Cheryl Marks Young, CFO of Easter Seals New Jersey, leads a discussion on how profit-generating strategies influence the way not-for-profits do business
By Daria Meoli
“Most people outside the not-for-profit sector think our jobs must be a cakewalk, but the reality is much different,” said Cheryl Marks Young, CFO of Easter Seals New Jersey. “You have to balance doing good in the world with still having the bottom line that allows you to continue to do good in the world. There is an adage in our industry, ‘no margin, no mission,’ and that really holds true.”
Ms.Marks Young’s began a lively discussion on the topic, “Not-for-Profits: Business Is Business, But Not for Women Only.” The Executive Dinner Series event was held at Red Knot in Kenilworth, NJ, with Marks Young as moderator. Finance executives from for-profit and not-for-profit organizations raised challenges shared by executives in both sectors. As the discussion’s title indicates, an enormous challenge is a business culture gap.
The Business Culture Gap
Marks Young brought up talent acquisition as a particularly difficult challenge among not-for-profits. Not only is the lower pay scale a problem, but there is a belief among finance professionals that once they work at a not-for-profit, they will have difficulty transitioning back to for-profit, if they choose to do so in the future. “The answer is to try and hire the right people, not just more people,” said Marks Young. “The challenge is to find qualified people willing to take that leap of faith and take a pay cut, in the hopes that, eventually, it will even itself out over time in some way, shape, or form.”
If talent acquisition is a problem, the solution is sometimes lying right under the executive director’s nose. Several of the meeting participants felt that they were not considered for roles at not-for-profits because of their backgrounds in for-profit companies. However, “at the end of the day, these are all just business models,” said Barry Lederman, former CFO of Wedgewood Pharmacy, now CFO of Eisai Pharmaceuticals ,both of which are for-profit companies. “Everyone has different business models. Going from for-profit to not-for-profit is just like transitioning in and out of industries. If you are a farmer, you don’t want somebody who isn’t from farming to become a farmer. But what should be more important is a person’s fit with your organization and mission.”
The group then moved on to the business culture gap that exists between the not-for-profit sector and the for-profit sector. “There is a bias that someone from a for-profit sector is not going to be able to embrace the mission, and instead, will bring a lot of hard-business practices that are not going to translate well to a non-profit scenario,” said Ellen Michelle Harris, chief legal officer at the Newark Housing Authority, a not-for-profit. “I say, ‘Why can’t we adopt practices that have worked well elsewhere? Why not embrace these practices and make it work in our not-for-profit framework?’”
Andrew Zezas, host of CFO Studio, publisher of CFO Studio magazine, and the evening’s host, described his experience as a for-profit professional providing pro bono real estate services to a not-for-profit organization. Tasked with settling an issue for a church and in a meeting with the organization’s leaders and board of advisors, Zezas found himself in discussions that were hindering the conclusion of certain business matters. “Their problem was not nearly as complicated as they thought it was,” said Zezas. “However, they were having difficulty resolving the issue because they were intertwining a lot of emotional, spiritual, and religious perspectives on what, to me, were some very clear business issues.”
According to several of the discussion participants, the business culture gap between for-profits and not-for-profits goes beyond having different mindsets and includes antiquated processes and reluctance to change. “I’ve been trying to get the organization to go paperless and I can’t tell you how many people — inside the organization as well as at the agencies we work with — have said, ‘If it’s not on paper, it doesn’t exist,’” said Anna DeJesus, CFO of Family & Children’s Services of Monmouth County, a not-for-profit.
“The single biggest challenge is getting people to open up to accept the change,” said Eileen Black, controller at Stevens Institute of Technology. She made the point that the chief characteristic of the great employees at not-for-profits is passion. They might not know the best methods for getting the job done, however. “You have to do it with bite-sized changes. These people … don’t have the experiences that we had going from for-profit to not-for-profit and our having seen more efficient ways of doing things. It’s up to us to sell our ideas on how to do things differently.”
Bringing For-Profit Strategy to Not-for-Profit Organizations
“I think executives from the for-profit sector can add a lot of value outside the box to a not-for-profit,” said Albert Caamic, CFO of Mitsui Foods, a for-profit company. “Because their goals had been focused on profitability, they can inject a different kind of excitement and perspective in raising and more importantly managing funds. For-profit CFOs focuses on the complete supply chain from findings way to buy more economical to spending within budget constraints. This forum however, changed my perspective as to how to be a CFO for a not-for-profit organization, particularly your day-to-day challenges in managing funds; I give you guys a lot of credit and respect.
Many of the dinner guests who did make that transition from for-profit to not-for-profit discussed how some of the corporate approaches to finance helped their organizations. “I am encouraging my colleagues to not be apologetic about our non-profit mission and try to convince them it’s OK to talk about money for that mission,” said Harris.
Edward Imparato, CFO of St. Dominic’s Home, a not-for-profit, experienced a bit of a barrier as a businessperson coming into a charitable organization. He overcame that perception by engaging others. “The folks who are running the programs are very focused and passionate about what they do; but if they want to keep the program running, it has to be financially sustainable,” he said. “When you begin to talk to folks within the organization about how they are stakeholders and their value is the sustainability of the service they are delivering, people get it and they begin to connect the dots. If you are creating value and the organization can help more people as a result, they are more open to changes.”
