Case Notes for Chapter 1: the Nature of the Sector

Libby, Deitrick Cases in Nonprofit Management: a hands-on approach Instructor Resource to problem solving

Case Notes for Chapter 1: The Nature of the Sector

There are four cases contained within this chapter:

Case 1.1: Social Enterprise within a Nonprofit Organization: Independence Matters Case 1.2: To Start or Aid an Existing Organization: No Good Deed Goes Unpunished Case 1.3: When Mission and Money Collide: What Is the Essence of a Nonprofit? Case 1.4: Why Bylaws Matter: A Hostile Takeover Attempt Libby, Deitrick Cases in Nonprofit Management: a hands-on approach Instructor Resource to problem solving

Case 1.1: Social Enterprise within a Nonprofit Organization: Independence Matters

Summary

A nonprofit serving people with physical disabilities launches a for-profit business to earn income.

Analysis

The business arm of the organization grows quickly and exponentially, raising questions about how the organization should dedicate its time and resources and whether it is drifting from its core mission.

Drawn from an event reported in the press?

No. However, it was taken from a story told to one of the authors.

Questions that appear at the end of the case

1. What is the defining difference between a nonprofit organization and a social enterprise organization?

2. What are the legal and financial implications of a nonprofit wholly owned social enterprise?

3. Is IMR causing Independence Matters to drift from its core mission?

4. Are there any apparent conflicts of interest in the current setup of IMR as a program of Independence Matters?

5. Are there operating structures that could be put in place to minimize conflicts and ensure accountability?

6. Are there ethical implications for a social enterprise that generates more revenue than is needed to fund the operations of the nonprofit parent? For instance, what about the time and energy needed to oversee both arms of this work?

Some Key Points Related to Case Questions

This case centers on the distinction between nonprofits and social enterprises, specifically, the legal and mission-related differences between these types of organizations. The nature of social enterprise institutions is governed by state law. All are for profit, although some are limited or low profit by design (LLCs, B corps, Benefit Corporations). While foundations can use program-related investment (PRIs) funds to underwrite these corporations, contributions to them by individuals and other entities are not tax exempt. Nonprofits have different, generally stricter governance and accountability standards. Nonprofits may have for-profit arms, and many do (such as community development corporations). See Social Enterprise Journal, Stanford Social Innovation Review, and Journal of Social Entrepreneurship. Download the article: http://js.sagamorepub.com/jnel/article/view/6171 Jones, J., & Donmoyer, R. (2015). Multiple meanings of social entrepreneurship/enterpriseand their implications for the nonprofit field. Journal of Nonprofit Education and Leadership, 5(1), 12–29. Libby, Deitrick Cases in Nonprofit Management: a hands-on approach Instructor Resource to problem solving

Case 1.2: To Start or Aid an Existing Organization: No Good Deed Goes Unpunished

Summary

A well-intentioned man starts a literacy program in his taco shop in response to a need he sees. He expends money and energy before discovering that an existing, well-established nonprofit offers the same services for free.

Analysis

The case raises simple questions about research that needs to be done before starting a nonprofit organization.

1. Do you think what happened to Miguel is common? What was his biggest mistake? 2. What if there was no other literacy program in the neighborhood or surrounding community? 3. What changes would you suggest to improve how Miguel went about forming his organization? 4. Make a list of the steps that must be done before starting a nonprofit organization. 5. Using the list you developed above, please list the steps in order of what needs to be accomplished first, second, third, and so on.

Many well-intentioned people (especially young people!) launch nonprofits without first investigating what other organizations, if any, are engaged in the type of work they would like to pursue. The case should hopefully be a wake-up call to students that are headed in this direction, prompting them to do research at the local level into organizations that do similar types of things. The case also raises questions about all of the considerations pertaining to starting a new organization—what to think about in terms of incorporation, mission, board leadership, finances, etc. See National Council of Nonprofits; http://council ofnonprofits.orgon how to start a nonprofit. Libby, Deitrick Cases in Nonprofit Management: a hands-on approach Instructor Resource to problem solving

Case 1.3: When Mission and Money Collide: What Is the Essence of a Nonprofit?

