When Banks Fail: Board Fiduciary Responsibilities
By Karen Greve Milton, Senior Consultant

Late on the evening of Wednesday, March 8, 2023, a local bank in California, Silicon Valley Bank  (“SVB”), decided to sell its entire $21 billion portfolio of long-term fixed income assets, netting the bank a $2 billion loss.  At the time of the sale, SVB’s total assets exceeded $200 billion. A $2 billion loss against bank assets far exceeding that amount should not cause any concern among the bank’s depositors, right? Wrong.

The actions taken by SVB that fateful Wednesday evening turned out to have a seismic impact on SVB as well as the nation’s banking system. The SVB portfolio sale triggered a mass panic among the bank’s depositors which led to a run on the bank and ultimately, the federal government taking over the bank on March 10. Ultimately, the federal government backstopped SVB depositors with liquid assets over the FDIC-

The implosion of SVB and the recent banking crisis provide a cautionary tale for non-profit boards of directors. In his book, Ten Basic Responsibilities of Nonprofit Boards, Richard T. Ingram writes that boards of directors have a duty to “protect assets and provide financial oversight” for the non-profit organizations entrusted to their care. See Ten Basic Responsibilities of Nonprofit Boards, ch. 7, pp. 51-64.  Generally, boards carry out their fiduciary duties through a finance committee of selected board members. The finance committee ensures that the non-profit’s financial resources are managed appropriately without being subject to undue risk.  See Ingram at pp. 58-59.

The caveat about not subjecting the non-profit’s financial assets to undue risk ties into the issues raised by the March 2023 banking crisis. Under the FDIC, bank deposits — for both individuals and businesses alike—are only ensured up to $250,000. Unlike the federal government’s actions regarding SVB and Signature Bank, deposits in excess of this limit may or may not be recovered in the event of a run on the bank and an ultimate bank failure.

There may be strong business reasons for non-profit organizations to maintain liquidity of financial resources in excess of the FDIC threshold. But board finance committees need to think about the best ways to protect these financial assets within the current FDIC-insured limits. 

I am a member of a non-profit board of directors where I also serve as the organization’s Treasurer. This non-profit has its banking operations headquartered with one of the four largest banks in the country. Last year, due to complaints about the lack of customer service from the organization’s current bank, the finance committee approved a recommendation from the executive director and chief financial officer to move the organization’s banking business to the regional bank where the non-profit’s investments were being managed. The transfer of the bank accounts, for reasons beyond the scope of this article, dragged on for months and still had not occurred at the time of the SVB implosion. 

So, what actions did we take and what actions should a board finance committee take? The good news is that our investment management team reached out to us almost immediately to assure us that our organization’s investment portfolio was safe. We remained in almost daily contact with them throughout the banking crisis.

Secondly, we decided to “pause” the transfer of the organization’s bank accounts to this regional bank until we had the opportunity to re-assess the situation. Ultimately, the executive director and I asked the chief financial officer to research several other community banks near the organization’s offices and provide a recommendation to the finance committee. 

We also checked in with sister organizations to learn how they handled their banking business, including the need to maintain liquid cash in amounts exceeding $250,000. What we learned from our sister organizations reinforced for us the need to maintain bank accounts at multiple banks to satisfy our need to maintain cash amounts in excess of $250,000 and to ensure that all the non-profit’s cash resources were within FDIC protection limits.

Lessons learned from the banking events of March 2023:

1. Develop and implement a financial plan to manage all the financial assets of the non-profit organization
2. Engage in strong financial oversight and management of the non-profit’s financial resources. 
3. Develop, implement, and follow financial policies pertaining to fiscal management and investment of the non-profit’s financial resources
4. Maintain liquid cash assets in anyone banking institution within the FDIC-insured limits
5. Consider spreading cash assets in excess of $250,000 among multiple banking institutions
6. Investigate whether large amounts of cash resources can be invested in investment vehicles that provide both higher rates of return with the ability to liquidate these investments quickly and without penalty
7. Bank where the non-profit can develop a strong banking relationship with good customer service.  Notwithstanding the SVB implosion, community and regional banks provide firm financial support to non-profit organizations located within their communities
8. Be proactive about managing the non-profit’s financial resources. Ask questions. Gather information. Take the actions necessary to carry out your fiduciary duty

Making a Difference
By John Brooks, Senior Consultant

27 years ago, I would have never guessed that I would be in the development field and now, I can’t imagine myself doing anything else. I was fortunate enough to have worked with somebody who mentored and encouraged me to make the move to development work where I could combine the skills I had acquired over my career with my desire to make a difference in the world.

