Nonprofit Board Challenge

[Mike Burns]

The ALS Ice Bucket Challenge has introduced to the ALS board a challenge: more money that it dreamed of. Now, the board must, in accordance with its fiduciary duty of care, determine by policy or strategy, what it must do with its newfound wealth.

I believe that the Wall Street Journal did a fine job describing the choices unexpected prosperity introduces.

As far as challenges go, too much cash is a good one to have. But small organizations that land big money face a host of pitfalls, say charity watchdogs and management researchers. Those who ramp up hiring too quickly or spend the new funds without a clear strategy can risk their long-term financial health. And a rush of capital brings new stakeholders and higher scrutiny, ratcheting up expectations and putting a premium on communication and transparency. That is especially true when negative news can travel just as fast as ice-bucket challenges.

In August, Facebook FB -0.13% feeds were filled with people dumping buckets of ice water over their heads, and challenging others to do the same, or else donate to an ALS charity. Many people did both. The level of participation in the Ice Bucket Challenge has been staggering to charity watchers, not least the ALS Association itself, which didn't originate the challenge, but was the chief beneficiary of its popularity.

"It just became craziness. Good craziness, but craziness," said Barbara Newhouse, president and chief executive of the ALS Association since June, of the flood of financing. Revenues last fiscal year for the ALS Association's national office and its 38 affiliated chapters around the country were $64 million, far less than this summer's haul.

Such a large influx of cash can easily overwhelm an organization, said Ken Berger, president and CEO of Charity Navigator, which rates charities on their financial health, accountability and transparency. The jump in wealth often casts a brighter spotlight on the organization and tests the experience of the management, he said.

It can also bring conflicting opinions about how to spend it. Poetry Magazine in 2002 received some $200 million from an heiress to the Eli Lilly pharmaceutical fortune. At the time the literary magazine had an annual budget of less than $500,000. Several years after the gift, the Poetry Foundation, which was set up to help manage the donation, faced board discord over the future of the organization, such as investment in a new website, with several trustees resigning.

Today the foundation has an annual operating budget of more than $9 million and the group's $21.5 million new headquarters opened in Chicago in 2011. Caren Skoulas, its chief financial officer, said that the group's board and staff have been committed to using the gift to bringing poetry to a wide audience, including a website that now reaches 36 million visitors a year.

Management experts recommend taking time to create a strategic plan before rushing into spending or hiring, especially for groups that don't face the urgent time clock of a disaster-relief charity.

The ALS Association's goal is to spend the money carefully, not just quickly. "The possibility of spending $100 million by end of January [the firm's end of fiscal year] is slim to none," said Carrie Munk, the group's chief communications and marketing officer.

Because the annual budget, which includes staffing, requires approval from the group's 23-member board, the ALS Association has relied on a handful of temps and a crew of volunteers from a senior center to help handle call volume and donations. Some of the nonprofit's 54 staffers have been pulling 14-hour days and working on weekends, according to Ms. Munk and Ms. Newhouse, who count themselves among those ranks.

Even before the Ice Bucket Challenge went viral, the association's board had planned to meet in Denver in October to plan for next fiscal year. But given the extra work the group now faces allocating the funds, it set up an extra teleconference on Monday to get a head start formulating a plan. Out of last year's budget, 32% went to education and public policy, 28% to research, 19% to patient services and 21% to fundraising and administration, a breakdown lauded by charity watchdog groups.

Meanwhile, it is important to let donors know what's going on, said Thad Calabrese, assistant professor of public and nonprofit financial management at New York University's Robert F. Wagner Graduate School of Public Service. Press releases and direct outreach will help maintain ties with contributors and spur them to keep giving, he said.

Once the ice-bucket effort started picking up steam, the group very quickly created an ice-bucket information site on its main website, with lots of details and press releases. It also deployed its social-media manager to help defuse false information about its operations on Facebook and other sites, since there were various rumors circulating around about the group's operations.

Many donors were outraged after the Sept. 11 attacks, when the American Red Cross received over a billion dollars in donations for immediate disaster relief but diverted some funds for future reserves and other operational needs.

A Red Cross representative said all of the 9/11 funds have been spent, including $700 million in the first year, and provided relief to more than 59,000 families. The group now is rated highly by Charity Navigator on "accountability and transparency."

Lessons to be remembered if your nonprofit board is so challenged.