Making-Most-Stakeholder-Revolt
“DEFIANCE” BY DANIEL HENSON / WWW.DANIELHENSON.IE

This article is from the Nonprofit Quarterly’s winter 2015 edition, “When the Show Must Go On: Nonprofits & Adversity.” Click here to subscribe.


Over the past few years, NPQ has been tracking nonprofits whose stakeholders rose up to save them after their boards voted to close the doors. They are in a larger field of organizations that have felt the sting of stakeholder rebellions when a board has somehow broken faith with the community it serves. As we watched these situations where an institution is saved, we realized that two of them—Sweet Briar College and the San Diego Opera (SDO)—were remarkably similar. At the point the boards voted to close:

  • Both organizations had a relatively healthy body of reserves and/or endowment;
  • Both had experienced some negative trending in their revenues and revenue drivers;
  • Both were in fields where doomsayers were loudly lamenting the death of the genre—in one case, same-sex colleges, and in the other, the opera;
  • In both cases, decisions appear to have been made out of the blue, with little or no consultation with stakeholders;
  • In both cases, the executive director/president left after a decision was made to save the organization;
  • In the case of the San Diego Opera, more than half the board left, and in the case of Sweet Briar College, the entire board was replaced; and
  • In both cases, stakeholder groups protesting the decision raised significant money to help retake and remake the organization, but both face a creative challenge in seeking sustainability.

The similarities between the two organizations’ trajectories from near closure to unexpected rebirth led us to take a closer look at how the new boards have handled governance in the context of an empowered network of stakeholders. Four facets of the stories of these two organizations emerged as particularly interesting with respect to transformations of their modes of governance and engagement with their stakeholders/networks: (1) the lead-up to the closures; (2) the donations, and their effect on the stakeholders/networks; (3) how governance changed; and (4) how the networks became integrated into the organizations as they moved forward.

 

The San Diego Opera

The Lead-Up

Carol Lazier, current chair of the San Diego Opera’s board, was on the board but was not the chair when the vote to close was made—and she describes the SDO’s strange pivot from a position of privilege and prestige to a public declaration of imminent closure.

In some ways, what Lazier describes is an institution that got a little lazy about charting its own path forward during a time of economic and cultural tumult. The SDO was certainly not in trouble artistically. “We had a wonderful opera—in the top ten of opera companies,” she said. “We had very strong staff leadership at the top, and we had a very powerful fundraiser. But we also had a fund called the Kroc Fund, which we could just dip into when we needed to. We weren’t lean, and we didn’t change our business model in time, and eventually we found ourselves running out of money. The board knew we would run out of funds in a year, but we were complacent. We had these great people at the top, and we thought that certainly they would pull the rabbit out of the hat and raise the money to continue the seasons as we had been planning them.”

But, as she described, “that willingness to follow the few was exactly what ended up creating the chaotic near closure and then its reversal. At some point, a small number of people on the board and in top management decided that we should close rather than make the changes needed to survive. An emergency meeting was called with little notice and no information about what was to be discussed; it was here that the proposal to shut down was put on the table for the first time—and convincingly, with the justification that operas were closing all around us.” According to Lazier, the institution’s leaders stated that “the right thing to do was to pay off debts and future obligations, and close our doors. Death with dignity.”

Apparently blindsided by the force of the argument, the whole board agreed to shut the company down within an hour of the proposal’s being made. “But within twenty-four hours,” said Lazier, “some of us began to think, ‘What have we done?’ It was like we had gone into mourning, and we were mourning the death of a loved one. People were just kind of numb. We went from understanding we had financial issues to, ‘We’re going to close the company,’ within the blink of an eye.”

Meanwhile, said Lazier, “the community was absolutely furious. We had a great opera company, a cultural jewel, and no one wanted to lose it. We had people who didn’t even go to the opera who were fighting closure, saying, ‘This is not right—this is owned by the public; this is not owned by the small group of people