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The churning sector: no storms, at least from a weather perspective.

If March goes in like a lion and out like a lamb, 2007 might well be remembered for all the commotion toward the middle of the year. The latest nonprofit scandal (The Smithsonian) hit the fan in the spring while the summer went out with a howl as animal welfare groups teamed up with their supporters to bring the pressure down on NFL quarterback Michael Vick because of dogfighting charges.

After a much-ballyhooed Democratic takeover of Congress in January, most of the changes affecting the nonprofit sector came from other federal agencies, like the draft Form 990 revision released in the summer by the Internal Revenue Service ORS).

The nonprofit sector continued to grow in 2007 yet software companies serving nonprofits went in the other direction after millions of dollars worth of mergers and acquisitions in the marketplace.

The year burst out of the gates with major moves in January by software companies, which returned by the summer with even more news. Charleston, S.C.-based Blackbaud acquired Target Software and Target Analysis Group in Cambridge, Mass., for $60 million while Convio bought GetActive for almost $18 million. By August, Blackbaud had acquired another company, Indiana-based eTapestry, for nearly $25 million.

Convio also decided to join the ranks of public companies, like Blackbaud and Kintera, filing for an Initial Public Offering (IPO) in August. Convio, which gained attention for Howard Dean's 2004 presidential campaign, is still in the quiet period while its IPO is under review by the Securities Exchanges Commission. The IPO is expected early in 2008. The Austin, Texas-based firm was founded in 1999, raising more than $37 million in four rounds of venture capital funding, and plans to generate $86 million through the IPO.

Kintera wasn't as busy buying up companies as in previous years but it was still busy, only with internal changes. After hearing calls for his resignation from investment firms holding almost a third of outstanding shares, co-founder Harry Gruber stepped down in March, replaced by Richard LaBarbera, while still remaining on the board.

In addition to laying off 16 percent of its workforce, the San Diego-based company announced it would cut expenses and discontinue some products to save about $10 million a year.


As one observer put it, The Smithsonian was this year's The Nature Conservancy, American Red Cross or United Way; in other words, the latest, biggest nonprofit scandal.

Lawrence M. Small resigned in March as general secretary at the Smithsonian in Washington, D.C., following an inspector general's report of millions of dollars in housing and office expenditures and unauthorized expenses. The "lavish or extravagant" transactions were detailed in numerous published reports and ultimately resulted in what amounts to a potential kiss of death: increased scrutiny from Sen. Charles Grassley (R-Iowa), the ranking Republican and former chairman of the Senate Finance Committee. Describing Small's "Dom Perignon lifestyle," Grassley pushed through the Senate a freeze on the Lawrence Small Smithsonian's $17-million budget increase for 2008, before Small stepped down.


The 65-year-old former banker was replaced as secretary by Christian Sanger, head of the National Museum of Natural History, until a permanent replacement is found.

The museum's Board of Regents, which during the course of Small's seven-year tenure tripled his salary, appointed two committees to examine management operations of its more than two dozen museums and research facilities. In June, the governance committee made recommendations and submitted a 107-page report to the board detailing governance and ethics lapses during Small's tenure.

"It isn't just that the Smithsonian's governance nightmare is overseen by appointees from the three branches of the federal government, including the chief judge of the U.S. Supreme Court, but that they were joined in spurning the basics of accountability by foundation members of the Board of Regents," said Rick Cohen, former executive director of the National Committee for Responsive Philanthropy (NCRP) in Washington, D.C. "Despite grandiose promises to change and improve, and despite high-profile assistance from the nation's top nonprofit leaders, every indication is that the Smithsonian's top leadership--staff and board--still don't seem to grasp the principles of nonprofit and public accountability, or perhaps they think that they're somehow above it all," he added.

"Public accountability and lack of accountability themes has been really troublesome for the nonprofit sector," said Pablo Eisenberg, senior fellow at the Georgetown Public Policy Institute's Center for Public and Nonprofit Leadership. "It's been troublesome because an increasing number of, at least the larger nonprofits, as they are examined by investigative reporters, have really come up short."


He called the Smithsonian episode "an extraordinary tale of a total lack of oversight and fiduciary responsibility by the board of regents.

"It's a question of a terrible governance structure," he said, impeded by the fact that there are eight government representatives, with no time for oversight, and nine lay members who were, until recently, five "corporate types. It's just a terrible situation."


Two things from 2007 that might help address the issue of charity governance and oversight are the revised IRS Form 990 that was unveiled this past summer, and the Panel on the Nonprofit Sector's 33 "Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations."

A draft of the long-awaited revision to Form 990 was the first overhaul of the federal nonprofit tax form in almost three decades and sparked a deluge of public comments into the IRS all summer. The form takes on matters of governance and policies more than previous documents.

