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April 16, 2017; MiBiz.com

NPQ has already written once before about the nascent National Association of Nonprofit Organization Executives (NANOE), in a piece from July 2016 by Jon Pratt that NANOE’s president Jimmy LaRose called out as fueling and provoking “controversy.” That controversy has since been extended by a March 30th piece in the Chronicle of Philanthropy, entitled “New Nonprofit Puts Money Over Mission and Ethics.” Perhaps the group’s leadership considers this simply more useful press; NANOE’s leaders are as unabashed as they are unconventional in their approach to nonprofit management and leadership.

In the end, it is up to nonprofit leaders to use the sense they were born with. So, what is NANOE trying to sell, again?

If NANOE has its way, no nonprofit organization would have more than four board members, and each nonprofit’s CEO would be its board chair. Every board member would be paid for his or her board service at more than token rates. The Chronicle of Philanthropy reports that NANOE’s five 501(c)(3) board members each receive $1,000 a day for in-person meetings and $300 per hour for telephone meetings. A report on NANOE’s first conference included a photo of the five board members proudly waving their honorarium checks as they sat in the front row of a meeting. There is no mention of board member travel and other reimbursements being included in these payments.

NANOE chose a new and curious path when filing for tax exemption. According to a spreadsheet available from the IRS website, NANOE’s application was submitted using an IRS Form 1023-EZ. Nonprofits that use the “short form” application pledge that their estimated revenue won’t exceed $50,000 annually for their first three years in operation and that assets will not exceed $200,000 during the same period. Depending on how often the NANOE board meets in person and by telephone, much of the $50,000 will be consumed by payments to board members, not to mention any paid staff members, like the strong nonprofit CEO NANOE advocates all 501(c)(3) nonprofits should have to run the organization.

A review of NANOE’s website this week does not uncover the names of its governing board members or staff, if any staff are on the payroll. “It’s not that we don’t want ethics and accountability,” LaRose told the Chronicle of Philanthropy for that March report. “But you don’t want to design your best practices based on that as its cornerstone.” (For intrepid researchers, the IRS spreadsheet does include the board member information.)

Rob Collier, president and CEO of the Michigan Council of Foundations, said, “To think that we would compromise [trust and accountability] over money is very shortsighted. When we see this kind of activity, this would simply undermine the work that nonprofits are trying to do.”

“What NANOE is proposing goes against every teaching out there, whether it be from the Standards for Excellence or Board Source,” said Daniel Billingsley, vice president of external affairs at the Oklahoma Center for Nonprofits. He worries that paid board members would be conflicted when faced with ethical situations. “How easy would it be to overlook something in the financials or with compliance issues? Other board members might be reluctant to bring attention to it because they don’t want to lose their seat on the board.”

NANOE’s message of capacity building for nonprofits is nothing new, but the methodologies, including paying board members, are radical and even iconoclastic. Quotes, including “good boards and bad boards don’t matter,” “money is more important than mission,” and “it’s all about the CEO,” are included in NANOE’s “12 Guidelines in 12 Minutes,” a video excerpted from a one-hour Facebook Live event presented by NANOE President Jimmy LaRose.

Criticism of NANOE isn’t limited to its teachings. Its business model has come under fire from a wide array of nonprofit professionals.

In its website FAQ, NANOE’s calls its members a “board of governors” who pay an annual membership fee and are invited to participate in honing the “12 Guidelines” and other NANOE materials. Elsewhere in NANOE’s marketing and other materials, all references are to “governors” who have been “invited to accept their nomination” to become part of NANOE’s board of governors.

Recruitment of governors appears to be based on a wholesale model; as a consequence, credentialing by NANOE is easy. The nonprofit offers three individual credentials and two organizational credentials. The three individual credentials are awarded to “governors” using a two-step process. First, a one-time credentialing fee between $98 and $198 is paid. Second, they take an online test for each of the one, two, or three credentials desired. The test is “open book,” using materials supplied by NANOE describing the organization’s philosophy and approach to nonprofit practice and credentialing in executive management (CNE), fundraising and development (CDE), and consulting with nonprofits (CNC). The good news for test takers, according to a NANOE video from January (at about the 44:00 mark), is that they may take each of the tests as many times as necessary to pass without paying an additional fee. The better news is that, should they fail on the first try, they receive immediate notification of which questions they answered incorrectly, along with the correct answer.

Amy Coates Madsen, director of the Standards for Excellence Institute at Maryland Nonprofits, said, “One of the hallmarks for the nonprofit sector in the United States is that these organizations with public purposes are led by people with a dedication to the mission. We don’t want to encourage situations where there are conflicts of interest in any way. We don’t want to appear as organizations masquerading as small businesses.”

NANOE is, legally speaking, a 501(c)(3) public charity, but its board compensation policies, its membership recruitment strategies, and its credentialing process could allow it to be easily confused for a small for-profit business or a 501(c)(6) membership organization (“business league,” in IRS definition). It communicates high aspirations and rapid growth potential, yet told the IRS in its tax exemption application (both explicitly and implicitly, by using the Form 1023-EZ) that it expects to be small for at least three years. Quoting from one of Jimmy LaRose’s NANOE videos, “The number of things we haven’t figured out yet is countless.”—Michael Wyland