When I started as a development associate at Special Olympics Connecticut back in 1996, several of my friends asked me what I was doing for a living. I excitedly told them all about the fundraising events I helped organize, the meetings with donors, the national conferences I got to attend, the direct mail appeals and telemarketing scripts I helped create and the donor visits I lead at the Summer & Winter Games. They looked at me in a funny way and asked, “But what’s your job?” “That’s your volunteer work, right? Do you get paid to do that?” What other profession do you get to work in where you meet so many great people while at the same time helping to make the world just a little bit better? And right now, the world needs as many of us making a difference as possible!

A global pandemic, climate change, systemic racism, poverty, homelessness, drug addiction, immigration, clean air and water, access to affordable health care, human rights and so much more – these are just a few of the most serious issues facing society and we, as fundraisers get to be part of the solution. We are often the conduit to that change. We get to help people make a difference!

I’ve shared this story many times, but it really exemplifies the fundraising profession: I had a donor who I was working with for a few years. The family’s contributions steadily increased as our relationship grew and as they learned more about the impact our organization had on so many people in their community. Each year their contribution increased until one year they doubled their support over the prior year. It was such a powerful moment when I was handed a six-figure check and before I could say a word, the donor said something I didn’t expect – she said, “thank you.”

Imagine, I was handed a huge check and the donor thanked me. They weren’t able to volunteer, serve meals, join an advocacy committee, spend an overnight with our clients through their church or join the board. She thanked me for providing her family with the opportunity to make a difference in a manner most suitable to their situation.

That’s what we do every day. We connect people to the causes that they are passionate about. We help them make a difference.

As far back as I can remember, I’ve had a statement on my resume under my professional objective that simply says – “To Make a Difference.” I am proud to be in this profession and looking forward to working with Sharon and her team in our shared vision “To Make a Difference.”

Welcome John Brooks to the Danoksy & Associates Team!

Danosky & Associates is pleased to welcome John Brooks to our team. John brings over 27 years of experience with nonprofits – especially in the area of fundraising, working with volunteers and building strong boards. “I am excited to be working with John. He has the donor-focused emphasis on fundraising that I share. The impact he has made at the organizations where he has worked has been remarkable. He is one of those rare fundraising professionals who has made an exceptional difference not just to the organizations where he worked, but to the nonprofit community,” notes Sharon Danosky.

If you would like to meet with John, please email him at jbrooks@danosky.com.  

About John

John has been working in the field for nearly three decades. During that time he has amassed a wealth of experience in every aspect of fundraising: major & planned giving, corporate sponsorships, foundation & corporate grants, fundraising events, direct marketing, volunteer management, community outreach, external communications, and media relations. In addition, he has extensive experience developing, training, and leading numerous volunteer and board committees to identify and solicit donors and to conduct fundraising events. “These are the skills that every nonprofit organization needs to excel today!” says Sharon Danosky. 

John is also a leader for the Association of Fundraising Professionals (AFP), where he has been a member since 1996.  In 2021 he was named AFP Outstanding Fundraising Professional in Connecticut   He has served on the AFP Board of Directors since 2006 and was the Chapter President in 2011-2012. He has held leadership positions on the Program, Nominating and Mentorship Committees.

John was most recently the Chief Development Officer for Columbus House, a New Haven based non-profit organization serving those who are experiencing homelessness and has served in that capacity since January 2004. Prior to working at Columbus House, he was Vice President of Marketing & Development for Save the Sound, a New Haven based environmental organization and was also Director of Development at the state headquarters of Special Olympics Connecticut.

He is the former Vice Chair of the Greater New Haven Chamber of Commerce’s Non-Profit Resource Council and served on the steering committee for Leave-A-Legacy Connecticut. He is also a graduate of the Greater New Haven Leadership Center. John is a volunteer instructor with the CT DEEP Connecticut Aquatic Resources Education program (CARE) and is a cycling coach, special partner and cycling committee member with Special Olympics CT.