Summary

A hospital CEO knowingly violates Medicare rules for palliative care compensation because its CEO fervently believes that those rules are not in the best interest of patients. A whistleblower exposes the fraud, and the government issues significant fines and penalties. The board wrestles with what to do, including possibly selling the palliative care unit to a for-profit organization.

Analysis

As stated in the title, the case raises critical questions about mission as well as governance, policy advocacy, and the business model(s) of nonprofit organizations.

Yes, taken from what occurred at San Diego Hospice and reviewed by an expert. See Slowly dying patients, an audit and a hospice’s undoing, reported in KHN (Kaiser Health News). http://khn.org/Stories/2013/January/16/san-diego-hospice/

1. As a board member, what information would you need to make this decision? Which staff members, if any, should be involved in this decision? 2. What are the consequences to Memorial of selling the PCC unit to Tom Windwood, who heads a for- profit operation? Would you recommend the board vote to move in this direction? 3. What kind of public announcement, if any, should the board make to the press about the investigation? What should be the timing of that announcement? 4. Who within the organization should be held accountable for what occurred? 5. What kind of interaction should the board have with its donors concerning this information? 6. How should information about this inquiry be shared with the PCC staff? 7. How does this case relate to Bryce’s characterizations of a nonprofit mission as described in the introduction to this chapter? 8. How might a situation like this be avoided in the future?

Some Key Points Related to the Case Questions

The board needs to wrestle with the mission of the organization as well as its vision in order to determine how it wishes to expend its resources (staff, time, money). Thought needs to be given to the organization’s role as a leader in the palliative-care field and, if it wishes to continue as such, whether it should engage in advocacy to change the Medicare reimbursement rules. The staff must be held accountable for falsifying records. Internal monitoring systems must be put into place regarding rules/fiscal compliance. One-on-one meetings must be held with key donors, and the staff must be briefed on the matter. Libby, Deitrick Cases in Nonprofit Management: a hands-on approach Instructor Resource to problem solving

Special notes

This case would be excellent for a role-play exercise. It has seven characters (six men and one woman).

Case 1.4: Why Bylaws Matter: A Hostile Takeover Attempt

Summary

A community development corporation’s (CDC) bylaws expose it to the possibility of a hostile takeover by a real estate developer who wants control of a property owned by the CDC that abuts a rapidly gentrifying neighborhood.

Analysis

The case raises questions about the governance role of members in community-based organizations that are dedicated to community empowerment. It asks whether community-based democracy can take different forms and begs questions related to the costs and benefits of maintaining a membership-control organization.

It was loosely drawn from the hostile takeover attempt of the Sierra Club as well as from the author’s extensive experience working with CDCs.

1. Who within a nonprofit is responsible for reviewing its mission? Are the stakeholders with that responsibility the same regardless of the type of nonprofit organization? 2. Several board members feel strongly that the CDC’s bylaws should not be changed in order to preserve the open and democratic tradition of the organization. What are the arguments for and against changing the bylaws? Do you believe they should be changed? 3. If you believe the bylaws should be changed to prevent this type of situation from happening in the future, in what ways would you recommend they be changed? a. Is there a way to change the bylaws and still preserve neighborhood involvement? Specifically, what do you think about the current membership system that is in place? b. Is it good practice for half of the board to turn over their seats at the same time? Why or why not? c. What role should a board nominating committee play in selecting board candidates? 4. What actions, if any, could have been taken to avoid this conflict with Jim Stone?

The main underlying question asked by this case is whether community-based democracy can take different forms (it can) as well as what are the costs and benefits of maintaining a membership-control organization. The organization must look deep into its historic roots and mission in order to answer questions about these issues. More basically, it is a best practice for bylaws to reflect that boards turn over 1/3 of their seats at any given time to ensure continuity. State offices of the Attorney General have specific rules for bylaws governing nonprofits in that state. These should be referred to as part of this case. Libby, Deitrick Cases in Nonprofit Management: a hands-on approach Instructor Resource to problem solving