Let’s face it: in today’s world – whether for Non-Profit Organizations (NPOs) or Private-Sector companies – people do not necessarily operate with honor and integrity. Nowhere is this more obvious than in situations where money is involved. Best intentions, friendships, hand-shakes, and promises no longer seem to carry the commitment that we expect. We find ourselves surprised and disappointed; but, the truth of the matter is that trust should not be lightly bestowed.

When I enter into a business transaction – and this applies equally to NPOs – I expect two things: (1) that people will do what they told me they would do; and (2) that people will be held accountable for what they said.

This article focuses on the challenges of the NPO because of the extremely uncertain economic times that most are facing. Even if an NPO had strict policies and procedures in place for contracting its business transactions and collecting its accounts receivable, I am seeing instances where the economic climate is causing people who know better to react in ways far more tentative than ever before.

Before we go any further, examples are always helpful, so let me present two:

1. BACKGROUND: A museum – we’ll call it Museum A – was struggling before the recession and is really in a precarious position today – but now finds itself in what appears to be a win-win opportunity with another museum, which we’ll call Museum B. The two museums are in the same community, have been rivals for many years, and there are lots of examples of unacceptable behavior initiated by each toward the other. However, new executive directors are in place and both truly have the best intentions for mending the fences and working well together in the future. A number of examples exist that indicate the bridge has been built between the two NPOs and the problems of the past appear to have been overcome – even if not forgotten by long-standing board members.

SITUATION: An opportunity arises whereupon Museum B wants to borrow an artifact from Museum A for a year. Without animosity, and in an attempt to solidify a mutually beneficial business deal, the executive director of Museum A asks what Museum B will provide to Museum A in the way of compensation for borrowing the artifact. This is a very fair and appropriate question in a professional relationship. The executive director of Museum B offers to have its volunteers – long known for their skill in artifact restoration – perform the much-needed restoration on another artifact of Museum A. This arrangement is mutually agreeable to the two executive directors and a deal is struck over the telephone. Museum 1 delivers the loaned artifact to Museum 2. Museum 2 meets with Museum 1 to review the artifact in need of restoration. Both museums are in agreement as to the terms of the deal, each to the other, and the transaction is heralded as another example of how the former rival museums are now working in harmony. However, a year later, Museum B still has the artifact it borrowed from Museum A – but, Museum A has not received any restoration services from Museum B. The deal has gone bad for Museum A and its executive director wonders what to do.

1. BACKGROUND: A social services organization – we’ll call it Services 1 – has never been able to afford to hire an experienced grant writer, but has received a contribution from a donor that is designated for a grant writer and one is hired.

SITUATION: A grant comes along that offers an opportunity for Services 1 to partner with another social services organization – we’ll call it Services 2 – to fulfill a portion of the scope of work outlined in the grant that exceeds the expertise of Services 1. Neither Services 1 nor Services 2 has ever been in competition with each other because their missions are sufficiently different. The grant writers of both organizations work together diligently on the Request for Proposals for the grant, submit on time, are selected as finalists, and receive the grant award. In a meeting of the two organizations to determine who will do what and how the grant funds will be divided, the discussions are good and an agreement is reached. A spreadsheet is prepared outlining the responsibilities for each item in the scope of work for the grant and grant funds are divided among each item, thereby enabling both Services 1 and Services 2 to know how much funding each will receive and what is expected from them. The grantor intends to disburse 25% of the funds at the start of the project, 50% spread among each month of the project duration when invoiced, and the remaining 25% when the final report is completed. Services 1 has a challenging cash flow; Services 2 has sufficient cash. The grantor is pleased to see a partnership between two NPOs, but requires one to serve as the grant administrator (fiscal agent) and the other to be a subcontractor. So, in the spirit of cooperation, Services 2 agrees to take the role of subcontractor and invoice its grants funds from Services 1 at the end of the project, thereby allowing Services 1 to serve as the grant administrator, utilize the grant funds throughout the project, and help minimize its cash flow problems. The two organizations work well together, the project is a success, and they complete the final report in a manner that makes each proud. The partnership went well, although there were the usual disagreements that partnerships often face as a project progresses; but, overall the relationship was very satisfactory – and there is talk of working together on future grants. Services 2 is ready to invoice Services 1 for the amount agreed upon in the spreadsheet that guided the project, but receives a message from Services 1 that it would like to discuss reducing the amount of funding to Services 2, stating that it did not appear that Services 2 was as helpful on the project as originally intended. The executive director of Services 2 is shocked and disappointed – and wonders how to handle the situation.

In pondering how to best address each of these two examples, I decided to spend less time on the mechanics of the relationship between two organizations in partnership; instead, I will focus on the integrity of the deals and suggestions for bringing about a successful resolution. As a consultant to non-profits, this is almost always the approach I take in my practice. Experience indicates there is little need to tell the client what they should have done; the focus needs to be on how to solve the problem.

