• December 19, 2014

Lessons From the Second Mile Scandal for Nonprofits and Their Boards

As the Second Mile charity considers whether to shut, experts in charity governance say other organizations can learn useful lessons from its experience.

The charity is mulling closure in response to a scandal over allegations that its founder, Jerry Sandusky, used the organization to find boys to sexually abuse. A grand jury this month indicted him on charges of sexual abuse with eight young boys, but Mr. Sandusky denies any wrongdoing. 

 For both legal and ethical reasons, charities and their boards need to take action to deal with any accusation of bad behavior, whether legitimate or not, says Matthew Downey, program director for nonprofit services at the Johnson Center for Philanthropy, in Grand Rapids, Mich. who often consults for charities that aid domestic-violence victims and the homeless.

Mr. Downey says charities that serve vulnerable people need to be most attuned to such allegations but that all groups should adopt guidelines for how to handle charges of wrongdoing.

He says that groups can lay out policies so employees, board members, and others know where and how to report accusations and what kinds of activities should prompt an internal investigation or an immediate report to the police. The key to preventing legal and other troubles, says Mr. Downey, is to put policies in place before a problem occurs so organizations know how to react to individual situations.

Common Problems

It may be nearly impossible for nonprofits to prevent illegal activity, but experts say charities would be well served to understand weaknesses in how the Second Mile was governed because the structure points to common problems at nonprofit groups.

Among the concerns the scandal raises, say governance experts:

Giving a founder too much power. Deborah Davidson, a vice president at BoardSource, a Washington nonprofit group that works to improve nonprofit governance, says charities like the Second Mile often struggle with founder’s syndrome, in which the person who created the charity wields inordinate influence.

“There’s a danger when an organization is founded around a charismatic leader who assembles a board, and that board may be over-awed by that individual,” Ms. Davidson says.

Suzanne McDowell, a Washington lawyer who advises nonprofits, says the clearest indication that the Second Mile may have suffered from founder’s syndrome was that it listed Mr. Sandusky as an officer of the charity in its bylaws.

“I’ve never seen that before,” she says. “It shows the institutional position of the founder and that he had significant authority.”

As a result, she says, “people may not want to take him on.”

One way to avoid letting any one person take too much control is to set term limits for all officers, Ms. McDowell adds.

While the Second Mile bylaws do set term limits for board members, they also say trustees can serve additional terms if the board’s personnel committee renominates them.

Lack of a whistle-blower policy. The Second Mile’s filings with the state and federal government show that it had no whistle-blower policy to protect employees from retaliation if they reported illegal or unethical behavior to authorities. The Internal Revenue Service in 2008 started requiring nonprofits to state on their informational tax returns whether they had such a policy. Whistle-blower policies are mandatory for nonprofits under the Sarbanes-Oxley Act of 2002, which was designed mostly to curb corporate wrongdoing.

“It’s so easy to create a whistle-blower policy,” says Mr. Downey. “Even if the policy never gets used, it sets a culture in the organization that you can speak up and your job won’t come into jeopardy.”

Appointing too many board members. The Second Mile’s Board of Directors has 35 members, according to its regulatory filings, and that size could be a liability, governance experts say. The Second Mile also has four other boards with limited powers—including regional and chapter boards, boards for honorary members, and a Founder’s Council—each allowing for dozens of members.

Many nonprofits have big boards, especially organizations that rely heavily on trustees as donors or fund raisers. However, large boards often have trouble keeping staff members accountable and providing close oversight, says Ms. Davidson.

On large boards, members don’t attend as often or feel compelled to speak up or get involved because so many other people can take action, she says.

 

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