Stuck Between a Financial Crisis Wrought by the Founder and a Hard Place
A deputy director describes the crisis at an organization where the founding executive director left, and how the organization almost closed.
Article Highlights:
Lessons learned from being thrown into a doomed, untenable situation.
When I started with this Brooklyn organization as the deputy director, there was an understanding that the executive director, who had been there 20+ years, was going to retire in 3 to 5 years. She was the founder. The organization was trying to be thoughtful about the founder leaving, trying to be proactive.
We went through a major strategic planning process, worked on executive transition, and brought in a transition consultant. We did all the right things: we had the right committees and the ED announced her retirement fully a year ahead of time.
I didn’t see any problems coming
They hired someone, but then after this candidate accepted the job, she pulled out at the last minute.
It was then the outgoing director began acting out.
We were just at the end of our budget year. The outgoing director met with the board finance committee and the executive committee and made the case that she wanted severance of 30 weeks of full pay (one week per year of service) with full benefits, and a consulting contract for about half time — because no one had her expertise.
In addition, she urged the upgrade of two half-time positions to full time. The effect of all these changes was to add approximately $120,000 in uncovered expenses to the budget.
The board — they were her handpicked board — said yes! The treasurer, though, resigned in this process because she found the situation unsustainable. I agreed with her.
The original ED left, and in the window between executives, the board appointed me as interim. (The board had asked me if I wanted to apply for the job, but I knew I would be moving out of the area in about a year due to my husband’s job, so I respectfully declined to apply.)
Crisis
As we spun into financial crisis, I stopped giving myself a paycheck. I tried to talk to the now former ED and tried to get her to step back from her severance package so the current staff could continue to be paid.
She wouldn’t take my calls or answer my emails. I went over to her house finally. She said, “I don’t want to hear about it; this is your problem now. I need my money.” I felt her attitude was: “I was everything. See if you can survive without me.”
The board advised me to keep sending her the severance payments. I thought to myself, “You’ve got to be kidding; you’re going to pay her over the people who are still working here?”
I was devastated by the destruction to the organization during this whole time. I was not sleeping. I felt like I’d been thrown into this interim position and felt like I was completely responsible for trying to make something work even though it was a doomed, untenable situation. I spent a lot of time on my knees, praying for, hoping… is there a way we can solve this?
I didn’t have contacts with the donors, but I contacted them. It was an awkward place of calling people who didn’t know me and asking for help when we didn’t have a new director and their loyalties were to the former director. We were losing ground every day. It was horrific.
A new director comes, only to close it down
I had given my notice by the time a new director started. She was not told about the financial situation; the board had handled all the contact with candidates. When she got there and got a picture of what was going on, I became an easy scapegoat that allowed her, the founding director, and the board to be allies.
After three months — maybe not even that long — she laid off the entire staff, and recommended closing the doors. Volunteers and long-time supporters rallied to save the organization, which has now rebounded to a place of real strength, returning to its core mission… albeit as an all-volunteer organization.
When I look back on it, the old ED wanted to leave the organization looking like a successful, dynamic organization. Her sense of self was very attached to the organization.
Onto my new job: lessons learned
I’ve got some of that identity issue here now — but for me, I try to maintain clarity that being the executive director of these health clinics is only part of my identity.
In terms of the board, I am very open with them, almost to a fault. In terms of finances, we don’t put a single thing in our budget that I don’t have commitments for on paper (such as a contract or grant). I know this is residual from what happened at my previous organization, and that probably I’ll soften over time.
In my current position, I’m the longest serving ED (seven years). Now that I’ve been here awhile there’s a whole lot of trust between the board and me. Some of them even give me the impression that I can almost do no wrong. So we’re doing that kind of dance in board development where I have to remind them of their responsibility, wanting their trust and yet not wanting them to hand over the farm.
My consistent message is, “I need you all to continue to keep me in check appropriately.” I am very conscious about the fact that I don’t want to move into guru-hood.
For me personally, I’m also a minister; serving as ED of the clinics is my community ministry. Given that other identity, I feel I have a good level of self-awareness and try to learn from mistakes. I also tend to look at things from a systems perspective and am intentional (as best I can) about not personalizing situations to be about me but about the organization and the mission. I feel it’s made me a better director here.
See also:
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- Treasurers of All-Volunteer Organizations: Eight Key Responsibilities
- An Easy-to-Use Accounting Procedures Manual Template
- A Guide for Private Foundations: Tax Exemption and 990-PF Filing Requirements
- Why is it Hard to Give My Money Away? A Donor’s Perspective
- Nonprofit Grant Proposal Budget Calculations: A Road Map
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About the Author
Judith Long is executive director of The Free Clinics which provides free healthcare to low-income, uninsured residents of Henderson County, North Carolina. She also serves as president of the North Carolina Association of Free Clinics. She is an ordained Unitarian Universalist minister and has a Masters of Divinity from Harvard Divinity School.
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It does make me wonder how any new executive director can accept a new job without seeing/grasping the financial situation. Doe someone never ask or does a board just never divulge. Am I just being naive???