Marks Young said she met with some opposition within her organization when she first took her position because she wanted to do a cash-flow analysis. “After I did the analysis and allowed everybody time to review it and digest it, we all came to an agreement about where our pain points were and started on the road of, ‘OK, now how do we fix them?’” she said.
Credit and Cash Flow
Before becoming an executive for Easter Seals New Jersey, Marks Young transitioned through several industries, including, telecommunications, aerospace, medical, and entertainment. Several other dinner guests also moved from positions at for-profit companies to not-for-profit organizations, including Imparato, who was previously senior vice president and CFO of United Water, a for-profit. “With my own experience, first as a CFO at a billion-dollar company and now with a $50 million not-for-profit, the issues are very much the same,” he said. “In some cases, the not-for-profit is more challenging because you can’t access credit and you can’t market your organization in certain ways.”
Nancy Rogerson, vice president and CFO of CherryRoad Technologies, a for-profit, had a different viewpoint. Sometimes, a for-profit company doesn’t yield profits and has the same difficulty gaining access to credit. “I’ve worked through difficult years,” said Rogerson. “While I’m not answering to donors, I am answering to the shareholders who have had to put money back into the company because the banks want to see a positive bottom line before they give credit.”
Joanne Ferris, former CFO and EVP of Applied Communication Sciences, a for-profit, has dealt with some of the same challenges not-for-profits face when it comes to working with government agencies to secure project contract funding. Ferris faced an ever-growing level of government regulations and spoke about the cost of complying with these requirements. “Government agencies impose so much regulation on your organization that it actually creates overhead,” said Ferris.
CFOs at not-for-profits do experience the added challenge of depending on donors for a percentage of their funding. “I don’t sell [any] product so I can’t raise my prices,” said Bob Barry, CFO of Community FoodBank of New Jersey, a not-for-profit. “I am only dependent on people within the state to give their money to us to run a program, and that’s a very daunting prospect. Eighty percent of our budget comes from people giving money and it’s a crapshoot.”
Cash flow is a common challenge, but not-for-profits have an added obstacle when, as Barry described, a large percentage of funding comes from donors. “From my experience, one of the biggest obstacles you have is cash flow,” said Edward Schultz, principal at Highland Group. “Cash flow drives everything, but forecasting your cash is much more difficult than it is for a person in the for-profit sector.”
Expectations of Accountability
The executives around the table also discussed the increasing demands on not-for-profits for accountability. Lisa VanPatten, CFO at Kitara Media, a for-profit, previously worked for the Doris Duke Charitable Foundation and spoke about how the Gates Foundation played a major role in changing donor expectations of not-for-profits. “What Bill and Melinda Gates did was issue their grants in batches, so if you wanted to receive your entire grant, you had to show that you were achieving what you said you could achieve,” said VanPatten. “It was really earth-shattering in the not-for-profit world to be held accountable the way people are in the for-profit world. It is a great discipline.”
Christopher Rausch, CFO of Somerset Tire Service, Inc., had a unique perspective on accountability. While his company is a for-profit business, it has an Employee Stock Ownership Plan (ESOP) model. “I have to answer to everyone in the company about our financial health,” said Rausch. “It’s employee-owned so every single person in that company has an interest in our profitability and our outcome. That is similar to what the donors expect from a not-for-profit. Anytime you’ve got people who are contributing in any form — whether it’s in the form of money or in the form of expectations — you have to answer to them.”
Marty Latman, CFO of Prestige Corporation, a for-profit, has worked in both not-for-profit and for-profit organizations. “As a CFO of a not-for-profit, it’s your job to establish the organization’s credibility and see to it that the dollars will be spent according to what they are being raised for,” said Latman. “You are the activist [determining] where the funds are directed. And whether you accept it or not, you are also a public relations person, because to people on the outside of your organization, you hold the position of responsibility for the way the dollars are spent.”
Having a public face of accountability is a relatively new concept for many not-for-profit organizations. Thomas Bongiorno, vice president, corporate controller and Chief Accounting Officer at Quest Diagnostics, a publicly-held for-profit, and board member of the New Jersey Division of the Salvation Army, a not-for-profit, explained that it has been difficult to educate members of the not-for-profit on the value of self-promotion. “This issue is at the intersection of the for-profit versus non-profit because the advisory board is made up mostly of people from the profit side,” said Bongiorno. “[The Salvation Army’s mission is very important; they are Salvationists. But they are not good at self-promotion. … For example, they were first on the scene serving meals after Super Storm Sandy, but the American Red Cross got better coverage. We have that tension of the board trying to advise them to have more of a face in the public sphere. The donors want to hear about it. But people in the Salvation Army are understated.”
Like their colleagues in the for-profit sector, CFOs at not-for-profit organizations are taking on roles and responsibility outside finance and shaping their organizations’ futures.