The Last Cup of Tea

by Linda Crompton, president & CEO

Welcome back to the Central Asia Institute scandal, often referred to as the “three cups of tea” story —broken on “60 Minutes”  last year, it created a sensation, and as they say, not in a good way. Well, that party is over; the three teacups have been washed and put away, and the host, Greg Mortenson, has been told to pay the bill — more than $1 million in restitution.

Last week, the Montana Attorney General Office reached a settlement with Mortenson, Central Asia Institute’s former executive director, in restitution for what the AG called “past financial transgressions.” You may recall that the CAI was formed to build schools in Afghanistan and Pakistan, and readers of Mortenson’s books detailing his adventures, Three Cups of Tea and Stones into Schools, donated many millions in response. But a yearlong probe found that Mortenson squandered much of the money on travel to speaking engagements; personal items; and family vacations. In his legal opinion, the AG was careful to write that the Institute’s work is worthwhile, and that the settlement will not preclude its ongoing work towards its mission.

Last year when the story broke, I asked (as, unfortunately, I too often must do) in a blog post: Where was the board? The AG’s report gives us the answer: asleep at the switch (my words, not his). While the board adopted new conflict-of-interest and structural policies in 2008, the policies were essentially ignored. The report states that some board members did, indeed, ask questions about financial irregularities, but were continually outvoted and eventually resigned, with no new members brought on until in 2009 — and continuing today — there are three voting board members, one of whom is Mortenson, a technically legal, but ethically questionable, structure.

The settlement calls for a board restructuring that does not include Mortenson (he has already resigned as executive director), with enough board members to provide adequate oversight, and the AG Office will continue its scrutiny for three years.

Three years, three cups of tea, three board members… While we’re talking about three’s…let’s not forget those three fiduciary duties we’ve all signed onto: the duty of care, the duty of loyalty, and the duty of obedience. Paying attention to those three things will help keep your organization’s name off the front page of The New York Times or the ticking clock of “60 Minutes”…unless it’s a story about how great your board is.

I hope CAI survives this and comes out stronger. It has a wonderful mission, and the AG goes out of his way to praise Mortenson and CAI for their worthy achievements. But at a time of increasing scrutiny of our sector, this has been a noisy and very public bad governance example that creates a negative halo effect on the millions of nonprofits that are working to do it right. Since BoardSource opened its doors 23 years ago, we’ve developed a pretty good idea of what it takes to govern a nonprofit. It’s not rocket science (unless that’s your mission):  It’s basic standards like having sufficient board members to provide oversight; no self-dealing; disclosing conflicts; having written policies and adhering to them; and of course I could go on. That’s what it takes to be the GOOD governance example.

Let us know how your board is doing it right.

Leave a comment

3 Comments

  1. Alex Hodge

     /  April 12, 2012

    Bill Gates Foundation, the world’s largest nonprofit, has only ever had three board directors, which are all family, Bill & Melinda Gates, and Bill Gates Sr. Why is the IRS, or Washington Attorney General, or you, not harassing them to increase the board so it has ‘effective oversight’ and good governance. Look at their financials, its surprising actually.

    Also look at American Institute of Philanthropy ‘watch-dog’ nonprofit IRS 990. Their media hound leader Daniel Borochoff, earned over $ 153,373 in salary and benefits of $ 483,257 in total budget income. That’s a whopping 32% of entire nonprofit budget goes to the CEO. Industry accepted standard is 5-8& maximum.

    SOME FACTS, NOT FICTION:
    1. Last year, the IRS revoked or shut down 318,000 nonprofits in USA
    2. There are not millions of nonprofits in USA ‘doing it right’, as there are only 1.5 million total registered nonprofits in the USA.

    1,574,674 registered tax-exempt organizations, including:

    959,698 public charities
    100,337 private foundations
    514,639 other nonprofits, including chambers of commerce, fraternal and civic leagues.
    (Source: NCCS Business Master File 08/2011)

    Reply
  2. Deborah Davidson

     /  April 13, 2012

    Thank you, Alex, for participating in our conversation. And you are right: There are not millions of nonprofits in the USA that are doing it right. There are millions of nonprofit LEADERS in the USA who are doing it right. Please excuse our omission of that word.

    Reply
  3. Nonprofit salaries should be based on the skills, experience, education and market value of the nonprofit worker. Salaries should not be based on an arbitrary percentage of income. A 5 to 8 percent of income as a maximum salary is ludicrous. It would mean that a $500,000 organization such as AIP could only pay its CEO $25,000 to $40,000. All the bad charities in the country and their fundraising and PR consultants (People I suspect like you Alex Hodge, if that is his real name.) would love to weaken small watchdog agencies by forcing them to hire chiefs with the skill level and expertise comparable to a low level clerical worker with a salary in the range that you falsely claim is industry standard.

    According to Hodge’s reasoning, a nonprofit CEO that wanted a bigger salary without having to do any additional work could hire a professional fundraising company to go out and raise ten million dollars and even if it cost the charity $9 million to do it; the CEO would be entitled to an $800,000 larger salary. This is just one of many examples of why it makes no sense to base a salary on the income of a nonprofit.

    “Alex Hodge” and “Alex Hodges” has been posting his uninformed comment above in multiple places on the internet probably because he doesn’t like the critical comments that AIP has made about his nonprofit or client. He does not understand that salaries make up the major portion of any research organization’s budget. He also doesn’t understand that except for fundraising personnel, the salary of most nonprofit workers is appropriately allocated to programs. Please read this article for more discussion on nonprofit salaries: Debunking Charity Salary Myths at http://www.charitywatch.org/articles/salaries.html

    Reply

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