofit

a type of organization private organization that cannot distribute profits or have shareholders or owners. They have board of directors and execs.

In order to get 501(C) status, organizations must claim...

exemption from federal income taxes

Because government meets the needs of the median voter and the market cannot provide public goods efficiently, nonprofits are seen as...

gap fillers

There is a growing need for ____ management in nonprofit organizations because there isn't strong enough employee management due to the fact that donors don't want their money being used outside the mission.

human resource

501(C)(3) nonprofit organizations are limited on how much ____ they can do, and it is not allowed to be their primary activity.

lobbying

Public Goods

non-rilvalry non-excludable Ex. Air, national defense, roads, etc.

Donations to a 501(C)(4) & a 501(C)(6) are _________, while donations to a 501(C)(3) is.

not tax deductible

American Public University is a ____ organization

private, for profit

If you see an ad on TV for a school, it is more than likely a ___________ organization.

private, for profit

Medical City of Dallas Hospital is a...

private, for profit

Texas Presbyterian Hospital is a...

private, for profit

Baylor is a ____ organization

private, nonprofit

Nonprofit sector as a whole has become more...

professionalized.

Of the 3 types of organizations, who can use tax money?

public

Parkland Hospital is a...

public

Texas Tech is a ____ organization

public

A major challenge among the nation's nonprofits is...

staff retention, primarily because of inability to offer competitive salaries.

The main reason that people donate to 501(C)(3) organizations is because...

they get a tax write off