Managing with a Mission

How to run an organization whose perception of success is driven by something other than profit.

  • ONE CPA who works with two of the worlds foremost performing arts companies has learned that financial considerations often must take a backseat in an NPOs quest to achieve its mission.
  • AS THE DIRECTOR of the City Center of Music and Drama, the organization that administers the New York State Theater in Manhattans Lincoln Center, home to the New York City Ballet and the New York City Opera, Stanley Corfman is in charge of the two companies shared resources. Although the two companies are completely independent, they share one performance space, most of their physical office and much of their administrative infrastructure, which can create challenges when the group agendas dont agree.
  • VOLUNTEER BOARDS of directors step in at these points, to raise funds or mediate. The influence of such boards and constituencies with vested interests is one important difference between NPOs and commercial organizations.
  • THE PRIMACY OF THE groups mission is another difference. NPOs budget to achieve their goals, even if the effort doesnt make financial sense.
  • BUSINESS EXPERTS have received greater respect from NPOs in recent years, particularly as funding sources have diminished. However, CPAs working with these organizations must understand that the NPOs unique perceptions of success may have nothing to do with the profit motive.
Anita Dennis is a Journal contributing editor.

For financial experts, not-for-profit organizations present challenges that can be very different from those facing commercial entities. One CPA who works with two of the worlds foremost performing arts companies has learned that financial considerations often must take a backseat in an NPOs quest to achieve its mission.

Stanley Corfman is the director of the City Center of Music and Drama, the organization that operates the New York State Theater in Manhattans Lincoln Center, home to the New York City Ballet and the New York City Opera. Corfman is in charge of the two companies shared administrative, financial and data processing resources, while the theaters general manager oversees the buildings day-to-day operation. Corfman and the general manager report to Martin Oppenheimer, the chairman of the City Center board of governors, a volunteer body.

Company Profile

Name: City Center of Music and Drama, Inc. (CCMD).
Location: New York City.
Date founded: 194 3.
Sales: CCMD, the New York City Opera and the New York City Ballet have combined budgets of over $65 million.
Number of employees: The three entities together employ more than 2,200 people.
Form of ownership: Not-for-profit organization.
What we do: CCMD operates the New York State Theater at Lincoln Center and provides administrative, financial and data processing services to the New York City Opera and the New York City Ballet. These companies in their last fiscal year together gave more than 350 performances around the world.

The two resident performing arts companies are completely independent, with separate boards, distinct artistic management teams and unique financial circumstances. However, they share one performance space, most of their physical office and much of their administrative infrastructure. The two companies have a common phone system and, although each group owns its own PCs, they use one network, which allows them to communicate with each other and share software and other resources (such as the ticketing and donor recordkeeping systems) as well as a data processing staff. The accounting staff runs a common general ledger and accounts payable system. "The two companies keep separate books but share the accounting personnel," explains Corfman.

This arrangement creates a host of issues because of each companys different needs and circumstances. If the physical infrastructure needs maintenance or care, the organizations must agree on how to address the problem. "Weve been very successful in doing that," says Corfman, even when the companies agendas are very different. For example, the groups are currently grappling with acoustical issues in a house originally designed as a dance theater when it opened in 196 4. "The opera company is very interested in making sure that peoples voices are heard with proper clarity and trueness of tone," Corfman explains. "On the other hand, the dancers want to keep the stage quiet so their clattering toe shoes wont be heard." In addition, the ballet company sometimes wants more volume from the orchestra pit than does the opera. As the theater undergoes an acoustical renovation, the companys managers and boards are trying to work together to find the best possible solution to satisfy each groups goals.

To ensure that all voices receive an equal hearing in such debates, membership in the board of governors of the City Center, the administrative body, is divided into three parts: one-third are members of the opera companys board, another one-third come from the ballets board and a third are outside directors. "This way, all constituencies are represented and we also have a mitigating outside influence," Corfman says. As the City Center director, he takes part in the decision-making process but cannot make final decisions for either company, nor can they impose their priorities on each other. "They have to agree about changes; thats one of the things that makes it interesting and exciting."

Another factor in the equation is the buildings owner—the city of New York. "The city is our landlord and gives us minimal operating funds. But as the building begins to deteriorate, we have to grapple with how to keep it going. Sometimes the companies themselves have to deal with maintaining the buildings. They may have to decide, for example, how much to take from their performance budgets to pay for the stages crumbling back wall." And, given the two companies different agendas, they may not immediately agree on when and how to address maintenance projects.

Tips on Working With Not-for-Profits

1. Understand the mission. While commercial entities generally exist to make a profit, NPOs are created to make art, to cure diseases and for a host of other reasons. Financial considerations are not the key concern.
2. Understand how an NPO defines success. Although not divorced from it, an NPOs success is seldom wrapped up in financial security.
3. Do not assume that NPOs are only concerned with short-term success. Many of them understand very well the importance of making incremental sacrifices to ensure that their mission is perpetuated. Charities created the concept of endowments.
4. Recognize the importance of boards. Boards of directors often are the financial backbone of NPOs and always are ultimately responsible for their operations. Board members deep commitment can be crucial to their organizations survival and their vision for the future must be understood.
5. Dont underestimate the importance of passion. A nonfinancial goal and the drive to achieve it is the key force behind these entities.
6. Learn to accept risk. NPOs may be willing to gamble their financial futures if thats whats necessary to achieve their goals.

