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Giving in LA Giving in L.A. is a go-to source, an aggregator for strategies and points of view about trends and issues in giving, challenges for philanthropists and philanthropic organizations, tools and techniques for individuals or families, insights and opinions from experts, and more – all centered on Los Angeles County.

May 25, 2015 ~ 0 Comments

Ending the Education Drought in California

2015-05-27-1432740952-9045817-graduation-thumbBy John E. Kobara

‘Tis the season when tassels are turned, mortarboards fly and newly minted graduates receive their hard-earned diplomas. About 3.7 million students will graduate with college degrees in this country. More people are engaged in higher education than ever before. The educational pipeline is brimming with students who seek to learn more and pursue their dreams.

It’s a good story, but not the whole story.

A majority of students will end up with debt instead of degrees. In many cases, they will be worse off than when they started, financially and educationally.

In California, we’re talking a lot about the water drought. But we have another kind of drought that’s been plaguing our state. Our “educational aqueduct” is also running on empty and is an inadequate resource.

We are enduring the consequences of a graduation drought. An enormous river of incredible, diverse talent enters one end of the pipeline and barely a trickle emerges from the other end. And if you factor in income, race and ethnicity, we are talking virtually undetectable drips.

This is not a blamethrower piece on teachers, unions, state funding, parenting or even higher education. Everyone is a culprit because we allowed our system to get to this point. All of us have a real stake in this pipeline and yet we are asleep at the valve.

We simply don’t graduate enough talent. And even for those who do get a degree, many of them are burdened by debt that will crush their ability to fully participate in the economy, buy a house, have a family and ultimately become greater tax-paying contributors to society. When student debt surpassed credit debt in this country, we hardly noticed.

You may be one of those people who says college is not for everyone and we don’t need so many college graduates. You are denying the facts. A college degree generates more income in a lifetime. But it also generates more than that: a healthier life style, better parents, greater civic engagement, the list goes on. College grads earn a better livelihood and they earn a better life! Not only that, but we need an educated workforce to grow our economy, our competitiveness on the global stage and, dare I say, our democracy.

Most public and many private universities are failing to graduate low-income students. And don’t get me started on our “super elite” colleges that limit federal Pell Grant-eligible students to less than 25 percent of their student bodies.

So what do we do about the graduation crisis?

In Los Angeles, we teamed up with the College Futures Foundation to form the Los Angeles Scholars Investment Fund (LASIF), a consortium of 32 nonprofit organizations focused on graduation rates. We have abandoned the one-time scholarships, helping people get into college and wishing them well. This was like christening a boat without giving it navigation or a map. Low-income students in particular are faced with so many daunting challenges: financial, cultural and of course academic. Giving them just an access-based scholarship without support is more dangerous than doing nothing at all.

LASIF focuses on the things that work to help students — particularly low-income students — graduate. Here is what we’ve learned:

  • First and foremost, fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA is free and yet applicants are consistently low across the nation, leaving billions of dollars on the table. In California, only 43.5 percent of students completed their FAFSA in the 2014-15 school year. One hundred percent of LASIF scholars are required to apply for aid and take advantage of all financial resources available to them.
  • Find a school that best suits the student. This seems like a no-brainer, but many students are matched with schools that have abysmal graduation rates. They are matched with schools that don’t provide support for students, especially diverse students.
  • Go beyond academics to develop emotional capital. LASIF partner Project GRAD Los Angeles is one organization that advises students one-on-one from the first day of high school all the way through college. Their model combines academic enrichment with counseling to develop social and emotional competencies that help students handle stress, focus their attention, set goals, and make sound decisions.
  • Deploy mentorship from application to graduation. The Fulfillment Fund, another partner, develops deep mentoring relationships and experiential learning opportunities to help students access and complete college.
  • Engage with parents early and often. College success does not start in college, and can often be enhanced with family support. Our partner Bright Prospect engages parents, in addition to students, in college readiness to ensure this mentality is cultivated both at school and at home.

We are measuring and sharing everything we learn. One thing we are finding is the cost of most of these interventions is very low, making them highly efficient. Today, LASIF scholars have an average graduation rate of approximately 82 percent. While we have a lot to learn and ways to go, we’re more emboldened in our efforts to address the graduation crisis here in Los Angeles. We know we are doing something right when national funders like the Kresge Foundation are investing in LASIF.

If we can support the tremendous flow of talent that is coursing through the pipelines of the educational system — and expand those pipelines so that the graduation rates are more equitable and fruitful for our state — then we may be able to end this education drought.

