Should This Organization Have Applied for PPP Funding?

Once upon a time in the land of COVID-19, there was an Executive Director who had to decide whether to apply for funds through the Payroll Protection Program (PPP).

Primarily, PPP funding offers small businesses and nonprofits a certain number of weeks of payroll as a loan (that may end up being forgiven by the government). It’s been invaluable in the nonprofit sector and has kept many doors open.

This E.D. has a large budget and no cash flow problems. In fact, the organization has a cash reserve. A gift from a family foundation for a sizable amount seems very promising.

But who knows what to expect? A fall gala projected to generate substantive revenue is in question. Like all nonprofits, there is so much uncertainty.

You may already have decided this org should NOT have applied for PPP funding. But there’s more to this story. And I’ll get into that in just a moment.

First, here’s what I want you to do.

Send this post to your board members as a pre-read for an upcoming board meeting. Ask everyone to be prepared to discuss. What would they do? Why? This will become incredibly instructive for your board about how decisions are getting made.

Alternatively, use this as a centerpiece of a leadership team meeting to dig into the role of the team in decision making.

OK, with that, let’s get into the full story…

HERE’S WHAT HAPPENED NEXT

To apply or not to apply? That is the question.

Our Executive Director goes to her Director of Finance and seeks advice from the organization’s pro bono attorney. The three of them do their homework and it’s clear that the organization is eligible for PPP funding.

Next steps. The E.D. sends an email to the executive committee and secures unanimous consent to apply for over $1 million through the funds.

The E.D. announces at her last board meeting that the PPP request has been approved and the funds have been received.

The board reacts with outrage. The majority of board members don’t believe the organization needs the money, is worried about the publicity, and is quite insistent that the E.D. give the money back within a week. The board does not vote but schedules a special board meeting and asks the E.D. to prepare a plan.

The E.D. feels good about the process and is taken aback by the board reaction. After all, she worked hard to earn the board’s trust over the 15 years she has been at the helm. She’s sure she could push back and persuade the board to allow the organization to keep the PPP funding. But is that the right thing to do?

Lastly, she has a terrific communications director and a board member in public relations. She knows that keeping the money could be messaged well to avoid the challenges other organizations have faced.

THE BOARD SHARES SOME BIG CONCERNS

Before I share their major issues, there are a few “process” items to share with you.

• The new board chair was very engaged and enthusiastic, but also very busy. He runs his own business impacted by COVID-19. So while he is definitely reachable, he can’t make a commitment to meet regularly at this time.
• The board meets quarterly.
• However, the executive committee does indeed have the right to make decisions in between board meetings.
• The E.D. informed the leadership team as the process unfolded and no members of that team initiated any concerns.

So what were some of the big concerns shared by the board?

• A number of large organizations – for-profit and nonprofit – have been under intense pressure for applying for and receiving funds. Over 50 organizations have opted to return the funds. Some board members are worried about the optics and subsequent impact on the reputation of the organization.
• In fact, just one day before the meeting, a large well-known nonprofit returned the PPP money under great public pressure. It feels like this topic had gained much more visibility than it did when the executive committee originally voted.
• One very negative (and loud) board member offered a monologue – if things get bad and we in fact do really need that money, how would we possibly ever pay it back?
• Other board members who are risk averse raise concerns about the organization being in debt.
• Some boards members are risk averse in a different way – why not take the PPP funding? It’s security. Who knows what will happen?
• Other board members felt that if the government approved the amount, clearly the organization is legitimately eligible.
• A few vocal board members believe that PPP funds are intended for “needier” organizations – small organizations watching cash flow carefully and without reserves. The loans literally keep the doors open.

YOUR DISCUSSION QUESTIONS

Ok, maybe you have some questions but this is a blog post and not a deposition. I’ve tried to give you enough to have a terrific conversation.

So, all you nonprofit leaders out there. Let’s discuss…

1. What decision should the organization make and what is your rationale?
2. Analyze our E.D.’s process – what might she have done differently with her team?
3. How about our co-pilots – the E.D. and the Board Chair? The chair runs the executive committee meeting and voted to approve the funding.
4. What might this story tell you about the relationship between the E.D. and the Board? Would you recommend any shifts? Or does it all seem about right?
5. Diagnose the decision making process through every step on the staff side and on the board side. All good? Or changes to recommend?

JURY, HAVE YOU REACHED A VERDICT?

Please promise me that the conversation did not devolve into what information you needed from me to reach a verdict. If that’s what happened, can you please reboot? I have worked hard to include enough information for you to have a robust discussion.

• If you were the E.D. how would you move forward before the special board meeting?
• If you were the board chair, how would you lead the board in this decision making process
• Should the organization return the money?

FOR WHAT IT’S WORTH…

This post is just “part 1” of a two-parter. I really want you to think hard and have a great discussion before I weigh in with my thoughts. But part 2 won’t be about me giving you the “right” answer.

In fact, I could easily argue numerous ‘verdicts’ here. I could convincingly explain to you why the organization should take the PPP funding. I could just as convincingly show you why the money should be returned and why the organization should never have applied in the first place.

Part 2 will be about the lessons in leadership and decision making that this ‘case’ unearths.

And if this post leads to a discussion that results in an affirmation of how your organization makes decisions, great. If it results in changes on the staff side, the board side, or in how the two work together to make decisions, that’s great too.

OK, ready? Discuss.

And please stay safe.

Part 2 is now available here: The Key to Making Big Decisions