Monday, August 18, 2008

Nonprofit Manager Issues, then Violates, "Keep Your Yaps Shut!" Order: Just Tell the Whole Truth Now

The truth is out there and it will come out.  Better to tell now and get it over with.  A story in today's New York Times confirms that point.  You may recall that we recently reported on how two prominent nonprofit organizations handled embezzlement/excess benefit cases within their organizations.  One, ACORN, tried to handle the matter internally and secretly while the other, Points of Light, immediately contacted law enforcement.  Both approaches have their advantages and disadvantages, particularly with regard to the harm done to an organization's reputation on which its fundraising success depends.  Today's article is a follow-up to the one upon which our earlier post was based.  It seems that the Times has uncovered who exactly it was that reimbursed ACORN for the money stolen by its founder's brother.  The prior post described ACORN's decision to take the quiet approach and contrasted that with more forthright, though more immediately damaging approach.  While the post generally agreed with the quiet approach in theory, it concluded as a practical matter that "resistance is futile" (particularly in this day and age); to think these bad news can ever be resolved quietly is what John Edwards was thinking too.  It might therefore be better to disclose immediately and cut the losses, however painful, quickly! 

Indeed, the Times story probably confirms, in ironic fashion, what we never seem to learn:  the truth is out there and it will come out!  One of ACORN's senior managers is quoted as expressing concern that the identity of the benefactor who reimbursed the embezzling insider will somehow be leaked to the press.  He discusses it with other managers via email and guess what!  Yep, the emails become the source of the leak!  The email conversation about keeping the whole matter confidential is full of comic (if not tragic) irony:

But e-mail messages among Acorn’s senior executives discuss how to keep Mr. Pike’s identity secret, even as they acknowledge that some of the foundations and philanthropic advisers that have supported Acorn and its affiliates know that he bought the note.  “Does Drummond [the confidential donor] know the word is out?” Steven Kest, the executive director of Acorn, wrote on July 4. “If not, shouldn’t someone tell him?”  In a July 12 e-mail message to Mr. Kest, Acorn’s political director, Zach Pollett, wrote: “I talked to Drummond on this yesterday and had Beth Kingsley” — Acorn’s lawyer — “prepare a ‘keep your yaps shut’ confidentiality memo to people at Acorn and CCI.”  Charles D. Jackson, a spokesman for Acorn, said the organization would not comment on the purchaser of the note. Acorn’s board members and senior executives have signed confidentiality pledges that forbid them from disclosing Mr. Pike’s identity or discussing the purchase agreement, according to three Acorn contributors who asked to see the agreement but were told they would have to similarly pledge confidentiality. They declined.

So while the board is bound by a confidentiality agreement and general counsel has ordered the rest of the workers to keep their stinking yaps shut, the person who recommended issuing the order is yapping about it via email.  I guess you learn something new everyday!  Now there will probably be an expensive and time consuming investigation concerning whether the secret benefactor, Drummond Pike, founder and board member of the Tides Foundation, used the Tides Foundation money to bail out ACORN's miscreant insider.  There will be all sorts of interviews and lengthy memos regarding the private foundation exise taxes applicable to self-dealing, prohibited transactions and on and on ad infinitum.  I don't think the Tides Foundation board members have much choice but to do so, if they understand their own fiduciary duties and potential liability.

Hindsight is always perfect.  Points of Light was probably right to tell the truth sooner, though the truth hurt them sooner --though not as badly as the truth will hurt ACORN.  As we opined in the earlier post on this topic, confidentiality is theoretically good but rarely achieved.  This is the information age, after all.  It is just better to tell the truth, the whole truth as soon as possible.  Besides, unless there is a competitive business reasons (a phrase that seems inapposite to the nonprofit world), something that we don't want others to know about probably ain't right in the first place. 

dkj

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