Welcome to the February 2011 edition of The Director's Dilemma.

The newsletter provides case studies that have been written to help you to develop your judgement as a company director. The case studies are based upon real life; they focus on complex and challenging boardroom issues which can be resolved in a variety of ways. Each way has different pros and cons for the individuals and companies concerned. Every month this newsletter presents an issue and several responses.

Which response would you choose and why?

Wanda is a director of a small charitable organisation. Last year the board approved an ambitious fundraising drive to raise several million dollars for a special project. The organisation had a list of frequent donors to campaigns but decided, as this was a large campaign, to enlist professional help.

A professional firm was contracted to raise the money on a combination of a fixed fee and costs plus a percentage of the funds raised. The percentage appeared reasonable and the fixed fee was small in comparison to the target.

The campaign was a disaster. The telemarketers had accents that donors could not easily understand. Donors were wary of foreigners calling regarding a local charity. Most refused to pledge anything and only one donor, who is a real friend to the organisation, gave a large amount.

The contractor also bought lists of prospective new donors. These lists were out of date and, again, when contact was made very few of the targets contributed. At the end of the campaign the costs almost equalled the money raised and the organisation received only 9 cents of each dollar donated. The total retained was less than the largest single donation.

The organisation discloses fundraising in its annual report and the board members are concerned because the large donor will see that the funds raised are less than the amount he personally donated. They will also have to delay the project and know stakeholders will be disappointed as this had been planned and discussed with them.

What should Wanda do?

Jack's Answer

What Wanda should have done 'at the beginning' is both obvious and irrelevant because she finds herself facing the aftermath. I would recommend that in her current situation, she does the following:

• Sack the external consultant and assess their performance against the "promise" that they made in their submission and for which they were employed. If they used methods that did not align with their promise, then there may be grounds to recover some of the costs and diminish some of the organisation's 'loss'
• If the decision to recommend this consultant was the responsibility of a staff member, then review their experience, performance and capability to coordinate and manage fundraising activities
• Review the way the board reviewed and authorised the fundraising strategy and appointed the consultant
• Bring onto the board a director with strong fundraising (and public relations) experience
• Hire an external independent fundraising consultant to build an on-going fundraising strategy
• Have the Chairman of the board call a one-on-one meeting with the sole contributing donor to explain what happened, what the board has done about it, and how fundraising and the project's objective will be satisfied in the future
• Be honest in the annual report, and as was done with the donor, 'put it all on the table', admit error, and move on.

There is no doubt that the organisation's reputation will be damaged, but it will be harmed more if it tries a 'cover up' - the truth comes out eventually.

Dr Jack Jacoby is a Director of Preiss Levy Jacoby and Associates, based in Melbourne, Australia.

Julie's Answer

A board is responsible for strategy and ensuring the organisation fulfils its mission. Wanda's board should immediately review their cash flow projections and ensure they remain solvent. They may need to cut activities and/or reset priorities.

The next issue is a strategy review. What can still be achieved without the special large project? How important was that project to the mission? They must provide management with an achievable plan for the next few months until a new strategic plan is ready.

The board needs to look at their communication plan. Someone should visit the large donor and deliver news of the fundraising failure in person. The CEO or Chairman is best for this job unless another member of the board or staff has a better relationship. This is an unpleasant conversation but it is better to have it now than after the donor reads of the disaster in the annual report.

Then the board should consider how they will alert stakeholders of the change in plans. Has the project been abandoned or just postponed until funds can be raised? How will they meet stakeholders' needs? Whilst admitting to the failure it is important to show leadership and have an achievable plan of action.

The board should delegate someone to meet the fundraiser and if possible negotiate a reduced fee.

After this, the board should look at their purchasing or procurement process and fix the weaknesses that made this course of events possible.

At no point should the board consider moving away from their current excellent disclosure policy; to do that would lose stakeholders' trust.

Finally the board should reflect on their role in this problem and its solution. What have they done well? What did they do wrong? What have they learned, as a group and as individuals, to help them avoid similar problems in future? Do they need to review board composition?

Julie Garland McLellan is a specialist board consultant and practising non executive director based in Sydney, Australia.

Stephen's Answer

This is a grave situation for any charity to be placed in, a situation that should not have occurred in the first place. Unfortunately, many small and some larger charities do not have the appropriate expertise on their Boards, nor do their Directors have sufficient time to devote to the charity...which raises another question, as to why they are there in the first place. I suspect to add another line to their CV...perhaps that is a little unkind, as they do give an ego hour a month to their cause.

It is clear and obvious in this situation that due diligence has not occurred, confirming the lack of appropriate expertise on the Board.

One must question the fundraising consultants that conducted the appeal; firstly, in my opinion it is unethical for a firm to take a percentage of the funds raised and secondly telemarketing is no longer a relevant or popular development strategy and will blemish the reputation of a charity considerably.

My advice in this instance is for the charity to be totally transparent, act with integrity and advise all donors of the unfortunate occurrence and personally discuss the situation with the major donor.

Lack of post-event communication will be disastrous; be transparent, be committed, be passionate about the cause and rectify the charity's current inadequate situation.

Stephen Penberthy is an expert in community relations and public affairs, he works as a specialist consultant based in Brisbane, Australia.

Disclaimer

The opinions expressed above are general in nature and are designed to help you to develop your judgement as a director. They are not a definitive legal ruling. Names and some circumstances in the case study have been changed to ensure anonymity. Contributors to this newsletter comment in the context of their own jurisdiction; readers should check their local laws and regulations as they may be very different.

What's New

Book reviews - This month I have reviewed David Bartlett and Paul Campey's excellent book Community Governance. It contains a very useful strategic framework for not-for-profit boards with an emphasis on effective relationships.

Sneak preview of my next book - Presenting to Boards; practical skills for corporate presentations will be launched in March. Here is an excerpt dealing with the special case of interviewing for a directorship.

Errata - In the December 2010 issue Theresa Wilt's name was spelt incorrectly. This was entirely my fault and I apologise unreservedly.

Relaxed Reading - I was inspired by the memoir of my husband's great great grandmother. She witnessed the retreat of Napoleon from Paris (her father was a prisoner of war in France from 1803). Ironically her father became one of Napoleon's jailers at St Helena. It is the story of a small girl who observed daily life during turbulent times. She faces every adversity with fortitude and recounts with simplicity and clarity the prison walls, society balls, sailing ships and shopping trips. You can find it on Amazon.

Where's Julie? - A few readers manage to catch up with me on my travels and it is such a pleasure to meet them that I now share my travel plans each month.

Please call or email me if you would like to schedule a meeting or find out more about attending one of these events.

This newsletter - If you have any ideas for improving the newsletter please email me your thoughts. If you are reading a forwarded copy please visit my website and sign up for your own subscription.

Suggestions for dilemmas - Thank you to all the readers who have suggested dilemmas. I will answer them all eventually.

Farewell until the next issue (due 1 March).

Enjoy governing your corporations; we are privileged to do what we do!

Best regards
Julie

www.mclellan.com.au | PO Box 97 Killara NSW 2071
email julie@mclellan.com.au | phone +61 2 9499 8700 | mobile +61 411 262 470 | fax +61 2 9499 8711