John is a Philadelphia native and lives in Monroe with his wife, Monica. He has two grown daughters and just recently became a grandfather! When not involved in nonprofit work, John enjoys cycling, kayaking, fishing, and hiking.

By Karen Greve Milton, Senior Consultant, Danosky & Associates

It seems as if I have been involved in governance matters with non-profit organizations throughout my professional life, and even before that, if you count serving as president of my college choral group.  At present, I serve as a volunteer director on a board of a national non-profit organization dedicated to promoting civic education to citizens of all ages, or “cradle to grave” as we like to think of our mission.  Our directors are located throughout the country from the West Coast to the East Coast with the Mid-West in between.  Our constituencies also are located throughout our nation, from coast-to-coast, including Hawaii and Alaska.

Due to the pandemic, we have only met virtually through the wonders of Zoom for almost three years.  During this time, our long-serving Executive Director retired, a new Executive Director was hired, long-serving Board members left and were succeeded by new Board members, new senior professional staff was hired to oversee programs, development and operations, new audit and financial investment firms were selected, and we re-drafted our by-laws and mission statement.  And like all of us, we handled all these matters without any face-to-face meetings.  We even held our annual in-person Board Retreat and Meeting last year by Zoom. 

Next month, our Board members and senior/executives will meet in-person for the first time since the pandemic.  Half the Board members have never met in-person since joining our organization.  Our senior/executive staff, including our Executive Director, has never met in-person with the full Board.  Although I only in the middle of my first term on the Board, I coordinated last year’s virtual annual Board Retreat and Meeting and am performing the same service this year.  Last year’s annual meeting focused on our organization’s mission and mission statement:  who we are as an entity and what we do in our jurisdictional area to affect that mission.

Our focus for the discussion at this year’s annual meeting will be different from last year.  This year, we intend to focus on our purpose or the reason we exist, rather than our mission.  As we prepare for this year’s annual Board Retreat and Meeting, I have been scouring various websites for articles to include in our Board Meeting packet.  In the Stanford Social Innovation Review, a March 2021 article, by Anne Wallestad, then-CEO & President of BoardSource, entitled, “The Four Principles of Purpose-Driven Board Leadership,” caught my attention.  In her article, Ms. Wallestad argues, rather convincingly, that today’s non-profit boards need to be purpose-driven rather than mission-focused with fidelity to the organization’s reason for existence in its ecosystem with an emphasis on seeking equitable outcomes in its decisions and ensuring that the community served by the organization has a voice, if not a seat at the board. 

With our new Executive Director, my Board colleagues and I invested significant time over the past year in re-thinking and re-defining our organization’s mission and redrafting our by-laws.  Through our new Executive Director, we reached out to sister organizations in our ecosystem—for the first time in our history—and began exchanging ideas as to how we all shared the same mission: promoting non-partisan civic education.  We also expanded the diversity of our Board membership geographically, racially and demographically.

In thinking about the strides our Board has made in these pandemic years, we seem to be poised to take up the gauntlet posed by Anne Wallestad in her 2021 article.  This year, as we gather together in-person, our discussion will focus on her four principles of purpose-driven board leadership:

Purpose:  defining the reason our organization exists in today’s world

Ecosystem:  gaining a perspective about our sister organizations and considering the effect that our decisions may have on them and their purpose.

Equity:  ensuring that our decisions create equitable outcomes and

Authorized voices & power: making sure that we give voice to the communities we serve and include them in our decisions.

I believe it is important for all non-profit boards to engage in this dialogue and embrace this new way of looking at their organizations:

• their reason for existing,
• how their decisions affect their ecosystem,
• how they can continue to improve equitable outcomes for their actions, and
• how they can identify better ways to engage the communities they serve.

Purpose-driven boards will be more engaged with the communities they serve. It is through this stronger engagement that their communities will help the board find new and innovative means to promote their organization’s purpose for existing.  By better defining their purpose, they also will develop a board member profile that promotes their organization’s purpose in multiple areas; thereby making their vision, their reality.