Business Models

Tweet Me Your Gift Now

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Non-Profit Quarterly (NPQ) had a piece today encouraging people to pay attention to the fact that Chinese are using social media service Weibo to give directly to the needy. The NPQ piece is in reaction to a Washington Post article about how recent charity scandals had turned a lot of Chinese off from giving to the state approved charities. Now people are using services like Weibo (China’s Twitter/Facebook hybrid social media service) to give to people directly, even though it is illegal to do so.

The scandals have shaken public confidence so badly that the Chronicle of Philanthropy reported in June that giving in 2011 was down to $7.9 billion from $9.5 billion in 2010. The Chronicle’s numbers come from a story on the state run China Daily which attributed the drop to a number of factors in addition to the scandals, including the economic downturn and general giving practices in China.

“In China, people’s willingness to give is ‘disaster-driven’ while in the US, donating is a habit.”

He added that the Chinese philanthropic sector’s over dependency on corporations could be another possible explanation to understand the dramatic changes in donations.

“Our research shows that companies, especially private companies, are dominant contributors. Last year, many export companies suffered from the global economic downturn, so they didn’t have much money to donate,” said Deng.”

What interested most about these stories wasn’t so much that people are using social media to give. We already know that is becoming a bigger factor in giving in the U.S. and recent laws are making it easier to crowd fund projects.

What I was paying attention to was that people were giving via social media even though they acknowledged that it is no more transparent and just as ripe for exploitation as giving to an official charity. In fact, some Chinese observed that personality and good looks seemed to motivate giving more than need in a few cases.

There seemed to be a psychological factor inherent to giving to someone directly that gave people a higher degree of confidence in the act of donating.

The US doesn’t have scandals the size of those in China, but there is still a lot of conversation about administrative overhead and Non Profit CEO salaries. Even though these criteria are generally unfair, they can still motivate giving decisions.

There is an old adage that people don’t give to organizations, they give to people. Based on these stories about China and some general observations I have had about the way people generally behave in the US, non profit arts organizations may find they need to provide giving mechanisms that give people a much more immediate sense of connection and response than in the past.

In addition to the ability to give online, an arts organization may need to allow people to give via their smartphones so that patrons can donate during a performance and immediately gain the sense that they are supporting that actor/singer/dancer that just came onstage. If the person walks off stage before they can give, it may be too late.

Two years ago during a public radio fund drive I was so moved by the quality of the show I was listening to, I pulled over into a parking lot to make my pledge because the show was almost over and I felt like I needed to make my pledge before it ended. There wasn’t really any reason not to wait until I got home because the money was going to the station and not the show directly and I already knew I was going to give again that year—But I just had to show my support for that show!

As people become accustomed to giving to things like Kickstarter projects, non profit arts organizations may find themselves having to solicit donations specifically for each project they plan to do rather than based on a general promise to do quality work as has been typical.

Arts organizations may be faced with the dilemma of positioning their programs this way. Restricted donations have always been a problem for non-profits. Do you want to be faced with having every $25 donation restricted to a specific project because people are more motivated to give to something to which they feel a direct connection?

You might as well have a for-profit structure if you are going to have market demand dictate what is funded, eh?

Info You Can Use: If You Missed Your Chance To Steal It Before

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While Oscar Wilde may have said, “Good writers borrow, great writers steal,” and blogging by its nature does involve citing others quite a bit, I generally try to avoid having my blog entries involve someone else’s work entirely.

However, occasionally someone provides information that can prove so valuable, it pretty much bears repeating entirely. Last month Thomas Cott assembled a series of links in his daily email which he titled, Steal This Idea.

Many of those he linked to posted entries urging people to steal their ideas, including Trisha Mead on 2AMt , the Association of College Unions International’s Steal This Idea contest and the Please Steal This Idea blog.

After reading this series of articles, you could almost forget that companies are actually concerned about preserving their Intellectual Property rights.

There are a lot of great ideas for the arts in these links. I must confess however that one which resonated very closely with me was an article from the Library Journal (also titled Steal This Idea) which talked about how the Hartford Public Library solicited ideas from their patrons and created a series of library cards people could pick and choose from.