Obviously, the mechanics of both situations could have been more professionally handled in a more detailed manner. There could have been written agreements or contracts that contained written provisions for what would happen if any such problem arose. We do not know to what extent the board of directors of each organization was involved, but I would argue it is irrelevant – if I were one of the board members, I would expect the executive directors to resolve what is clearly an operational problem that belongs within their purview. (I will comment on a possible exception later in this article.)

Why am I not so concerned about the mechanics (written contracts, agreements, memoranda of understanding, etc.) of the deal at this point? Simple: at this point, the challenge of solving the problem is the same. Unlike what we read about the regulatory settlements of large companies on Wall Street and tort liability settlements among huge corporations, NPOs (and small businesses in general) rarely have the time or the money to sue over disagreements – even when all the written documentation is in place. In the Museum and Services examples, no such contracts exist. The resolution to both of these examples lies in the integrity of the deal and the ability of the two organizations to discuss a mutually successful outcome that is founded upon trust. This is much harder to do than it sounds, which is precisely why the credibility and ethics of every NPO is its one of its most important core assets. Would you want to do another deal with either Museum B or Services 1 at this point? I doubt it.

I suggest three specific approaches to resolve this problem – which, in the end, is actually the same problem (trust, ethics, accountability, future relationships, etc.) for both of the examples:

1. Stay as calm and collected as you can. This is very difficult to do, especially if somebody has something of yours (Museum B) and if somebody is unfairly critical of your performance as a means to their end (Services 1). But, the truth of the matter is that “time” is your primary asset and you cannot afford to get emotionally tangled up in the problem and its resolution. Even if you could, your performance would be less successful because your emotions cloud your good judgment.
2. Although “could’ve/would’ve/should’ve” may have avoided the problem (with a written contract or agreement), go back through your hand-written notes of meetings and your emails to the partner organization and see what you can find that supports your understanding of the original deal. Talk with members of your organization to see what they recall about the specifics. In other words, get the facts straight.
3. Once you have the details you were looking for, send them to the party with which you are in conflict. I suggest doing this by email because then you have stated your position in writing for future reference and it seems less threatening as you are trying to settle the disagreement. Be cautious and intentional about the wording of your email; ask someone else in your organization to read your email to see if they perceive the same tone as you intended. If you need a more formal approach, you can always send a letter at a later time. Don’t be afraid to tell the other party how you feel: surprised, disappointed, unhappy, and determined to find a fair resolution. Provide them with the evidence you have collected to support your understanding. Ask them to review their notes and see if they find anything different. Ask for a meeting (not email or telephone, but face-to-face) and remain committed to a cordial resolution. You might also point out that you are hopeful that the two organizations can work together in the future and that it is important to you to find a mutually satisfactory resolution. Make sure you have at least one other person with you as a witness to the discussion. Prepare notes for your file immediately after the meeting. Agree on a date by which the other organization will provide its feedback.

I mentioned that I would have more to say about board involvement. Generally speaking, I do not like to see board members get involved in operational issues with non-profit organizations. I believe the governance of the NPO should be established in such a way as to define the roles of the various members of the organization. However, to be fair, the two examples I have mentioned in this article are very challenging (with potential political community repercussions) and, hopefully, an unusual happenstance.

To that end, I would consider recommending the board chair (of Museum A and Services 2) contact their fellow board chair (of Museum B and Services 1) to discuss the matter. While I would like to believe that a phone conversation among the board chairs of two community organizations should resolve the matter, a further step would include getting both board chairs together with both executive directors. It has always been my experience that when all of the individuals are in the same room at the same time, things get sorted out and resolved rather quickly. It is fair to assume that someone’s ego will be bruised in the meeting (in both of these examples, somebody has done something wrong). If the issue is resolved, then I would recommend ending the meeting on a high note by discussing the success of the project or the opportunity to partner again in the future.

Over the past few weeks, with both of these examples and others, I have given a lot of thought to the fact that we seem to be more and more of an “enabling” society. When we fear pointing out a problem, we reinforce the actions we do not like from the opposite party. The longer we wait, the more difficult our recollections of the specific issues become and the more likely the other party is to assume their position will prevail. Of course, we should always be committed to “playing nicely” – but, we should learn from our mistakes and become more comfortable in dealing with problems (particularly misunderstandings between individuals) as quickly and factually as possible.

While I believe it is true that the economic times we are presently suffering tend to bring out the worst in people, I will always believe that every NPO’s strongest assets are its ethics, governance, and accountability. You can only develop these key assets from your diligence, but you can lose them in an instance. Be on guard, be proactive, stand your ground, and work to become more comfortable in settling challenging issues.