No action is likely until 2008 on the new IRS Form 990 revision, said Gary Bass, executive director of Washington, D.C.-based OMB Watch, but the draft that was made public in June "certainly created a bit of a start." The Form 990 likely will be designed by the end of 2007 and published in 2008 for the 2009 filing season.

Based on those early comments this summer, the IRS already has decided to do away with some items in the draft, such as expense ratios on the summary Page 1. But nonprofits might have to report revenue and expense totals for two years. A new Schedule O will allow nonprofits to include information to present a fuller picture of activities.

The Panel's new principles were re leased in October to mixed reviews. Praised for their thoroughness and completeness, the principles won't necessarily apply to all organizations and are voluntary, something critics targeted.

"I've never seen any cases of serious self-reform," said Eisenberg. Some believe there's only a few bad apples in the barrel, but he maintains, "there are a lot of bad apples; the barrel is not getting any smaller and the apples are not getting fewer in number."


Whether or not it signaled the forthcoming exodus of retiring nonprofit executives, some big names stepped down during 2007, or at least announced their intentions.


Robert Goodwin's retirement after 15 years as CEO of the Points of Light Foundation (PoLF) in Washington, D.C. paved the way for a merger with Atlanta-based Hands On Network (HON). The groups officially merged Aug. 1.

Although they started from opposite ends--one entrepreneurial and organic, the other out of a presidential vision--the merger between PoLF and HON has been thus far one of synergy.

"What we found is, that when you overlaid our two visions and missions, there was actually not very significant difference," said Michelle Nunn, co-founder of HON.

"We did have different approaches to how we accomplished those things," added Nunn. "But that made it easier because, in fact, what we have are some complementary assets." According to Nunn, with the increased efficiency the 2008 budget for the merged organization will be approximately $34 million. The two organizations had combined budgets of about $40 million.

Nunn, daughter of former U.S. Sen. Sam Nunn, will head the new entity, which currently uses the moniker "The Points of Light and Hands On Network."

After more than a year of discussions, the merger was announced at the 2007 National Conference on Volunteering and Service in Philadelphia this past July.

According to Nunn, the group is currently grappling with issues of combining staffs, ensuring that the federal investments PoLF has traditionally received continue, and raising private sector dollars. The location of its headquarters is yet to be determined, said Nunn, however there will be a presence both in Atlanta and in the nation's capital.

"Both organizations are trying to now use the merger as an opportunity to define the future of how volunteering will happen versus just looking back on what we were doing," said Nunn. "We want to make sure that we are on a continued upward climb around volunteering and civic engagement."

Other retirements this year read like a sample who's who of the nonprofit sector. After 36 years with the New York City-based Ford Foundation, including 12 as president and CEO, Susan Berresford announced on Sept. 28 she will retire, effective January 2008.

Edward Skloot retired as executive director of the Surdna Foundation, a family foundation headquartered in New York City. The foundation's first professional employee, Skloot built a staff of 20 and helped Surdna grow assets of nearly $700 million and earn a national reputation for entrepreneurial grantmaking. Skloot is also a member of the Panel on the Nonprofit Sector, convened by Independent Sector.

Betsy Johnson announced plans to end her nearly 22-year tenure with the Center for Nonprofit Advancement next summer. Johnson helped the group grow from roughly 200 members to more than 800. Also this year, Steve McCormick stepped down from The Nature Conservancy, in Arlington, Va.


The American Red Cross (ARC) finally hired a new CEO, Mark Everson, who moved over to the ARC from running the IRS. His appointment ended an interim tenure of 15 months by Jack McGuire, executive vice president for blood services operations, who served after Marsha Evans resigned in December 2005.


Dogfighting charges involving Atlanta Falcons quarterback Michael Vick dominated the news this past summer, putting nonprofits like People for the Ethical Treatment of Animals (PETA), Humane Society of the United States (HSUS) and American Society for the Prevention of Cruelty to Animals (ASPCA) in the headlines.


The charges garnered some attention in the spring, but when the federal indictment came down in July, Vick was branded Public Enemy No. 1. Upon release of the federal indictment, which indicated Vick was involved with torturing dogs on his Virginia property, animal welfare groups sprang into action, marshalling their forces for an all-out attack. Animal-related nonprofits called on supporters to contact the National Football League (NFL), Atlanta Falcons and almost anyone who would listen.

The online campaign by the HSUS generated 275,000 emails to the NFL commissioner's office through its site, enough of a flurry to bring down the donation and action pages of me nonprofit's Web site for a few hours. More than 50,000 supporters had contacted the NFL through PETA.