This is a great idea for cultivating a sense of ownership among arts patrons and subscribers. However, the reason it resonated so closely with me is because I actually have kept every library card I have owned since I was a kid. And since I have moved around a fair bit in my career, my collection is between 10-15. Had those libraries offered a choice of more personalized cards, I would have probably “lost” my card frequently so I could add to my collection.

One interesting idea that Cott hadn’t included was covered by Sarah Lutman of the Speaker blog. She discussed the Great River Shakespeare Festival’s (GRSF) decision to sell 10 year bonds to fund their organization. The board of directors authorized the sale of 100 bonds at $5000 each. As of a month ago, they had sold 39.

Though there is some hope that at the end of the 10 year period, people will roll over or donate the proceeds of the bond to the organization rather than calling it due, GRSF is prepared to pay 4% annually on the bond. And they may choose to repay the bond at the end of the term rather than having it roll over. Ownership of the bond can be transferred.

The legal and filing fees for Minnesota were under $2000. It may be more in your state. It is an interesting idea to get people literally invested in your organization. There is some precedent for this sort of thing. The Green Bay Packers football team is a non-profit corporation and has famously offered stock to support their operations.

Fans grab shares when they are made available mostly for the pride of claiming ownership because the team doesn’t pay dividends. How much better is it then to be able to proudly invest in your favorite arts organization and actually be promised a financial return on top of whatever benefit the organization has to the community.

Misunderstanding Your Competition

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To pick up from my last post about the Set In Stone report, the one aspect of the research I was intrigued by was their survey of people’s perceptions of the impacts (or lack thereof) of a new construction project.

As you might imagine, those who perceived themselves to be direct competitors were the least enthusiastic about a new building project. However, the groups who were most enthusiastic were those who were in the same district as the project, but didn’t view themselves as competitors.

Nope, No Impact Here

The report writers note both the positive and negative impacts of a new project- It might compete for audiences and revenues on one hand, but could also bring additional vibrancy to the area attracting businesses and traffic. Interestingly, the perceived impacts of a new project were pretty low.

• No higher than 28 percent of organizations in any subsample believed any change in their attendance was due to the new project opening; that subsample was the most closely linked to the project (competitors in the same district). The full sample result was only 12 percent believing the project opening affected their attendance.

• While 40 percent of competitors in the same district believed the project opening had an effect on new businesses opening in the area…Only 23 percent of the full sample believed the project opening was the key cause of new businesses in the area.

However, in terms of general impact, people were quite positive in their outlook about the project.

• When the question about community impact is posed in general terms, dramatically positive views are expressed. The question “Do you think the project makes the city a more attractive place to live?” generated a uniformly enthusiastic response, with the full sample generating 88 percent positive responses, and competitors within the same district reporting a 96 percent positive response.

There was also a lot of enthusiasm about the impact the new project would have in the community in advance and immediately upon the completion. However, according to the report, after the completion, enthusiasm dropped about 8% for the overall sample. However, for the group that was most enthusiastic–those in the same district who didn’t view themselves as competitors that I mentioned earlier–their optimism about the impact on economic development dropped 16 points.

I should note that the report writers emphasize that it is difficult to separate general economic conditions from project specific conditions as factors in the decline in optimism. They don’t know if the decline is due to problems with the greater economy or specific to the projects.

Foes Are Just Friends Who Compete With You

What was also interesting to me was the perception of competition versus collaboration people had in relation to projects. Those who viewed themselves as direct competitors were most likely to view the project as creating a more competitive environment while those who were located in the same district but did not view themselves as competitors felt the project created a more collaborative environment.

And yet,

Ironically, the group with the highest percentage of organizations believing that cultural organizations feel more competitive (competitors in the same district, also had the most optimistic view about increased tourism (52 percent believed it had increased). Thus, there is no evidence that community organizations link their views about changes in tourism to their views about the effect of the project on the competitive/collaborative climate.

The section of the study about competitiveness was very intriguing to me because so much of it was based on perception rather than reality. Just because people didn’t identify themselves as competitors, doesn’t mean that is really the case. The study found proximity was often a factor in identifying a project as a competitor, even if the cultural discipline didn’t match. You might expect that a museum might view a nearby performing arts center as a competitor.