I took on a part time job as the CFO for a struggling non-profit, thinking I could help repair any bad situation. I knew it was bad, but it wasn’t until I got in the job that I could really appreciate how bad it was. Maybe the new ED didn’t really appreciate how bad it really was and those of us in the non-profit world tend to have “savior” syndrome.
I would like to believe that the behavior of that founding ED was an isolated incident, but it is not. We all see it every day, Executive Directors giving themselves unnecessary and over the top perks/compensation, enhancing their own salaries while cutting staff salary and benefits and the nauseating sense of entitlement. I will never understand how people become lulled into thinking they deserve any more than their staff or that they are so unique no one else could do their job. I am an ED. I make $5,000 more than the next lowest paid individual in my organization. My annual raises (when we get them) are at the same percentage level as staff. I have the same benefits as the staff and pay the same amount for them, I don’t receive anything that isn’t available to my staff. Being an ED is a privilege, not your personal shot at pillaging your organization for personal gain. I understand that the bad behavior is the exception, but the betrayal of trust is so galling it is difficult not to overreact.
While I wouldn't condone this outgoing E.D.'s behavior as it's been portrayed by the author, I do not understand why so much blame is being laid at this one person's door. There was a Board of Directors and they are equally, if not more so, responsible for the actions taken and more importantly, not taken, over the multi-month period described. So, all the right transition steps were in place and going to plan until the new incoming E.D. backed out at the last minute. An alternate perspective could be that the outgoing E.D. came up with a plan that allowed her to still step down but also ensured critical support for the organization in an unexpected transition environment. Why shouldn't she be compensated for this? If not her, someone else would have been & possibly with a higher price tag. Why didn't the Board adjust the two full time positions? Some pieces seem missing here but obviously the author paid a heavy emotional toll and for me serves as a solemn reminder that E.D.s should also thoroughly research & interview members of the Board before accepting a position. As for commentary that E.D.s are giving themselves "unnecessary and over the top compensation," most E.D.s I know have Boards to answer to. They are giving 110% every day, often put themselves last on the totem pole while compensated below or barely at the average level for their region. But hey, some are probably a little curious just where they might find themselves these other kind of E.D. positions?
Interesting article about a common occurrence, senior staff and board not understanding their roles and obligations and/or not willing to risk the personal tensions associated with ensuring the creation of a viable institution. For example, why was it that the Deputy ED not had contact with donors before the crisis? Not for assisting with the transition, but a Deputy ED should have known some of the donors on a personal basis (unless the person was new). Having the right board is so critical to the long-term health and success of an institution. For me, the article is a reminder that attention must always be paid to organizational development issues.
I know of a situation where the ED has been there for 38 years (he's way past retirement age). The board is hand-picked and he runs it and the organization with an iron fist, happily admitting he is a dictator. It's a toxic situation that has turned into molten lead. With the exception of a few apple-polishers, good staff come and go, the attitude being "there's always another one to take their place." This kind of dysfunction is all too common in the world of non-profit – no balance, personality cults, indispensable leaders. The mission becomes a vehicle to glorify an icon. Would this be tolerated in the for-profit world? It's enough to make one want to leave the non-profit sector behind.
Do not fall into the trap that these kinds of problems are only in the nonprofit sector. The for-profit sector is far from a meritocracy. "No balance, personality cults, indispensable leaders" . . . perfect description of many family businesses, many churches, many large corporations, many mid-size companies, many foundations.
Other people who know this organization and people don't think it came down this way. Some people other than the founder blame the author. I myself don't know the truth but do think we should realize that a situation can be interpreted very differently by different, reasonable people.
As someone who also knows the organization in this story, this is a reminder to me that there is always more than one side to a story, and this one actually gets quite a few things wrong (including that it did not become an all-volunteer organization). Accountability from the board is definitely an issue here, and also an awareness of how very fragile so many of our nonprofits are, and that one set-back, in this case the loss of the new incoming ED, can throw a transition into crisis mode. While blaming the founder for everything that went wrong is very tempting, it’s not actually accurate and does a disservice to those of us trying to figure out a process that works for everyone.
One would think an incoming ED would perform due diligence on the organization, including the opportunity to review financial statements, meet with senior staff members, including the interim director to assess the health of the organization. That is not to say that, having discovered the true picture, the incoming ED wouldn’t accept the job. However, the new ED would have a picture of what his/her challenges are going to be.
I took on a part time job as the CFO for a struggling non-profit, thinking I could help repair any bad situation. I knew it was bad, but it wasn’t until I got in the job that I could really appreciate how bad it was. Maybe the new ED didn’t really appreciate how bad it really was and those of us in the non-profit world tend to have “savior” syndrome.
I’m curious about the one week per year part of the ED’s package. I’ve actually heard that mentioned before as the standard. Although when it came up before it was as part of a negotiating stance to remove an ED.
I wonder if others have heard this or a similar rule?
Also, did this nonprofit have any kind of retirement set up for the ED? Or was this 30 weeks it?
The organization only added an 403b plan for employees at a 3% match about 3.5 years prior to the ED’s retirement.
This sounds a lot like my experience, except mine was at a bank. Our bank went under during the 2008 economic crisis and was bought out by another bank, and sometimes I feel like our higher ups have no idea what they are doing. I smiled while reading some parts of the article because I find myself identifying with a lot of things.