John E. Kobara is the executive vice president and chief operating officer of the California Community Foundation

May 7, 2015 ~ 0 Comments

Mentorship on the Mountaintop

By Chris Chandler

Celebration-CroppedOn his first trip out into the mountains, Jose got to witness the power of the backcountry.  He was not in the best physical shape and was fighting a cold. He struggled from the start, feeling discouraged and ready to give up. But with encouragement from us and his peers, he kept going. Just as it was getting dark, we reached the top. Looking out from the 10,000 foot peak, he smiled and said to me, “I never thought I’d make it.”

My family impressed a sense of civic responsibility upon me, and I’m inspired by their legacy.  Much of what I hope I can do isn’t as easily measured as dollars and cents, or newspapers, or growing a metropolis – it’s more like what one student, Steve, once told me after an emotional campfire and grieving his missing parents, “You’re the most inspirational person I’ve ever met!’” I still get teary-eyed.

From my wilderness education on a college freshmen orientation backcountry trip, the WYLD has always given me a sense of community and spirituality and then faith.  I’m inspired by mentoring and learning from youth, especially those with high potential and challenging backgrounds, because I can relate with many of them through my own life experiences.

The idea for Wylderness Youth Leadership Diversity (WYLD) came to me and co-founders, Meghan Shearer, Sonja Williams, Franchezska Zamora in 2013, while we were looking for an innovative way to make our outdoor youth education programs more effective. We also recognized that wilderness therapy for veterans was a growing field. By building a relationship Hand-Up-Croppedbetween veterans and the youth we served, both would benefit, using resources more efficiently and, more importantly, addressing incredible needs.

WYLD’s mission is to empower underserved urban youth and U.S. Military Veterans through transformative wilderness leadership programs and mutually beneficial mentor relationships. WYLD envisions a city where every youth and returning U.S. Military Veteran is given an opportunity to explore, connect and discover through nature.

In the wild, our participants learn about shared responsibility, environmental stewardship and the value of diversity. Today, the WYLD Mentoring program is taking root at Carver Middle School in South Los Angeles. We are committed to working with students and their families to provide opportunities throughout middle school and high school and setting them on a path towards post-secondary education. And this summer, we hope to send 32 youth on 3 backpacking and camping expeditions and train 16 veterans on the veterans mentor program.

It is incredibly satisfying to see these young people navigate their way over the mountain, overcoming their own mental challenges with the support of their peers. To see them stand at 10,000 feet, scream “I’m on a MOUNTAIN!!!” and fall in love with the wilderness and discover their own passions, resiliency and potential, has inspired me to give back in a more meaningful and impactful way.

Chris Chandler is the co-founder and executive director of Wilderness Youth Leadership Diversity.  To learn more about WYLD, please visit www.wyld.org or @LAWYLD on Twitter.

April 27, 2015 ~ 1 Comment

Nonprofit Governance: Directors Held Personally Liable for Mismanagement

Gavel-squareBy Ofer Lion, Douglas M. Mancino and Christian G. Canas

A recent court ruling highlights the need for robust governance practices for nonprofits. The Third Circuit Court of Appeals affirmed an award of $2.25 million in compensatory damages against former directors and officers of a bankrupt nonprofit corporation – personal liability for breach of fiduciary duties and “deepening insolvency.”[1]  The case indicates that nonprofit directors may not be able to rely on the “business judgment rule” if they fail to comply with the corporation’s bylaws and exercise reasonable diligence (including by showing up for board meetings) or to act once they are aware of mismanagement by the nonprofit’s officers or employees.

The Case: Lemington Home for the Aged

The Lemington Home for the Aged was a Pennsylvania nonprofit that operated a nursing home dedicated to the care of African-American seniors.  Its decades-long financial difficulties became particularly acute during the early 2000s, under the management of its directors and two officers: the chief executive officer and “Administrator” and the chief financial officer.

The directors allowed the Administrator to run Lemington for six years in the face of abnormally high deficiency findings and independent reports documenting her shortcomings and recommending that she be replaced.  Even after she ceased working at Lemington full-time, the directors allowed her to continue in her role (in violation of state law) and collect her full salary.  In addition, they relied on the advice of the CFO, even after discovering that he was not maintaining Lemington’s financial records and had failed to bill Medicare for at least $500,000.

The board was also in disarray.  Minutes of board meetings, including those involving compensation decisions, were incomplete or non-existent.  Board attendance was often below fifty percent, and at least one director failed to participate in a single meeting over several years.  Although Lemington’s bylaws required a finance committee with a treasurer as chairperson, this committee was not established, and the position of treasurer remained unfilled.

Duty of Care and the Business Judgment Rule

The standard of conduct for directors of nonprofits generally requires that a director perform the duties of a director in good faith, in the best interests of the corporation and with such care as an ordinarily prudent person would use under similar circumstances.

