Why are we in business?

Dr. Eric Lankin

The following story presents a troubling dilemma for many nonprofits, trying to stay on track while balancing the needs and desires of its various constituencies:

Parkview Community Synagogue was going from being a local Conservative synagogue to one whose members were more spread out as its original urban neighborhood began to economically decline. This led to many of its long-time members to join other synagogues or not affiliate at all as families moved to suburban locations. Others remained members in the synagogue but since they moved, their involvement declined as the drive to the synagogue on Saturday mornings for religious services was burdensome due to increased traffic and evening programs became too difficult after a whole day’s work and commute.?

At a recent synagogue Board meeting, one of its biggest financial supporters, Jack Schwartz, owner of Champion Auto Sales, located a block from the synagogue, made a generous offer. “I know we are facing a serious financial crisis with dues collections dropping off considerably since the decline of the neighborhood. I have thought about this issue and am prepared to make the congregation a generous offer. I want to give the synagogue my business, land, facilities and all the cars on the lot. Involvement in the synagogue has brought me many blessings and I don’t financially need the business anymore. It really is time for me to retire and be able to spend more time involving myself in the community and even travel a bit.”

Rabbi Katz, spiritual leader of the synagogue for the last 8 years, looked puzzled at first but then became animated when he realized that a business like this could produce tremendous income for the synagogue, solve the financial challenges caused by the drop-off in membership in the last few years.?

Sheila, always a stickler for Robert's Rules of Order, offered a Board resolution so as to allow a discussion of the offer: “Should the synagogue accept Jack’s generous gift and plan on running a used-car business to provide critical funds for the synagogue?” After the resolution was announced, Jack absented himself to make it comfortable for everyone to speak.?

First to speak on the motion was Elliot,? board member, lawyer and synagogue’s unofficial legal counsel. He offered two important comments:

1. Nonprofit organizations generally can accept land or buildings as donations. There are legal issues about establishing market value of the gift so as to avoid tax fraud by the donor as there are tax benefits for the donation accorded to the donor.?
2. There are also unique tax status issues that would arise if a nonprofit organization runs a for-profit business as a part of its effort. The legal issues are related to a category called “unrelated business income” and is taxed differently than the minimal or no tax obligations of a nonprofit.?

Some of the Board members began murmuring among themselves that Elliot’s always sage comments gave the green light to what they thought was this terrific idea. “It’s a gold mine,” referring to Jack’s business, one member noted in a stage whisper.

Sisterhood President Harriet, an ex-officio on the Board, asked to speak. “What do we know about running a used-car lot?”, she noted. “Before we imagine all the profits that the synagogue will earn from selling cars, we will need to keep Jack’s staff or we will have to hire a manager, car finance expert, salespeople, administrative staff and a maintenance crew. I can assure you right now, none of my Sisterhood women would offer to volunteer to work in this business!”?

“Maybe the Men’s Club members who like to tinker with their cars would volunteer?”, another Board member suggested in the spirit of many nonprofit board members that if there is work to be done, someone else should do it.?

Rachel noted that the local Church runs a Bingo night each week and they make a lot of money to support its activities. “Yes, that’s true,” Harold chimed in, “but it has to be run and staffed? by volunteers to make that money and it takes all the steam out of its limited volunteer base, dramatically limiting the Church from doing anything else for the community.”??

Turning to the Rabbi, Harris asked, “If the synagogue owns this business, will we have to close the business on the Sabbath? I know it’s Jack’s busiest day!” “Great question,” Rabbi Katz responded. “I’ll look into it.”

The hour was late and the motion was tabled for the next meeting. Although the discussion for some continued another hour in the synagogue parking lot and for others in the local diner over coffee, it seems that there is no easy resolution to Jack’s offer.?

How would you vote?

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Before you decide, consider this critical marketing question: Does Jack’s offer of this running company relate to the original business of the synagogue? Does owning and running a used car lot relate to the mission of this religious institution?

It would be fair to assume that when the synagogue was organized, the mission of the group had to be articulated to the tax authorities (to receive tax exempt status) and it probably related to creating a religious community, providing religious education, worship opportunities and community service. If the Synagogue Board decided to build and open a for-profit independent living facility for the community’s growing aging population on unused land on its grounds, a case could be made to justify its connection to the original mission. Of course, many religious institutions have created for-profit and nonprofit efforts to strengthen its community by connecting the new institutions to their specific mission.??

However, the idea of the synagogue running Jack’s business, would clearly be beyond its mission as a religious corporation, and would be a classic example of mission-creep. Deciding to accept Jack’s generous offer really isn’t about volunteers to run the business or hiring staff, it is about the synagogue’s mission and why the religious corporation is in business in the first place.?

What didn’t come up at the first board meeting to discuss Jack’s offer was the mission of the synagogue. Moreover, the solution to the synagogue’s membership and financial challenges could be in a renewed look at its original mission and how the board leadership can develop new efforts to strengthen its community. As a Board, the fiduciaries of the nonprofit corporation, they can also decide to adapt its mission to meet its new circumstances. That new mission would have to be reviewed? by the tax authorities to again decide to grant nonprofit tax status considering the new mission.

A Nonprofit organization can avoid mission-creep when it regularly reminds itself of its mission and uses the mission statement as an ever-present guide for its decisions.? ? Some nonprofit organizations begin every meeting with a reading of the mission statement as a critical reminder of the purpose of the group.?

So what should the board say to Jack??

1. Thank you for the generous offer. We cannot accept the gift of your running business because it doesn’t relate to our mission as a religious corporation;?
2. If you choose to sell the business, we would be grateful for a generous or the entire portion of the proceeds as a thoughtful tax-deductible gift;?
3. If you choose to close the business and donate its property and other tangible assets to the synagogue, we would put you in touch with our synagogue’s legal counsel and with your own legal counsel to discuss the most advantageous means of transferring this property to benefit you and the synagogue. We would look forward to extending significant recognition to you in our community for your generous gift and tremendous leadership of our synagogue and community.

The lesson here is the same for every nonprofit. Many have been tempted by a board member, donor or staff member to consider ideas for programming or fundraising activities that barely, if at all,? relate to its mission statement. The mission statement must be? the filter and guide for all activities.??

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Dr. Eric Lankin is the President of Lankin Consulting, a boutique consulting firm serving the nonprofit community (www.LankinConsulting.com) and Adjunct Professor of Marketing in the M.A. program in Nonprofit Management and Leadership at Hebrew University of Jerusalem. As a former congregational Rabbi, he has sat through many board meetings like this one.?