Yet the study found (and I paraphrase for clarity) that a slightly higher percentage of those who identify themselves as non-competitors were located in the same district and were a cultural discipline match for the expansion project. The report authors state this “is inconsistent with expectations and inconsistent with the results observed for the “competitor” subsamples.”

You Can Have My Audience, Performers and Employees, Just Leave The Money

It made me wonder if there was a degree of wishful thinking/willful blindness among other cultural organizations that the expansion project represented a threat to them. These results left me wondering and wishing the survey had included data on whether local conditions improved or not in the wake of a project. I suspect given the scope of the study, they were unable to assemble a dependable data set to make this comparison.

Still it raises a lot of questions about how accurately cultural organizations, and I daresay businesses as a whole, assess the impact of developments on the economic conditions of their communities. I suspect the assumptions arts and cultural organizations make are little different from those other businesses make about the impact that will result upon the arrival of a big box retailer like WalMart, Best Buy or Home Depot.

Not surprisingly, money seems to be the dominant factor. The study found that the greater the funding for the expansion project came from non-local sources, the less people expressed concern that the environment had become more competitive. The perception of the economic climate seemed to be based mostly on whether the expansion project was making it more difficult to fund raise rather than whether the project was competing for audiences or talented artists and employees.

I wonder if this is something of a statement on the relative importance/availability of funding versus audiences and talent for cultural organizations: People are more easily replaced than money.

Info You Can Use: Outside Audits And You

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During the summer many non profit boards of directors suspend their meetings due to the difficulty of scheduling meetings around members’ vacations. When meetings start up again in the fall, it may be a good time to think about revisiting organizational policies.

Using the Sarbanes-Oxley Act, which currently only applies to publicly traded companies, as a guide Independent Sector (IS) and BoardSource have drawn up a checklist of good governance practices to implement.

There is also a link to a more expansive discussion of the topics in the checklist you may wish to read.

While the act currently only applies to public companies, financial impropriety in the non-profit sector has lead many to explore how sections of the law might be applied to non-profits or to suggest the creations of similar rules for non-profits.

The bulk of the rules apply to auditing and financial disclosures though some deal with conflict of interest, record retention policies and whistler blower protections.

One of the biggest challenges in applying the recommendations from the law is that while publicly traded companies have to pass certain milestones in terms of size and assets before going public, non-profits come in all shapes and sizes. An outside audit is really only practical for some large non-profits (and required for those receiving more than $500,000 in federal funds.)

Most non-profits should at least have an independent audit committee, but as the article notes, many smaller non-profits will have difficulty finding a qualified people to be treasurer, finance committee and audit committee and good governance requires there not be significant overlap.

For those who do use an outside auditor, though the Act only requires the lead partner of the auditing company change every 5 years, IS suggests the company be changed every 5 years and that the company not provide any other services, except tax return preparation as pre-approved by the board, to minimize conflict of interest.

For those organizations using an audit committee, it is suggested none of the members of the committee have any financial/business interest with the non-profit.

The very bare bones, basic criteria for a board that IS suggests is that they all receive training to become literate enough to understand the organization’s financial documents. IS says it is important that when the organization signs off on their 990 that: 1- the 990 is actually completed comprehensively and accurately, something that is infrequently done; 2- that the signature actually reflects an understanding of the organization’s financial condition.

I have talked about conflicts of interest policies in the past and the IS document doesn’t really discuss this in as much detail as the financial disclosure.

One thing I was not aware of and wanted to share is the whistler blower protections. You may be aware that it is illegal to take any retributive actions against those who report misconduct: firing, demotion, harassment, passing them over for promotion. What you may not know is:

“Even if the claims are unfounded, the organization may not reprimand the employee. The law does not force the employee to demonstrate misconduct; a reasonable belief or suspicion that a fraud exists is enough to create a protected status for the employee.”

I wasn’t aware that the criteria to achieve whistle blower protection was based on a reasonable belief rather than requiring some sort of evidence. Perhaps I have been watching too many crime dramas–or perhaps not enough of the right types.

In any case, it is important to have good clear policies about employee conduct, financial and accounting practices, conflicts of interest, records retention (which includes email and voicemail) in place long before any of these things become issues.