Zone of Insolvency by Ron Mattocks

This review, which I wrote, appeared previously on a different Web site. If you want the link to the original, please leave a comment below and I will contact you directly. If you want me to view it without publishing your name, I'll gladly do that. I keep no list of readers, so I won't sell it anywhere.

If you're a current nonprofit board member and there's a horror section in your nonprofit library, you'll want to add Ron Mattocks' Zone of Insolvency to it.

That's because Mattocks makes a convincing case that as many as a third of the nation's tax-exempt organizations are operating in a "zone of insolvency" — a financial state somewhere between solvency and total insolvency — and that it's just a matter of time before another nonprofit financial scandal emerges. According to Mattocks, who has more than thirty years' experience developing the financial strength of nonprofits, organizations operating in a zone of insolvency typically experience some combination of challenges, including dwindling cash reserves, increasing debt, an aging product mix and deferred maintenance, and recurring cash flow problems. Unfortunately, once an organization has entered the zone, there are only three ways out: a financial turnaround, merger, or dissolution.

To bolster his case, Mattocks provides summaries of some of the most notable nonprofit financial scandals of the past seventeen years, including William Aramony's misdeeds at the United Way of America and the Ponzi scheme that was the Foundation for New Era Philanthropy. But he also presents several success stories involving organizations that were able to turn things around — including the United Way of America.

His examples don't just involve financial scandals. Indeed, he offers several examples of organizations whose boards determined that, in the face of a changed or changing environment, the best course of action was to dissolve the organization while it was still providing important services. The National Alliance of Business, for instance, ceased operations in 2003 when its president and board determined that its mission had been accomplished. "The market had changed, new issues had emerged, and new organizations had risen to the challenge," Mattocks writes. "Funding sources had changed, and the organization experienced some net losses." Against that backdrop, the CEO helped convince the organization's stakeholders that its task was complete, to celebrate the organization's success, and to close its doors. Mattocks even provides a case study of Women in Community Service, which he headed for the final five months of its existence. Like NAB, WICS had decades of success to celebrate, but in the end it was unable to raise enough funds to continue operating and put itself out of business.

One lesson any board member should take from the book is that, when an organization is operating in a zone of insolvency, the decisions made by its executive director and board assume a different level of importance. As Mattocks puts it, a board's legal responsibilities expand when an organization is teetering between solvency and insolvency. In fact, in such situations boards need to become more engaged with management issues, and that usually increases the stress between a chief executive and his or her board (a relationship that can be strained even in the best of times). Less obvious, however, is how the zone of insolvency can alter the relationship between organization and donor. If, for example, an organization operating in the zone is offered a major gift with significant restrictions, it needs to make its financial situation crystal clear right up front — or risk violating the donor's legal rights.

To guard against that, Mattocks offers the following advice: "When governing in the zone of insolvency, a board should have special legal counsel to assure that no action benefits one party of interest while disadvantaging others." It's also absolutely critical, he writes, for key members of the board to have adequate directors and officers insurance when governing a financially distressed organization.

Like any good horror story, Zone of Insolvency argues that, in the end, organizations can overcome adversity and return themselves to a strong financial footing. Yes, some organizations will stumble and fail. But in the end, strong, well-managed organizations will survive, and that's how it should be.

So before you start banging out that resignation letter or say no to an invitation to join a nonprofit board, read Mattocks' book. As they say in the movies, forewarned is forearmed — and will keep you from getting hurt.

Favorite books

This is a nice little site about celebrities' (actors, writers, etc.) favorite books as children. Some of the celebrities are more interesting than others; I liked Joyce Carol Oates's explanation of why she loved Lewis Carroll's Alice adventures. Of course, the more important part of First Book is that it encourages young people to read. More specifically, the organization gives books to children from low-income families. If I recall correctly, I interviewed the founder of this organization, back when I worked for a national trade journal about nonprofit organizations. I've not really kept up with them, but they seem to have done ok.

What was your favorite book growing up?

Exposing the Elephants by Pamela Wilcox

This review was originally published at another site. If you want the link to the original, please leave a comment below and I will contact you directly.

Running a nonprofit organization in the first decade of the twenty-first century can be a challenge for even the most experienced leader. Technology and the needs of society seem to be changing at an accelerating rate, and most organizations — even those with abundant resources — are finding it harder and harder to adapt.

But the biggest problem, says Pamela J. Wilcox, is that various "elephants in the room" make it almost impossible for nonprofits to question organizational norms and performance, which in turn makes it difficult for them to remain average, much less achieve greatness. In Exposing the Elephants: Creating Exceptional Nonprofits, Wilcox addresses some of those taboos and, in the process, explores a variety of ways nonprofits can strengthen their leadership and improve their performance.


To that end, she focuses on five specific "elephants": volunteers becoming mission; board and constituent realities in conflict; small clatter drowning out critical sound; congeniality trumping performance; and rhetoric replacing results. Each elephant, she notes, comes with its own "herd." Right behind rhetoric one often runs into hubris. Who decides, for example, that a new symphony hall is "world class"? "That's the motto of the Read My Lips elephant," she adds. "Say something loud enough and often enough and people will believe it is true."

Moreover, while many nonprofits enjoy a favorable public image, Wilcox argues that that view often rests on a series of misperceptions. A closer examination of how Americans actually view nonprofit organizations — they don't make a profit, they don't worry about competition, they don't use concrete benchmarks to quantify performance — reveals the shaky ground on which the reputations of many nonprofits exist.

By her own admission, Wilcox hopes to spark a revolution — a revolution, as she describes it, that's sorely needed. But, as she's well aware, it's not as if her elephants have gone unnoticed. "Insiders are always discussing issues like the loss of mission focus, mismatch of board/CEO organization mindset, confusion of governance and management roles, absence of volunteer/staff teamwork, and lack of lasting results," she writes. Unfortunately, volunteer and staff leadership rarely engage in meaningful dialogue about the root causes of their problems, and as a result change, when it does occur, is incremental and fleeting.

While Wilcox encourages her readers to find solutions to their problems by reexamining resources already at their disposal, she doesn't expect every answer to be found there. "The solutions to improved performance, sustained mission, and innovative new services and programs may lie inside," she says, "but it requires real nonprofit leadership to tap into this rich wealth of knowledge and challenge people for answers."

Fortunately, Wilcox offers a number of examples of the kinds of conflict that prevent nonprofits from realizing their full potential and suggests ways for executives to deal with them. What's more, her straightforward writing style and the book's layout make it easy for readers to peruse the chapters to find specific advice that applies to their particular situation.

In the final analysis, Wilcox understands that organizational culture problems are not easily resolved, and that the mere fact of addressing them can create additional problems — not least because most people are more comfortable dealing with the devil they know. That needn't paralyze your organization, she writes. Just remember the old joke: How do you eat an elephant? One bite at a time. While Wilcox's answers may not always be appetizing, her non-nonsense advice is likely to sustain readers who are ready to embrace change.