Sunday, October 7, 2012

Dueling Boards for One Nonprofit: Would You Do this for Your Association?

Here’s a new definition of insanity:  create two boards to be “in charge” of one nonprofit organization!

That’s what has happened with “big five cultural institutions” in St. Louis (Zoo, Art Museum, Science Center, Botanical Garden & History Museum).

And, it has exposed the underbelly of accepting taxpayer funds to support your nonprofit.

The St. Louis Post-Dispatch (P-D) has been running a series of articles about the Missouri History Museum (MHM) “gone wild” in going around its politically-appointed commissioners. As an association professional, I think the organizational structure unveiled about “vital big five” St. Louis institutions is a much bigger issue.

As a means to enhance financial resources and financial stability, the cultural institutions asked voters to approve a tax-payer funded “Zoo-Museum District” which assesses a property tax on residents of the City and County.

A politically-appointed Zoo-Museum District Commission was created as part of the “legislation.” In addition to the overall “district commission,” the authorizing legislation created separate politically-appointed commissions for each participating cultural institution.
As a result, each nonprofit institution now has two boards: the original “governing board” created when the organization was incorporated and the politically-appointed “commission” for the taxing district.
Confusion over Role of NonProfit Board of Directors The resulting two boards has created confusion among politicians apparently thinking the commissions they appointed are “in charge” of the institutions and the news media who don’t understand nonprofit governance.

Interestingly, the P-D article claims that “each of the institutions also has a nonprofit arm, with a nonprofit board of trustees, generally created to raise private funds or manage endowments.” The story quoted the Executive Director of the Zoo-Museum District as saying “it is the commissioners who run their institutions with the nonprofit trustees taking the backseat.” 

Fundraising? Backseat? Excuse me! Tax exempt organizations (501(c)(3)s) are required to have governing boards who are responsible to members and/or donors. Governing the organization is their principal role. 

 Since nonprofit organizations are created under state law that includes articles of incorporation that spell out the governing board, I’m curious as to how the politically-appointed commissioners are “running their institutions.” I’m assuming that the statute that created the taxing district and commissions did not change, modify or override the articles of incorporation under which the nonprofits operate. 

 And, what gives the politically-appointed commissions the authority for oversight of non-taxpayer budgets and funds? Given that they are legal entities with separate governing boards, that doesn’t make sense. 

In their book Race for Relevance, Harrison Coerver and Mary Buyers talk of the need for smaller, competency-based boards. Yet, the Zoo-Museum District legislation:

• imposes a politically-appointed Commission “over” the nonprofit’s Board.
• creates confusion over who is responsible for governance of the organizations.
• adds “politics” rather than competence to the governing boards.

In establishing a “second board (commissioners),” the legislature created the potential for chaos from the get-go; it’s surprising there has not been public issues before this. The St. Louis Zoo-Museum District represents a case study on how NOT to structure organizations.

Some background:

  • The Missouri History Museum was founded in 1866. 
  • Until 1987, it was funded by member dues and donations. 
  • In 1987, voters in St. Louis (city & county) approved including the MHM in the St. Louis Zoo-Museum District which assesses residents a property tax of which MHM receives 4 cents.
  • The legislation created a Zoo-Museum District Board plus created a 10-member Commission for each entity receiving the tax funds. The city’s mayor and county’s executive each appoint five members to the Commission for each museum or zoo receiving tax payer funds.
  • 59.5% of the Missouri History Museum’s budget comes from taxes.
  • The P-D article says that the MHM and its Commissions reached an agreement through which the MHM’s board – not the commission – is responsible for Museum’s operations. This arrangement apparently differs from those of the other four museums which apparently puts the appointed commissions above the non-profit boards in terms of “running” the entities.
  • The P-D piece says that a 36-page audit report says the Museum is “run with little government oversight, despite millions of dollars a year in tax support.”
NOTE: I have no affiliation with the MHM and am not a member or donor of the organization.

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