Gotta Right to Sing the Blues

Posted by Laura Otten, Ph.D., Director on March 18th, 2011 in Articles, Thoughts & Commentary


Maybe it is time to have a new nonprofit classification.  I’d call it “the really large ones that operate more like a for-profit than a nonprofit and give the rest of the nonprofit sector a bad name and make all nonprofits suspect in the minds of the public, the media and too many legislators.”  But I’d call them “pseudo nonprofits” for short.

The current impetus for this thinking is Blue Cross/ Blue Shield of Massachusetts.  The company revealed earlier this month that it paid its former CEO, who resigned in March 2010, severance totaling $8.6 million dollars!  On top of that, he will be paid $1.8 million in 2011 and almost another $1 million in 2012.  Not to worry, folks.  The Blues say this kind of severance package won’t happen again, as it was a result of an employment contract signed in very different economic times.  Phew!

That isn’t all.  Some days after the above revelation, The Blues announced that it would suspend paying members of its Board of Directors.  But this came as the result of pressure from Massachusetts Attorney General Martha Coakley, who is asking that all of the non-profit insurance organizations in the state reassess the practice of paying members of their boards of directors.  Seems that in Massachusetts, the practice of paying nonprofit board members isn’t common.  Didn’t know it was common anywhere.

The Blues explanation for this practice is that it is a complex, $13 billion dollar organization that competes with many for-profit, as well as nonprofit, organizations.  And the point?  There are few, if any, nonprofits these days who aren’t competing with other nonprofits and, increasingly, with for-profit organizations.  And monitoring and maintaining the financial health and well-being of a nonprofit, regardless of how complex or seemingly straightforward (though I doubt there is such animal), should be of the highest importance to each and every board member.  Do we get better, smarter board members when we pay them?  That has not been my experience.

Don’t get me wrong.  I am not begrudging the former CEO’s severance package.  Running a $13 billion dollar organization has got to be much more complicated than running a small $1 million dollar organization; thus, the person doing the former job can demand, and receive, the big bucks.  And such a complicated organization can only get hardworking, qualified board members   if they pay them.  So, no begrudging there, either.  I get it.  Nope, the only emotion I experience upon hearing this is anger:  how dare you do this under the name of nonprofit.  If this is what they need to do in order to make their business sustainable—the same goal shared every other nonprofit executive director/ceo and board of directors—then so be it.  But don’t call yourself a nonprofit.

Hence the push for the status of “pseudo nonprofit.”  Let’s separate the wheat from the chaff in the sector, as the one is harming the other.  It is the deep pockets of these pseudo nonprofits—the hospitals, large educational institutions, mega, mega nonprofits—that afford them the option of paying such nice salaries, severance packages and stipends to board members.  It is the same deep pockets that local governments are eying when they rescind the nonprofit property tax exemption.   Yet all nonprofits who own property, regardless of the richness of their coffers, suffer, as do the rest, as the exposure of the lack of paying taxes just affirms the far-too-wide thinking that nonprofits are always “getting away” with something.

So, let’s make it fair to everyone.  Why should a nonprofit that plays in the financial stratosphere of the big for-profit companies be pilloried because its pays a competitive salary and generous compensation package.  Truth told, if the Blues had been a big for-profit company revealing the severance package paid its former CEO, it would not have been headline news—or news at all, any more than paying its board members would be. It made news only because somewhere in its files, it has a letter from the IRS saying it is a nonprofit.

But just because an organization has that letter doesn’t mean it is like its neighbor with the letter down the street, around the corner, on the other side of town. Doesn’t mean it is like itself twenty or thirty years ago.  Increasingly, it is the operating culture, not the finances, that truly differentiates a nonprofit from a pseudo nonprofit.  And the expectations and presumptions that apply to one culture should not cross over to the other.

Let us have our real nonprofits and the pseudo–“the really large ones that operate more like a for-profit than a nonprofit and give the rest of the nonprofit sector bad press and make all nonprofits suspect in the minds of the public and too many legislators.”  And let each group be judged by its own set of best practices rather than letting the pseudos ruin it for us all.

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.