The National Cancer Society: corporate governance in a nonprofit organization.

Elson, Raymond J. ; Holland, Phyllis G.

CASE DESCRIPTION

The primary matter of this case concerns corporate governance in a nonprofit organization. Secondary issues examined include motivation of volunteer members in an organization and organization lifecycle. The case has a difficulty level of four, appropriate for senior level (it could also be used for first year graduate studies, level five). The case is designed to be taught in two class hours and is expected to require three hours of outside preparation by students.

CASE SYNOPSIS

NCS (National Cancer Society) was an organization founded and operated by volunteers. The organization received memorial contributions and distributed them as grants to applicants who meet the organization's criteria. The group also maintained a worship space (bay) in a local church and holds regular memorial services for the deceased.

At the time of the case, the organization had existed for about 18 years. The original enthusiasm of the founding members had waned and no one had come forward to replace them. Specifically, the president had not provided the leadership needed to maintain the organization's momentum. The board of directors was divided about how to deal with this problem so that rare meeting degenerate into arguments. A former president was still collecting mail and was still the authorized signatory for checks. The state had issued delinquency notices because the organization has failed to file required informational forms. These notices provide a point of departure for discussing the future of the organization. Students should consider the responsibilities of a board in such a situation and whether the organization is viable. More specifically, the details of revitalizing or discontinuing the organization must be addressed.

Accountants may find that volunteer organizations to which they belong call on their professional expertise to fill positions of financial responsibility. These organizations may operate informally and the accountant is in a difficult position as he or she attempts to impose standards that other members do not see as necessary. This case provides opportunity to discuss such a situation.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

This case could be used in public administration courses, nonprofit accounting or strategic management courses (emphasizing governance and the responsibilities of the board of directors) and organizational behavior courses (emphasizing organizational life cycle and viability).

Learning Objectives

Students should:

1. Analyze the responsibilities the Board of Directors.

2. Determine whether this organization continues to be viable.

3. Create a plan to revitalize the organization or for disbanding it in an orderly fashion.

DISCUSSION/ANALYSIS

1. If you were a member of the Board of NCS, what would you be concerned about in this situation? Are you doing your job as a Board member?

The responsibilities of the Board of Directors in a charitable or not-for-profit organization are essentially the same as a for-profit enterprise. The legal responsibilities are to comply with state and federal law and to fulfill fiduciary duties. These duties involve avoiding conflicts of interest (duty of loyalty) and providing the same oversight and scrutiny for the organization's affairs that a prudent person would employ in dealing with personal business (duty of care). The Board of NCS is not fulfilling either responsibility. Specifically

* Meetings are not being held

* Mission is not being carried out

* State laws are not obeyed

* Organization by-laws are not being followed.

* The organization is only one concerned or dissatisfied donor away from embarrassment (at the least).

2. What action alternatives does a concerned Board member have?

Students may want to fire Kathy, but a replacement is problematic. Motivating volunteers with uneven commitment to an organization is a common issue for not-for-profit organizations. In this case, the President is chief among the uncommitted and the board must find a way to either replace or gain her cooperation. Compounding the problem is the fact that key members of the organization appear to be burned-out

Motivation to get involved in NCS was probably high for those who have recently experienced a tragic loss. A loved one has succumbed to cancer and the survivor was seeking a way to memorialize the one they are mourning. The opportunity to volunteer with NCS provided a way to deal with loss. As time passed however, other motivation would be needed to replace the initial impetus to join and get involved. The benefits of continuing involvement versus initial involvement should be explored. Volunteers generally respond to opportunities to participate meaningfully in problem solving and decision-making, to work that relates to their personal interests, and to developmental opportunities. Initial involvement in this organization is likely to be more meaningful than continued involvement. The attrition rate of volunteers bears out this conclusion.

While volunteers are free to come and go, when a person accepts a leadership role, there is the expectation of commitment. The Board of Directors has responsibility for ensuring that the President is functioning effectively. This Board seems to feel that selecting a President is their only obligation. There are many ways that the Board could deal with the situation. Selecting a new president or having the vice-president function in the president's absence are two that should be suggested. When the organization has only one person who is willing to serve in a leadership capacity and that person is not actively functioning, the survival of the organization is called into question.

