Will the Resignation of the Founder Quiet Concerns about This Nonprofit?

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December 11, 2015; WREG-TV (Memphis, TN)

Back in August, NPQ’s newswire covered the story of the Urban Child Institute in Memphis, a health conversion organization. The story, which was originally reported by the Memphis Flyer, revealed a board whose members seemed to have little grasp of the organization’s finances or its purpose, a system of grantmaking aimed at organizations that board members at the Urban Child Institute were involved with and that appeared to have little relationship to the mission, and a president in Eugene Cashman, who was making an outsized salary relative to the organization’s program budget and impact. At that time, we wrote:

With a staff of eleven and $148 million in the bank, and in a city where such interventions are desperately needed, TUCI has created a quiet buzz around itself about why more of that money is not being spent on grants and why so much is spent on the executive’s salary—that executive being the founder, Gene Cashman.

It probably would not be fruitful to ask such questions of TUCI board chairman Dr. Hershel “Pat” Wall, a physician and former chancellor of the University of Tennessee Health Science Center (UTHSC) and now a special assistant to the president of the entire UT system. UTHSC has been supported by TUCI grants at least as far back as 2002. UTHSC was TUCI’s largest grantee in 2013, receiving half of all the money given out that year, or $1 million. But how would he know what the money is spent on? He says he doesn’t see the books and is only “vaguely aware of how much money they’ve got and how much they give out.” He leaves it to overseer Cashman’s “very open and transparent management of the money.”

Not a good look for a board chair when it comes to accountability and other board members were similarly vague.

Now that Cashman has announced his resignation, the board is refusing to talk with the press other than to say that the departure was planned. But local media may not be put off so easily. Local television station WREG reports, “When we went to talk with [board chair Hershel Wall] Friday, he refused to meet with us and told us the Urban Child Institute’s board of directors has hired an attorney who has instructed them to keep quiet.” This can be a red flag to press, of course.

The press is clearly not satisfied and should not be. WREG quotes Nancy McGee of the Alliance for Nonprofit Excellence as saying that because they are tax exempt, nonprofits actually have to be accountable to the public—they do not have carte blanche.

Additionally, the Alliance did a study of nonprofit salaries in Memphis, finding the average salary for a nonprofit executive in Memphis to be $75,000; Cashman’s replacement is to be the former secretary of the Institute, Hank Herrod, who was making $400,000 before he got kicked upstairs. Just for a little more contrast, it is worth noting these additional comparisons for local foundations from an article published in July:

  • The CEO of the Greater Community Foundation of Memphis makes $220,000 for managing an entity with $264 million in assets
  • The CEO of the Assisi Foundation makes $238,000 for managing an entity with $228 million in assets
  • The CEO of the Poplar Foundation makes $375,000 for managing an entity with $305 million in assets.

These kinds of comparisons are exactly what the IRS calls for an organization’s board to do in setting an executive’s compensation. In this case, the question would have to be, “Compared to what?”—Ruth McCambridge

  • Two observations:

    1) it’s very easy for a board member or other nonprofit representative to unwittingly violate the privacy rights or other employment law protections accorded to employees. It’s only prudent, from a legal liability and risk standpoint, to limit communication about personnel issues to comply with applicable law and regulation; and

    2) well-intended attempts to standardize compensation have had results similar to compensation efforts in publicly traded corporations in the 1980s and 1990s. In short, no one wants to be compensated below the midpoint of similar organizations and most executives desire to be compensated at or near the top of the comparable range. The result is compensation inflation as the midpoint compensation of comparable organizations moves upward to reflect the latest pay increases resulting from other organizations’ pay comparisons.

    The IRS specifically allows charities to do compensation analyses using a
    variety of methods and sources that include other for-profit as well as
    nonprofit organizations. Since charities can’t offer equity compensation to executives, nonprofits competing with corporate America for executive talent may choose to provide higher base pay and deferred compensation as an alternative to stock options and similar corporate incentives.