Not only did the Vick indictment, and eventual guilty plea, drive traffic to these groups' Web sites, but it also drove donations and fundraising of all kinds. HSUS estimated that it added more than 200,000 people to its email lists--a 20-percent boost--in addition to selling thousands of Vick-related shirts. Even regular citizens got into the act, auctioning off Vick trading cards that were chewed or defecated on by their pets, and donating proceeds to local animal shelters. HSUS itself auctioned off the notes that Vick allegedly used during his public apology in August, generating wide media interest as well as a $10,200 winning bid.


Americans continued to give to charity in record numbers, approaching the $300-billion plateau. Giving USA 2007 estimated that $295 billion was donated to charity in 2006, a new one-year record, despite the lack of a major disaster on the order of Hurricane Katrina or the Asian tsunami. The figure represents a 4.2-percent increase (1 percent adjusted for inflation) compared to the previous year's giving, almost $12 billion.

As always, Americans continued to show their benevolence in times of crisis or disaster during 2007, responding with almost $30 million in donations for victims of the Southern California wildfires that torched thousands of acres in October.

The NPT 100, The NonProfit Times' annual study of the nation's largest nonprofits, also indicated charities generated more contributions. The top 100 nonprofits in the study had total revenue of $64.24 billion, up almost 9 percent compared to the previous year's total of $59 billion. Most disaster relief groups saw their revenue return to normal a year after responding to Hurricane Katrina, while capital campaigns boosted revenue for other nonprofits, from hospitals to museums and arts centers. Charities also benefited from another strong year for the stock market, watching as investment income rose from $3.27 billion to $4.7 billion this year.

All that added revenue will be needed as nonprofits, and the rest of the country, have to pay more for postage after new rates went into effect in the spring and summer.


While rate hikes varied depending on their category and how pieces are mailed, the average nonprofits postal rate rose almost 7 percent. The new rates likely struck a blow to front-end premiums, such as greeting cards, which would be pushed into a new category, Non-Flat Machinable, that could double the rates.


No year in the nonprofit world would be complete without some lawsuits and general disagreements.

Eight charities were involved in a brouhaha over a

$264-million bequest before finally reaching a settlement. Six charities did not dispute the will, but The Salvation Army and Greenpeace went to mediation over a question of Greenpeace's eligibility to the bequest of Guy DiStefano, an Issaquah, Wash., man who died in July 2006. Other charities that received some $33 million in the bequest were American Humane Association, Disabled American Veterans Charitable Service Trust, Santa Barbara Hospice Foundation, Visiting Nurse & Hospice Care of Santa Barbara Foundation and World Wildlife Fund.

Greenpeace settled on $27 million after the dispute, which revolved around whether it should get the funds since DiStefano's will indicated an organization called Greenpeace International, which had folded into Greenpeace several years earlier.

A fight continues between Johnson & Johnson and the Red Cross over the red cross emblem and whether it's a trademark of the New Brunswick, N.J.-based pharmaceutical giant. A judge recently dismissed one of the eight claims against the Red Cross.



On the regulation side of things, it was a quiet year from Congress. Following the mid-term elections of 2006, the first year that Democrats were in control didn't quite live up to the hype as far as it concerns the nonprofit sector. "All this lead-up last year over charitable tax incentives, charitable accountability, it seems to be pretty quiet on that front" said Gary Bass, executive director of Washington, D.C.-based OMB Watch. "Maybe it's the absence of activity that's news." Congress has been appropriately putting its energies into other higher priorities, such as lobby reform, the war in Iraq and corruption. "I think it makes sense that they're not aiming at philanthropy and nonprofits when there are other huge items out there," he said.


Cohen cited the reintroduction by Congressman Xavier Becerra (D-Calif.) of "the notion that the primary beneficiaries of tax-exempt resources should be the nation's poor, disadvantaged and disenfranchised," what he called "an old but desperately needed concept into the national dialogue" on nonprofits.

"For too long our nation has had any 'anything goes' mentality about nonorofits, that the variety of charitable activities that can be justified under federal law are equally valuable and equally valued. Let's hope that Becerra's conceptual breakthrough is maintained and evolves from an interesting discussion point to substantive public policy debate and action," he said.

Bass pointed to the lobbying and ethics reform bill that was approved in September as one of the bigger items that came through Congress in '07. More impact on the nonprofit sector was felt from other areas of the federal government, he said, such as the IRS and Treasury Department. The IRS issued a revenue ruling on political activity that described the types of activities in which nonprofits can engage, though Bass said it also left nonprofits confused since there's no test on political activity, as there is on expenditures with lobbying rules.

The U.S. Supreme Court's decision in WRTL v. FEC fell on the side of protecting free speech and advocacy, leaving it up to the Federal Election Commission (FEC) to create regulations that support the ruling, Bass said. The extent to which nonprofits can be involved in a vibrant democracy, he said, is still left unclear.
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Title Annotation:YEAR IN REVIEW
Author:Hrywna, Mark; Nobles, Marla E.
Publication:The Non-profit Times
Date:Dec 1, 2007
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