When such debates occur, it is ultimately the board members who must decide how to resolve them. "Volunteer boards of directors not only perform fundraising but also ultimately decide if things can get done," Corfman says. When there is no funding for a repair or the boards cannot agree on how funding will be achieved, for example, "sometimes the board members will pull out their checkbooks to cover the cost, or sometimes theyll say We can live with that for another year."

The boards influence is one important difference between NPOs and commercial organizations. "NPOs as a rule have constituencies that have a vested interest in the decisions made, which means that generally those decisions are not as cut and dried as in the commercial sector," says Corfman, who before joining City Center in 1994 was the chief financial officer for the YWCA of the USA for five years. "I know there are people in the commercial sector who would say decisions are never cut and dried, but youre talking about degrees on a continuum. In an NPO, theres more emphasis on reaching consensus on a decision than in a commercial organization. And at the State Theater three different organizations and three different volunteer boards of directors each have their own strong opinions about how things get done." Corfmans role is that of an overseer and go-between, someone who tries to help clarify the options and the most desirable choices for board members from all three organizations.

His preparation for that role is different from that of most CPAs. Corfman received an undergraduate degree in music from Oberlin Conservatory of Music, as well as a degree in economics. He began his career as a theater conductor but "I decided early that I wouldnt make it in that field." His economics background led to a job as business manager for the Washington Opera at the Kennedy Center. During his five years in that position, the operas schedule went from 12 to 60 performances a season and its budget jumped from $150,000 annually to $ 3. 5 million. For Corfman, this success was a mixed blessing.

"I had never taken an accounting course in my life and my head was swimming," he remembers. "I didnt know a debit from a credit and it became obvious to me that I needed to." He left Washington to pursue a masters of business administration at Columbia University and after graduation went to Price Waterhouse, where his first client was the New York Philharmonic. After his half-decade stint at the YWCA, he returned to PW as the New York director of NPO services. Three years later, he moved to City Center.

Having spent so much of his professional life working with arts organizations, he can offer a perspective on how they approach their financial concerns. "Commercial organizations motivations are generally clear: Money drives most rational decisions," he observes. "Thats not always true, but value in for value out is a very common rule in commercial entities. But that simply isnt a good measuring stick when working with NPOs because what drives them isnt shareholder value. Instead, they are driven by a mission, an objective they are trying to accomplish. Often, it is completely at odds with the profit motive. A telecommunications company may want to be the best telecommunications company in the world, but it will be prevented from doing that unless it can make money at it. For NPOs, being successful doesnt necessarily mean making money. For many voluntary health and welfare organizations, success may even mean that you put yourself out of business because, for example, youve found a cure for a certain disease." For CPAs, the challenge is to understand each NPOs unique perception of success, even if it does not make financial sense, Corfman says. They must also remember the importance of an NPOs zeal to achieve its mission.

"Occasionally, professionals will come to me because they want to get out of the rat race and find a nice NPO in which to settle down. If anything, the passions run deeper in NPOs, because passion is what drives people here; the good ones anyway are always driven by dreams, some things that have to be accomplished. Their motivations are completely divorced from the profit motive. People who are in financial capacities at NPOs have to understand that we budget for the mission. We dont change the mission to suit the budget."

Many nascent or struggling NPOs operate simply on hope, which means that the people running them regularly take tremendous financial risks as part of their normal operations. "Boards of directors often are not just responsible for management and decision making; they may be on the hook financially if the organization cant raise money." Corfman cites an example of a theater director who approaches his board with a dream of what he would like the company to accomplish—and with the news that he will incur five years worth of deficits in the attempt. "Many brave boards of directors will allow—even encourage—artists to take risks to make the art grow. Thats a necessity, because artistic organizations that dont take risks become moribund and die." Board members not only often dip into their own pockets for funding when necessary but they also must gamble with the groups future every time they make a tough decision. "Sometimes, you take a risk, and if it doesnt work, the organization is gone. But if you succeed, youll have done something really important."

The AICPA has just published a self-study continuing professional education course, Managing Not-for-Profits in the New Accounting and Auditing Environment (Audiocassette and workbook, product no. 748035W0010. $129; additional workbook, 748040W0010, $8 4. ) Recommended CPE credit: 10 hours. To order, call 800-862-427 2.

Although money matters dont always rank high on arts organizations priorities, business acumen is appreciated in this arena. In the last decade, Corfman says, "NPOs began to see good management of their business sides as a positive thing rather than as something to be held suspect," and this appreciation has only grown, particularly as federal and other funding for the arts has diminished. "It used to be that management was a dirty word in arts organizations. People said, We dont worry about money; were worried about saving the world. But they realized a few years ago that you can save the world only by running your organization well. The status of management inside arts organizations began to take on some meaning." As a result, financial experts are given even greater respect these days in NPOs, he says, "but it is of paramount importance that these professionals recognize that the passions still have to manage."

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