3. Is there a larger problem here? Where is NCS in the organization life cycle?

The concept of the organization life cycle suggests that organizations pass through predictable stages with predictable problems. If the problems of a given stage are not dealt with appropriately, the organization is in danger of not surviving. Dealing with the problems effectively generally propels the organization to the next stage. NCS does not appear to have appropriately built a team and thus is unable to move to a more formal approach to its mission. An organization in decline has a limited period of time to make necessary changes. As the decline proceeds, the choices are narrowed. The last option is reorganization after which there are no choices except dissolution.

4. What steps should be taken to ensure the continuity of the organization?

Two plans may be developed from this incident. One would be for a reorganization which would revitalize the organization. The Board would be the source of this plan and it would need to go beyond the problems with the President to find ways to motivate the members of the Board and other volunteers. A drive for new board members is in order. The Advisory Board might be a good starting point, although these individuals are in this group in the first place because they didn't want to be active. Grant recipients (organizations or individuals) and donors seem to be another possible source of volunteers. Would there be a conflict of interest if grant recipients joined the board? An alternate analysis of the problem is that there are too many jobs for this group to do effectively. A plan to cut back on meetings has been in effect and no one but Carl appears to be very disturbed by this. Kathy could create a mission review committee to evaluate activities (grants vs. worship) to determine if the group could do one of the other but not both. Donations could be used for maintenance of the bay. A recommendation to cut back on activities should be accompanied by a restructuring of the organization.

The second plan would be for dissolution and would need to specify how to deal with the money that the organization still holds. The organization controls funds for which board members are responsible. These funds should be dispersed in a way that adheres to the donors' original intention.

EPILOGUE

The next board meeting was held as planned and a lot of discussion took place around the inactivity of the group and who was at fault. Lots of excuses were offered and at no point did Kathy Jones accept any responsibility for the current situation. At one point, the treasurer raised concerns about the funds that remained in the bank account and whether NCS was actually fulfilling its mission. Kathy's supporters were mainly other founding members of NCS who had continued to be involved in the organization either on the advisory board or served on a committee.

During the reorganization meeting, officers were elected or re-elected and board members with unexpired terms re-elected. At this point, the board of directors had only eight of twelve members. Some board members expressed their reservations to continue serving with Kathy Jones as president. However, they agreed to continue serving on the board because of their support for NCS mission.

This was the last formal meeting of the NCS. No meetings have been held for the last four years. The president has not returned numerous phone calls left by the former president and other board members nor has she initiated any type of communication with the board. NCS continues to hold funds received from the public even though it has not awarded a grant in the last four years.

DISCLAIMER

This critical incident and teaching note was prepared by Raymond Elson and Phyllis Holland and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of the situation. The names of the organization, the individuals, and location have been disguised to preserve the organization's desire for anonymity. Copyright [C] 2005 by Raymond Elson and Phyllis Holland.

REFERENCES

Bailey, D. & Grochau, K. (1993) Aligning leadership needs to the organizational stage of development: Applying management theory to nonprofit organizations. Administration in Social Work, 17(1), 23-46.

Greiner, L. (1972) Evolution and revolution as organizations grow. Harvard Business Review, 50(4), 37-46.

Hasenfled, Yeheskel, Schmid, & Hillel (1989) The life cycle of human service organizations: An administrative perspective. Administration in Social Work, 13 (3,4), 243-260.

McClusky, J. (2002) Re-thinking nonprofit organization governance: Implications for management and leadership. International Journal of Public Administration, 25(4), 539.

Schindler-Rainman E. & Lippitt, R. (1977) The Volunteer Community. LaJolla, CA: University Associates.

Weitzel, E. & Jonsson, E. (1989) Decline in organizations: A literature integration and extension. Administrative Science Quarterly, 34(1), 91-109.

Raymond J. Elson, Valdosta State University

Phyllis G. Holland, Valdosta State University