The “business judgment rule” insulates directors from judicial intervention and liability, in the absence of fraud or self-dealing, if the directors exercise reasonable diligence in reaching decisions and honestly and rationally believe that their decisions are in the best interests of the corporation.  Thus, its successful use depends on whether the directors’ reliance upon the information provided by one or more officers (or others) is in good faith and on whether there is a reasonable basis for relying upon such officers.

The court in Lemington Home for the Aged held that the evidence supported a finding that the directors breached their duty of care by failing to take action to remove the officers once the results of their mismanagement became apparent.  In other words, the directors did not exercise reasonable prudence and care in continuing to employ the two officers.  Furthermore, the board’s failure to follow its own bylaws and continued reliance on the information provided by the two officers, in the face of numerous red flags, supported a conclusion that the directors did not exercise reasonable diligence.  As a result, the court found that the business judgment rule should not shield the directors from liability.

Responsible Governance

The board of directors is ultimately responsible for management of a nonprofit.  The following recommendations are examples of strong governance practices that seek to ensure that the board’s duty of care is fulfilled.

  1. Bylaws.  To ensure that directors can fulfill their duty of care and thereby reduce their risk of personal liability, a board’s practices should remain consistent with the nonprofit’s bylaws (e.g., establish all required committees, ensure that the number of directors in office accords with the number or range called for in the bylaws, etc.), which should be reviewed regularly and amended when necessary.
  2. Term Limits and Turnover.  Short term lengths and limits on the number of consecutive terms a director may serve (as opposed to total number of terms) can help prevent board stagnation while reducing the artificial loss of qualified and experienced board members. In addition, staggered terms may ensure that experienced directors’ terms do not expire at the same time.  Vacancies in either director or officer positions should be filled as soon as possible, and directors who consistently fail to attend meetings should be reevaluated and replaced if necessary.
  3. Meetings and Minutes.  Board and committee meetings should be carefully planned and facilitated to foster full attendance, participation and thoughtful decision-making in the best interests of the nonprofit.  Minutes of all meetings should be taken and retained with the corporation’s records. Aside from being required by law, they may also provide evidence that directors faithfully discharged their various fiduciary duties. Minutes should include the names of all attendees, what votes were taken and how each director voted, including any objections or abstentions.  When the board or a committee acts on any matters for which there are specialized voting rules, such as where there is or may be a conflict of interest or in setting executive compensation, the minutes should note how those rules were met.  In many cases, information or documents the directors relied on when making their decision should also be appended to the minutes.
  4. Officer Evaluations.  Officers serve at the pleasure and under the supervision of the board, and their evaluations should be a significant component of a board’s responsibilities.  Evaluations are critical to ensuring officers are meeting the board’s expectations and fulfilling the duties delegated to them by the board in managing the nonprofit’s operations and finances.  If the board becomes aware that an officer is not fulfilling his or her duties, immediate corrective action may be in the best interests of the nonprofit.
  5. Director Compensation.  Board and committee members are expected to keep informed with respect to organizational, industry and regulatory developments, be prepared in advance of meetings and contribute their expertise and judgment in advising management.  Because personal liability is a real concern, even when reduced by statutory protections and insurance, an increasing number of nonprofits, particularly those primarily funded with program services revenue (e.g., healthcare, higher education, etc.), are paying directors’ fees in order to attract and retain qualified and experienced directors.  Director fees may also serve as a sort of moral deterrent to complacency.  Once they are being paid, even if the amount is relatively insignificant, directors may feel bad if they don’t diligently prepare for and attend meetings.  You get what you pay for, and paid directors may feel like they have to give nonprofits their money’s worth.

Conclusion

The award of $2.25 million in compensatory damages against former directors and officers of a nonprofit corporation is a stern reminder that both directors and officers of nonprofit corporations may be held personally liable for breaches of their fiduciary duties.

Nonprofit boards should regularly review and update their governance practices to ensure directors are meeting their fiduciary duties and reduce the risk of personal liability.

[1] In re Lemington Home for the Aged, No. 13-2707 (3d Cir. Jan. 26, 2015).

Ofer Lion, Douglas M. Mancino, and Christian G. Canas, attorneys at Seyfarth Shaw LLP, represent tax-exempt organizations and nonprofits on a wide spectrum of tax, corporate, governance, and fiduciary issues. For more information, please visit http://www.seyfarth.com/Tax-Exempt-Organizations. The contents of this blog are for general information purposes only, and should not be construed as legal advice. You are urged to consult an attorney for legal advice concerning your or your organization’s specific situation.